Mergers, Acquisitions and

Corporate Restructuring
 Important Websites
• www.sec.gov/
• www.sebi.gov.in/
 Some relevant Indian laws
Securities laws
▪ Securities Contracts (Regulation) Act 1956
▪ Securities and Exchange Board of India Act 1992
▪ SEBI’s Substantial Acquisition of Shares and Take-over Regulations 2011).
▪ SEBI’s regulation on prohibition of insider trading
▪ Disclosure and Investors Protection Guidelines
International law
▪ Delisting Guidelines
▪ Buy-back Regulations

Exchange control regulations

▪ Foreign Exchange Management (Transfer or Issue of any Foreign Security)
Regulations, 2000
▪ Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000

Company law
▪ Sections 81, 77A, 108A, 372A, 391-394 of Companies Act, 1956
• Competition Act 2002
• Income Tax Act 1961
• Authorities:
– RBI
– TRAI
– FIPB
– Stock exchanges
SECURITIES AND EXCHANGE BOARD OF INDIA
(SUBSTANTIAL ACQUISITION OF SHARES AND
TAKEOVERS)
REGULATION, 1997
 Acquisition of 5% and more shares
of a Company
Section –7
• Acquirer to inform the company and stock
exchanges where the target companies stock are
listed when the following level of shares /voting
rights are reached.
• Five per cent
• Ten per cent
• Fourteen percent
• Fifty four per cent
• Seventy four per cent
• Any acquirer who has acquired shares or
voting rights of a company under sub-
regulation (1) of regulation 11, shall
disclose purchase of sale aggregating two
percent or more of the share capital of the
target company within two days to the
company and the stock exchange
 Acquisition of [fifteen] % or more of the
shares or voting rights of any company

Section 10

• No acquirer shall acquire shares or voting rights which

(taken together with shares or voting rights, if any, held by
him or by persons acting in concert with him), entitle such
acquirer to exercise [fifteen] percent or more of the voting
rights in a company, unless such acquirer makes a public
announcement to acquire shares of such company in
accordance with the Regulations.
 Consolidation of holdings

Section 11

• If an acquirer holds 15 per cent or more but less than fifty

five per cent. He shall not acquire additional shares or
voting rights beyond [5%] in any financial year ending on
31st March], unless by way of a public announcement.

• IF ACQUIRER HOLDS 55% OR MORE BUT LESS

THAN 75%, HE MAY ACQUIRE ADDITIONAL
SHARES ONLY THROUGH A PUBLIC
ANNOUNCEMENT. ???
 Applicability of the Regulation

Section - 3

• 1 Noting contained in Regulations 10, Regulation 11 and

Regulation 12 of these regulations shall apply to
• Public Issues, Rights issue, interse transfer between
promoters, groups, relatives, Indian and foreign
collaborators, public financial institutions etc.
 Appointment of a Merchant Banker

Section - 13

13. Before making any public announcement of offer referred

to in Regulation 10 or Regulation 11 or Regulation 12, the
acquirer shall appoint a merchant banker in Category-1
holding a certificate of registration granted by the Board,
who is not associate of or group of the acquirer or the
target company.
 Timing of the Public Announcement of Offer
Section - 14

By the merchant banker within four working days of entering

into an agreement.
 Public Announcement of Offer

Section - 15

To be made in at least one English national daily with wide

circulation, one Hindi national daily with wide circulation
and a regional language daily with wide circulation at the
place of the registered office and the stock exchange.
 Section - 15

A copy of the public announcement shall be.

i. Submitted to the Board through the merchant banker,
ii. Sent to all the stock exchanges on which the shares of
the company are listed for being notified on the notice
board,
iii. Sent to the target company at its registered office for
being placed before the Board of Directors of the
company.
 Contents of the Public Announcement of Offer
Section - 16
• The paid up share capital of the target company, the
number of fully paid up and partly paid up shares;
• The total number and percentage of shares proposed to
be acquired from the public, subject to a minimum as
specified in sub-regulation(1) of Regulation 21;
• The minimum offer price for each fully paid up- or partly
paid up share;
• Mode of payment of consideration;
• The identity of the acquirer(s) and in case the acquirer is
a company or companies, the identity of the promoters
and, or the persons having control over such
company(ies) and the group, if any, to which the
company(ies) belong;
• The existing holding, if any, of the acquirer in the shares
of the target company, including holdings of persons
acting in concert with him;
• the existing shareholding, if any, of the merchant banker
in the target company;
• Salient features of the agreement, if any, as the date, the
name of the seller, the price at which the shares are being
acquired, the manner of payment of the consideration
and the number and percentage of shares in respect of
which he acquirer has entered into the agreement to
acquire the shares or the consideration, monetary or
otherwise, for the acquisition of control over the target
company, as the case maybe;
• The highest and the average price paid by the acquirer or
persons acting in concert with him for acquisition, if any,
of shares of the target company made by him during the
twelve month period prior to the date of public
announcement;
• Object and purpose of the acquisition of the shares and
future plans, if any. Of the acquirer for the target
company, including disclosure whether the acquirer
proposes to dispose of or otherwise encumber any as of
the target company in the succeeding two years, except
in the ordinary course of business of the target company.
• Provided that where the future plans are set out, the
public announcement shall also set out how the acquirers
propose to implement such future plans.

Conti…..
• Provided further that the acquirer shall not sell, dispose
of or otherwise encumber any substantial asset of the
target company except with the prior approval of the
shareholders.
• An undertaking that the acquirer shall not sell, dispose of
or otherwise encumber any substantial asset of the target
company except with the prior approval of the
shareholders.
• The ‘Specified date’ as mentioned in Regulation 19:
• The date by which individual letters of offer would be
posted toe ach of the shareholders;
• The date of opening and closure of the offer and the
manner in which and the date by which the acceptance or
rejection of the offer would be communicated to the
shareholders. Conti…..
• The date by which the payment of consideration would be
made for the shares in respect of which the offer has been
accepted;
• Disclosure to the effect that firm arrangement for financial
resources required to implement the offer is already in
place, including details regarding the sources of the funds
whether domestic I.e from banks, financial institutions, or
otherwise or foreign i.e., from Non-Resident Indians or
otherwise
• Provision for acceptance of the offer by person(s) who own
the shares but are not the registered holders of such shares;
• Statutory approvals, if any, required to be obtained for the
purpose of acquiring the shares under the Companies Act,
1956 (1 of 1956), the Monopolies and Restrictive Trade
Practices Act, 1969(54 of 1969),
Conti….
the Foreign Regulation Act, 1973, (46 of 1973) and/or any
other applicable laws;
• Approvals of banks or financial institutions required, if
any;
• Whether the offer is subject to a minimum level of
acceptance form the shareholder; and
• Such other information as is essential for the
shareholders to make an informed decision in regard to
the offer.
 Submission of Letter of offer to the Board

Section - 18
• Within fourteen days from the date of public
announcement made under Regulation 10, Regulation
11 or Regulation 12 file with the Board, the draft of
the letter of offer, containing disclosures as specified
by the Board.
• The offer will not be dispatched to the shareholders
only after 21 days from its submission to the board.
 Fees
Offer size Fee (Rs.)

Less than or equal to ten crore rupees 1,00,000

More than ten crore rupees, but less than 0.125 percent of
or equal to one thousand crores the offer size
More than one thousand crore rupees, but 1,25,00,000 plus
less than or equal to five thousand crore 0.03125 percent of
rupees the excess portion
beyond 1000
crores
More than five thousand crore rupees Flat fee of 3 crore
rupees
 Specified date

Section - 19

• The public announcement shall specify a date,

which shall be the specified date’ for the purpose of
determining the names of the shareholders to whom
the letter of offer should be sent (not earlier than 30
days from the date of public announcement).
 Section 20
The offer price shall be payable-
a) In cash;
b) By issue, exchange and, or transfer of shares (other than
preference shares) of acquirer company, if the person
seeking to acquire the shares is a listed body corporate;
or
c) By issue, exchange and, or transfer of secured
instruments of acquirer company with a minimum ‘A’
grade rating from a credit rating agency registered with
the Board;
d) A combination of clause (a), (b) or (c) :
 Section – 20(A)

• An acquirer who has made a public offer and seeks to

acquire further shares under sub-regulation (1) or
regulation 11 shall not acquire such shares during the
period of 6 months from the date of closure of the
public offer at a price higher than the offer price.
Minimum number of shares to be acquired

Section - 21

• The public offer made by the acquirer to

the shareholders of the target company
shall be for a minimum twenty per cent
of the voting capital of the company.
 General obligations of the acquirer
Draft letter of offer
• Within 14 days of the public announcement of the offer ,
send a copy of the draft offer to the target company at its
registered office address and the stock exchanges
 Period of Offer

• The offer to acquire shares from the shareholders

shall remain open for a period of 20 days.
 Option to withdraw

UP TO THREE WORKING DAYS

FROM THE DATE OF
CLOSING.???
 Payment to Tenders

• Within [fifteen]days from the date of the

closure of the offer
General obligation of the board of directors of the
target company
After the date of the public announcement of offer, the board
of directors of the target company shall not,during the offer
period:-
• Sell, transfer, encumber or otherwise dispose of or enter
into an agreement for sale, transfer, encumbrance or for
disposal of assets otherwise, not being sale or disposal of
assets in the ordinary course of business, of the company or
its subsidiaries; or
• Issue [or allot] an authorised but unissued securities
carrying voting rights during the offer period; or
• Enter into any material contracts.
Unless the approval of the general body of shareholders is
obtained
 General obligations of the merchant banker
Section - 24

a) Ensure that the acquirer is able to implement the offer;

b) The provision relating to escrow account referred to in
Regulation 28 has been made;
c) Firm arrangements for funds and money for payment
through verifiable means to fulfill the obligations under
the offer are in place;
d) The public announcement of offer is made in terms of
the Regulations.
e) His shareholding, if any in the target company is
disclosed in the public announcement and the letter of
offer.
 Competitive bid

a. Any person, other than the acquirer who is desirous of

making any offer, shall, within 21 days of the public
announcement of the first offer, make a public
announcement of his offer for acquisition of the shares
of the same target company.
b. Any competitive offer by an acquirer shall be for such
number of shares which, when taken together with
shares held by him along with persons acting in
concert with him, shall be [at least equal to the
holding of the first bidder including the number of
shares for which the present offer by first bidder has
been made.]
 Revisions

• At any time upto seven working

days prior to the date of closure
of the offer.
 Withdrawal of Offer

No public offer, once made, shall be withdrawn except

under the following circumstances:-

a) The statutory approval(s) required have been refused;

b) The sole acquirer, being a natural person, has died;
c) Such circumstances as in the opinion of the Board merits
withdrawal.
 Provision of Escrow

The acquirer shall as and by way of security for performance

of his obligations under the Regulation:-

a) For consideration payable under the public offer,-

upto and including Rs. 100 crores – 25%; exceeding Rs.
100 crores – 25% upto Rs. 100 crores and 10%
thereafter.
b) For offers which are subject to a minimum level of
acceptance, and the acquire does not want to acquire a
minimum of 20%, then 50% of the consideration
payable under the public offer in cash shall be deposited
in the escrow amount.
 INDIAN M&A HISTORY
• The Companies Act, 1956, vide its sections 391 to 396
provides for amalgamations of companies.
• The number and the nature of M&A in the post independence
era were controlled by the socialistic policies of the
government.
• Prior to 1980, the acquisitions were few and far apart and
hostile takeovers were mostly unheard of.
• Post liberalization, the number of acquisitions increased due to
a number of reasons like deregulation of industries,
restructuring by family owned firms, sale of public sector
undertakings and the need to achieve economies of scale in the
face of global competition.
 THE REGULATORY ENVIRONMENT
• Clause 40 of the listing agreement that required an acquirer to make an open
offer if the acquisition resulted in his holding 25% or more shares in the
company.

• In 1990 even before SEBI became a statutory body, government amended the
listing agreement of the stock exchanges by reducing the threshold limit for an
open offer to 10%.

• Enactment of SEBI Act 1992.

• SEBI (SAST) Regulations 1994 in November 1994.

• SEBI (SAST) Regulations 1997 which was notified on 20th Feb 1997.

• SEBI (SAST) Regulations 2011. The 2011 regulation was notified on 23rd Sept
2011 and came into effect from 22nd Oct 2011.
 CHANGES SUGGESTED BY

• SEBI (SAST) Regulations 1997 were based on the

recommendations of Justice Bhagwati Committee (1997) .

• the SEBI (SAST) Regulations 2011 were based on the

recommendations of the C. Achutan Committee (2010).

 IMPORTANT CHANGES IN NEW
REGULATIONS

S. No. Description SEBI (SAST) SEBI (SAST)

Regulation, 1997 Regulation, 2011

1. Threshold limit for triggering a 15% 25%

mandatory open offer

2 Minimum open offer size in the case 20% 26%

of mandatory open offer

3. Provision for Voluntary open offer No Yes

4. Provision for payment of a higher Yes No

price to a group of shareholders in
case of a non compete agreement
5. Disclosure norms at specific levels Mandatory disclosure Mandatory disclosure
at 5%, 10%, 14% 54% at 5%
and 74%.
6. Tendering period Minimum 20 days 10 days

7. Open offer period Could extend up to 94 Could extend up to 57

days days.

8. Withdrawal of tendered shares Permitted up to 3 days Not permitted

prior to the date of
closure of the
tendering period
 DISCUSSION
• Increase in the threshold limit for making a mandatory open offer from 15% to

25%.

• As per the 2011 regulation the creeping acquisition limit is 5% in a financial

year for all shareholders with 25% or more holdings subject to their holding not

crossing the maximum non public shareholding limit..

• The minimum size of the open offer was 20% in the 1997 regulation. This has

been increased to 26% in the 2011 regulation.

• The concept of “Voluntary Offer” has been introduced in the 2011 regulations

permitting a person holding 25% or more shares or voting rights in the company

to make a voluntary open offer for a minimum of 10% of the shares.

• The 2011 regulation simplifies the disclosure norms requiring disclosure to the

stock exchange and the target company when the acquirer’s aggregate holding

reaches 5% and then onwards in the event of an acquisition or disposal of shares or

voting rights of 2% or more.

• in the 2011 regulation all the tenderers to the open offer or the agreement that

triggered the open offer would be paid the same price.

• Under the new 2011 regulations the open offer period normally would not extend

beyond 57 days compared to 94 days earlier.

• The right to withdraw shares tendered against the open offer is not available in the

2011 regulation.