Legal Aspects M & A

LEGAL ASPECTS OF MERGERS/
AMALGAMATION AND
ACQUISITION
Mergers and Acquisition are very complicated and lengthy
affairs. The merging entities are required to adhere to a
number of provisions to ensure that the interest of all the
stakeholders is protected.
Following legal provisions that are prevalent in the country are
as;
 Companies Act, 1956/2013
 SEBI (Buyback of Securities) Regulations, 1998
 SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations,2011
AMALGAMATION AND
ACQUISITION
 Listing Agreement norms
 SEBI delisting of shares norms
 Corporate governance issues
 Provision of Income Tax, 1961
 Foreign Exchange Management Act (FEMA),1999
 Competition Act, 2002

AMALGAMATION AND
ACQUISITION
 Companies Act 1956/2013: The Companies Act is the
primary legislation governing all companies in India. All
corporate transactions, be it mergers, primary/ secondary
acquisitions or private equity funding, have to be
implemented in accordance with the provisions of the
companies act 1956/2013.
 Foreign Exchange Management Act, 1999: FEMA and
the various rules and regulations issued under FEMA by
the reserve bank of India regulate foreign exchange
transactions in India.
AMALGAMATION AND
ACQUISITION
 Competition Act, 2002: The competition Act 2002 read
with competition commission of India (Procedure in
regard to transaction of business relating to
combinations) regulations, 2011 regulates
‘combinations’ and govern the M&A transactions likely
to cause an appreciable adverse effect on competition in
India.
 Income Tax Act 1961: The tax treatment of M&A
transaction in India is governed by the Income Tax act
1961 read with double taxation avoidance treaties signed
between India and the jurisdictional country of non-
resident person, if any, who is party to the transaction.
THE PROVISIONS OF COMPANY’S
ACT 1956/2013
Sec. 376: condition prohibiting reconstruction or
amalgamation of company
Sec. 391:Power to compromise or make arrangements with
creditors and members
Sec. 392: Power of NCLT (National Company Law
Tribunal) to enforce compromises and arrangements.
Sec.393: deals with the information as to compromise or
arrangement with creditors and members.
Sec.394: deals with the provisions for facilitating
reconstruction and amalgamation of companies.
THE PROVISIONS OF COMPANY’S
ACT 1956/2013
Sec.394A: relates to notice to be given to central
government for application under sec. 391 and sec. 394.
Sec.395: deals with the powers and duties to acquire shares
of share holders dissenting from scheme or contract
approved by majority.
Sec.396: deals with the power of central govt. to provide
for amalgamation of companies in national interest.
Sec. 396A: relates to preservation of books and papers of
amalgamated company.
SEBI TAKEOVER CODE
As per recommendations of Justice P N Bhagwati
committee and was incorporated in the SEBI
Regulation Act, 1977.
It is a set of guidelines given by SEBI relating to
regulations of mergers and takeovers.
The Salient features of the takeover code are as
explained as under:
 Disclosure of holdings.
 Public announcement and open offer.
 Offer price.
 Disclosure.
 Content of the offer document.
1. SEBI TAKEOVER CODE – DISCLOSURE
OF HOLDINGS
• If an acquirer holding 5%-14% wants to acquire
share in a target company, he is bound to
disclose such holding to target company or stock
exchange within 2 days of acquisition.
 If he is holding 15%-75% wants to purchase/sell
share aggregating to 2% or more, he is bound to
disclose such holdings to target company within
2 days of such acquisition.
 If he is holding more than 15% shares and a
promoter and person having control shall
disclose his aggregate shareholding within 21
days before, 31st March to the target company.
2. PUBLIC ANNOUNCEMENT AND
OPEN OFFER:
 Any acquirer intending to hold shares (other than

promoters holding) which entitle 15% voting power
can acquire such shares only after making public
announcement to acquire at least 20% voting power
from shareholders through an open offer.
 Acquirer holding more than 15% (other than
promoters holding) but less than 75% of voting
rights which entitles 5% voting rights in any financial
year can do so only after making public
announcement to acquire at least 20% shares of
target company from shareholders through an open
offer.
 Any acquirer holding more than 75% shares (other
than promoters holding) can acquire further share
only after public announcement to acquire at least
20% shares from shareholders through an open offer.
3. SEBI TAKEOVER CODE –
OFFER PRICE
In determining the offer price it has to be
ensured that all relevant parameters as listed
below are taken into account:
 Negotiated price under the agreement.
 Price paid for acquisition
 Average high and low prices of scripts of the

acquiring company during the period needs
to be
DISCLOSURE
The offer document for such takeover has to
disclose the following details in a clear
manner
 Detailed terms of the offer.
 Identity of the offer.
 Details of offerors existing holdings in Target

Company.
CONTENTS OF THE OFFER
DOCUMENT
As per the law the offer document has to
contain the following:
 Offer’s financial info.

 Intention to continue offeree’s business and
to make major long term change and long
term commercial justification of the offer.
SCHEME OF MERGER /
AMALGAMATION
Wherever two/ more companies agree to merge with each other, they have
to prepare a scheme
of amalgamation. The acquiring company should prepare the scheme in
consultation with its
merchant banker(s) / financial consultants. The main contents of a model
scheme, inter-alia, are
as listed below.
 Description of the transfer and the transferee company and the business
of the
transferor.
 Their authorized, issued and subscribed / paid –up capital.
 Basis of scheme : Main terms of the scheme in self-contained paragraphs
on the recommendation of valuation report, covering transfer of assets /
liabilities, transfer date, reduction or consolidation of capital, application
to financial institutions as lead institution for permission and so on.
 Change of name, object clause and accounting
year.
 Protection of employment.
 Dividend position and prospects.
 Management : Board of directors, their number and

participation of transferee company’s directors on
the board.
 Application under section 291 and 394 of the
Companies Act, 1956, to obtain Higher Court’s
approval.
 Expenses of amalgamation.
 Conditions of the scheme to become effective and

operative, effective date of amalgamation.
REGULATION BY SEBI
 Securities and Exchange Board of India
(SEBI): The securities market in India is
governed by the regulations and directions
issued by SEBI, the market regulator for
publicly listed companies. The SEBI
(substantial acquisition of shares and
takeovers) regulations, 2011 govern M&A
transaction which involve the acquisition of a
substantial stake in a publicly listed
company.

Legal Aspects M & A

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LEGAL ASPECTS OF MERGERS/

 Corporate governance issues

 Provision of Income Tax, 1961

 Foreign Exchange Management Act (FEMA),1999

 Competition Act, 2002

 Any acquirer intending to hold shares (other than

 Price paid for acquisition

 Average high and low prices of scripts of the

 Identity of the offer.

 Details of offerors existing holdings in Target

 Offer’s financial info.

 Dividend position and prospects.

 Management : Board of directors, their number and

 Conditions of the scheme to become effective and

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Legal Aspects M &amp; A

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Legal Aspects M &amp; A

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LEGAL ASPECTS OF MERGERS/

 Corporate governance issues

 Provision of Income Tax, 1961

 Foreign Exchange Management Act (FEMA),1999

 Competition Act, 2002

 Any acquirer intending to hold shares (other than

 Price paid for acquisition

 Average high and low prices of scripts of the

 Identity of the offer.

 Details of offerors existing holdings in Target

 Offer’s financial info.

 Dividend position and prospects.

 Management : Board of directors, their number and

 Conditions of the scheme to become effective and

You might also like

Legal Aspects M & A

Legal Aspects M & A

Legal Aspects M & A