MRERGERS AND ACQUISITIONS IN INDIA

BRAJESH CHANDRA TRIPATHILL. M. 2010 - 13

CHAPTERISATIONMergerAcquisitionMotive M &A In IndiaPre independent periodPost independent periodM&A after liberalizationLegal provision related to M&AMajor Laws Involved in M&ACompanies bill 2009Conclusion

What is “Merger”Merger refers to the managing of

one company into another or two companies getting merged from a new corporate entity.

Fusion of two companies

Acquisition Acquisition denotes a company

acquiring controlling stake in another

Types of Mergers and Acquisitions MERGER Horizontal merger = A horizontal merger takes

place between two or more companies that compete in the same business and geographical market.

Vertical merger = A vertical merger integrated the operations of a supplier and customer

(i) backward vertical merger – the customer acquires the supplier, (ii) forward vertical merger - the supplier acquires the customer

Conglomerate merger = between firms in totally unrelated business

Cont…

Consolidation merger = between two or more firms generally engaged in same or similar business under the control of same management……

ACQUISITIONHostile Takeover = if the board

rejects the offer, but the bidder continues to pursue it or the bidder makes the offer without informing the board beforehand.

Leveraged Buyouts = where the acquisition is funded by borrowed money. Often the assets of the target company are used as collateral for the loan.

Cont…This is a common structure when

acquirers wish to make large acquisitions without having to commit too much capital, and hope to make the acquired business service the debt so raised

Bailout Takeovers. Another form of takeover is a ‘bail out takeover’ in which a profit making company acquires a sick company.

Motive of Merger and AcquisitionControl over the market Increase market powerFinancial growth

Mergers and Acquisitions in India

M & A during pre-independent period

Played important role after 2nd World War

Because of economic and political consolidation

Post independent period

Large number of M&A occurred in industries like jute, cotton textiles, sugar, insurance, banking, electricity and tea plantation.

Government policies (i) LIC (ii) Takeover of 243 insurance companies

Post 1990 periodM&A scenario started changing

after introducing Liberalization in 1991

Several measures taken by the government which includes delicensing, dereservation, MRTP Act relaxation, liberalization of policies towards foreign capital and technologies led to a structural transformation in the Indian industries.

M&A : Legal Provisions And Practices Companies Act 1956 Sections 390 to 396-Aand

section 111

Sections 390 & 394

Section 391 – 394 of the Companies Act, 1956 deals with Compromises, Arrangements and Reconstructions and other related issues through schemes of arrangement approved by the High Courts. A resolution to approve the scheme of arrangement has to be passed by the shareholders in the general meetings.

Cont…

The shareholders have to vote on the resolutions on the schemes of arrangement on the basis of the disclosures in the notice/explanatory statement. Section 393 of the Companies Act, 1956 specifies the broad parameters of the disclosures which should be given to the shareholders / creditors, for approving a scheme of arrangement

.

Section 390 & 391s/390 – arrengement

s/391- Power to compromise or make arrangement with creditor or members

Cont… Court’s power under the section are very wide and has

discretion to allow any sort of arrangement between the company and members.

Scope and ambit of the Jurisdiction of the Court:

The sanctioning court has to see to it that all the requisite statutory procedure for supporting any scheme has been complied with along with requisite meetings.

That the scheme put up for sanction of the court is backed up by the requisite majority vote.

That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme.

That the proposed scheme is not found to be violative of any provision of law and is not contrary to public policy.

SECTION 392 Under this section, the court has power to supervise the

carrying out of the compromise or an arrangement; and

may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the arrangement.

If the court is of the view that a compromise /arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may on it own motion or on the basis of an application made by an interested party may order winding up of the company under section 433 of the Act.

Section 393This section prescribes the procedure required

for convening the meeting of the members or creditors called under section 391.

The notice for the meeting should be sent along with a statement setting forth the terms of the compromise and or arrangement and explaining its effect and in particular, the statement must state all material interest of the directors, managing directors of the company, whether in their capacity as such or as members or creditors of the company or otherwise.

Cont…Where the compromise or arrangement

affects the rights of debenture holders of the company, the statement shall give the information and explanation in respects to the trustees of any deed for securing the issue of the debentures as it is required to give in respect of directors.

Any default in complying with the requirements under this section may lead to a fine of Rs. 50, 000 against the concerned official of the company, who is found guilty.

Section 394Where the court is of the view that the proposed

arrangement/scheme is of such nature that• the scheme is for the reconstruction of any

company or for amalgamation of any two or more companies; and

• that under the scheme the whole or any part of the undertaking property or liabilities of any concerned company is to be transferred to another company;

the court may make provision for all or any of the following matters.

The transfer to Transferee Company of the property or liabilities of transferor company.

Cont…The allotment or appropriation by the

transferee company of any shares, debentures or other like interest in that company which, under the arrangement, are to be allotted or appropriated by that company to.

The continuation of any legal proceeding against the transferee company by the transferor company.

The dissolution, without winding up, of any transferor company.

The provisions for any dissenting persons. Who are opposing such scheme or any other matter, which the court deems fit

Section 394-A & 395Section 394-A - Notice to given

to the central government for applications given under sections 391 and 394.

Section - 395 Power and duties to acquire shares of shareholders dissenting from scheme or contract approved by majority.

Section 396 & 396-ASection 396 power of central

government to provide for amalgamation of companies in national interest.

Section 396-A - papers and book of amalgamated company shall not be disposed without prior permission of central government.

THE COMPANIES BILL, 2009Clauses 200 to 211 deals about

Mergers and AcquisitionsNo major change in new bill of

2009 related to M&A

Major Laws Involved in M&A SEBI (substantial Acquisition of shares &Takeovers)

Regulations 1997. Securities and Exchange Board of India (Issue of Capital

and Disclosure Requirements) Regulations, 2009 The Securities and Exchange Board of India Act,1992 . Security Contract Regulation Act ,1956 . The Depositories Act,1956. SEBI Disclosure and Investor Protection Guidelines 2000. Securities and Exchange Board of India (Prohibition of

Insider Trading Regulation ),1992. Securities and Exchange Board of India (Merchant

Bankers) Rules/Regulation 1992. SEBI (Delisting of Securities )Guidelines,2003. Foreign Exchange Management Act,1999. Companies Act,1956. Income Tax Act

list of Total Mergers and Acquisition(M & A) of Domestic deals, 2010 in India.

Acquirer Target Sector Deal

Domestic Deals in January, 2010: 32 Deals of value $2.16 Billion

Penta HomesAgro Dutch Industries

AgricultureS ($4.26 mn, up from 32.5% to 57.7%)

ACCEncore Cement and Addictive

Cement A

Dalmia Cement

Orissa Cement Cement S ($37.66mn, 45.4%)

Crompton Greaves

Brook Crompton Greaves

Electricals M

Havells IndiaStandard Electricals

Electricals A ($25.53mn)

Srei-led Consortium

DPSC Energy S ($36.6mn, 57%)

Greenko Group Plc

20.25 MW hydro power assets

Energy A ($32.98mn, 57%)

Avantha Power and Infrastructure

Malanpur Captive Power (subsidiary of crompton greaves)

Energy S ($10.94mn, 59%)

Almondz Global Securities

Almondz Insurance Brokers

Financial Sector S (51%)

Infrastructure Development Finance Company(IDFC)

IDFC – SSKI Securities

Financial SectorS (from 80% to 100%)

Indian Infoline (Orient Global Tamarind Fund)

Indian Infoline Investment services

Financial Sector S ($72mn, 22%)

Edelweiss Capital Anagram Capital Financial Sector A ($34.89mn)

Vista VyapaarMathew Easow Research Securities

Financial Sector S ($0.84mn,69.2%)

Ruchi Soya Industries

Solvex, General Foods, Param Industriess

FMCG, Food Processing

M

WF

Henkel India Brands ‘Aramusk’ and ‘Moloy’ soaps and ‘Mahabringol’ hair oil

FMCG, Food Processing

S ($9.57mn, 50%)

ConclusionMergers and Acquisitions plays

important role in corporate restructuring and development of country. In India it is also playing same role. But some times it represent market and financial power. And after liberalization it increased due to liberal government policies

THANKS

Brajesh Chandra Tripathi

LL.M. 2010-13