1. M erg ers & Acquisitions Statutory Regulations under Companys Act and Regulation for Listing Agreement

2. Submitted by

Nisha Barot 3

Jagesh Hathalia 23

Trupti Jaiswal 24

Sachin Kshatriya 29

Dhiraj Sajnani 49

Dimpi Sanghavi 50

3. Introduction

The process of mergers and acquisitions in India is court driven, long drawn and hence problematic

The merger and amalgamation of corporates constitutes the subject matter of the Companies Act, the courts and law and there are well laid down procedures for valuation of shares and rights of investors.

The acquisition/takeover bids fall under the purview of the SEBI.

4. Introduction

The Central Government has a role to play in this process and it acts through an Official Liquidator (OL) or the Regional Director of the Ministry of Company Affairs. The entire process has to be to the satisfaction of the Court.

5. M&A REGULATORY FRAMEWORK

TRANSACTION STRUCTURE

Companies Act

Income Tax Act

Stamp Acts

Competition Act

TRANS-BORDER TRANSACTIONS

Foreign Exchange Management Act

LISTED COMPANIES

SEBI Regulations

Stock Exchange Listing Agreement

6. COMPANIES ACT

• • Applicability of sections 391 to 394 of Companies Act, 1956:

Merger involves arrangement with the shareholders and the procedure prescribed under sections 391 to 394 will have to be adhered to, which is covered in Annexure I.

7. COMPANIES ACT

Sections 108A to G: Central Government approval if in excess of threshold prescribed

UB Group was sent show cause notice for not taking approval ofGovt for merger with Kingfisher Airlines

Section 372A: Compliance by transferee company in acquisition of shares

Section 77A: Buy Back may be used as a defense to a hostile takeover

• Used in U.S.: PeopleSofts attempt to thwart Oracle

• Flextronics Software Systems Ltd got merged into Future Software Limited into Aricent Technologies (Holdings) Limited

8. Merger & Demerger ISSUES: COMPANIES ACT

s 391 - 394: Complete Code, Single Window Clearance

• Reduction of capital- Position unclear, Predominance of judicial view: substantial compliance with s. 100- 102 required.

Transnational Mergers: 391 - 394 mechanism operates only where amalgamated company is Indian. E.g. of transnational merger concluded under 391 route -Bank of Muscat merging into Centurion Bank by order of Karnataka HC

Alternative Mechanism: S. 494

• Through Liquidation Process

• Liquidator transfers assets to foreign company for shares

• Process has to be altogether voluntary

• Tax benefits are unavailable under this route

9. Merger :COMPANIES ACT

s 391 - 394: Complete Code, Single Window Clearance

• Reduction of capital- Position unclear, Predominance of judicial view: substantial compliance with s. 100- 102 required.

Transnational Mergers: 391 - 394 mechanism operates only where amalgamated company is Indian. E.g. of transnational merger concluded under 391 route -Bank of Muscat merging into Centurion Bank by order of Karnataka HC

Alternative Mechanism: S. 494

• Through Liquidation Process

• Liquidator transfers assets to foreign company for shares

10. Acquisitions ISSUES: TAKEOVER CODE

Definition of Control - Inclusive

• Ambiguous:

• • TATA Sellout in ACC.

• Negative control?

S. 25(2) prohibits public offers after 21 days of the public announcement of first public offer

In case of indirect acquisition, foreign acquirer has three months from completion of transaction to make open offer. Therefore, foreign transactions can be concluded prior to open offer in India.

11. Merger PROCESS

Phase- I

Draft SchemeSec391-394

Approvals for the scheme

Approval from Shareholders

In terms of Section 391, shareholders of both the companies should approve scheme

In terms of Section 81(1A), the shareholders of the merged company are required to pass a special resolution for the issue of shares to the shareholders of the amalgamating company.

12. Phase- I

Approval from Creditors / Financial Institutions / Banks U /S 391.

Approvals from respective High Courts

The courts issues orders for dissolving the amalgamating company, without winding up, on receipt of reports from the official liquidator and the regional director, Company Law Board

13. Phase- I

Notice to members of Board of both companies

Determine swap ratio based on valuation report

The boards of Tata Chemicals Ltd (TCL) and Hind Lever Chemicals Ltd (HLCL) approved share swap ratio of 2.5 shares of TCL for every share of HLCL held

The swap ratio for ICICI & ICICI Bank was - two ICICI shares for one ICICI Bank share

Board approval of both companies

Prior NoCs from secured creditors and shareholders for exemption from meeting:Reduce Time and Costs

• In ICICI Ltd. merger with ICICI Bank, meeting of preference shareholders of ICICI Ltd. was dispensed with since sole preference shareholder furnished an NOC

14. Phase- II

Draft Application under s. 391(1)

Application to HCs in respective jurisdictions of both companies for sanction / direction to conduct meetings

• Moving registered office to one jurisdiction: Reduce Time and Costs

15. MergerPROCESS

Phase- III

Notice of EGM to members with statement of terms of merger, interests of directors and proxy forms: 21 days

Notice in 2 newspapers: 21 days

Affidavit certifying compliance with HCs directions in respect of notice/ advertisement

Meetings of creditors and/ or shareholders: agreed to by majority in number representing of value present and voting

Chairman of meetings to file report within 7 days of meeting

Resolutions and Explanatory Statements to be filed with RoC

16. Merger PROCESS

Phase- IV (Approval of the Scheme)

HC to be moved within 7 days of Chairmans Report for second motion petition

10 days notice of hearing of petition in same newspapers

Notice to Central Govt. (Regional Director), and OL (if applicable): Submit reports

Objections raised in 391 proceedings

HC Sanction

Certified copy of HC Order to be filed with RoC within 30 days of order.

17. LISTING AGREEMENT OFSEBI 18. LISTING AGREEMENT OFSEBI

The takeover of companies listed on the stock exchanges is regulatedby Clause 40-A and 40-Bof the listing agreement.

While Clause 40-A deals with minimum level of public shareholding

Clause 40-B contains the requirements to be met when a takeover offer is made.

19. Clause 40-A -Minimum Level of Public Shareholding

In order to ensure availability of stock, every listed company should maintain, public shareholding of atleast 25% of the total number of issued shares

Public shareholding exclude shares held by

a)Promoters / promoter group

b) Custodians against which depositoryreceipts are issued overseas.

20. Minimum Level of Public Shareholding

The minimum level of public shareholding in a company which,

a) Offers offered in the past a particular class of shares to the public under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, or

b) Has atleast two crore shares outstanding with a market capitalization of atleast Rs. 1000 crore,

Should be atleast 10 percent of the total number of shares issued.

21. Clause 40-B -Takeover Offer

The Company also agrees that it is a condition for continuous listing that whenever the takeover offer is made or there is any change in control of management of the company, the person who secures the control and the company whose shares have been acquired would comply with the relevant provisions of the SEBI Takeover Code.

22. Clause 49

This clause is incorporated in the listing agreement of stock exchanges with companies and it is compulsory for them to comply with its provisions. Clause 49 of SEBI's Listing Agreement requires every listed entity to reserve half the board for independent directors if the chairman is an executive director

23. Clause 49

The board will lay down a code of conduct for all board members and senior management of the company to compulsorily follow.

2)The CEO and CFO will certify the financial statements and cash flow statements of the company.

3)At least one independent director of the holding company will be a member of the board of a material non-listed subsidiary.

4)The audit committee of the listed company shall review the financial statements of the unlisted subsidiary, in particular its

24. Clause 49

5)If, the company follows a treatment that is different from that prescribed in the accounting standards, it must disclose this and the management should also provide an explanation

6)The company will have to lay down procedures about the risk management and minimisation procedures

7)Where money is raised through public issues, rights issues etc., the company will have to disclose the applications of as part of quarterly disclosure of financial statements. .

25. Acquisitions RECENT CHANGES

New thresholds of 54% and 74% in Regulation 7

55% shares cannot be allotted by preferential allotment or market purchase consolidation by public offer only

Acquisition by public offer under 11(2) can be for only so many shares as will keep float above listing requirements.

Where any acquisition reduces public float below Listing Agreement requirements, acquisition to comply with delisting guidelines

Where Code is triggered by a global deal, if the public offer will lower floatto below the listing requirement, then acquirer has 12 months to raise float either by fresh issue or by disinvestment.

26. Thank You