The document summarizes regulations around mergers and acquisitions under the Companies Act and SEBI listing agreement in India. It discusses procedures that must be followed for shareholder approval, court sanctions, minimum public shareholding levels, and takeover offer requirements. Key aspects include long approval processes, rules for reducing capital, treatment of foreign acquisitions, and disclosure obligations for listed companies undergoing a change in ownership.

1. M erg ers & Acquisitions Statutory Regulations under Company’s Act and Regulation for Listing Agreement

2. Submitted by Nisha Barot 3 Jagesh Hathalia 23 Trupti Jaiswal 24 Sachin Kshatriya 29 Dhiraj Sajnani 49 Dimpi Sanghavi 50

3. Introduction The process of mergers and acquisitions in India is court driven, long drawn and hence problematic The merger and amalgamation of corporates constitutes the subject matter of the Companies Act, the courts and law and there are well laid down procedures for valuation of shares and rights of investors. The acquisition/takeover bids fall under the purview of the SEBI.

4. Introduction The Central Government has a role to play in this process and it acts through an Official Liquidator (OL) or the Regional Director of the Ministry of Company Affairs. The entire process has to be to the satisfaction of the Court.

5. M&A REGULATORY FRAMEWORK TRANSACTION STRUCTURE Companies Act Income Tax Act Stamp Acts Competition Act TRANS-BORDER TRANSACTIONS Foreign Exchange Management Act LISTED COMPANIES SEBI Regulations Stock Exchange – Listing Agreement

6. COMPANIES ACT Applicability of sections 391 to 394 of Companies Act, 1956: Merger involves arrangement with the shareholders and the procedure prescribed under sections 391 to 394 will have to be adhered to, which is covered in ‘Annexure I’.

7. COMPANIES ACT Sections 108A to G: Central Government approval if in excess of threshold prescribed UB Group was sent show cause notice for not taking approval of Govt for merger with Kingfisher Airlines Section 372A: Compliance by transferee company in acquisition of shares Section 77A: Buy Back may be used as a defense to a hostile takeover Used in U.S.: PeopleSoft’s attempt to thwart Oracle Flextronics Software Systems Ltd got merged into Future Software Limited into Aricent Technologies (Holdings) Limited

8. Merger & Demerger ISSUES: COMPANIES ACT s 391 - 394: “Complete Code”, “Single Window Clearance” Reduction of capital- Position unclear, Predominance of judicial view: substantial compliance with s. 100- 102 required. Transnational Mergers: 391 - 394 mechanism operates only where amalgamated company is Indian. E.g. of transnational merger concluded under 391 route - Bank of Muscat merging into Centurion Bank by order of Karnataka HC Alternative Mechanism: S. 494 Through Liquidation Process Liquidator transfers assets to foreign company for shares Process has to be “altogether voluntary” Tax benefits are unavailable under this route

9. Merger : COMPANIES ACT s 391 - 394: “Complete Code”, “Single Window Clearance” Reduction of capital- Position unclear, Predominance of judicial view: substantial compliance with s. 100- 102 required. Transnational Mergers: 391 - 394 mechanism operates only where amalgamated company is Indian. E.g. of transnational merger concluded under 391 route - Bank of Muscat merging into Centurion Bank by order of Karnataka HC Alternative Mechanism: S. 494 Through Liquidation Process Liquidator transfers assets to foreign company for shares

10. Acquisitions ISSUES: TAKEOVER CODE Definition of “Control” - Inclusive Ambiguous: TATA Sellout in ACC. Negative control? S. 25(2) prohibits public offers after 21 days of the public announcement of first public offer In case of indirect acquisition, foreign acquirer has three months from completion of transaction to make open offer. Therefore, foreign transactions can be concluded prior to open offer in India.

11. Merger PROCESS Phase- I Draft Scheme – Sec391-394 Approvals for the scheme – Approval from Shareholders In terms of Section 391, shareholders of both the companies should approve scheme In terms of Section 81(1A), the shareholders of the merged company are required to pass a special resolution for the issue of shares to the shareholders of the amalgamating company.

12. Phase- I Approval from Creditors / Financial Institutions / Banks – U /S 391. Approvals from respective High Courts The courts issues orders for dissolving the amalgamating company, without winding up, on receipt of reports from the official liquidator and the regional director, Company Law Board

13. Phase- I Notice to members of Board of both companies Determine swap ratio based on valuation report The boards of Tata Chemicals Ltd (TCL) and Hind Lever Chemicals Ltd (HLCL) approved share swap ratio of 2.5 shares of TCL for every share of HLCL held The swap ratio for ICICI & ICICI Bank was - two ICICI shares for one ICICI Bank share Board approval of both companies Prior NoCs from secured creditors and shareholders for exemption from meeting: Reduce Time and Costs In ICICI Ltd. merger with ICICI Bank, meeting of preference shareholders of ICICI Ltd. was dispensed with since sole preference shareholder furnished an NOC

14. Phase- II Draft Application under s. 391(1) Application to HCs in respective jurisdictions of both companies for sanction / direction to conduct meetings Moving registered office to one jurisdiction: Reduce Time and Costs

15. Merger PROCESS Phase- III Notice of EGM to members with statement of terms of merger, interests of directors and proxy forms: 21 days Notice in 2 newspapers: 21 days Affidavit certifying compliance with HC’s directions in respect of notice/ advertisement Meetings of creditors and/ or shareholders: agreed to by majority in number representing ¾ of value present and voting Chairman of meetings to file report within 7 days of meeting Resolutions and Explanatory Statements to be filed with RoC

16. Merger PROCESS Phase- IV (Approval of the Scheme) HC to be moved within 7 days of Chairman’s Report for second motion petition 10 days notice of hearing of petition in same newspapers Notice to Central Govt. (Regional Director), and OL (if applicable): Submit reports Objections raised in 391 proceedings HC Sanction Certified copy of HC Order to be filed with RoC within 30 days of order.

17. LISTING AGREEMENT OF SEBI

18. LISTING AGREEMENT OF SEBI The takeover of companies listed on the stock exchanges is regulated by Clause 40-A and 40-B of the listing agreement. While Clause 40-A deals with minimum level of public shareholding Clause 40-B contains the requirements to be met when a takeover offer is made.

19. Clause 40-A - Minimum Level of Public Shareholding In order to ensure availability of stock, every listed company should maintain, public shareholding of atleast 25% of the total number of issued shares Public shareholding exclude shares held by – a)Promoters / promoter group b) Custodians against which depository receipts are issued overseas.

20. Minimum Level of Public Shareholding The minimum level of public shareholding in a company which, a) Offers offered in the past a particular class of shares to the public under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, or b) Has atleast two crore shares outstanding with a market capitalization of atleast Rs. 1000 crore, Should be atleast 10 percent of the total number of shares issued.

21. Clause 40-B - Takeover Offer The Company also agrees that it is a condition for continuous listing that whenever the takeover offer is made or there is any change in control of management of the company, the person who secures the control and the company whose shares have been acquired would comply with the relevant provisions of the SEBI Takeover Code.

22. Clause 49 This clause is incorporated in the listing agreement of stock exchanges with companies and it is compulsory for them to comply with its provisions. Clause 49 of SEBI's Listing Agreement requires every listed entity to reserve half the board for independent directors if the chairman is an executive director

23. Clause 49 The board will lay down a code of conduct for all board members and senior management of the company to compulsorily follow. 2)The CEO and CFO will certify the financial statements and cash flow statements of the company. 3)At least one independent director of the holding company will be a member of the board of a material non-listed subsidiary. 4)The audit committee of the listed company shall review the financial statements of the unlisted subsidiary, in particular its

24. Clause 49 5)If, the company follows a treatment that is different from that prescribed in the accounting standards, it must disclose this and the management should also provide an explanation 6)The company will have to lay down procedures about the risk management and minimisation procedures 7)Where money is raised through public issues, rights issues etc., the company will have to disclose the applications of as part of quarterly disclosure of financial statements. .

25. Acquisitions RECENT CHANGES New thresholds of 54% and 74% in Regulation 7 55% shares cannot be allotted by preferential allotment or market purchase – consolidation by public offer only Acquisition by public offer under 11(2) can be for only so many shares as will keep float above listing requirements. Where any acquisition reduces public float below Listing Agreement requirements, acquisition to comply with delisting guidelines Where Code is triggered by a global deal, if the public offer will lower float to below the listing requirement, then acquirer has 12 months to raise float either by fresh issue or by disinvestment.

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