Understanding Mergers and Acquisitions (M&A) in Bangladesh

Mergers and acquisitions (M&A) have become essential tools for companies in Bangladesh seeking strategic growth, operational efficiency, market expansion, or diversification. While traditionally more common in developed economies, Bangladesh is witnessing increasing M&A activity across sectors such as telecommunications, banking, insurance, energy, and manufacturing. Although there is no singular comprehensive legislation governing M&A transactions in Bangladesh, the legal framework is well established through a combination of corporate, securities, competition, and sector-specific laws. At Kazi Law Chamber, we advise clients across all phases of mergers and acquisitions, from structuring and regulatory compliance to negotiation, due diligence, and post-merger integration. This article outlines the types of M&A transactions, the applicable legal framework, and a step-by-step overview of the M&A process in Bangladesh.

Types of Mergers and Acquisitions Transactions

M&A transactions can take various forms depending on the strategic objectives of the merging or acquiring entities. The following are the most common types:

Horizontal M&A

A horizontal merger takes place between two companies operating within the same or closely related industry. These companies may be direct competitors or serve similar markets. The aim is often to consolidate market share, reduce competition, or achieve economies of scale.

Vertical M&A

A vertical merger occurs when a company merges with another within its supply chain—either a supplier (upstream) or distributor/client (downstream). This strategy allows for better control over production, distribution, and costs, and improves market position through integrated operations.

Conglomerate M&A

Conglomerate mergers involve companies from unrelated industries. The primary motivation is diversification—spreading business risks across different sectors or markets. While such mergers do not offer immediate operational synergies, they can enhance long-term financial stability.

Legal Framework Governing M&A in Bangladesh

Unlike jurisdictions with dedicated M&A statutes, Bangladesh relies on a composite framework drawn from various laws and sectoral regulations. The principal legislations governing M&A transactions include:

• Companies Act, 1994: Core corporate law regulating amalgamation, restructuring, and winding-up of companies.
• Securities and Exchange Ordinance, 1969 and Bangladesh Securities and Exchange Commission Act, 1993: Govern listed companies and market disclosures.
• Foreign Exchange Regulation Act, 1947: Administers cross-border investments and capital movement.
• Competition Act, 2012: Prevents anti-competitive practices and monitors monopolistic behavior arising from M&A deals.
• Sector-specific regulations: For example, the Insurance Act, 2010 (for insurance mergers), and the Bangladesh Telecommunication Regulation Act, 2001 (for telecom mergers).

Additionally, Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC) play important roles in approving or overseeing M&A transactions, especially those involving foreign investment, financial institutions, or listed entities.

Step-by-Step Process for Mergers and Acquisitions in Bangladesh

While M&A procedures may vary depending on the nature of the transaction, industry, and ownership structure, the following steps reflect the conventional process followed in most strategic deals:

Step 1: Proposal of a Merger

The process begins with the Board of Directors of the initiating company passing a resolution to approve the proposed merger or acquisition in principle. This resolution typically outlines the strategic rationale and authorizes the management to proceed with preliminary assessments. The merger plan may involve creating dedicated integration teams, project management units, and steering committees. This stage is particularly crucial for aligning stakeholders, assessing regulatory implications, and preparing internal structures for execution.

If the company is publicly listed, the resolution may qualify as price-sensitive information, requiring disclosure to the stock exchange as per securities laws.

Step 2: Negotiations

Following the initial approval, the acquiring company develops valuation models of the target entity and presents an indicative offer. Negotiations then proceed to refine the terms of the deal, covering financial consideration, share swap ratios, governance changes, employee treatment, and other legal provisions. The terms may be set out in a non-binding term sheet or memorandum of understanding, followed by a more detailed agreement upon conclusion of due diligence.

Step 3: Due Diligence

Before finalizing the merger, the acquiring (transferee) company must conduct financial, legal, and operational due diligence of both itself and the target (transferor) company. This stage requires prior approval from Bangladesh Bank in cases involving regulated institutions or foreign stakeholders. The objective is to verify the accuracy of the target's disclosed information and assess potential legal, financial, or regulatory risks.

To seek approval for due diligence, the transferee company must submit the following:

1. Credentials of the company, including background, ownership structure, resources, and net worth.
2. Details of the due diligence team, including lawyers, financial advisors, chartered accountants, and asset valuers.

It must also be ensured that none of the individuals or firms engaged in due diligence have conflicts of interest or are actively trading in the shares of either company involved in the transaction.

Due diligence covers a wide array of issues—financial statements, tax compliance, regulatory licenses, litigation history, intellectual property, HR liabilities, customer and supplier contracts, and environmental obligations. Based on the findings, the parties may revise their commercial terms or abandon the transaction.

Step 4: Disclosure and Confidentiality

a) Disclosure

Disclosure is an essential component of any M&A transaction. In Bangladesh, disclosure obligations are reinforced by both general corporate governance principles and specific securities laws. A disclosure schedule is typically appended to the acquisition agreement and includes detailed lists of material contracts, intellectual property, financial records, employee information, and ongoing litigation, as well as exceptions to the seller’s warranties and representations.

An inaccurate or incomplete disclosure may expose the seller or its shareholders to legal claims for breach of contract or misrepresentation. In the context of public companies, there is an additional requirement under Bangladeshi securities law. Where any person or entity intends to acquire or control 10% or more of the voting shares in a listed company, disclosure becomes mandatory to the relevant stock exchange and regulatory authority.

Disclosure must also occur between the parties themselves. Both the acquiring and target companies are under an obligation to exchange complete and material information relating to financial, legal, and operational matters, enabling informed negotiation and evaluation.

b) Confidentiality

While disclosure is mandated, confidentiality remains equally critical during M&A transactions. Upon receiving approval from Bangladesh Bank to conduct due diligence, the transferee company is required to submit an undertaking of confidentiality. This undertaking binds the transferee to keep all non-public information—such as internal records, strategic plans, and regulatory filings—strictly confidential.

Such information may not be shared with any third party unless compelled by law or expressly permitted by Bangladesh Bank. However, this restriction does not extend to the due diligence team, who must access the information to carry out their analysis.

Still, members of the due diligence team are individually and collectively bound by the same undertaking. They must treat all information as confidential and are specifically prohibited from requesting any internal observations or regulatory findings made by Bangladesh Bank regarding the transferee or transferor company.

At Kazi Law Chamber, we advise clients on how to navigate disclosure requirements while safeguarding sensitive business information, and we assist in drafting tailored confidentiality agreements that comply with both commercial expectations and regulatory obligations.

Step 5: Submission of Due Diligence Report

Once the due diligence process is completed, the team must submit a formal due diligence report to Bangladesh Bank. This report serves as the foundation for determining the commercial feasibility, legal compliance, and regulatory impact of the proposed merger.

A comprehensive due diligence report includes, but is not limited to, the following:

• A breakdown of secured and unsecured debts, including the nature of security, if any, and valuation of pledged assets;
• An independent assessment of the total value of the properties and assets of both the transferor and transferee companies;
• A list of pending liabilities, including contingent claims and tax exposures;
• An overview of ongoing legal disputes or regulatory issues, where disclosure is limited to listings rather than detailed descriptions, in order to reduce the complexity and volume of documentation;
• An impact analysis, evaluating the financial consequences of the proposed merger on each party’s shareholders, creditors, and depositors.

The submission of this report is not a mere formality—it is a precondition to proceed with the next regulatory and corporate steps. Bangladesh Bank may provide feedback or impose additional conditions depending on the findings.

Step 6: Shareholders’ and Creditors’ Consent

Following the submission and acceptance of the due diligence report, the merging entities are required to prepare a formal Scheme of Merger. This scheme reflects the structure of the transaction, valuation mechanism, asset and liability transfer, and post-merger governance model.

The Board of Directors of both the transferor and transferee companies must pass a resolution adopting this scheme. Once approved at the board level, the scheme is placed before the members and creditors for approval in accordance with the Companies Act, 1994.

A general meeting of members is then convened. If the scheme is approved by a majority in number representing three-fourths in value of the members present (in person or by proxy), it is deemed to have received shareholder approval. The same threshold applies to creditors, where their consent is required.

At this stage, companies must also consider the requirements of the Registrar of Joint Stock Companies and Firms (RJSC) and any sector-specific regulator (such as BSEC, Bangladesh Bank, or BTRC) depending on the industry involved.

Step 7: Submission of the Scheme to Bangladesh Bank

After finalizing the Scheme of Amalgamation, the transferee company must submit a formal application to Bangladesh Bank seeking approval of the proposed merger. This submission is a regulatory prerequisite, especially for transactions involving financial institutions or companies with foreign ownership. Along with the application, a copy of the Scheme of Amalgamation must be included, accompanied by detailed supporting documentation. These include the names, addresses, and occupations of the directors proposed to serve on the reconstituted board of the transferee company, as well as credentials of the proposed Chief Executive Officer. Furthermore, the application must outline the post-merger branch strategy, technology roadmap, human resource restructuring, and corporate governance enhancements.

Bangladesh Bank also requires submission of a valuation report prepared by an independent professional, detailing the method used to determine the swap ratio and justifying its fairness. If market-based valuation is used, the methodology and reference data must be disclosed. The application must also include the audited financial statements for the last three years of both companies, any recent interim financial results, and details of any significant expected changes in services or products. Additionally, a pro forma combined balance sheet must be submitted, along with computed metrics including Tier I and II capital, risk-weighted assets, non-performing loan (NPL) ratios, and capital adequacy ratios.

Bangladesh Bank may, at its discretion, request further explanations, clarifications, or supporting documents to evaluate whether the scheme is structurally sound, economically viable, and not detrimental to the financial system.

Step 8: Examination of the Draft Scheme

Upon receiving the Scheme, Bangladesh Bank will review it for feasibility and impact. The Bank’s evaluation focuses on whether the Scheme can be implemented effectively, particularly with respect to post-merger capital structure, asset valuation, and impact on profitability and governance.

Step 9: Asset and Liability Valuation

The merging entities must reach a mutual agreement on the valuation of assets and liabilities. Bangladesh Bank typically does not intervene unless there is evidence suggesting the valuation is unfair or unreasonable. In cases of disagreement over particular items—such as classification of advances, valuation of assets, or recognition of liabilities—either party may seek Bangladesh Bank’s mediation.

If mediation fails, Bangladesh Bank has the authority to determine the value of disputed items. Its decision is binding, and the cost of seeking such advice must be borne by the transferor company.

Step 10: Transaction Pricing

The transaction price or consideration for the merger is to be mutually agreed by the transferor and transferee companies based on the fair valuation of assets and liabilities. The price may be set at a premium or discount, depending on the commercial negotiation.

However, Bangladesh Bank reserves the right to assess the fairness of the agreed price. To that end, it may require the companies to submit the pricing rationale and supporting documentation, including an explanatory note on the price mechanism. The Bank may then either approve the price or suggest necessary adjustments.

Step 11: Final Approval of the Scheme by Bangladesh Bank

Following a thorough review of the submitted Scheme of Amalgamation and all supporting financial, legal, and governance documents, Bangladesh Bank grants its final approval if two fundamental conditions are met. Firstly, the scheme must be considered beneficial to the merged entity and/or to the financial system of Bangladesh. Secondly, the Bank must be satisfied that the merger is not detrimental to the interest of depositors, creditors, or the general public.

In granting its approval, Bangladesh Bank may choose to accept the scheme as submitted or may propose modifications, conditions, or procedural safeguards that the companies must adhere to prior to or during implementation. The Bank’s evaluation is based on a combination of regulatory compliance, capital adequacy metrics, governance preparedness, and financial disclosures. Its role here is not only supervisory but also fiduciary in nature, ensuring that the transaction aligns with financial sector stability and consumer protection mandates. Once approval is issued, the companies may proceed to the judicial phase, provided they do so within the specified time limit set by the Bank.

Step 12: High Court Petition for Sanction of the Merger

Once Bangladesh Bank grants approval of the merger scheme, the transferor and transferee companies must approach the High Court Division of the Supreme Court of Bangladesh under the Companies Act, 1994, to seek judicial sanction. The application, filed as a joint petition, must include the approved scheme, relevant corporate resolutions, and evidence of shareholder and creditor approval. A certified copy of the petition must also be submitted to Bangladesh Bank for its records, and the Bank must be kept informed of the progress of the judicial process.

The High Court will issue directions to publish notices in at least two national newspapers, allowing stakeholders—including shareholders, creditors, and regulatory bodies—to raise objections, if any. The Court will examine whether due process has been followed, whether the scheme is fair and equitable, and whether it has been approved by the requisite majority of shareholders and creditors. If objections are raised, the Court will consider them on merit and may approve the scheme as proposed, approve it with modifications, or reject it if material deficiencies are found.

It is important to note that if the petition is not filed within three months of Bangladesh Bank’s approval, such approval will lapse, unless extended upon valid justification. At Kazi Law Chamber, we provide end-to-end assistance in drafting the court petition, ensuring statutory compliance, publishing stakeholder notices, and representing clients throughout the hearing process.

Step 13: Filing of Certified High Court Order with RJSC

Following the sanctioning of the merger by the High Court, the final step in formalizing the amalgamation is to file the certified copy of the Court’s order with the Registrar of Joint Stock Companies and Firms (RJSC). This filing is critical because only upon registration does the merger attain statutory and administrative effect. RJSC will then proceed to update the public records, reflecting the dissolution of the transferor company and the structural and governance changes in the transferee company.

The filing must include the High Court’s certified order, the updated Memorandum and Articles of Association (if amended), details of the new board and shareholding, and a certified Scheme of Amalgamation. Prescribed registration fees must also be paid. Upon successful review, RJSC will update all statutory forms (such as Form VI, X, and XII) and complete the legal integration of the two entities.

Once the RJSC process is complete, the post-merger entity may proceed to update its tax registrations, licenses, banking records, and notify third parties including creditors, employees, and contractual counterparties. At Kazi Law Chamber, we oversee the entire RJSC filing process, ensuring compliance with all procedural rules and facilitating a seamless transition to the merged corporate structure.