CROSS BORDER MERGERS & ACQUISITIONSCross Border Mergers & Acquisitions

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CROSS BORDER MERGERS& ACQUISITIONS

The Legal Landscape

Madhurendra Nath Jha





© Paras Kuhad & Associates, Advocates

M&A Band Wagon

• Frenzied Activity in the fieldof M&A in recent years

• In 2007 out of Total 348Cross Border Deals:

Outbound: 240 ($32.37

billion)Inbound: 108 ($15.61

billion)




Increase in M& A

0

100

200

300

400

500

600

700

2006 2007

No. of Deals

Amount (USD million)




India Inc. Goes Global

Tata Steel acquired UK basedCorus for $ 8 billion.

Suzlon Energy Ltd acquiredGerman firm Repower Systems

AG for $ 1.7 billion.

United Spirits bought Scotchwhisky distiller Whyte &Mackay for US$ 1.11 billion

Hindalco acquired Novelis for

$ 6 billion




India goes global

TATA Chemical acquires US based Soda Ash MakerGeneral Industrial Products for $ 1 billion

Indian shipping company Great Offshore acquires UKbased Sea Dragon for US$ 1.4 billion

Essar Energy acquires 50% stake in KenyaPetroleum refineries ltd.

Banswara Syntex to acquire France firm CarremanMichel Thierry for around US$ 125 million




Graphical representation of Indian

outbound deals since 2000. Source:IBEF




Inbound Transactions

Sistema, Russian Joint StockCompany’s acquisition of 74%stake in Shyam Telelink – Telecommunications

French banking major BNPParibas’s acquisition of 45%stake in financial services firmSundaram Home Finance for$45.81 million

Standard Chartered Bankbought 49% stake for $34.19

million in UTI Securities andInterpublic Group hiked itsstake in Lintas India to 100% for$100 million




Fursa Mauritius’s acquisition of 42.63% equity inGayatri Starchkem

UBS Global Management’s Acquisition of

Standard Chartered Asset ManagementCompany for $ 117.78 Million

EMC Corporations Acquisition of Valyd SoftwarePvt. Ltd.

Orkla’s Acquisition of MTR foods for $ 100Million




Destination India

• Liberal FDI Policy Framework

• FDI allowed in most sectors

• Entry Routes for Investment in India

– Approva l

– Automat ic




FDI and Portfolio Flows to India

Source: RBI




Entry Strategies for Foreign Investors

• As a Foreign Company through:

– Liaison office/Representative office

– Project Office

– Branch Office foreign company through:

• As an Indian company through:

– a Joint Venture

– Wholly Owned Subsidiary




Joint Ventures As An Entry Strategy

• JV’S regulated by Policies andLaws governing FDI

• Two Tier Approval Mechanismfor JV’S:

- Automatic Approval Route- FIPB Approval Route

• If the Foreign Partner hasentered into JV in the same

field before then NOC of theprevious JV partner andapproval of the Governmentalso required




India-entry

• ‘Same Field’ may be defined as the 4 digitNational Industrial Classification (NIC) Code

Illustration:

If the foreign investor has collaboration for themanufacture of tarpaulin Code 268.3, he caninvest in the manufacture of rubberized clothCode 268.2 as there is no restriction to enter

into JV’s in allied fields. The restriction shallapply to any item whose code NIC code is268.2.




India entry

• A ‘Conf l ict of Interest ’ clause advisable inthe JV/Collaboration agreement in case one

of the Partners to the JV wants to set upanother JV or wholly owned subsidiary inthe same f ield




India entry-JV

• The Following are exempted from therestriction of entering into JV in the samefield:

1) Information Technology sector2) Investments made by multinational financial

institutions

3) mining sector for the same area/mineral




Other inbound

• Prior government approval not required incertain cases:

- Investment to be made by venture capital

funds is registered with SEBI- Existing JV investment is less than 3%

- Existing venture is defunct or sick




Remittances

• Determination of sale Price of Shares

- Listed Company

- Unlisted Company/Shares Thinly Traded on

the Stock Exchange• Remittance of Sale Proceeds:

i. NOC from Income Tax Authority required

ii. If the security has not been sold on a

recognized stock exchange then priorapproval of the RBI in form TS 1 has beenobtained




Sectors Attracting Highest FDI Equity Flows

0

500

1000

1500

2000

2500

3000

2004-05 2005-06 2006-07 2007-08

Computer Software &

Hardware

Construction Activities

Automobile Industry

Housing & Real Estate

Power

Drugs and Pharmaceuticals

Mettalurgic Industries

All Figures in US $(Million)




Indian Overseas Investment

• Favourable Policy framework

- Overseas Investment Limit – 400% of Net Worth- Overseas portfolio investment - 50 per cent of Net

Worth

• Permissible Funding:

– Drawal of foreign exchange from an AD; – Capitalization of exports; – Swap of shares;




Funding

Permissible Funding Cont.

– Utilisation of proceeds of External Commercial

Borrowings (ECBs) / Foreign Currency ConvertibleBonds (FCCBs);

– in exchange of ADRs/GDRs

– Balances held in EEFC account of the Indian

party; – Utilisation of proceeds of foreign currency funds

raised through ADR / GDR issues.






Data on Overseas Direct InvestmentsS.no. Country Outflow 2006-2007

(In US$ Million)

1. US 313.379

2 Canada 397.772

3 China 3.176

4 Netherlands 1005.518

5 Czech Republic 26.008

6 Italy 7.104

7 Germany 22.858

8 France 0.6939 Portugal 0

10 Poland 0.454

11 Hungary 0




Overseas Direct Investment – Sector wise Breakup

S.no. Sector Outflow 2006-2007

(In US$ Million)

1. Manufacturing 2402.760

2. Financial Services 5.754

3. Non-Financial Services 2249.960

4 Trading 390.811

5 Others 985.587




Regulatory Framework

• Applicable IndianLaws

- Companies Act

- Competition Act- Income Tax Act

- Indian Stamp Act

- SEBI TakeoverCode

- FEMA




Companies Act, 1956

• Merger is a scheme of arrangement

• Scheme of arrangement has to be presentedbefore the High Court for sanction

• Relevant Sections 391-394• Limited Scope in Cross Border M&A’s because

Transferee company has to be a company

incorporated in India




Competition Law, 2002

• Salient Features:

– Anti-competitive agreements;

– Prohibition of abuse of dominant position

– Regulation of Combinations includingmergers

– Unfair Trade Practices




India : Merger Law

• Monopolies and

Restrictive Trade

Practices Act, 1969 – Inadequate

– Obsolete

• Still Prevailing




New Merger Law

Competition Act, 2002

• Combination

The Indian law uses the word combinations

to cover acquisition of control, shares, votingrights and assets, and mergers andamalgamations

• Relevant Sections: 5-6 & 29-32






Competition proposals

• Mandatory waiting Period for Approval

– 210 Days

• Extra Territorial Jurisdiction of CCI

– CCI has power to inquire about combinationstaking place outside India




Intent of National Security Legislations

– Right to Intervene in case of perceived threatto National Security

– Discretionary powers to prevent certain foreigncompanies from doing business in the country




Foreign Investments & NationalSecurity Legislations

• United States- Foreign Investment & NationalSecurity Act, 2007 (Exon-Florio Provision)

• China- Anti Monopoly Law

• European Union- Members are free to regulate

International Mergers (Articles 81-85 EC Treatyregulates Competition)




security

• United Kingdom- Enterprises Act 2002

• India- National Security Exception Bill yet tobe passed by the Parliament



THANK YOU

Should you have any questions on issues reported here or on other areasof law, you may contact Paras Kuhad and Associates at the following co-

ordinates:Mr. M.N. JHAParas Kuhad and Associates, Advocates

A-238, Lower Ground Floor,Defence Colony,

New Delhi- 110 024, IndiaTel: +91 (0) 11 46562525, 46562727 Fax: +91 (0) 11 46562000

Mob: +91/0-9811319922

Email : [email protected], [email protected]

Delhi Mumbai Kolkata Chennai Jaipu r Pune Jod hpur

mailto:[email protected]






© Paras Kuhad & AssociatesAd

Disclaimer

The contents of this document are intended for informational purposes only and are not in the nature of a legal opinion or

advice. They may not encompass all possible regulations andcircumstances applicable to the subject matter and readers are

encouraged to seek legal counsel prior to acting upon any of the

information provided herein.

This Note is the exclusive copyright of Paras Kuhad and Associates, Advocates and may not be circulated, reproduced or otherwiseused by the intended recipient without the prior permission of its

originator.

© Paras Kuhad and Associates, Advocates

2008

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CROSS BORDER MERGERS & ACQUISITIONSCross Border Mergers & Acquisitions