MERGERS AND ACQUISITIONS IN LIGHT OF SEBI & RBI

GUIDELINES

Prepared By :
Aditya Anand
IVth Year
BBA.LLB (Hons)
1405C00006

ICFAI LAW SCHOOL

The ICFAI University
Dehradun

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 Table Of Contents

ACKNOWLEDGEMENT………………………………...……………………………………..…...............3
INTRODUCTION...............………………………………………………....……………….…….4

MAIN BODY………………………………………………………………………….……..…6-21

CONCLUSION…………………………………………………………………………………….22
BIBLIOGRAPHY………………………………………………………………………………......23

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 Acknowledgement

At the very outset, I would like to thank all those who were the ‘guiding lights’ behind this
project. First of all I would like to take this opportunity with esteem privilege to express my
heartfelt thanks and gratitude to my course teacher Ms Ayushi Mittal, Faculty, Mergers and
Governance, ICFAI LAW SCHOOL for having faith in me in awarding me this very significant
project topic of such importance. Her consistent supervision, constant inspiration and invaluable
guidance have been of immense help in carrying out the project work with success.
Next, I would like to thank my colleagues for lending me a helping hand during the shaping up
of the project; subsequently I would like to thank my University for allowing me to avail the
computer lab and internet facilities.
I extend my heartfelt thanks to my family and friends for their moral support and encouragement.
I also take this opportunity to thank all those people who contribute in their own small ways but
fail to get a mention.

Aditya Anand
1405C00006

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 INTRODUCTION

We have been learning about the companies coming together to from another company and
companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over
our businessmen, it is not surprising when we hear about the immense numbers of corporate
restructurings taking place, especially in the last couple of years. Several companies have been
taken over and several have undergone internal restructuring, whereas certain companies in the
same field of business have found it beneficial to merge together into one company.

In this context, it would be essential for us to understand what corporate restructuring and
mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, &
other forms of corporate restructuring. Thus important issues both for business decision and
public policy formulation have been raised. No firm is regarded safe from a takeover possibility.
On the more positive side Mergers & Acquisition’s may be critical for the healthy expansion and
growth of the firm. Successful entry into new product and geographical markets may require
Mergers & Acquisition’s at some stage in the firm's development. Successful competition in
international markets may depend on capabilities obtained in a timely and efficient fashion
through Mergers & Acquisition's. Many have argued that mergers increase value and efficiency
and move resources to their highest and best uses, thereby increasing shareholder value.
.

To opt for a merger or not is a complex affair, especially in terms of the technicalities involved.
We have discussed almost all factors that the management may have to look into

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Before going for merger. Considerable amount of brainstorming would be required by the
managements to reach a conclusion. E.g. A due diligence report would clearly identify the status
of the company in respect of the financial position along with the net worth and pending legal
matters and details about various contingent liabilities. Decision has to be taken after having
discussed the pros & cons of the proposed merger & the impact of the same on the business,
administrative costs benefits, addition to shareholders' value, tax implications including stamp
duty and last but not the least also on the employees of the Transferor or Transferee Company.

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What is Merger ?

Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence. The survivor acquires all the assets as well
as liabilities of the merged company or companies. Generally, the surviving company is the
buyer, which retains its identity, and the extinguished company is the seller.

What is Acquisition ?

Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the share
capital of another existing company.

Types of Merger

Merger or acquisition depends upon the purpose of the offeror company it wants to achieve.
Based on the offerors’ objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.

(A) Vertical combination:

A company would like to takeover another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its
production plans as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a supplier or a buyer
using its product as intermediary material for final production.

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The following main benefits accrue from the vertical combination to the acquirer company i.e.

1. It gains a strong position because of imperfect market of the intermediary products,

scarcity of resources and purchased products;

2. Has control over products specifications.

(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial process. The
acquiring firm belongs to the same industry as the target company. Also referred to as a
‘horizontal integration’, this kind of merger takes place between entities engaged in competing
businesses which are at the same stage of the industrial process 1. The mail purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting
market enlargement. The acquiring company obtains benefits in the form of economies of
resource sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The principal reason for a conglomerate merger is utilization of financial resources,

1
‘Corporate Mergers Amalgamations and Takeovers’, J.C Verma, 4th edn., 2002, p.59.

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enlargement of debt capacity, and increase in the value of outstanding shares by increased
leverage and earnings per share, and by lowering the average cost of capital2. The basic purpose
of such amalgamations remains utilization of financial resources and enlarges debt capacity
through re-organizing their financial structure so as to service the shareholders by increased
leveraging and EPS, lowering average cost of capital and thereby raising present worth of the
outstanding shares. Merger enhances the overall stability of the acquirer company and creates
balance in the company’s total portfolio of diverse products and production processes.

Advantages of Mergers
Mergers and takeovers are permanent form of combinations which vest in management complete
control and provide centralized administration which are not available in combinations of
holding company and its partly owned subsidiary. Shareholders in the selling company gain from
the merger and takeovers as the premium offered to induce acceptance of the merger or takeover
offers much more price than the book value of shares. Shareholders in the buying company gain
in the long run with the growth of the company not only due to synergy but also due to “boots
trapping earnings”.

Mergers and acquisitions are caused with the support of shareholders, manager’s ad
promoters of the combing companies. The factors, which motivate the shareholders and
managers to lend support to these combinations and the resultant consequences they have to
bear, are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should

enhance in value. The sale of shares from one company’s shareholders to another and holding
investment in shares should give rise to greater values i.e. The opportunity gains in alternative
investments. Shareholders may gain from merger in different ways viz. From the gains and
achievements of the company i.e. Through
(a) Realization of monopoly profits;

2
‘Financial Management and Policy-Text and Cases’, V.K Bhalla, 5th revised edn.,note 4,at p. 59

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 (b) Economies of scales;
(c) Diversification of product line;
(d) Acquisition of human assets and other resources not available otherwise;
(e) Better investment opportunity in combinations.

One or more features would generally be available in each merger where shareholders may have
attraction and favour merger.

(2) From the standpoint of managers

Managers are concerned with improving operations of the company, managing the affairs of the
company effectively for all round gains and growth of the company which will provide them
better deals in raising their status, perks and fringe benefits. Mergers where all these things are
the guaranteed outcome get support from the managers. At the same time, where managers have
fear of displacement at the hands of new management in amalgamated company and also
resultant depreciation from the merger then support from them becomes difficult.

(3) Promoter’s gains

Mergers do offer to company promoters the advantage of increasing the size of their company
and the financial structure and strength. They can convert a closely held and private limited
company into a public company without contributing much wealth and without losing control.

(4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and

costs to:
(a) Consumer of the product or services;
(b) Workers of the companies under combination;
(c) General public affected in general having not been user or consumer or the
worker in the companies under merger plan.

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(a) Consumers

The economic gains realized from mergers are passed on to consumers in the form of lower
prices and better quality of the product which directly raise their standard of living and quality of
life. The balance of benefits in favour of consumers will depend upon the fact whether or not the
mergers increase or decrease competitive economic and productive activity which directly
affects the degree of welfare of the consumers through changes in price level, quality of
products, after sales service, etc.

(b) Workers community

The merger or acquisition of a company by a conglomerate or other acquiring company may

have the effect on both the sides of increasing the welfare in the form of purchasing power and
other miseries of life. Two sides of the impact as discussed by the researchers and academicians
are: firstly, mergers with cash payment to shareholders provide opportunities for them to invest
this money in other companies which will generate further employment and growth to uplift of
the economy in general. Secondly, any restrictions placed on such mergers will decrease the
growth and investment activity with corresponding decrease in employment. Both workers and
communities will suffer on lessening job

Opportunities, preventing the distribution of benefits resulting from diversification of production

activity.

(c) General public

Mergers result into centralized concentration of power. Economic power is to be

understood as the ability to control prices and industries output as monopolists. Such
monopolists affect social and political environment to tilt everything in their favour to maintain
their power ad expand their business empire. These advances result into economic exploitation.
But in a free economy a monopolist does not stay for a longer period as other companies enter

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into the field to reap the benefits of higher prices set in by the monopolist. This enforces
competition in the market as consumers are free to substitute the alternative products. Therefore,
it is difficult to generalize that mergers affect the welfare of general public adversely or
favorably. Every merger of two or more companies has to be viewed from different angles in the
business practices which protects the interest of the shareholders in the merging company and
also serves the national purpose to add to the welfare of the employees, consumers and does not
create hindrance in administration of the Government polices.

Mergers and Amalgamations: Key Corporate and Securities Laws

Considerations
I. Company Law
Sections 390 to 394 of the CA 1956 (the “Merger Provisions”) and Section 230 to 234 of CA
2013 govern mergers and schemes of arrangements between a company, its shareholders and/or
its creditors. However, considering that the provisions of CA 2013 have not yet been notified, the
implementation of the same remains to be tested. The currently applicable Merger Provisions are
in fact worded so widely, that they would provide for and regulate all kinds of corporate
restructuring that a company can possibly undertake, such as mergers, amalgamations,
demergers, spin-off/hive off, and every other compromise, settlement, agreement or arrangement
between a company and its members and/or its creditors.

A. Procedure under the Merger Provisions

Since a merger essentially involves an arrangement between the merging companies and their
respective shareholders, each of the companies proposing to merge with the other(s) must make
an application to the Company Court3 having jurisdiction over such company for calling
meetings of its respective shareholders and/or creditors. The Court may then order a meeting of
the creditors/shareholders of the company. If the majority in number representing 3/4th in value
of the creditors and shareholders present and voting at such meeting agrees to the merger, then
the merger, if sanctioned by the Court, is binding on all creditors/shareholders of the company.

3
The High Court of each Indian State will usually designate a specific bench of the High Court as the Company
Court, to which all such applications will be made. Upon the constitution and notification of the National Company
Law Tribunal (NCLT), the competent authority for filing this applica- tion will be the NCLT and not the Company
Court.

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The Merger Provisions constitute a comprehensive code in themselves, and under these
provisions Courts have full power to sanction any alterations in the corporate structure of a
company. For example, in ordinary circumstances a company must seek the approval of the
Court for effecting a reduction of its share capital. However, if a reduction of share capital forms
part of the corporate restructuring proposed by the company under the Merger Provisions, then
the Court has the power to approve and sanction such reduction in share capital and separate
proceedings for reduction of share capital would not be necessary.

B. Applicability of Merger Provisions to foreign companies.

Sections 230 to 234 of CA 2013 recognize and permit a merger/reconstruction where a foreign
company merges into an Indian company. Although the Merger Provisions do not permit an
Indian company to merge into a foreign company, the merger provisions under Section 234 of
the CA 2013 do envisage this, subject to rules made by the Government of India. However,
neither is Section 234 currently in force nor have any rules been formulated by the Government
of India.

II. Securities Laws

A. Takeover Code
The Securities and Exchange Board of India (the “SEBI”) is the nodal authority regulating
entities that are listed and to be listed on stock exchanges in India. The Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the
“Takeover Code”) restricts and regulates the acquisition of shares, voting rights and control in
listed companies. Acquisition of shares or voting rights of a listed company, entitling the
acquirer to exercise 25% or more of the voting rights in the target company or acquisition of
control, obligates the acquirer to make an offer to the remaining shareholders of the target
company. The offer must be to further acquire at least 26% of the voting capital of the company4.
However, this obligation is subject to the exemptions provided under the Takeover Code.
Exemptions from open offer requirement under the Takeover Code inter alia include acquisition
pursuant to a scheme of arrangement approved by the Court.

4
Regulation 3 read with Regulation 7 of the Takeover Code.

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B. Listing Regulations
Prior to December 1, 2015, the listing agreement5 entered into by a company for the purpose of
listing its shares with a stock exchange prescribed certain conditions for the listed companies
which they have to follow in the case of a Court approved scheme of
merger/amalgamation/reconstruction. However, on September 2, 2015, the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) were
notified and has been effective from December 1, 2015. The Listing Regulations provide for a
comprehensive framework governing various types of listed securities under the Listing
Regulations, SEBI has altered the conditions for the listed companies which they have to follow
in the case if a Court approved scheme of merger/ amalgamation/reconstruction has been altered.

Acquisitions: Key Corporate and Securities Laws Considerations

I. Company Law

A. Acquisition of Shares.
Acquisitions may be via an acquisition of existing shares of the target, or by subscription to new
shares of the target.
i. Transferability of shares
Broadly speaking, an Indian company is set up as a private company or as a public company.
Membership of a private company is restricted to 200 members and a private company is
required by the CA 2013 to restrict the transferability of its shares. A restriction on transferability
of shares is consequently inherent to a private company, such restrictions being contained in its
articles of association (the byelaws of the company), and usually in the form of a pre-emptive
right in favor of the other shareholders. With the introduction of CA 2013, although shares of a
public company are freely transferable, share transfer restrictions for even public companies
have been granted statutory sanction. The articles of association may prescribe certain
procedures relating to transfer of shares that must be adhered to in order to affect a transfer of
shares. While acquiring shares of a private company, it is therefore advisable for the acquirer to
ensure that the non-selling shareholders (if any) waive any rights they may have under the

5
We refer to the Listing Agreement of the Bombay Stock Exchange as a standard since it is India’s largest Stock
Exchange.

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articles of association. Any transfer of shares, whether of a private company or a public
company, must comply with the procedure for transfer under its articles of association.
ii. Squeeze Out Provisions
a. Section 236 of the CA 2013
Under the CA 2013, if a person or group of persons acquire 90% or more of the shares of a
company, then such person(s) have a right to make an offer to buy out the minority shareholders
at a price determined by a registered valuer in accordance with prescribed rules6. The provisions
in the CA 2013 aim to provide a fair exit to the minority shareholders, as the price offered must
be based on a valuation conducted by a registered valuer. However, it is not clear whether the
minority shareholders can choose to retain their shareholding. However, the Companies Law
Committee vide report dated February, 2016 has recommended that the references to the phrase
‘transferor company’ in Section 236, may be modified to a ‘company whose shares are being
transferred’ or alternatively, an explanation be provided in the provision clarifying that Section
236 only applies to the acquisition of shares so as to clearly exclude amalgamations and mergers
from the ambit of this provision.

b. Scheme of capital reduction under Section 66 of the CA 2013

The capital reduction requirements are more stringent under the CA 2013. In addition to giving
notice to creditors of the company, the NCLT is required to give notice of the application for
reduction of capital to the Central Government and the SEBI (in case of a listed company), who
will have a period of three months to file any objections. Companies will have to mandatorily
publish the NCLT order sanctioning the scheme of capital reduction.
Section 42, 62 of CA 2013 and Rule 13 of the Companies (Share Capital and Debenture) Rules
2014 prescribe the requirements for any new issuance of shares on a preferential basis (i.e. any
issuance that is not a rights or bonus issue to existing shareholders) by an unlisted company.
Some of the important requirements under these provisions are described below:
 The company must engage a registered valuer to arrive at a fair market value of the
shares for the issuance of shares7.

6
Section 236 of the CA 2013
7
Section 62 (1) (c)

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  The issuance must be authorized by the articles of association of the company8 and
approved by a special resolution9 passed by shareholders in a general meeting,
authorizing the board of directors of the company to issue the shares10.A special
resolution is one that is passed by at least 3/4ths of the shareholders present and voting at
a meeting of the shareholders. If shares are not issued within 12 months of the resolution,
the resolution will lapse and a fresh resolution will be required for the issuance11.
 The explanatory statement to the notice for the general meeting should contain key
disclosures pertaining to the object of the issue, pricing of shares including the relevant
date for calculation of the price, shareholding pattern, change of control, if any, and
whether the promoters/directors/key management persons propose to acquire shares as
part of such issuance12.
 Shares must be allotted within a period of 60 days, failing which the money must be
returned within a period of 15 days thereafter. Interest is payable @ 12%p.a. from the
60th day13.
 These requirements apply to equity shares, fully convertible debentures, partly
convertible debentures or any other financial instrument convertible into equity14.

c. Limits on acquirer
Section 186 of CA 2013 provides for certain limits on inter-corporate loans and investments. An
acquirer that is an Indian company might acquire by way of subscription, purchase or otherwise,
the securities of any other body corporate upto (i) 60% of the acquirer’s paid up share capital and
free reserves and securities premium, or (ii) 100% of its free reserves and securities premium
account, whichever is higher. However, the acquirer is permitted to acquire shares beyond such
limits, if it is authorized by its shareholders vide a special resolution passed in a general
meeting.

8
Rule 13(2)(a) of the Companies (Share Capital and Debenture) Rules 2014
9
Rule 13(2)(b) of the Companies (Share Capital and Debenture) Rules 2014
10
Rule 13(1) of the Companies (Share Capital and Debenture) Rules 2014
11
Rule 13(2)(f) of the Companies (Share Capital and Debenture) Rules 2014
12
Rule 13(2)(d) of the Companies (Share Capital and Debenture) Rules 2014
13
Section 42(6)
14
Rule 13(1) of the Companies (Share Capital and Debenture) Rules 2014.

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d. Asset/ Business Purchase
As against a share acquisition, the acquirer may also decide to acquire the business of the target
which could typically entail acquisitions of all or specific assets and liabilities of the business for
a consideration. Therefore, depending upon the commercial objective and considerations, an
acquirer may opt for (i) asset purchase whereby one company purchases all of part of the assets
of the other company; or (ii) slump sale whereby one company acquires the ‘business
undertaking’ of the other company as a going concern i.e. acquiring all assets and liabilities of
such business.
Under CA 2013, the sale, lease or other disposition of the whole or substantially the whole of
any undertaking of a company requires the approval of the shareholders through a special
resolution15 The term “Undertaking” means an undertaking in which the investment of the
company exceeds 20% of its net worth as per the audited balance sheet of the preceding financial
year, or an undertaking which generates 20% of the total income of the company during the
previous financial year. Further this requirement applies if 20% or more of the undertaking
referred to above is sought to be sold, leased or disposed off.
An important consideration for these options is the statutory costs involved i.e. stamp duty, tax
implications etc. We have delved into this in brief in our chapter on ‘Taxes and Duties’.

II. Other Securities Laws

A. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009
If the acquisition of an Indian listed company involves the issue of new equity shares or
securities convertible into equity shares (“Specified Securities”) by the target to the acquirer, the
provisions of Chapter VII (“Preferential Allotment Regulations”) contained in ICDR
Regulations will apply (in addition to company law requirements mentioned above). We have
highlighted below some of the important provisions of the Preferential Allotment Regulations.
i. Pricing of the Issue
The Preferential Allotment Regulations set a floor price for an issuance. The floor price of shares
is linked to the average of the weekly high and low closing price of the stock of the company
over a 26 week period or a 2 week period preceding the relevant date.

15
Section 180 of the CA 201

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ii. Lock-in
Securities issued to the acquirer (who is not a promoter of the target) are locked-in for a period
of 1 year from the date of trading approval. The date of trading approval is the latest date when
trading approval is granted by all stock exchanges on which the securities of the company are
listed. Further, if the acquirer holds any equity shares of the target prior to such preferential
allotment, then such prior holding will be locked in for a period of 6 months from the date of the
trading approval. If securities are allotted on a preferential basis to promoters/ promoter group16,
they are locked in for 3 years from the date of trading approval subject to a limit of 20% of the
total capital of the company. The locked-in securities may be transferred amongst promoter/
promoter group or any person in control of the company, subject to the transferee being subject
to the remaining period of the lock in.
iii. Exemption to court approved merger
The Preferential Allotment Regulations do not apply in the case of a preferential allotment of
shares pursuant to merger / amalgamation approved by the Court under the Merger Provisions
discussed above

B. Takeover Code
If an acquisition is contemplated by way of issue of new shares, or the acquisition of existing
shares or voting rights, of a listed company, to or by an acquirer, the provisions of the Takeover
Code are applicable. The Takeover Code regulates both direct and indirect acquisitions of shares
or voting rights in, and control over a target company. The key objectives of the Takeover Code
are to provide the shareholders of a listed company with adequate information about an
impending change in control of the company or substantial acquisition by an acquirer, and
provide them with an exit option (albeit a limited one) in case they do not wish to retain their
shareholding in the company.
i. Mandatory offer

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The terms ‘promoter’ and ‘promoter group’ are defined in great detail by the Regulations, Generally speaking,
promoters would be the persons in over-all control of the company or who are named as promoters in the prospectus
of the company. The term promoter group has an even wider con- notation and would include immediate relatives of
the promoter. If the promoter is a company, it would include, a subsidiary or holding company of that company, any
company in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity
capital of the promoter.

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Under the Takeover Code, an acquirer is mandatorily required to make an offer to acquire shares
from the other shareholders in order to provide an exit opportunity to them prior to
consummating the acquisition, if the acquisition fulfils the conditions as set out in Regulations 3,
4 and 5 of the Takeover Code. Under the Takeover Code, the obligation to make a mandatory
open offer by the acquirer is triggered in the following events:
a. Initial Trigger
If the acquisition of shares or voting rights in a target company entitles the acquirer along with
the persons acting in concert (“PAC”) to exercise 25% or more of the voting rights in the target
company.
b. Creeping Acquisition
If the acquirer already holds 25% or more and less than 75% of the shares or voting rights in the
target, then any acquisition of additional shares or voting rights that entitles the acquirer along
with PAC to exercise more than 5% of the voting rights in the target in any financial year.
It is important to note that the five per cent (5%) limit is calculated on a gross basis i.e.
aggregating all purchases and without factoring in any reduction in shareholding or voting rights
during that year or dilutions of holding on account of fresh issuances by the target company. If
an acquirer acquires shares along with other subscribers in a new issuance by the company, then
the acquisition by the acquirer will be the difference between its shareholding pre and post such
new issuance.
It should be noted that an acquirer (along with PAC) is not permitted to make a creeping
acquisition beyond the statutory limit of non- public shareholding in a listed company i.e.
seventy five per cent (75%).
c. Acquisition of 'Control'
If the acquirer acquires control over the target.
Regardless of the level of shareholding, acquisition of ‘control’ of a target company is not
permitted, without complying with the mandatory offer obligation under the Takeover Code.
What constitutes ‘control’ is most often a subjective test and is determined on a case-tocase
basis. For the purpose of Takeover Code, ‘control’ has been defined to include:
 Right to appoint majority of the directors

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  Right to control the management or policy decisions exercisable by a person or PAC,
directly or indirectly, including by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any other manner.
ii. Indirect Acquisition of Shares or Voting Rights
For an indirect acquisition obligation to be triggered under the Takeover Code, the acquirer must,
pursuant to such indirect acquisition be able to direct the exercise of such percentage of voting
rights or control over the target company, as would otherwise attract the mandatory open offer
obligations under the Takeover Code. This provision was included to prevent situations where
transactions could be structured in a manner that would side-step the obligations under Takeover
Code. Further, if:
 the proportionate net asset value of the target company as a percentage of the
consolidated net asset value of the entity or business being acquired; or
 the proportionate sales turnover of the target company as a percentage of the consolidated
sales turnover of the entity or business being acquired; or
 the proportionate market capitalisation of the target company as a percentage of the
enterprise value for the entity or business being acquired
is in excess of eighty per cent, on the basis of the most recent audited annual financial
statements, then an indirect acquisition would be regarded as a direct acquisition under the
Takeover Code for the purposes of the timing of the offer, pricing of the offer etc
iii. Voluntary Open Offer
An acquirer who holds between 25% and 75% of the shareholding/ voting rights in a company is
permitted to voluntarily make a public announcement of an open offer for acquiring additional
shares of the company subject to their aggregate shareholding after completion of the open offer
not exceeding 75%17 In the case of a voluntary offer, the offer must be for at least 10% of the
shares of the target company, but the acquisition should not result in a breach of the maximum
non-public shareholding limit of 75%. As per SEBI’s Takeover Code Frequently Asked
Questions, any person holding less than 25% shareholding/voting rights can also make a
voluntary open offer for acquiring additional shares.

17
Regulation 6 (1) of the Takeover Code.

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iv. Minimum Offer Size
a. Mandatory Offer
The open offer for acquiring shares must be for at least 26% of the shares of the target company.
It is also possible for the acquirer to provide that the offer to acquire shares is subject to a
minimum level of acceptance.
b. Voluntary Open Offer
In case of a voluntary open offer by an acquirer holding 25% or more of the shares/voting rights,
the offer must be for at least 10% of the total shares of the target company. While there is no
maximum limit, the shareholding of the acquirer post acquisition should not exceed 75%. In case
of a voluntary offer made by a shareholder holding less than 25% of shares or voting rights of the
target company, the minimum offer size is 26% of the total shares of the company.
V. Pricing of the Offer
Regulation 8 of the Takeover Code sets out the parameters to determine offer price to be paid to
the public shareholders, which is the same for a mandatory open offer as well as a voluntary
open offer. There are certain additional parameters prescribed for determining the offer price
when the open offer is made pursuant to an indirect acquisition. Please see Annexure 2 for the
parameters as prescribed under Regulation 8 of the Takeover Code. It is important to note that
an acquirer is not permitted to reduce the offer price but an upward revision of offer price is
permitted, subject to certain conditions.
vi. Competitive Bid/ Revision of offer/ bid
The Takeover Code also permits a person other than the acquirer (the first bidder) to make a
competitive bid, by a public announcement, for the shares of the target company. This bid must
be made within 15 working days from the date of the detailed public announcement of the first
bidder. The competitive bid must be for at least the number of shares held or agreed to be
acquired by the first bidder (along with PAC), plus the number of shares that the first bidder has
bid for. Each bidder (whether a competitive bid is made or not) is permitted to revise his bid,
provided such revised terms are more favourable to the shareholders of the target company. The
revision can be made up to three working days prior to the commencement of the tendering
period.

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vii. Take Private Mechanism
The SEBI regulations on delisting prescribe the method and conditions for delisting a company,
which earlier could only be undertaken by the promoter of the company. Recently, the SEBI
notified the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2015 (“Amended
Delisting Regulations”). The Amended Delisting Regulations now allow an acquirer to initiate
delisting of the target.

RBI Guidelines on Mergers and Acquisitions of Banks

 With a view to facilitating consolidation and emergence of strong entities and providing
an avenue for non disruptive exit of weak/unviable entities in the banking sector, it has
been decided to frame guidelines to encourage merger/amalgamation in the sector.
 Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to
formulate a scheme with regard to merger and amalgamation of banks, the State
Governments have incorporated in their respective Acts a provision for obtaining prior
sanction in writing, of RBI for an order, inter alia, for sanctioning a scheme of
amalgamation or reconstruction.
 The request for merger can emanate from banks registered under the same State Act or
from banks registered under the Multi State Co-operative Societies Act (Central Act) for
takeover of a bank/s registered under State Act. While the State Acts specifically provide
for merger of co-operative societies registered under them, the position with regard to
take over of a co-operative bank registered under the State Act.
 Although there are no specific provisions in the State Acts or the Central Act for the
merger of a co-operative society under the State Acts with that under the Central Act, it is
felt that, if all concerned including administrators of the concerned Acts are agreeable to
order merger/ amalgamation, RBI may consider proposals on merits leaving the question
of compliance with relevant statutes to the administrators of the Acts. In other words,
Reserve Bank will confine its examination only to financial aspects and to the interests of
depositors as well as the stability of the financial system while considering such
proposals.

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 Conclusion

The present research work is both explorative and analytical. It sought to construct, throughout
the analysis of secondary data. The documents of government policy, financial data, and
financial static provided by authorities are analyzed and try to find out the changes and loopholes
in it. Published works by eminent authors are also consulted during the research.

Since, the present topic was purely academic it was inevitable and inherently mandatory that
only secondary sources be made use of. Therefore, I have made use of journal articles, leading
books and of course the source of knowledge for students: Internet.

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 Bibiliography

Dictionaries and Encyclopedia

Concise Oxford Dictionary, 10th. ed., Oxford University Press, 1999.

GARNER BRYAN, ‘Black’s Law Dictionary’, 7th ed., West Group Publications, 1999.
Leslie Rutherford & Sheila Bose (ed.) Osborn’s Concise Law Dictionary, 18th Edn., (Universal

Law Publishing Co. Pvt. Ltd.).

Websites

www.google.com

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