RESTRUCTURING AND TAKEOVERS IN INDIA
Author: Akshat Dahate, III year of B.A.,LL.B.(Hons.) from ILS Law College, Pune
The reader shall be able to understand the concept of takeovers and acquisitions. The text also explains the need for a proper code and the various kinds of takeovers. The following blog contains and promotes the difference between takeover, acquisition and mergers carrying with the legal provisions related to takeovers in India.
WHAT IS TAKEOVER?
A takeover falls under an inorganic corporate restructuring where a company acquires control over another operating company. The call here is the management pattern of a company molds its roots and changes its hands. The term ‘control’ stands under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code 2011”) and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Company act 2013as inter alia the holding or control pointing the management policies, appointment of the directors in a company and affirmative voting rights.
There are three most certain kinds of takeover prevalent in the corporate sector in order is a friendly takeover in which the operation of takeover by a company to another is with the consent of the board of the management of the target company. Second in order is hostile takeover here the consideration of consent of the board of management of the target company is not involved even if the board of the following target company rejects the offer, the flow of taking control is continued in circumstances. Inline is the bailout takeover, where the weak target company is bailed out or relief provided by a strong company.
DIFFERENCE BETWEEN TAKEOVER, MERGER AND ACQUISITIONS
Mergers or amalgamation are tuneful, both the companies indulge in activities and merge accordingly. In contrast, the takeover holds and entities remain two distinct companies, also markable the assets and liabilities are not proportioned.
In case of pointing differences between takeover and acquisition, acquisition holds association of purchase of shares of a target company and voting ability but when it comes to the takeover the objective is to control the target company by acquiring share.
Takeover and acquisitions witnessed significant changes when SEBI formulated the Takeover code in 2011. The need for enforcement of takeover code was to host or govern companies taking advantages and persisting this trend, to protect or safeguard the interest of shareholders at large. The code was brought in to confine the complex nature of the process and to create transparency as well as fairness by the equal window of opportunities. LPG – LIBERALISATION PRIVATISATION GLOBALISATION representation played a vital role in the development of cross border and Indian economic activities.
REGULATOR FOR TAKEOVER & ACQUISITIONS IN INDIA
The regulators in stands are the companies act and the major Act which governs corporate activities is the Securities and Exchange Board of India Act, 1992. Under section 395 of the companies act, 1956 puts regulating power for takeover and acquisitions pointing to unlisted companies governed by the following act. Similar provisions have been given under section 235 and 236 of the Companies Act 2013. In the line of listed companies, the regulating or governing law in manner is the SAST Regulations, The main regulation which applies to the acquisition or takeover transaction of public companies is the SEBI (Substantial Acquisition of Shares and Takeovers) Regulation 2011. A certain set of applicable regulations for takeovers and acquisitions in India includes The Indian Companies Act, The SEBI Regulations 2011, The SCRA Act 1957 and The Listing agreement.
SEBI (Substantial Acquisition of Shares and Takeover Code) Regulations 2011:
SEBI is an authority that has given to us an immensely comprehensive set of regulations that governs all forms of taking over activities in India therein all kinds of takeover have to necessarily follow through with the procedure given under the SEBI Takeover Code. This particular code mainly propagates or involves the acquisitions of shares in a substantial proportion pointing control over a target company. It meticulously applies to acquisition by a company. The acquisition by a company can be in the form of shares, voting rights or control. The holding acquisition of shares conceivable either direct or indirect acquisitions.
SEBI Takeover code in addition gives us an extensive process which is called as ‘Open offer process’. The particular code instructs this process for direct as well as the indirect acquisition of shares, voting rights or control if such acquisitions trigger the threshold point prescribed under the Takeover Code. The threshold point is invested under regulation number three of the Takeover Code, Regulation 3 gives to us the concept of substantial acquisition of shares, voting and control. Thus every acquisition of shares is not a takeover only substantial acquisition of shares is considered as a takeover and if it is so whenever there a case arising of substantial acquisition of shares then the acquirer company has to comply with provisions stated under regulation 3 of the Takeover Code which requires the acquirer company to follow an open offer process with a public announcement to be made when acquisition exceeding more than 25 percent in a financial year. If an acquirer has to acquire additional shares which entitle him to exercise more than five percent of voting rights in a financial year then again company is entitled or required to make a public announcement of an open offer, following this we obtain the concept of creeping acquisition where the code allows an acquirer to add shares up five percent and no necessity to go along with open offer process also pointing the threshold which is 25 percent.
Under Regulation 6 of this particular code gives us an option to make a voluntary offer under the Takeover code 2011, to those shareholders who already hold at least 25 percent or more but less than 75 percent of the shares or voting rights of that company, to further consolidate their existing shareholding in the company. And the minimum offer size stated is 10 percent.
General exemption from making an open offer should follow acquisition under SARFAESI Act and others in relations, and cash paid less than 25 percent of the considerable equivalent cash. Lastly, a person holding not less than fifty per cent of the equity shares of such a company. The regulations also provide for the withdrawal of open offer and also stated auto-delisting is not allowing by the regulations adding to note non-compete fees is removed.
The process ends which the expiry of the offer period is extinct and by the opening of an escrow account with consideration. The ‘Demat Escrow Account’ after the commencement period of twenty-one days should issue a public statement of acquisition. The period for the acquirer to obtain is twenty-six with extension in hands.
This is the reflection of the takeover code and understanding in a confined manner. The code and takeover, in general, holds an active market relevance and the Indian economy. The code developed its roots from other existing propaganda and Laws acting to confine the complex nature and break the irrational in order.
Q. The first initial attempt of a takeover in India?
A. In India to make a hostile takeover was done by Swaraj Paul when he made efforts to takeover Escorts Ltd. And DCM Ltd. in the 1980s.
Q. Some famous takeover pointing kinds of takeover?
A. friendly takeover – Dabour acquires Balsara
Hostile takeover – HP taking over the company
Bailout takeover – Bank of America Merrill Lynch.
Q. Offer price is stated under the regulation?
A. Regulation 8.