mergers & acqusitions
TRANSCRIPT
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Table Of Contents
Countrys perspective 2Mergers 2Types of mergers 3Acquisitions 4Mode of acquisition 4Level of control in acquisition 4Benefits ofMergers and Acquisitions: 5Odds in the Mergers and Acquisitions 6Legal Procedure in Pakistan 7Procedure ofmergers 8Procedure of Acquisitions 10Example of Mergers and Acquisitions 14Scheme of Amalgamation Attached
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Mergers and Acquisitions in Pakistan.
Countrys PerspectiveMergers in Pakistan are a recent phenomenon, and the activity is still in itsinfancy stage. It has been observed that the total deals done in the countryare quite negligible as compared to the developed countries. The activity issuffering in Pakistan due to various deterrents, including inflation, cost ofdebt, lack of synergistic operating economies, lack of motivation ofshareholders, small industrial base, insider trading and unfair tradepractices.
S
ince today's global business environment is becoming more complex, oneof the best ways for the companies to seek growth and survival, is throughmerging with another company or acquiring other companies.
Mergers
In Business or Economics, a merger happens when two companies, often of
about the same size, agree to go forward as a single new company rather
than remaining separately owned and operated. It can be termed as atransaction whereby two companies agree to integrate their operations on arelatively equal basis, because they have resources and capabilities thattogether may create a stronger competitive advantage. Mergers arecommonly voluntary.
Merger can resemble a takeover but result in a new company name (oftencombining the names of the original companies) and in new branding.
The word mergers refers to the aspect of corporate strategy, corporatefinance and management dealing with the buying, selling and combiningof different companies that can aid, finance, or help a growing company ina given industry grow rapidly without having to create another businessentity.
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Types Of Mergers
Following are the common types of mergers:
Horizontal mergersHorizontal mergers take place where the two merging companies
produce similar product in the same industry.
Vertical mergers
Vertical mergers occur when two companies, each working atdifferent stages in the production of the same good, combine.
Congeneric mergersCongeneric mergers occur where two merging companies are inthe same general industry, but they have no mutualbuyer/customer or supplier relationship, such as a mergerbetween a bank and a leasing company.
Conglomerate mergers
A merger between firms that are involved in totally unrelated businessactivities. There are two types of conglomerate mergers:
Pure: Pure conglomerate mergers involve firms with nothing in common.
Mixed: Mixed conglomerate mergers involve firms that are looking forproduct extensions or market extensions.
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Acquisitions
An acquisition is a transaction where one of the enterprises, the buyer,
obtains control over the net assets and operations of another enterprise, the
seller, in exchange for the transfer of assets or issue of equity.
Mode of acquisition
A business entity can be acquired in its entirety either by way of an asset
deal or a share deal.
Asset deal
Under the asset deal, the buyer directly acquires the assets and liabilities
from the seller. The transaction may involve buying of all or selected
assets / liabilities of the seller. The book value of the net assets purchased
is recorded in the books of buyer at the fair market value. The excess of
purchase price over fair value of net assets acquired is recorded as
goodwill in the books of buyer.
Share deal
Under the share deal, the buyer acquires the shares in the corporate entity.
The share deal is generally less complex and time consuming than the asset
deal.
Level of control
The most important factor in formulating the strategy for acquisition is to
determine the level of control desired by the acquirer. The benchmark
levels of control that are generally relevant for an investor are as follows:
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Shareholding higher than 25% provides a shareholder the power toblock / veto a special resolution, which requires 75% or more votes.
Special resolutions are required for important business matters to be
approved by shareholders e.g. investment in associated companies,
changes in articles and memorandum, removal of chief executive,
voluntary winding up, etc.
Shareholding higher than 50% generally enables the beneficial ownerto elect more than 50% of the board of directors and to appoint a chief
executive of its choice thus enabling day to day management control.
Shareholding higher than 75% is generally the maximum that isneeded to execute all decisions, including special resolutions. It is theconverse of the 25%+ benchmark.
Benefits ofMergers and Acquisitions:
Corporate Mergers and Acquisitions represent part of a corporate/business strategy used by many companies to achieve various objectives.There can be a number of motives for a company to pursue a strategy ofMerger. Following motives are generally considered before Mergers,
Large enough size to realize economies of scale, Diversification to reduce the risk of business, Desired synergies, Taxation advantage not available without merging, Increased efficiencies, Reduction in administrative cost and overcoming critical lacks, Risk spreading,
Increased revenue and utilize unutilized market power/ share, Eliminating competition and to achieve monopoly benefits, Creating opportunities for cross-selling, Displacing an existing management, Efficient access to capital markets
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Odds in the Mergers and Acquisitions:
Corporate Mergers and Acquisitions do not always result in the success;indeed many result in a net loss of value due to certain inherent problems.
These problems in achieving success of mergers inter-alia includes highsocial and financial costs, duplication of activities, incompatibility ofsystems, people and culture, etc. There might also be a resistance byworkers, directors and shareholders of the target company, and even insome cases, by the government in the interest of the country. In addition,market of the target company might resent a sudden take over andconsider going to other suppliers for their goods or services.
However, the companies entering into such arrangements, might overcome
or mitigate these odds by exercising due diligence. Basically, theparameters that need to be considered while evaluating mergers arestrategic, tactical, fiscal and human. One has to mitigate the risk involvedand get the right decision for success of Mergers and Acquisitions
The complex procedure for mergers and takeovers
There are no specific guidelines or codes on takeovers and mergers inPakistan. The mergers and acquisitions activity that takes place in Pakistan
is governed through the Companies Ordinance 1984.
There is no Take-over Code that would govern the mergers andacquisitions activities in the corporate sector. The whole process of mergerin Pakistan is tedious, time consuming and complex and can take betweenthree months to one year.
The beginning to a merger in Pakistan can be made through commonagreement between the transferor and the transferee, but a simple
agreement would not provide a legal cover to the transaction unless itcarries the sanction of the court for which the procedure laid down undersection 283- 287 of the companies ordinance 1984 should be followed.
The procedure is quite complex and a number of tedious steps have to betaken to enforce a scheme of merger.
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Legal Procedure in Pakistan
In Pakistan,S
ections 284 to 289 of the Companies Ordinance, 1984 (theOrdinance) and rules, 55 to 68, contained in the Companies (Courts)Rules, 1997, deals with the requirements for Mergers and Acquisitions of
companies.
Apply for application in court.
An application is required to be made under Section 284 of the Ordinanceto the High Court by all the merging companies for the purpose.
Prepare scheme ofamalgamation
The preparation of a scheme of amalgamation/merger by the companies,which have arrived at a consensus to merge, is the most critical steptowards undertaking the activity. There is no specific form but it generallycontains rationale for activity, financial information, valuations of sharesand involved determinations, any pending litigation, etc
Valuation and pricing ofshares
Another focus area for the companies, is the valuation and pricing of sharesthat must be fair and reasonable. The purpose of valuation of shares ofcompanies is to ascertain the swap ratio to be used for the exchange ofshares of the merging company or companies with the surviving company.
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Procedure ofMergers
(1) Where an application is made to the Court under section 284 for the
sanctioning of a compromise or arrangement proposed between a company
and any such person as are mentioned in that section, and it is shown to
the Court that the compromise or arrangement has been proposed for the
purposes of or in connection with a scheme for the reconstruction of any
company or companies or the amalgamation of any two or more
companies or the division of any company into two or more companies,
and that under the scheme the whole or any part of the undertaking,
property or liabilities of any company concerned in the scheme (in this
section referred to as a "transferor company") is to be transferred to anothercompany (in this section referred to as "the transferee company"),
The Court may, either by the order sanctioning the compromise or
arrangement or by any subsequent order, make provision for all or any of
the following matters, namely:-
(a) The transfer to the transferee company of the whole or any part of the
Undertaking and of the property or liabilities of any transferor company;
(b) The allotment or appropriation by the transferee company of any
shares,
Debentures, policies, or other like interests in that company which under
the compromise or arrangement are to be allotted or appropriated by that
company to or for any person;
(c) The continuation by or against the transferee company of legalproceedings pending by or against any transferor company;
(d) The dissolution, without winding up, of any transferor company;
(e) The provision to be made for any person who, within such time and in
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such manner as the Court directs, dissent from the compromise or
arrangement; and such incidental, consequential and supplemental matters
as are necessary to secure that the reconstruction or amalgamation is fully
and effectively carried out.
(2) Where an order under this section provides for the transfer of property
or liabilities, that property shall, by virtue of the order, be transferred to
and vest in, and those liabilities shall, by virtue of the order, be transferred
to and become the liabilities of, the transferee company, and, in the case of
any property, if the order so directs, freed from any charge which is, by
virtue of the compromise or arrangement, to cease to have effect.
(3) Where an order is made under this section, every company in relation
to
which the order is made shall cause a certified copy thereof to be delivered
to the registrar for registration within thirty days after the making of the
order, and if default is made in complying with this sub-section, the
company and every officer of the company who is knowingly and wilfully
in default shall be liable to a fine which may extend to one thousand
rupees.
(4) In this section the expression "property includes property, rights and
powers of every description, and the expression "liabilities" includes duties.
(5) In this section the expression " transferee company" does not includeany
company other than a company within the meaning of this Ordinance, and
the expression "transferor company " includes any body corporate, whether
a company within the meaning of this Ordinance or not.
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Procedure of Acquisitions
Following is the procedure of acquiring of shares of the companies.
(1) Where a scheme or contract involving the transfer of shares
or any class of shares in any company (in this section referred to as "the
transferor company") to another company (in this section referred to as
"transferee company") has, within one hundred and twenty days after the
making of the offer in that behalf by the transferee company, been
approved by the holders of not less than nine-tenths in value of the shares
whose transfer is involved (other than shares already held at the date of the
offer by, or by a nominee for, the transferee company or its subsidiary), thetransferee company may, at any time within sixty days after the expiry of
the said one hundred and twenty days, give notice in the prescribed
manner to any dissenting shareholder that it desires to acquire his shares;
when such a notice is given the transferee company, shall, unless, on an
application made by the dissenting shareholder within thirty days from the
date on which the notice was given, the Court thinks fit to order otherwise,
be entitled and bound to acquire those shares on the terms on which, under
the scheme or contract, the shares of the approving shareholders are to be
transferred to the transferee company: Provided that, where shares in the
transferor company of the same class as the shares whose transfer is
involved are already held as aforesaid by the transferee company to a value
greater than one-tenths of the aggregate of the value of all the shares in the
company of such class, the foregoing provisions of this sub-section shall
not apply, unless
(a) The transferee company offers the same terms to all holders of the
shares of that class (other than those already held as aforesaid) whose
transfer is involved; and
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(b) The holders who approve the scheme or contract, besides holding not
less than nine-tenths in value of the shares (other than those already held
as aforesaid) whose transfer is involved, are not less than three-fourths in
number of the holders of those shares.
(2) Where, in pursuance of any such scheme or contract as aforesaid,
shares, or shares of any class, in a company are transferred to another
company or its nominee, and those shares together with any other shares
or any other shares of the same class, as the case may be, in the first
mentioned company held at the date of the transfer by, or by a nominee
for, the transferee company or its subsidiary comprise nine-tenth in valueof the shares, or shares of that class, as the case may be, in the first-
mentioned company, than-
(a) The transferee company shall, within thirty days from the date of the
transfer (unless on a previous transfer in pursuance of the scheme or
contract it has already complied with this requirement), give notice of that
fact in the prescribed manner to the holders of the remaining shares or of
the remaining shares of that class, as the case may be, who have not
assented to the scheme or contract; and
(b)Any such holder may, within ninety days from the giving of the notice
to him, require the transferee company to acquire the shares in question;
and where a shareholder gives notice under clause (b) with respect to any
shares, the transferee company shall be entitled and bound to acquire those
shares on the terms on which, under the scheme or contract, the shares ofthe approving shareholders were transferred to it, or on such other terms
as may be agreed, or as the Court on the application of either the transferee
company or the shareholders thinks fit to order.
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(3) Where a notice has been given by the transferee company under
subsection (1) and the Court has not, on an application made by the
dissenting shareholder, made an order to the contrary, the transferee
company shall, on the expiration of thirty days from the date on which the
notice has been given or, if an application to the Court by the dissenting
shareholder is then pending, after that application has been disposed of,
transmit a copy of the notice to the transferor company together with an
instrument of transfer executed on behalf of the shareholder by any person
appointed by the transferee company and on its own behalf by the
transferee company and pay or transfer to the transferor company the
amount or other consideration representing the price payable by thetransferee company for the shares which, by virtue of this section, that
company is men titled to acquire; and the transferor company shall
(a) There upon register the transferee company as the holders of those
shares;
And
(b) Within thirty days of the date of such registration, inform the
dissenting shareholders of the fact of such registration and of the receipt of
the amount or other consideration representing the price payable to them
by the transferee company: Provided that an instrument of transfer shall
not be required for any share for which a share warrant is for the time
being outstanding.
(4)Any sums received by the transferor company under this section shall
forthwith be paid into a separate bank account to be opened in a scheduled
bank and any such sum and any other consideration so received shall be
held by that company in trust for the several persons entitled to the shares
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in respect of which they said sums or other consideration were or was
respectively received.
(5) The following provisions shall apply in relation to every offer of a
scheme or contract involving the transfer of shares or any class of shares in
the transferor company to the transferee company, namely: -
(a) Every such offer or every circular containing such offer or every
recommendation to the members of the transferor company by its directors
to accept such offer shall be accompanied by such information as may be
prescribed;
(b) Every such offer shall contain a statement by or on behalf of the
transferee company disclosing the steps it has taken to ensure that
necessary cash will be available;
(c) Every circular containing or recommending acceptance of, such offer
shall be presented to the registrar for registration and no such circular shall
be issued until it is so registered;
(d) The registrar may refuse to register any such circular which does not
contain the information required to be given under clause (a) or which sets
out such information in a manner likely to give a misleading, erroneous or
false impression; and
(e)An appeal shall lie to the Commission against an order of the registrar
refusing to register any such circular.
(6) Whoever issues a circular referred to in clause (c) of sub-section (5)
which has not been registered shall be punishable with fine which may
extend to two thousand rupees.
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Example of mergers
2009
Sr
No.Name ofCompany
New name ofthe
company / merged with
Date of
Merger
Paidup
CapitalRatio
1International MultiLeasing
Al-Zamin LeasingModaraba
19/01/2009 54.000 [ 1 : 1 ]
2Network LeasingCorporation Limited
KASB Bank Limited 17/02/2009 175.000 [ 500 : 1 ]
3Automotive BatteryCompany Limited
Exide Pakistan Limited 04/05/2009 52.648 [ 9 : 1 ]
4Orix Investment BankLimited
Orix Leasing PakistanLimited
28/10/2009 1,089.000 [ 43 : 1 ]
2008
Sr
No.Name ofCompany
New name ofthe
company / merged withDate of
MergerPaidup
CapitalRatio
1PICIC Commercial BankLimited
NIB Bank Limited 01/01/2008 2,734.875[ 1 : 2.27
]
2Pakistan Industrial Credit &
Investment Corp.Ltd (PICIC) NIB Bank Limited 01/01/2008 4,152.720
[ 1 : 3.18
]
3Universal Leasing
Corporation Limited
Al-Zamin Leasing
Corporation Limited06/06/2008 210.000
[ 2.44 : 1
]
4Pakistan Slag Cement
Industries Limited
Zeal Pak Cement
Factory Limited11/06/2008 64.000 [ 5 : 1 ]
2007
Sr
No.Name ofCompany
New name ofthe company
/ merged with
Date of
Merger
Paidup
CapitalRatio
1 Guardian ModarabaB. R. R. International
Modaraba25/05/2007 244.695 [ 1 : 1.22 ]
2Crescent StandardInvestment Bank Ltd.
Innovative HousingFinance Limited
20/07/2007 1,257.610[ 0.005 :
1]
3Dewan Hattar CementLimited
Dewan Cement Limited 22/10/2007 2,565.000 [ 1 : 0.75 ]
4Suzuki MotorcyclesPakistan Ltd.
Pak Suzuki MotorCompany Ltd.
29/10/2007 438.989 [ 21 : 1 ]
5International Housing
Finance Ltd.KASB Bank Limited 22/11/2007 450.000 [ 1 : 1.30 ]
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2006
Sr
No.Name ofCompany
New name ofthe
company / merged withDate of
MergerPaidup
CapitalRatio
1Second Tri StarModaraba First Tri Star Modaraba 10/04/2006 128.700 [ 1.817 : 1 ]
2ABAMCO Growth
FundUTP Growth Fund 06/06/2006 275.625
[ 1.845001 : 1
]
3ABAMCO Stock
Market FundUTP Growth Fund 06/06/2006 875.000
[ 0.970229 : 1
]
4ABAMCO Capital
FundUTP Growth Fund 06/06/2006 2,029.420
[ 0.898072 : 1
]
5WORLDCALLMultimedia Ltd.
WORLDCALL TelecomLtd.
09/06/2006 530.000 [ 1 : 1.27 ]
6
WORLDCALL
Broadband Ltd.
WORLDCALL Telecom
Ltd. 09/
06/2
006
1,500
.000 [ 1 : 1
.09
]
7WORLDCALLCommunication Ltd.
WORLDCALL TelecomLtd.
09/06/2006 1,831.702 [ 1 : 1.42 ]
8 Modaraba A1- Tijarah Modaraba A1- Mali 11/07/2006 75.778Certificate [
91 : 2 ]
9Atlas Investment Bank
LimitedAtlas Bank Limited 26/07/2006 506.024 [ 1 : 3.14 ]
10Pakistan Papersack
Corporation Ltd.Thal Limited 04/08/2006 68.993 [ 3.07 : 1 ]
11First Allied Bank
ModarabaAllied Bank Limited 25/08/2006 350.000 [ 1 : 024 ]
12Colony Textile MillsLimited
Colony Mills Limited 28/08/2006 250.000 [ 1 : 9.50 ]
13 Union Bank LimitedStandard Chartered BankLtd.
29/12/2006 3,387.505 [ 1 : 2.50 ]
14Jahangir Siddiqui Inv.
Bank Ltd.JS Bank Limited 30/12/2006 853.125 [ 1 : 3.24 ]
2005
Sr
No. Name
of
Comp
any
New name ofthe company /
merged with
Date of
Merger
Paidup
Capital Ratio
1First National
ModarabaFirst Paramount Modaraba 09/01/2005 51.800 [ 12 : 1 ]
2 Umer Fabrics LimitedNishat (Chunian) Ltd. &
Nishat Mills Ltd.20/01/2005 240.052
[ 1 : 0.051
& 0.949]
3Ibrahim Leasing
LimitedAllied Bank Limited 31/05/2005 251.350 [ 1 : 0.73]
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2004
Sr
No.Name ofCompany
New name ofthe
company / merged withDate of
MergerPaidup
CapitalRatio
1Kohinoor GenertekLimited.
Khinoor Weaving MillsLimited. 13/01/2004 163.000 [ 3.569: 1 ]
2Twenty Fifth (25) ICP
Mutual Fund.
ABAMCO Stock Market
Fund07/02/2004 400.000 [ 1:0.909 ]
3Twenty Third (23) ICP
Mutual Fund.
ABAMCO Stock Market
Fund07/02/2004 200.000 [ 1:0.466 ]
4Twenty First (21) ICP
Mutual Fund.
ABAMCO Stock Market
Fund07/02/2004 100.000 [ 1:0.432 ]
5Twentyeth (20) ICPMutual Fund.
ABAMCO Capital Fund 13/03/2004 122.500 [ 1:1.261 ]
6
Nineteenth (19) ICP
Mutual Fund. ABAMCO Capital Fund 13/
03/2
004
122.5
00 [ 1:1.3
03
]
7Fifteenth (15) ICPMutual Fund.
ABAMCO Capital Fund 13/03/2004 121.250 [ 1:1.110 ]
8Twelefth (12) ICP
Mutual Fund.ABAMCO Capital Fund 13/03/2004 123.750 [ 1:1.097 ]
9Eleventh (11) ICP
Mutual Fund.ABAMCO Capital Fund 13/03/2004 123.750 [ 1:1.341 ]
10Eight (8) ICP Mutual
Fund.ABAMCO Capital Fund 13/03/2004 126.250 [ 1:1.303 ]
11Third (3) ICP Mutual
Fund.ABAMCO Capital Fund 13/03/2004 122.500 [ 1:1.243 ]
12First (1) ICP MutualFund.
ABAMCO Capital Fund 13/03/2004 125.000 [ 1:1.013 ]
13 KASB Leasing Limited. ABAMCO Capital Fund 10/03/2004 200.000 [ 1:1.05 ]
14Fidelity Investment BankLimited
Trust Commercial BankLimited
30/04/2004 345.000 [ 1:1.198 ]
15Trust Investment BankLimited
Trust Commercial BankLimited
30/04/2004 469.418 [ 1:1.084 ]
16First General LeasingModaraba
First Dawood InvestmentBank Limited
12/05/2004 56.250 [ 1:0.062 ]
17 Industrial CapitalModaraba
First Dawood InvestmentBank Limited
12/05/2004 94.875 [ 1:0.013 ]
18TwentyFourth (24) ICP
Mutual FundPICIC Investment Fund 07/06/2004 800.000 [1:0.552]
19Second (2) ICP Mutual
FundPICIC Investment Fund 07/06/2004 143.750 [1:0.927]
20 Fifth (5) ICP Mutual PICIC Investment Fund 07/06/2004 143.750 [1:1.020]
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Fund
21Sixth (6) ICP Mutual
FundPICIC Investment Fund 07/06/2004 143.750 [1:1.912]
22Seventh (7) ICP Mutual
FundPICIC Investment Fund 07/06/2004 143.750 [1:1.050]
23Nineth (9) ICP MutualFund
PICIC Investment Fund 07/06/2004 143.750 [1:1.494]
24Tenth (10) ICP MutualFund
PICIC Investment Fund 07/06/2004 143.750 [1:1.320]
25Thirteenth (13) ICPMutual Fund
PICIC Investment Fund 07/06/2004 143.750 [1:2.714]
26Fourteenth (14) ICP
Mutual FundPICIC Investment Fund 07/06/2004 143.750 [1:0.981]
27Sixteenth (16) ICP
Mutual FundPICIC Investment Fund 07/06/2004 143.750 [1:0.811]
28 Seventeenth (17) ICPMutual Fund
PICIC Investment Fund 07/06/2004 143.750 [1:1.048]
29Eighteenth (18) ICPMutual Fund
PICIC Investment Fund 07/06/2004 143.750 [1:0.872]
30Twenty Second (22) ICPMutual Fund
PICIC Investment Fund 07/06/2004 460.000 [1:0.794]
31First LeasingCorporation Limited
First Standard InvestmentBank Limited
18/06/2004 272.783 [3.268 : 1]
32Paramount LeasingLimited
First Standard InvestmentBank Limited
18/06/2004 250.000 [0.513 : 1]
33 Pacific LeasingCompany Limited
First Standard InvestmentBank Limited
18/06/2004 200.000 [0.555 : 1]
34 Dilon LimitedDawood Lawrencepur
Limited29/06/2004 23.595 [1 : 0.85]
35Burewala Textile Mills
Limited
Dawood Lawrencepur
Limited29/06/2004 73.074 [1 : 1.17]
36Lawrencepur Woollen &Tex. Mills Ltd.
Dawood LawrencepurLimited
29/06/2004 50.222 [1 : 0.92]
37Ghandhara Nissan DieselLimited
Ghandhara Nissan Limited 09/10/2004 155.358 [1 : 2.50]
38Trust Commercial BankLimited
Crescent Commercial BankLimited 18/10/2004 1,000.000 [1 : 0.74]
39 First Hajveri ModarabaFirst Fidelity Leasing
Modaraba01/12/2004 205.320 [3.552 : 1]
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2003
SrNo.
Name ofCompanyNew name ofthe company /
merged withDate ofMerger
PaidupCapital
Ratio
1Orient Insurance
Company Ltd.
Business & Industrial
Insurance Co. Ltd.22/01/2003 40.000 [ 1.08 : 1 ]
2Nafees Cotton MillsLimited
Legler - Nafees Denim MillsLimited
29/01/2003 135.703 [ 1 : 4.05 ]
3KASB & CompanyLimited
KASB Bank Limited 04/06/2003 383.631 [ 1 : 2.32 ]
4Crescent InvestmentBank Limited
Mashreq Bank PakistanLimited
09/07/2003 500.257 [ 1 : 2.36 ]
5 First CresecentModaraba
First Standard InvestmentBank Ltd.
31/07/2003 226.187 [ 1 : 3 ]
6First Professional
ModarabaAl-Zamin Leasing Modaraba 01/08/2003 77.674 [ 1 : 1 ]
7PEL Appliances
LimitedPak Electron Limited 30/08/2003 58.500 [ 1 : 0.14 ]
8 NDLC (Rs.5 per share)IFIC Bank Limited (Rs. 10per share)
17/10/2003 377.400[ 1 : 1.1764
]