- 1. M erg ers & Acquisitions Statutory Regulations under
Companys Act and Regulation for Listing Agreement
2. Submitted by
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
- TRANS-BORDER TRANSACTIONS
- Foreign Exchange Management Act
- 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
- 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
- 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
- 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
- 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