Project- 30 marks

Class presentation- 10 marks

Viva- 10 marks
End Sem (Closed book)- 50 marks

Paper Pattern: All application-based questions. No theory questions.

4 Questions:
10 marks- 1 Compulsory. For the compulsory question, there might be a little theory. But
mainly application.
3 questions of 20 marks out of which we need to do 2 questions.
1 question mandatorily from Takeover Code.

You will be allowed to carry unmarked copies of 3 Acts:

1. Companies Act
2. Competition Act
3. Takeover Code

Common question in application-based problem- What will be the applicable laws in the
specific fact-situation merger?

IMP Cases:
1. Tata-Air India-Vistara
2. Ranbaxy-Daichii
3. Tata Tea-Starbucks
4. Reliance-Network 18
5. ICICI-ICICI Bank
6. Uber Eats-Zomato
7. Volkswagen-Porshe
8. Walmart-Flipkart
9. eBay-PayPal
10. Tata Motors-Jaguar
11. Google-Youtube
12. Microsoft-Linkedln
13. Acer-Mittal
14. Gucci-LVMH
15. Sony-Ericcsson

IMP Topics for these cases which we have to focus on:

1. Competition Law and Mergers
2. Need and Importance of Due Diligence
3. What are the applicable laws for acquisition?
4. Obligation of Acquirer
5. Joint Venture- Types and Laws applicable
6. Zero Coupon Optionally convertible debentures
7. Merger of Banking companies
8. What is all-stock deal and all-cash deal
9. Types of Acquisitions
10. Cross-border mergers
11. Fast-track mergers
12. Government company merger

Answer the question as per the marks. If it is 5 marks, then answer it in that way. If it is 10
marks, then answer it in that way.

Also go through the draft scheme shared by Ma’am well.

When companies join/combine, usually mergers are voluntary.

If mergers are not voluntary, then it is acquisition/takeover.

Company A + Company B= It can be Company A (New entity different from the previous
Company A)/Company B (New entity different from the previous Company B)/Company C

Not only assets and liabilities of company A and B are combining, but business strategies and
management are combining as well. So, a totally new entity is coming into existence upon
merger.

Remember in the examination that mergers and acquisitions are not the same. But there
is no huge difference between acquisition and takeover.

Purpose of merger:
1. Expansion of business by getting better strategies. This also helps a business in getting a
monopoly in the market. But a merger scheme which allows you to have
monopoly/dominant position cannot be approved by the CCI since it will have an adverse
effect on the market. Any scheme which is an abuse of dominance/anti-competitive
agreements which remove market competition won’t be permitted by the CCI. Any
merger scheme has to be approved by the NCLT and the CCI.
2. Survival
3. Entering new territories
4. Expansion of consumer base
5. Acquisition of IPR

Difference between Acquisition and Takeover (Both are non-voluntary)-

When acquisition happens, a particular company wants to acquire another company.
Company A wants to acquire B. Company A will draft a scheme/proposal. Company B will
give up entirely to company A only in certain circumstances when B is not in good financial
health or in circumstances where Company B is forced to give up to Company A. There is a
certain degree of lack of free consent. Company B forced to give up to its entirety to
Company A because of adverse circumstances in Company A.

Acquisition is a process and takeover is the result (Basic difference). No difference

fundamentally between acquisition and takeover. When the process of acquisition has
been undertaken, the Takeover Code is triggered.

Takeover usually is of hostile nature. Company X has acquired 25% equity shares of
company Z. Now, Company X wants to take over the control and management of Company
Z. and Company Z is resisting. Once Company X has acquired 25% share, it will present a
“mandatory offer” as per the Takeover Code. And it is up to the remaining shareholders of
the company Z to accept the “mandatory offer”. If the remaining shareholders accept the
mandatory offer, then Company X will “takeover” Company Z. The threshold of “mandatory
offer” is set at 25%.
If I have 25% shareholding in a company, then I have to necessarily present a mandatory
offer. It is a mandate.
Acquisition of assets of Company B also enables Company A to gain control over the
company.
Control means both- financial and management control.

Takeover is of two kinds: friendly and hostile. Usually of hostile nature, If the acquired
company’s shareholders and management agree to a takeover, then it can be a friendly
takeover.

If Company X acquires Company Y, then Company X is called the acquiring company and
Company Y is called the acquired company.

Note: In a company, if Company X has 25% shares, then you will be considered to have
majority shareholding.

Read about why was the Takeover Code implemented.

Holding Company- 100% Control both financially and operationally (management) of the
subsidiary company.

Acquisition- step by step process by which you acquire shares. Limited to finance. Once
you become a majority shareholder, then you can get rights over operations/control over the
management. Acquisition doesn’t always necessarily lead to a holding company but it
can lead to formation of a holding company.

Merger- Two entities come together to form a new entity/old entity;

3 Possibilities-
A + B= A;
A + B= B;
A + B= C (This is an amalgamation)

Amalgamation- Two entities come together to always form a new entity.

A + B= C

Essential difference between merger and acquisition is that in merger, both the
companies prepare the scheme together for merger, and in acquisition, the acquirer
company makes an offer.

Scheme- Scheme can be for Merger, Demerger, Amalgamation, Acquisition and

Restructuring in manner of finance/operations. Scheme is basically a draft proposal. Once a
scheme is approved by the Board, you can go for the process of merger/acquisition.

Arrangement- arrangement u/s 230 of the Companies Act includes a reorganisation of the
company‘s share capital by the consolidation of shares of different classes or by the division
of shares into shares of different classes, or by both of those methods.
Types of Mergers:
1. Horizontal mergers- Similar products, similar services, competing companies, similar
stage of production. They are in a competitive position. This merger scheme will be
allowed by CCI only if it is shown that no monopoly is created or competition. Example-
Vodafone- Idea, Flipkart-Myntra

2. Vertical merger- Companies are in the same industry but in different stages of
production. Example- Google-Motorala, Uptron and BPL.

3. Conglomerate merger- Companies in totally unrelated industries. Same group doesn’t

matter.

4. Congeneric Merger- Merger between companies in the same industry/somewhat

related/complement each other. For eg., Thomas Cook (travel services) with Sterling
Hotels (luxury stay)

5. Reverse merger- This usually doesn’t happen in India. Shortcut for a private company to
go public without issuing an IPO. Private company merging with a public company.
One benefit to the private company- Shareholders of the private company directly become
the members of the public company. It is not a time-consuming process. For e.g.,
Hammer merging with Occidental Petroleum.

(Not V IMP) (Just glance through it once) Procedure for merger/amalgamation:

Check the Companies Compromise and Amalgamation Rules, 2016- These Rule articulate
on the process on how you should go about the merger and amalgamation.

1. Check the MOA & AOA of the companies whether they allow any kind of combination
or restructuring.
2. First Board meeting:
i. Approval to be taken from the Board.
ii. How the Representation is to be made before the NCLT
iii. Appointment of Valuer- Any person who is registered as a valuer can carry out the
function of evaluating the value of assets and liabilities.
Approval and Appointment of valuer are mandatory in the First board meeting.
3. Prepare a Draft Scheme together- both companies will prepare the draft scheme
together
4. Preparation of the Valuation Report
5. Comments of other professionals on the Draft Scheme and Valuation Report (like other
CAs, CS)
6. Second Board Meeting:
i. Present the scheme before the 2nd Board Meeting.
ii. Valuation and exchange ratios of shares to be discussed- If A has 10 shareholders
and B has 20 shareholders, then in the new entity what will be the exchange ratios
of the shares of A and B’s shareholders.
7. For all companies, you have to get an NOC and approval of draft scheme from
shareholders and creditors. (Because both assets and liabilities). Majority of the
shareholders have to issue consent letter in writing.
 For Listed Companies, additionally, you have to also get an NOC and approval of the
draft scheme from the Stock Exchange Regulator (SEBI) - Rule 37 of SEBI LODR
Regulations.
8. Prepare affidavit and file an application of the draft scheme to the NCLT.
9. Obtain certified copy of the approval of the NCLT. (If NCLT not satisfied then have to
do the process again – or restart the process).
- If NCLT has an issue with certain clauses of the draft scheme, then the
company has to incorporate the comments of the NCLT and get it approved by
way of a Board meeting.
- Post the incorporation of comments, the draft scheme has to be approved from
the NCLT.
- File the certified copy with the ROC (and SEBI in case it is a listed
company).
10. After all these, you have to issue an advertisement for the merger/combination in an
English and vernacular newspaper.
11. Sanction of the scheme has to be taken from the NCLT. Filing of the certified copy with
the ROC (and SEBI in case it is a listed company). [!!!!!!!]
12. Appointment of auditor.
13. After this, opportunity is given to the creditors to raise any grievance.
14. Filing of petition before NCLT for hearing.
15. NCLT gives you the approval. Filing of the final approval with the ROC (and SEBI in
case it is a listed company).

Scheme of Arrangement (Scheme shared by Ma’am)

1. Names of Companies involved designated as Transferoor and transferee Company.

2. Sections of the Companies Act under which merger/amalgamation is taking place.
3. Preamble:
i. Why this scheme is happening? (Summary; overview of the scheme of
arrangement)
ii. Background of both the companies (CIN Number, incorporation, everything about
both companies).
iii. Rationale behind the scheme.
4. General Provisions
i. Definitions. Among the definitions, two important concepts are involved:
Appointed Date & Effective Date.
Section 232(6) of the Companies Act states that the scheme shall be deemed
to be effective from the 'appointed date' and not a date subsequent to the
'appointed date'.

‘Appointed date’- the date by which the process of the scheme is attempted to
be completed. Kept open.
‘Effective Date’- The date on which the process of the scheme is completed
and comes into force, i.e., the date when the certified copy of final approval of
the scheme by the NCLT is filed with the ROC. Effective Date can be earlier
than the appointed date but can be never post the appointed date.

Case Law on Appointed Date and Effective Date- Marshall Sons and
Company India Ltd. v. ITO, 223 ITR 809 – the appointed date antedating
 (prior) the date of filing of the Scheme before the Court/Tribunal is very much
permissible (Reasons: the court proceeding may take some time and during the
pending time parties may carry our some business – here court has also not
specified any other date other than appointed date as the date of
transfer/amalgamation)

ii. Date of effect and operative date. [!!!!!!!]

iii. Capital Structure
5. Amalgamation, Transfer and Vesting of undertaking (what comes under each of
them?)
i. Transfer of Assets
ii. Transfer of Liabilities
iii. Pending Legal Proceedings
iv. Employee Matters of both companies involved
v. Taxation and other matters
vi. Conduct of business
6. Consideration and Accounting Treatment
i. Consideration
ii. Accounting
iii. (IMP) Change in Objects Clause of MOA of Transferee Company
iv. Saving of Concluded Transactions
v. Dissolution of Transferor Company
7. Other provisions
i. Conditionality of Scheme- IMP (the scheme is condtional upon or subject to
what? – sanctions, approval, laws, et al.)
ii. Modification and Amendment of the Scheme
iii. Costs

For a compromise or arrangement, need to first file an application under Section 230
and then it will proceed as per provisions of Section 230.

Section 230 of Companies Act, 2013

(1) Where a compromise or arrangement is proposed—

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them,

the Tribunal may, on the application of the company or of any creditor or member of the
company, or in the case of a company which is being wound up, of the liquidator,
1[appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case
may be,] order a meeting of the creditors or class of creditors, or of the members or class of
members, as the case may be, to be called, held and conducted in such manner as the Tribunal
directs.

Explanation. —For the purposes of this sub-section, arrangement includes a re-organisation

of the company’s share capital by the consolidation of shares of different classes or by the
division of shares into shares of different classes, or by both of those methods.
S. 231. Power of Tribunal to enforce compromise or arrangement. — (1) Where the
Tribunal makes an order under section 230 sanctioning a compromise or an arrangement in
respect of a company, it—
(a) shall have power to supervise the implementation of the compromise or arrangement; and
(b) 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 implementation of the compromise or arrangement.

(2) If the Tribunal is satisfied that the compromise or arrangement sanctioned under section
230 cannot be implemented satisfactorily with or without modifications, and the company is
unable to pay its debts as per the scheme, it may make an order for winding up the company
and such an order shall be deemed to be an order made under section 273.

232. Merger and amalgamation of companies. — (1) Where an application is made to the
Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed
between a company and any such persons as are mentioned in that section, and it is shown to
the Tribunal—
(a) that the compromise or arrangement has been proposed for the purposes of, or in
connection with, a scheme for the reconstruction of the company or companies involving
merger or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of
any company (hereinafter referred to as the transferor company) is required to be transferred
to another company (hereinafter referred to as the transferee company), or is proposed to be
divided among and transferred to two or more companies,
the Tribunal may on such application, order a meeting of the creditors or class of creditors or
the members or class of members, as the case may be, to be called, held and conducted in
such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of
section 230 shall apply mutatis mutandis.

233. Merger or amalgamation of certain companies (Fast Track Merger). — (1)

Notwithstanding the provisions of section 230 and section 232, a scheme of merger or
amalgamation may be entered into between two or more small companies or between a
holding company and its wholly-owned subsidiary company or such other class or classes of
companies as may be prescribed, subject to the following, namely: —
(a) a notice of the proposed scheme inviting objections or suggestions, if any, from the
Registrar and Official Liquidators where registered office of the respective companies are
situated or persons affected by the scheme within thirty days is issued by the transferor
company or companies and the transferee company;
(b) the objections and suggestions received are considered by the companies in their
respective general meetings and the scheme is approved by the respective members or
class of members at a general meeting holding at least ninety per cent. of the total
number of shares;
(c) each of the companies involved in the merger files a declaration of solvency, in the
prescribed form, with the Registrar of the place where the registered office of the
company is situated; and
(d) the scheme is approved by majority representing nine-tenths in value of the creditors
or class of creditors of respective companies indicated in a meeting convened by the
company by giving a notice of twenty-one days along with the scheme to its creditors for the
purpose or otherwise approved in writing.
Fast-Track merger under Section 233 between:
1. Two or more small companies
2. Holding and wholly owned subsidiary companies.

No approval of NCLT required in a fast-track merger; all procedural aspects are not required;
So, it is called fast-track merger.

Section 234. Cross Border Merger- has to be an Indian company with a foreign
company.

234. Merger or amalgamation of company with foreign company. — (1) The provisions of this
Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis
mutandis to schemes of mergers and amalgamations between companies registered under this Act and
companies incorporated in the jurisdictions of such countries as may be notified from time to time by
the Central Government:
Provided that the Central Government may make rules, in consultation with the Reserve Bank of
India, in connection with mergers and amalgamations provided under this section.
(2) Subject to the provisions of any other law for the time being in force, a foreign company, may
with the prior approval of the Reserve Bank of India, merge into a company registered under
this Act or vice versa and the terms and conditions of the scheme of merger may provide, among
other things, for the payment of consideration to the shareholders of the merging company in
cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case
may be, as per the scheme to be drawn up for the purpose.

Explanation. —For the purposes of sub-section (2), the expression ―foreign company‖ means any
company or body corporate incorporated outside India whether having a place of business in India or
not.

RBI- Most important entity for cross-border mergers because foreign currency is involved.

Depository Receipts- Receipts issued to you; similar to shares; enable you to have some stake in
foreign companies. Depositary Receipts are different from shares.

The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

Rule 25A.
[Prior approval of RBI + Complying 230 to 232 + Rules + Conduct valuation by
professional valuer as per International standards + if foreign country share boarder then
also submit Form CAA-16]
Merger or amalgamation of a foreign company with a Company and vice versa. - (1) A
foreign company incorporated outside India may merge with an Indian company after
obtaining prior approval of Reserve Bank of India and after complying with the provisions of
sections 230 to 232 of the Act and these rules.

(2) (a) A company may merge with a foreign company incorporated in any of the
jurisdictions specified in Annexure B after obtaining prior approval of the Reserve Bank of
India and after complying with provisions of sections 230 to 232 of the Act and these rules.
(b) The transferee company shall ensure that valuation is conducted by valuers who are
members of a recognised professional body in the jurisdiction of the transferee company and
further that such valuation is in accordance with internationally accepted principles on
accounting and valuation. A declaration to this effect shall be attached with the application
made to Reserve Bank of India for obtaining its approval under clause (a) of this sub-rule.
(3) The concerned company shall file an application before the Tribunal as per provisions of
section 230 to section 232 of the Act and these rules after obtaining approvals specified in
sub-rule (1) and sub-rule (2), as the case may be.
Explanation 1. - For the purposes of this rule the term "company" means a company as
defined in clause (20) of section 2 of the Act and the term "foreign company" means a
company or body corporate incorporated outside India whether having a place of business in
India or not:
Explanation 2. - For the purposes of this rule, it is clarified that no amendment shall be made
in this rule without consultation of the Reserve Bank of India.]

[(4) Notwithstanding anything contained in sub-rule (3), in case of a compromise or an

arrangement or merger or demerger between an Indian company and a company or body
corporate which has been incorporated in a country which shares land border with India, a
declaration in Form No. CAA-16 shall be required at the stage of submission of application
under section 230 of the Act

Cross Border merger can also be a fast-track merger.

Types of Cross-Border mergers:

1. Horizontal
2. Vertical
3. Congeneric
4. Conglomerate
5. Reverse
2 Extra types for Cross-border mergers:
6. Inbound- Foreign company merges or acquires an Indian company; resultant company is
an Indian company.
7. Outbound- Resultant company is a foreign company; For an outbound cross-border
mergers, the valuation has to be done by a foreign company; Incorporation will be as per
foreign laws.

Laws and Regulations for Cross-Border Merger:

1. Companies Act, 2013
2. Takeover Code
3. FEMA Act, 1999; FEM (Transfer or issue of securities by a person resident outside
India) Regulations, 2000; FDI Regulations
4. RBI on FEMA (Cross-Border Mergers) Regulations, 2018
5. CCI
6. Stamp Act
7. Transfer of Property Act
8. Income Tax Act.

Other than FEMA, RBI and Stamp Act, the rest of the aforesaid laws will be applicable
only for inbound cross-border mergers.

Daichy-Ranbaxy- Inbound Cross Border Merger [!]

Reliance-Hamleys- Outbound Cross Border Merger
Tata Motors-Jaguar Land Rover- Outbound Cross Border Merger [!]
Tata Steel-Chorus- Outbound Cross Border Merger

23 Aug
Companies Compromise and Arrangement Rules
Rule 9 – Voting
∙ Persons entitled to vote- certain class of members, shareholders and creditors

∙ In person, proxy, email, postal ballot

Rule 12 – Affidavit of service
∙ 7 days prior to the meeting , the Chairman ( who is decided by the NCLT) , has to
submit the affidavit
∙ Condonation of delay u/s5 Limitation Act to be applied for incase 7 days period
lapses
Rule 13 – Result of the voting
∙ Either poll or voting
Rule 14- Report of the meeting to be decided by voting
∙ Chairman to submit when NCLT fixes date, or, 3 days after meeting concluded

∙ CAA 4 Form to be submitted

Rule 15- Petition for confirming compromise or arrangement
∙ After chairman’s report submitted in R14- 7 days to file petition (to be filed by the
company) with the NCLT
Rule 16 – date and notice of hearing
∙ 10 days before hearing, notice needs to be served in an English and anr vernacular
newspaper, either, same or as directed by the NCLT
∙ Tribunal has to give notice to CG and Regulatory authorities
Rule 17- order on petition
∙ Any matter or any modification

∙ Certified copy of the same (NCLT gives the same) to be filed with the RoC in 30
days
∙ Form No. CAA 6
Rule 18 and 19- also go into it.
21. Statement of compliance in mergers and amalgamations.- For the purpose of sub-
section (7) of section 232 of the Act, every company in relation to which an order is made
under sub-section (7) of section 232 of the Act shall until the scheme is fully implemented,
file with the Registrar of Companies, the statement in Form No. AA.8 along with such fee as
specified in the Companies (Registration Offices and Fees) Rules, 2014 within two hundred
and ten days from the end of each financial year.
22. Report on working of compromise or arrangement.- any time after issuing an order
sanctioning, the compromise or arrangement., the Tribunal may either on its own motion or
on the application of any interested person, make an order directing the company or where-
the company is being wound-up, its liquidator, to submit to the Tribunal within such time as
the Tribunal may fix, a report on the working of the said compromise or arrangement and on
consideration or the report, the Tribunal may pass such orders or give such directions as it
may think fit.
23. Liberty to apply.- (1) The company, or any creditor or member thereof, or in case of a
company which is being wound-up, its liquidator, may, at any time after the passing or the
order sanctioning the compromise or arrangement, apply to the Tribunal for the determination
of any question relating to the working of the compromise or arrangement,
(2) The application shall in the first instance be posted before the Tribunal for directions as to
(he notices and the advertisement, if any, to be issued, as the Tribunal may direct.
(3) The Tribunal may, on such application, pass such orders and give such directions as it
may think fit in regard to the matter, and may make such modifications in the compromise or
arrangement as it may consider necessary for the proper working thereof, or pass such orders
as it may think fit in the circumstances of the case.
Rule 24- Liberty of the Tribunal; Tribunal on its own can make any changes once it has
received any application
24. Liberty of the Tribunal.- (1) At any time during the proceedings, if the Tribunal hearing
a petition or application under these Rules is of the opinion that the petition or application or
evidence or information or statement is required to be filed in (he form of affidavit, the same
may be ordered by the Tribunal in the manner as the Tribunal may think fit.
(2) The Tribunal may pass any direction(s) or order or dispense with any procedure
prescribed by these rules in pursuance of the object of the provisions for implementation of
the scheme of arrangement or compromise or restructuring or otherwise practicable except on
those matters specifically provided in the Act.

The Competition Act, 2002

CCI comes in mergers to prevent anti-competitive behaviour; primarily few important
pointers:
1. Anti-competitive behaviour
2. Dominant position of companies- To prevent a situation where only few players have the
authority to exercise dominance in the market, and force other companies to reduce the
price.
3. Survival of other players
4. Prevention of adverse effect
5. Consumer welfare.

Section 2(a) of the Competition Act: provides definition of “acquisition”

Need to check whether the acquisition is direct or indirect. Control- means control over
management or assets.
For the applicability of the Competition Act, we shall focus on the definition of an
“enterprise” under Section 2(h) of the Competition Act. Definition of enterprise is quite broad
under the Act. Everything practically falls under the definition of an “enterprise”.
Read Sections 3 and 4 of the Act.
Section 5 of the Act- IMP
For the purpose of applicability of the competition act, section 5 of the act clarifies that
mergers/amalgamations shall be a combination of such enterprises.
1.Control
2. Shares
3. Voting Rights
4. Assets
Either one of them or all of them have to be there for it to fall within the purview of the
Competition Act. During the process or after the process, the cci can intervene.
Read Sections 3, 4 and 5 well.
Definition of "control" is given in the explanation to Section 5 of the Act. Control here
essentially refers to the fact that the other entity has some influence over your managerial
decisions/control over over assets.
Definition of "group" also given in the explanation to Section 5.

Section 6. Regulation of Combinations

Clearly specifies "Appreciable Adverse effect on competition"- any kind of problem or
influence in the market as a result of the combination would fall within the scope of this
clause.
Section 6(2)- imp cci must be notified of such combination
If the scheme has not been submitted to the regulator, and is in the news, even then the cci
can intervene.

“Relevant market” under the Competition Act- relevant product market/relevant

geographical market

Relevant market for a company which sells goods in India and which sells goods in japan are
different. So there won’t be any competition.

Within 30 days you have to let the CCI know by means of a notification:
1. Within 30 days of endorsement by BOD or
2. Within 30 days prior to the implementation.

The company has to notify the CCI about:

1. Nature of transaction- if a merger between a pen and coffee company, then it is not
affecting the competition in either of those markets.
2. Market effects- which geographical area it affects.
3. Details of the parties (merging entities) + competitors
Further, if there is a possible merger between Jio & Airtel and their investments allow
them to charge just Rs. 3 for unlimited calling, then that practically eliminates all rivals
and creates barriers to entry.

Pre-merger review wrt CCI:

Because after the transaction is almost on the verge of getting completed then it does not
make sense it CCI tells you to stop the transaction or completely modify the transaction.

Merger of Vodafone and Idea- They were cellular companies. But why were they allowed
to merge then? Because of the difference in geographical markets, they were allowed.
Vodafone primarily in urban areas (cities). Idea operating in rural areas.

CCI provides you remedies in case of your mergers which are likely to have an appreciable
adverse effect on competition:
1. Stoppage
2. Modification
3. Alteration
4. Putting conditions to mitigate the problem (like you cannot sell beyond this quantity)
Just read SEBI’s applicability from the article.

CCI (Procedure in regard to the transaction of business relating to Combination)

Regulations, 2011:
Regulation 4 provides for the exception when the CCI will not intervene. The categories and
instances where the CCI will not analyse or intervene have been mentioned in Schedule I. If
the M&A transaction goes beyond this, only then the CCI will intervene. \[!!!!!]

Due Diligence- for the purpose of an M&A transaction, the pre-transaction due diligence
which the CCI conducts is:
1. Market share- How much of the market both of the companies are holding.
2. Nature of the transaction- Competitive position post the transaction. If some
competitor/rival is eliminated as a result of the transaction, then the CCI will intervene.
3. Conduct of the parties/Merging entities- If they are related (related party
transactions)/if they had previously entered into any anti-competitive transaction/If they
entered into the transaction with the objective of eliminating competition.
4. Any investigation/litigation involving the parties- Any investigation by regulatory
authorities like SEBI/Any impending litigation or arbitration.

In case of an acquisition, the acquirer company will also have to conduct pre-transaction due
diligence.

Daichi-Ranbaxy acquisition- Daichi never did due diligence investigation; they were not
aware of the fact that Ranbaxy will be charged and FDI investigation will be carried out
against Daichi.

Prohibited Activities- If any of these activities, come into play, then the CCI will prohibit
them:
1. Dominant position- If the transaction is such that it lets you have a better share in the
market (For e.g., Jio-airtel hypothetical merger); Any transaction which empowers you
control the market gives you a dominant position.
2. Anti-competitive agreement- Any agreement which has the potential to prevent
competition/eliminate competitors.
3. Price fixing- Suppose X and Y are entering into an amalgamation with the eventual
objective of fixing prices and creating barriers to entry.
4. Bid rigging- If X and Y are going for a tender, they decide that they will collude and
combine themselves to provide a bid for the lowest price because the lowest price wins
the bid. They provide the bid for the lowest price because they have the resources because
of combination. These can be described as anti-competitive agreements as well.
5. Market allocation- The geographical market which the entities are targeting; If the
market is separate for the merging entities (Vodafone-Idea; Reliance-Hamleys), then the
CCI won’t intervene.
6. Any other transaction which prevents healthy competition in the market.

SEBI ICDR Regulations

How is it related to mergers and acquisitions? ICDR becomes applicable when you acquire
the shares.
This is done on a preferential share-basis. There is a lock-in period during which you can sell
or transfer shares.

Regulation 167 and 168 of ICDR- IMP

ICDR and LODR will be overlapping and going on.

Regulation 11 of LODR. Scheme of Arrangement.

11. The listed entity shall ensure that any scheme of arrangement /amalgamation
/merger /reconstruction /reduction of capital etc. to be presented to any Court or Tribunal
does not in any way violate, override or limit the provisions of securities laws (All SEBI
regulations/SEBI Act becomes applicable) or requirements of the stock exchange(s).
Provided that this regulation shall not be applicable for the units issued by Mutual Fund
which are listed on a recognised stock exchange(s).

Regulation 37 of LODR. Draft Scheme of Arrangement & Scheme of Arrangement.

37. (1)Without prejudice to provisions of regulation 11, the listed entity desirous of
undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the
draft scheme of arrangement, proposed to be filed before any Court or Tribunal under
sections 391-394 and 101 of the Companies Act, 1956 or under Sections 230-234 and Section
66 of Companies Act, 2013, whichever applicable, along with a non-refundable fee as
specified in Schedule XI, with the stock exchange(s) for obtaining the Observation Letter
or No-objection letter, before filing such scheme with any Court or Tribunal,in terms of
requirements specified by the Board or stock exchange(s) from time to time.
(2) The listed entity shall not file any scheme of arrangement under sections 391-394 and 101
of the Companies Act, 1956 or under Sections 230-234 and Section 66 of Companies Act,
2013, whichever applicable, with any Court or Tribunal unless it has obtained the observation
letter or No-objection letter from the stock exchange(s).

(3) The listed entity shall place the Observation letter or No-objection letter of the stock
exchange(s) before the Court or Tribunal at the time of seeking approval of the scheme of
arrangement:
Provided that the validity of the ‘Observation Letter’ or No-objection letter of stock
exchanges shall be six months from the date of issuance, within which the draft scheme
of arrangement shall be submitted to the Court or Tribunal.

(4) The listed entity shall ensure compliance with the other requirements as may be
prescribed by the Board from time to time.

(5) Upon sanction of the Scheme by the Court or Tribunal, the listed entity shall submit the
documents, to the stock exchange(s), as prescribed by the Board and/or stock exchange(s)
from time to time.

(6) Nothing contained in this regulation shall apply to draft schemes which solely provide for
merger of a wholly owned subsidiary with its holding company:
Provided that such draft schemes shall be filed with the stock exchanges for the purpose of
disclosures.

(7) The requirements as specified under this regulation and under regulation 94 of these
regulations shall not apply to a restructuring proposal approved as part of a resolution plan by
the Tribunal under section 31 of the Insolvency Code, subject to the details being disclosed to
the recognized stock exchanges within one day of the resolution plan being approved.

Difference between no-objection certificate and observation letter under Regulation 37-
Observation letter- SEBI provides its comments on the merger. These NOC and observation
letters are valid only for 6 months.
For wholly-owned subsidiaries/fast track mergers, you don’t need file NOC/observation
letter.

Regulation 94 of LODR. Draft Scheme of Arrangement & Scheme of Arrangement in

case of entities that have listed their specified securities.

94.(1) The designated stock exchange, upon receipt of draft schemes of arrangement and the
documents prescribed by the Board, as per sub-regulation (1) of regulation 37, shall forward
the same to the Board, in the manner prescribed by the Board.
(2) The stock exchange(s) shall submit to the Board its Objection Letter or No-Objection
Letter on the draft scheme of arrangement after inter-alia ascertaining whether the draft
scheme of arrangement is in compliance with securities laws within thirty days of receipt of
draft scheme of arrangement or within seven days of date of receipt of satisfactory reply on
clarifications from the listed entity and/or opinion from independent chartered accountant, if
any, sought by stock exchange(s), as applicable.

(3) The stock exchange(s), shall issue Observation Letter or No-objection letter to the listed
entity within seven days of receipt of comments from the Board, after suitably incorporating
such comments in the Observation Letter or No-objection letter:

Provided that the validity of the ‘Observation Letter’ or No-objection letter of stock
exchanges shall be six months from the date of issuance.

(4) The stock exchange(s) shall bring the observations or objections, as the case may be, to
the notice of Court or Tribunal at the time of approval of the scheme of arrangement.
(5) Upon sanction of the Scheme by the Court or Tribunal, the designated stock exchange
shall forward its recommendations to the Board on the documents submitted by the listed
entity in terms of sub-regulation (5) of regulation 37.

Regulation 4 of LODR. Principles governing disclosures and obligations.

4. (1) The listed entity which has listed securities shall make disclosures and abide by its obligations
under these regulations, in accordance with the following principles:

(a) Information shall be prepared and disclosed in accordance with applicable standards of accounting
and financial disclosure (Accounting standard 47 is usually followed)

(b) The listed entity shall implement the prescribed accounting standards in letter and spirit in the
preparation of financial statements taking into consideration the interest of all stakeholders and shall
also ensure that the annual audit is conducted by an independent, competent and qualified auditor.

(c) The listed entity shall refrain from misrepresentation and ensure that the information provided
to recognised stock exchange(s) and investors is not misleading (information that is going to make
the shareholders to some other conclusion).

(d) The listed entity shall provide adequate and timely information to recognised stock exchange(s)
and investors.

The aforesaid 4 pointers are the 4 disclosures that need to be made.

(e) The listed entity shall ensure that disseminations made under provisions of these regulations and
circulars made thereunder, are adequate, accurate, explicit, timely and presented in a simple
language.

(f) Channels for disseminating information shall provide for equal, timely and cost efficient access to
relevant information by investors.

(g) The listed entity shall abide by all the provisions of the applicable laws including the securities
laws and also such other guidelines as may be issued from time to time by the Board and the
recognised stock exchange(s) in this regard and as may be applicable.

(h) The listed entity shall make the specified disclosures and follow its obligations in letter and spirit
taking into consideration the interest of all stakeholders.

Regulation 24 of LODR. Corporate governance requirements with respect to subsidiary of listed

entity.

24. (1) At least one independent director on the board of directors of the listed entity shall be a director
on the board of directors of an unlisted material subsidiary, whether incorporated in India or not. (1
independent director has to be on the board from the listed company and unlisted company post a
merger between the listed company and the unlisted company)

Explanation- For the purposes of this provision, notwithstanding anything to the contrary contained in
regulation 16, the term “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds
twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries
in the immediately preceding accounting year.

(1) At least one independent director on the board of directors of the listed entity shall be a director on the
board of directors of an unlisted material subsidiary, incorporated in India.

(2)The audit committee of the listed entity shall also review the financial statements, in particular, the
investments made by the unlisted subsidiary.

(3)The minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the
meeting of the board of directors of the listed entity.

(4)The management of the unlisted subsidiary shall periodically bring to the notice of the board of
directors of the listed entity, a statement of all significant transactions and arrangements entered into by the
unlisted subsidiary.
Explanation.-For the purpose of this regulation, the term “significant transaction or arrangement” shall
mean any individual transaction or arrangement that exceeds or is likely to exceed ten percent of the total
revenues or total expenses or total assets or total liabilities, as the case may be, of the
unlisted material subsidiary for the immediately preceding accounting year.

(5)A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its
shareholding (either on its own or together with other subsidiaries) to less than or equal to fifty percent or
cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting
except in cases where such divestment is made under a scheme of arrangement duly approved by a
Court/Tribunal or under a resolution plan duly approved under section 31 of the Insolvency Code and such
an event is disclosed to the recognized stock exchanges within one day of the resolution plan being
approved.

(6)Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the
material subsidiary on an aggregate basis during a financial year shall require prior approval of
shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of
arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31
of the Insolvency Code and such an event is disclosed to the recognized stock exchanges within one day of
the resolution plan being approved.

(7)Where a listed entity has a listed subsidiary, which is itself a holding company, the provisions of this
regulation shall apply to the listed subsidiary in so far as its subsidiaries are concerned.

Regulation 28 of LODR. In-principle approval of recognized stock exchange(s).

28. (1) The listed entity, before issuing securities, shall obtain an ‘in-principle’ approval from recognised
stock exchange(s) in the following manner:

(a)where the securities are listed only on recognised stock exchange(s) having nationwide trading
terminals, from all such stock exchange(s);

(b) where the securities are not listed on any recognised stock exchange having nationwide trading
terminals, from all the stock exchange(s) in which the securities of the issuer are proposed to be listed;
(c)where the securities are listed on recognised stock exchange(s) having nationwide trading terminals as
well as on the recognised stock exchange(s) not having nationwide trading terminals, from all recognised
stock exchange(s) having nationwide trading terminals:

(2)The requirement of obtaining in-principle approval from recognised stock exchange(s), shall not be
applicable for securities issued pursuant to the scheme of arrangement for which the listed entity has
already obtained No-Objection Letter from recognised stock exchange(s) in accordance with regulation 37.
(If you have already taken NOC as per Regulation 37, in-principle approval not required as per this
provision)

FEMA Act and FEMA Regulations- applicable for our purpose only for inbound and
outbound merger. (Applicable only for cross-border merger.

FEM (Transfer or Issue by a person resident outside India) Regulations, 2017

FEM (Transfer or Issue of any foreign security) Regulations, 2004 (Also known as ODI
Regulations). (Each and every year it is amended)
Regulation 6, 7- relates to joint ventures, wholly-owned subsidiaries and step-down
subsidiaries. If A has a wholly-owned subsidiary (Company X) and Company X has another
subsidiary (Company Y which may or may not be a wholly-owned subsidiary), and Company
A merges with Company X, then after the merger, Company Y becomes a step-down
subsidiary of Company A.

But what the last amendments have done are that these regulations are not flexible enough.
Now equity capital has been included.

Cross border mergers

1. Inbound merger
If an Indian company has an offshore office abroad, then it will be referred to as a branch
office outside India.

Refer to FEM (Foreign Currency Account by a Person Resident in India) Regulations,

2015

Let's say shell company is created specifically to perpetrate fraud. after that, an inbound
merger is executed involving the shell company. the following 3 regulations are applied to
prevent such kind of such fraud
3 regulations come into play:
i. FEM (Borrowing or lending in foreign exchange) Regulations, 2000
ii. FEM (Borrowing or lending in rupees) Regulations, 2000
iii. FEM (Guarantee) Regulations, 2000

Before the liabilities are transferred, you have to see whether these Regulations bar you or
prevent you from transferring the liabilities/or bar you from becoming a guarantor. This is
only there for 2 years. within that 2 years of the date of sanction by the nclt, you have to
complete the liability.
Assets outside of India- What happens to the assets. All the FEMA regulations will guide you
through this. Refer to the FEMA Act, which deals with cases wherein an Indian company
cannot hold assets outside India. If you cannot hold it, then you have to sell it off within 2
years. This 2 years is again from the date of sanction by the NCLT.

Due Diligence- Main aim of due diligences is evaluating, reviewing and examining the gaps,
risk assessments, compliances with the objective of understanding the risks and opportunities
(in the means of what benefits are you getting from the transaction). Due diligence also
enables you to understand why you shouldn’t go for the transaction. Have a check and
balance and then go for the transaction. Here, you analyse the financial, operational and legal
status of the companies.
Financial- Financial statements of the company; whether the company is suffering loss. If it
is incurring loss, then the acquirer company has to pay for it.
Operational- How the operations are carried out; the workers, labourers involved, how
management carries on the operations.
Legal- any pending litigations and whether the company is holding any IPR rights or there
are any IPR issues.

The acquirer company (buyer) will also undertake due diligence. He will check the following
things:
1. What he will gain as a result of the transaction
2. Obligations- Something which the buyer has to do. Obligations are mandatory.
3. Liabilities- Something what is coming in the future; which the buyer can do in the future.
4. Pending Litigation
5. IPR rights/issues- Royalties or licensing. Suppose the company is fighting to get IPR
rights.

Main objective of the seller for undertaking due diligence is to ascertain the “fair market
value” of the transaction; whether seller can pay off its own liabilities; and whether buyer
actually has the potential to pull off the transaction.
Mostly, buyers undertake the due diligence. But sellers also undertake due diligence to cross-
check their scenario and ascertain fair market value.

Smith v. Van Gorkom (also known as the Trans Union case)- In this case, there was a
merger. Trans Union was giving up its shares. The Chairman of Trans Union did not have
meetings. He just had 1 meeting with the CFO of the company and fixed the share value at
$55. The BOD also didn’t look into the merits of the deal. They just saw the pricing and
agreed. When the matter went to the court, the court held that there was gross negligence
of duty on the part of the BOD. Neither the BOD nor the Chairman could provide any
proof of methodology for determining the price. The Court held that there was an
undervaluation. The Court elaborated on the need for due diligence, why expert opinion
is required, why a proper methodology is required.

Nirma Industries and another v. SEBI, Civil Appeal No. 6082 of 2008- Same situation as
Smith. The Court held that there must be proper due diligence.

Ranbaxy-Daiichi case- Ranbaxy had violated US laws. Daiichi did not think that they need
to undertake due diligence with respect to all laws of locations in which Ranbaxy operates.

Fundamental reasons for preliminary due diligence:

1. Potential risk
2. Valuation
3. Opportunities post-transaction
4. Avoid Bad transaction
5. Building of trust
6. Actual material information- What the asset the seller is claiming actually in the
ownership of the seller.

Tools of preliminary due diligence:

1. Questionnaire- After the sellers provides the answers, the buyer starts negotiations. The
negotiations are carried out by an expert panel. The questionnaire’s answers are
provided to almost all potential buyers.
2. Representation and warranties- Representations are basically certain statements by the
seller. When the seller while selling the shares is perpetually lying, then his
representations and warranties won’t be taken into account by the buyer.
3. Analyse financial data- Analysis of financial statements (Balance sheet, P/L Statement)

After the preliminary due diligence is done, you enter into a confidentiality agreement so that
the information provided by the sellers is not available in the public domain.

Elements to be checked in final due diligence after preliminary due diligence is done:
1. Financial Due diligence- Balance sheets of last 3 or 5 years
2. IP Due diligence
3. Taxes Due Diligence
4. Customer Due Diligence- Best customers, if customers leave then why, customer
satisfaction score
5. Legal due diligence- beyond whether there is any pending litigation. What are the
objects in the MOA and what are the articles of the AOA; you check the minutes of the
board meetings, the shareholder agreements, credit agreements.

Challenges you face with respect to due diligence:

1. Most data falls under confidentiality agreements.
2. Misrepresentation can be a factor
3. Financial distress, suppose the company is going into CIRP. Very difficult to get
information from the IRP/COC. This is different from an acquisition. Basically when you
are providing a resolution plan.
4. Insufficient data
5. Availability of expert opinion.

Amalgamation/Merger of Banking companies

Reasons for M&A among banks:

1. Financial liquidity- when 2 entities combine, there is a large pool of assets which is
available to the merged entity.
2. Merger of weaker banks
3. Synergies- Main thing for synergies is profits, i.e., to ensure that you do not incur losses.
4. Technology advancements- eBanking facilities.
5. Geographical extensions
6. Skill and talent- Knowledge of the industry; distribution of assets/employees/skill of the
employees and workmen.
7. RBI’s main for M&A among banks is to facilitate competition, consolidation and
restructuring. Competition among larger entities. Competition will ensure provision of
better services, prevention of monopoly and prevention of charging of high interest
rates. Consolidation of weaker banks to create a national presence.

There are 2 ways of restructuring:

i. Financial Restructuring- Restructuring in debt and equity.
ii. Corporate restructuring- Change in operations, change in management.

RBI will want restructuring to prevent banks are not financially sick, and banks function
properly, to ensure that banks operate as a going concern (fulfilling their day-to-day duties,
earning profits consistently). Against this backdrop, RBI facilitates restructuring.

Applicable laws:
1. RBI Act.
2. Banking Regulation Act, 1949: Gives two types of amalgamations:
i. Voluntary- S. 44A. When two entities on their own want to go ahead with the
amalgamation. For eg., Amrit Bank with Union Bank.
In addition the requirements for approval, the following steps are to be also
followed:
The BOD before drafting a scheme, will check:
a. the assets and liabilities as well as the cash reserves of the banks
b. Check whether due diligence is done.
c. Check the shares of the merging entity, the benefits which the new entity
will provide to the shareholders.
d. Whether independent valuer has been employed or not for ascertaining
the fair market value of the transaction.
e. The impact on the economy.

After the BOD has drafted a scheme, they have to present it to each
shareholder of both the banks. This presentation of the scheme to each and
every shareholder is not present in any merger/amalgamation of other banks.
After it is presented, it is to be mandatorily passed by resolution by simply
majority of the shareholders (in person or by proxy).

During the drafting of the scheme or post the drafting, prior to the presentation
of the draft scheme before the NCLT, the following 3 things needs to be
checked:
a. Share-swap ratio- Shares of acquired firm/Shares of acquirer firm. This
is only for an acquisition.
b. Disclosures- in regard to whatever norms the companies need to
comply with, or disclose to the regulators.
 c. Buying and selling of shares before/during the process- If before/
during the process shares are being sold, then that needs to be taken
into consideration.

ii. Compulsory- S. 45, S. 36AE. We haven’t had many compulsory

amalgamations.
RBI makes the scheme and gives it to the Central government.
RBI in consultation with the Central government facilitates the compulsory
amalgamations for the following reasons:
a. In public interest,
b. In the interest of depositors of financial distressed banks (these banks are
out of their cash reserves, have NPAs, and do not have enough resources)
c. In the interest of banking sector (to prevent any kind of monopoly or to
resolve any problem in a bank), and
d. for the growth of the economy.

For compulsory mergers, you shall also look into S. 36(AE) of the Banking Regulation
Act. S. 36AE elaborates on the RBI’s consultation with the Central government.

3. Banking Regulations

Mergers/acquisitions started from 1993 when PNB acquired the New Bank of India. The
largest mergers which has taken place in the banking sector took place in 2020. PNB acquired
Oriental Bank and other banks. SBI also acquired a lot of banks.
27 banks were reduced to just 12 entities. The mergers took place for the following reasons in
2020 during the pandemic:
i. Economic Growth
ii. Development of banking sector
iii. Reduction of costs
iv. Operational Effectiveness
v. National Presence
vi. Global Reach- If you are having less costs and significant growth, then it will
also allow you to acquire the global market.

Non-banking financial institute (NBFI)- Any company which deals with shares, bonds,
insurance, credit facilities or debentures but is not a banking company is a non-banking
financial institute.

When a Non-banking financial institute mergers with a banking company, the following steps
have to be taken:
1. Approval by BOD
2. Approval of RBI since banking companies are regulated by RBI. [not required in
certain cases of merging between two nbfcs not dealing with loan service,
insurance...]
3. Application to the NCLT
4. Compliance with the RBI/SEBI norms/regulations if the resultant company is a
banking company
5. Compliance with KYC norms if the resultant company is a banking company.
 6. Any other approval from a regulatory authority (like IRDAI if insurance company,
SEBI if the NBFI deals in shares)

Amalgamation of government companies

S. 2(45) of Companies Act-

“Government company” means any company in which not less than fifty-one per cent of the
paid-up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
company.

All steps/approvals have to be followed by government companies as well. But they are
exempted from income tax.

One major thing is NOC from SEBI is mandatory. If any portion of it deals with any
kind of financial institute, then RBI approval is required. Valuation report from
registered valuer is also important. Further, the draft scheme has to be approved by the
specific sector’s regulatory authority (Like IRDAI, Power Development authority, Oil
Development authority).

Takeover Code- There will be a question on this for sure

Acquirer/Buyer buys/bids for the substantial majority of the shares/voting rights/control over
management of the target company. The acquiring company has to either buy it directly or
indirectly in the form of bids.
Asset acquisitions.

Zero coupon convertible debentures- These debentures can be converted into any type of
shares, including equity shares, and thereby, you can gain control over the target control.

Reasons for Takeover:

1. Access to more capital
2. Product development. Ultimately for the purpose of earning profits.
3. Access to new geographical areas.
4. Reduces competition
5. Diversification of Products
6. Reduces cost
7. Utilisation of resources
8. Increase in market share

Takeover Code will not apply to a merger. It will only apply to acquisitions.

Types of Takeover:
1. Friendly Takeover- When the takeover is with the consent of the management/BOD of
the target company. “Control” under the Takeover Code- Read it.
The term “control” has been defined under Regulation 2(1)(e) of the Takeover Code and the
extract of the same has been reproduced hereunder: “Control” includes the right to appoint
majority of the directors or to control the management or policy decisions exercisable by a
person or persons acting individually or in concert, directly or indirectly, including by virtue
of their shareholding or management rights or shareholders agreements or voting agreements
or in any other manner. Provided that a director or officer of a target company shall not be
considered to be in control over such target company, merely by virtue of holding such
position.” From the aforesaid definition of “control” under the Takeover Code, one
understands that an acquirer, or person acting in concert with such acquirer or person, can
acquire control of the target company by virtue of (i) his shareholding; or (ii) management
rights; or (iii) shareholders agreements; or (iv) voting agreements; or (v) in any other manner,
wherein such person is entitled to either (a) appoint majority of the directors of the target
company; or (b) control the management or policy decisions of the target company.

In case of a takeover, the acquirer company makes an offer.

Two companies will go for a friendly takeover only when there is a motive, and there is an
advantage for both the companies. For eg., Ranbaxy and Daichi.

2. Hostile Takeover- When the takeover is being done silently/unilaterally without the
target company knowing about it with the motive of gaining control over the target
company. From present shareholders/outstanding shareholders.
Tender offer- The process by which hostile takeovers take place. In a tender offer, the
current shareholders and outstanding shareholders are paid a premium amount
(amount over market value) and their shares are bought. The acquiring company does
this slowly without the knowledge/consent of the target company. For example-
Reliance and Network 18. Through Zero coupon convertible debentures, Reliance bailed
out and bought the shares of Network 18.
For eg., Hinduja and Ashok Leyland, Minetree and L&T.

3. Reverse Takeover Bid- Same as reverse merger. A private company is acquiring the
shares of a public limited company. This is to ensure that the private company post the
takeover of the public company, gets automatically listed without going through the
entire process of IPO.
For eg., when Rice Broadcasting (private company) acquired control over Burger King
(public company), then it will be automatically get listed.

4. Backflip Takeover- The acquirer wants to acquire the target company but instead of
acquiring it, the acquirer becomes the target company’s subsidiary. Instead of a
takeover, it becomes a subsidiary.
For eg., AT&T by SBC (acquirer company). This was a backflip takeover. You have your
own identity with you, you have your brand name with you.

5. Bailout Takeover- Bailout takeover is when there is a financially sick company (company
which is going in losses, which is not being able to pay money to creditors). If a
financially better-off company acquires it to bail it out (revive it) or provide financial
assistance to it, that is bail-out takeover. For eg., General Motors.
(IMP) Key terms

Public Shareholding- Shares not held by institutional investors, promoters. 25% at least has
to be there in the open market.

Open offer- In case of takeover, after you have reached 25%, you have to make a mandatory
open offer to the existing shareholders with an “exit option”. Till 26% of the remaining
shares, you yourself can buy in this open offer. So, your shareholding will be maximum 51%
after an open offer.

Trigger events for public announcement/open offer

Once you have 15% of shares/voting rights, you have to make the first open offer.

Once you reach 5%, you are under the purview of this Code. When you are at 25%, you have
to make a mandatory open offer, which enables you to gain substantial control in the
company.

Read about the process from 5% to 75%.

Acquirer- The company which gains directly or indirectly, shares, voting rights, and control
over management and policy decisions. Indirectly- through a group/relatives (relatives as
defined in the Companies Act)

Control- An acquirer, or person acting in concert with such acquirer or person, can acquire
control of the target company by virtue of (i) his shareholding; or (ii) management rights; or
(iii) shareholders agreements; or (iv) voting agreements; or (v) in any other manner, wherein
such person is entitled to either (a) appoint majority of the directors of the target
company; or (b) control the management or policy decisions of the target company.

Promoter- A person who has control over the target company, who is named as a promoter
in any agreement (MOA, AOA, shareholder agreement).

Promoter Group- Where the promoter holds controlling stake (at least 10 percent) in a
company (subsidiary/target company) by itself or by way of its relatives.

Creeping Acquisition- When a company has gained 55% shares in the target company, it
can get more shares gradually in the open market but limited to 5% shares. Till this 5%, there
is no need for an open public offer. There is no time limit to reach this 5%. After the max 5%
is acquired, a public open offer becomes mandatory for the purpose of acquiring more shares.
This process is called creeping acquisition. By acquiring more shares, the acquiring company
gains voting rights, and control over the target company. This applies only to public
companies. Creeping acquisition gets triggered only when you acquire 55% shares. Once you
acquired 25% of shares, the Takeover Code is triggered always. For instance, if you have
acquired 40% of shares, and then you want to acquire additional 5% shares, then also the
Takeover code will be triggered and you have to make an open offer. But after 55% shares,
public offer won’t be mandatory for the next 5% shares. After 60%, from 60 to 75, you have
to follow the Takeover Code and make an open offer every single time.
The protection of not making offer (creeping acquisition) is only between 55% and 60%.
Example- Porsche and Volkswagen. How Porsche kept on buying shares of Volkswagen in
the open market and acquired control over Volkswagen- Best case of creeping acquisition.

This idea of creeping acquisition is to ensure flexibility, enabling you to acquire shares from
the open market. If you are buying from the existing shareholders, who have a say in the
management, then the creeping acquisition is not extended. Only when you are acquiring
from the open market, wherein the company is not exactly aware of the shares which are sold,
the creeping acquisition will apply.

Exceptions where the Takeover Code will not apply:

1. Private Companies
2. Not applicable to relatives and promoter groups selling within them. For eg., selling to
relatives. Relatives defined in the Companies Act.
3. Inheritance, Succession.
4. When the government is acquiring shares of a private company. This is because the
government acquires shares in public interest for the economic benefit of the society
which the government feels.

Joint Venture (Most probably this won’t be there in the question paper)

In Joint Venture, you pool in different resources from different places. 2 companies agree to
form a company/partnership/LLP for a specific purpose. This purpose/intention becomes very
important. For a Joint Venture, the main thing to be seen is the intention and why it has been
formed. Intention is the main basis for a JV. There has to be a specific purpose for any JV.
Main reason for Starbucks and Tata was to share each other’s knowledge, resources.
Pooling of resources. JV is not a scheme; it is a mutual agreement. This gives you better
access to the market; different customer base; different market; dominant position in the
market; mutual cooperation in JV is the most important.

JVs are not mergers/acquisitions. It is another form of combination by which 2 entitles

operate.

JV of two types- Incorporated and Unincorporated.

Incorporated- Company, LLP.

Unincorporated- by way of an agreement, partnership.

Why will a JV be formed- not time-consuming unlike a merger, wherein a lot of steps are
involved. Simple process just by way of an agreement. Eventually, many JVs change into
mergers.

Also JVs formed because of FDI policies, which do not allow 100% foreign entities to
operate in certain sectors.

Whenever there is JV, the Indian Contract Act will apply because there is an agreement. If
there is a partnership for a JV, then the Indian Partnership Act will apply. Main purpose of JV
is to bypass the regulations for a merger.
New Horizons case.

Fakir chand v. Uppal Agency Pvt. Ltd.

These 2 cases were the first time SC spoke about JVs and how they operate. Equity
participants- both of them have shareholding proportionate in the JV; this always makes it a
better JV; pooling of resources; same like a partnership, in a JV, they will sharing their assets
and liabilities; without specific purpose/intention, a JV won’t be formed.

1. New Horizons case.

SC discussed the following features of a JV:
i. Contributions and sharing of assets and liabilities
ii. Mutual Profits
iii. Resource sharing
iv. Equity participation
v. Mutual cooperation.

2. Fakir chand v. Uppal Agency Pvt. Ltd., 2008 SC

SC held that the aforesaid features plus the following things are required for a JV:
i. Intention
ii. Hidden Objective
iii. Purpose

How is a JV formed?
1. Identify Partner; with which company; why do you want to go. Will help you to identify
the common goal for forming a JV
2. Due diligence; both the companies need to understand why or what problem that might
face at a later stage; to identify future potential risks/liabilities.
3. Draft MOU- The agreement. Time period of the agreement; how the shares will be
distributed; how will the future losses be shared; what will be the benefits under the
MOU; termination.
4. Both the companies enter into negotiations as to the terms and conditions which will be
beneficial for them.
5. After the negotiations are done, Final agreement.