A Legal Perspective on Hostile Takeovers in India
It can be argued that a preferable solution would have been to provide for expedition of the CCI’s approval procedure. However, the CCI may take a significant amount of time in determining whether a combination results in appreciable adverse effect on competition. The deal took on a soap opera-like quality as it pitted Busch family members against one another for control of the 150-year-old company. However, the contentious battle inspired an overhaul in the rules governing how foreign companies acquire UK companies. Of major concern was the lack of transparency in Kraft’s offer and what its intentions were for Cadbury post-purchase.
On the Genzyme side, its CEO Henri Termeer informed Sanofi CEO Chris Viehbacher in a letter that the deal “drastically undervalued the company.” No sooner had he done so than Vehbacher said that the offer might be taken direct to Genzyme’s shareholders. Shareholders initially backed Termeer, saying that they would only accept a bid for $75 per share(Sanofi’s opening gambit was $69 per share). Probably still clinging to the notion that their company was worth closer to the original $52per share, they resisted the offer. In fact, over that time, Oracle made ten separate offers, each one improving on the offer that preceded it. With 60% of shareholders already willing to sell out to Oracle, the PeopleSoft board finally gave in at $26.50 a share in December 2014.
Additionally, the target firm must be given the chance to provide a recommendation to its shareholders and the acquirer must disclose all material information about the transaction. The code also includes rules to protect minority shareholders and allows them to have an exit option. The number of mergers and acquisitions has boomed in India since liberalisation, but few hostile takeovers have succeeded, primarily because of the concentration of promoter shareholding in companies and because takeover regulations favour promoters. Hostile takeovers would facilitate M&A growth, and the success of hostile takeovers is essential to facilitate corporate competence and foster capital market development. To be effective, the anti-takeover mechanisms in India should be practised as a protectionist measure and the takeover regulations must adopt a lenient approach towards hostile takeovers, as in the United States.
They impose several restrictions on the preferential allotment of shares and/or the issuance of share warrants by a listed company. This creates an impediment in the effectiveness of the shareholders’ rights plan which involves the preferential issue of shares at a discount to existing shareholders. As per regulation 2, the term acquirer means any person who, directly or indirectly, acquires or agrees to acquire control over the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. The term acquirer has been given a wide meaning as the definition takes into account not only substantial acquisition of shares by a person, but also takeover of control of the company.
Following a series of court proceedings, it has been determined that the firm may refuse to record a share transfer if there is a reasonable justification for doing so and no mala fide intent. This strategy caused loss many time to the targeted company but sometime very effective to avoid the Hostile Takeover. 1.In 2012, Essel Group’s Subhash Chandra sought to control Iragavarapu Venkata Reddy Construction Limited , an infrastructure company. The promoters countered the move by issuing warrants to themselves and increasing their stake. He finally sold out his stake to the Wadias– the promoters of Bombay Dyeing–at a profit.
L&T already has two horses in the IT race, L&T Infotech aka LTI which is an IT services firm and L&T engineering services. Mindtree is said to benefit from a larger client base and wider product offerings under a common roof, this will also give higher returns to the shareholders of Mindtree. In all, amongst the 3 IT companies, L&T will have a revenue of around USD 2.5 billion which will let L&T group bid for bigger outsourcing contracts from global clients.
Section 250 states that NCLT has the power to direct any company administrator to take over the assets and management of that company. A contending offer might be made by any individual (i.e., regardless of whether it be a current investor or not) without being subject to the restrictions applicable to Voluntary Offers. There is a restriction on a competing acquirer making an offer or going into an understanding that could trigger a Mandatory Tender Offer whenever after the expiry of the said 15 business days and until finish of the first offer. It is a process where both the parties mutually agree to the terms and conditions of a takeover. An acquirer doesn’t need to do any plotting or make any methodologies against the target company.
Stock Analysis
Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. Brian Beers is a digital editor, writer, Emmy-nominated producer, and content expert with 15+ years of experience writing about corporate finance & accounting, fundamental analysis, and investing. I have also started writing articles regarding finance, accounting & economics. According to the Companies Act of 2013, a business may refuse to record a share transfer if there is adequate justification.
- The company may, during the offer period, issue or allot shares on terms that are pre-set on conversion of convertible securities issued prior to the public announcement of an open offer.
- At the time, Genzyme had developed several drugs to treat rare genetic disorders.
- HSA Advocates In India, the takeover code requires the disclosure of the acquisition or disposal of a shareholding of 2% or more of the shares or voting rights by anyone holding 5% or more of the shares of the company.
- L&T thereof made an Open Offer for INR 980 per share to acquire 5,13,25,371 equity shares of the Target Company aggregating to 31% of the voting share capital of Mindtree.
The engineering giant L&T is expected to spend as much as Rs 10,800 crores to raise their stake in Mindtree to be around 66.32%, which will remain as an independent listed entity and L&T is expected to provide board oversight. Reports suggest that the shares were already pledged with the banks, the buyer would have to pay the banks for those shares before they could be bought. The transaction would even work if there was an agreement between the banks and the potential buyer that the banks could hold the shares before the transaction takes place. The answer to this question lies in another company who is in huge debt – IL&FS.
Why Mindtree? What does L&T gain from this
Moreover, as the open offer can be initiated without approval, regulation 26 obligations will apply over the target. Hile the term takeover is not formally defined, the SEBI Regulations, 2011 , defines acquisition as “directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company”. In Pramod Jain v SEBI, the Supreme Court held that “where management of the target company is unwilling to negotiate with an acquirer, the acquirer can directly approach the shareholders by making an open offer, which is called a hostile takeover. A hostile takeover helps to unlock the hidden value of the shares and puts pressure on the management to work efficiently.
Also, the FDI policy and the FEMA Regulations have provisions which restrict non-residents from acquiring listed shares of a company directly from the open market in any sector, including sectors falling under automatic route. There also exist certain restrictions with respect to private hostile takeover example in india acquisition of shares by non-residents, under automatic route, is permitted only if Press Note 1 of 2005 read with Press Note 18 of 1998 is not applicable to the non-resident acquirer. This has practically sealed any hostile takeover of any Indian company by any non-resident.
However, the DVR structure is only beneficial to startups where the founders are trying to build something to sell. The above image illustrates the shareholding pattern of Mindtree Ltd. before the supposed takeover talks started. Further, it has fast-growing digital revenue which signals the adoption of newer technologies like AI, cloud, big data and analytics by customers. This article is written byKashish Khattar,a 4th-year student at Amity Law School, Delhi. Here he has discussed the aspects related to L&T’s takeover of Mindtree Ltd. 750 crore was the consideration paid by Emami for a 72 per cent stake in the company.
Why Hostile Takovers Happen
The ID Act, is a federal statute that is India’s most important labour law governing employer-employee relationships as it prescribes the mechanism to be followed by employers for retrenchment (i.e. termination) of “workmen” and the compensation payable upon such termination. The ID Act protects only those employees who are categorized as “workmen”. A workman, as per ID Act, is any person employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward.
Hostile Takeover In India: An Analysis
The fact thatRBS “succeeded” where Barclays failed is already being seen as a historical turning point for the two British banks. Hence, due to government’s recent liberalisations, hostile takeovers in India are becoming more probable. The Indian Takeover Code does not impose any substantial barriers to hostile acquisitions but takeover restrictions that favour promoters, can make hostile takeovers difficult to achieve. Businesses may employ specific defensive strategies to guard against hostile takeovers.
Interestingly, with this acquisition, life for L&T has come a full circle which itself fended off multiple hostile takeover attempts on it by the Ambanis of Reliance and the Birla Group in late 1980s and early 2000s, respectively. It achieved this by devising a strategy that makes L&T the most uniquely structured large corporate of India. Naik, the current group chairman of L&T who ring-fenced the company from future takeovers by creating the L&T Employees Welfare Foundation and thereby transferring majority ownership into the hands of the employees. Other corporate strategies for defending a company from a hostile takeover include the Poison Pill, the White Knight defence, Staggered Board of Directors, Pac-man defence, Golden Parachute and Greenmail.
It is inverse of friendly takeover.1 Hostile Takeover is a kind of obtaining in which, the organization being bought doesn’t have any desire to be bought by any stretch of the imagination, or doesn’t have any desire to be bought by a specific purchaser that is making a bid. At the end of the day, the Acquired plans to deal with the Target Company and influence it to consent to the deal. To provide each shareholder an opportunity to exit its investment in the target company when a substantial acquisition of shares or takeover of a target company takes place. If the acquirer is an indian listed company but the target company is a foreign listed company then these laws will not be applicable. The dispatch of a Voluntary Offer is dependent upon the satisfaction of specific conditions.
When a company acquires 5% or more shares of the target company then it is called as substantial acquisitions of shares. A major stake of shareholdings of the company was with the investors out of which V.G.Siddhartha was one of the first investors in the company and had a major stake of 20.41% but in the year 2019, he sold his entire shares to L&T to cut down his debt. LnT already had some more percentage of shares in the company and after getting shares from V.G.Siddhartha their total shares reached to 29%. Then the government gave them an open offer and they acquired 31% more shares through open offer. Mindtree founders planned for a buy back offer to block L&T as they felt that L&T did not have compliance/corporate governance and there was a disconnect between what management wants and what shareholders want, but they failed.
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