M&A Regulatory control

By

Prof. Augustin Amaladas

Content

• Evolution of Regulatory Control of M&A

• Procedures under the Companies Act, 1956

• The SEBI Takeover Regulation Code, 1997

• The recent changes made by SEBI in the take over Code

• Implications under Income tax Act, 1961.

Evolution of Regulatory Control of M&A

• Every business is targeted.

• MRTP-1969

• Indian firms require consolidation

• Survival and growth

• Preceding to 1991 there were 120 successful mergers and takeovers and about which failed to succeed.

• HLL-TOMCO merger -SC’s Judgment.It is the best route to reach a size comparable to global companies so as to effectively compete with them.

Compliance under the Companies Act, 1956

• 1. Scheme of Amalgamation /Merger• 2. Financial Institutions’ approval-Debenture holders, Banks, creditors

etc.• 3. Approval of BODs• 4. Intimation to stock exchange-when release to press.• 5. Application to court for direction-U/S 391(1)-A separate application

by TFR and TFREE• 6. Direction by court Directions for Members’ Meeting.• 7. Draft notices calling for meetings of Members• 8. 21 days clear notices• 9.Advertise for Meeting of members• 10. Confirmation about services of the Notice-Chairman conveys to

the court for the fulfillment of issue of notices and advertised.

• No one can acquire individually or along with some one (more than 15% upto 75%) of holding further shares without public announcement.

• The offer price to be paid in cash/shares of acquirer company.

• Average weekly high and low of the closing prices of the shares of target price traded during 26 weeks quoted

• or average daily price high and low of closing prices most frequently traded during two weeks before the public announcement whichever is higher.

• Minimum 20% of voting capital to be acquired.

• The offer should not be more than 16 days

Continuation

• 11. Holding the meeting and pass with ¾ th majority of the value of shares.And file such resolution with the Registrar within 30 days of the resolution

• 12. Submission of Chairman’s Report of the General Meeting to Court within 7 days.

• 13. Joint petition to court within 7 days from the date of his report to court for approving the scheme.

• 14.Issue of Notice to Regional Director’s Company Law Board u/s 394A by the Court.

• 15. Hearing of petition and confirmation of scheme

• 16. Filing of Court’s order with ROC by both the Companies.

• 17. Dissolution of Transferor Company u/s 394(1)(iv) without winding up.

• 18. Transfer of assets and Liabilities U/s 394(2)

Continuation

• 19. Allotment of shares to shareholders of Transferor company

• 20. Listing of shares at Stock Exchange-new shares allotted

• 21. Court Order to be annexed to Memorandum of Transferee Company

• 22.Prevention of Books and papers of amalgamated Company

• 23. Post merger secretarial obligation

The Companies Act 1956-Special provisions-merger/take over

• 1. Condition Prohibiting Reconstruction or Amalgamation of Company (sec.376)

• MOA Or AOA Or resolution prohibiting is void.It is also applicable for reorganisation

Power to compromise or make arrangements with creditors and members

• Compromise either with company and the creditor/members/any class of them

• The court may order the company to conduct meeting of the creditors/class of creditors/members/class of members.

• ¾ in value of such creditors/members vote for the resolution.It binds on all creditors/members

Regulatory framework of Takeovers

• As per SEBI (Substantial Acquisition of Shares and takeover) Regulations

The company which takes over make outside shareholders an opportunity to exit.

The price will be the price the company which takes over paid to the sellers or the average price quoted in the market

Disclosure of share holdings

• Any person holding more than shares 5% or 10%, 15% of voting rights –disclose to SEBI within 2 months and to the company at every stage.

• The company also should disclose to all stock exchanges with in 3 months from the date of notifications.

• A promoter or person controlling company disclose with in 2 months.• Purchase/ sale of 2% or more-with in 2 days to stock exchange and the

company.

• The company should disclose to all stock exchanges.• Any person holding 15% -disclose to company

within 21 days of the financial year ending on 31st March