Papers on Takeover Regulation

I have posted two papers on SSRN,
the titles and abstracts of which are as follows:
The mandatory bid
rule (MBR), one of the basic tenets of takeover regulation, obligates an
acquirer who obtains ‘control’ over a target company to make an offer to
acquire the shares of the remaining shareholders. What amounts to ‘control’ is
far from clear; some jurisdictions follow a quantitative approach based on a
specific shareholding threshold such as 30% voting rights, while others follow
a qualitative approach through a subjective determination based on several
factors, such as the specific rights available to an acquirer under a
shareholders’ agreement or the constitutional documents of a target.
The goal of this
article is to consider the merits and demerits of these approaches. It seeks to
do so by examining various models adopted in jurisdictions for pegging
‘control’ so as to invoke the MBR. It delves into the regulatory experience in
India as that jurisdiction not only adopts a combined approach (taking into
account both the quantitative and qualitative tests for control), but has also
been subject to a great deal of controversy and litigation in recent years that
have helped tease out the jurisprudential contours of the concept. It concludes
with a normative assessment that points towards partial harmonisation.
Given its deep and
liquid stock markets, India presents a favourable environment for public
takeovers. In order to develop and regulate takeover activity, India’s
securities regulator the Securities and Exchange Board of India (SEBI) has
enacted specific regulations. While at a broad level these regulations appear
to attribute their origins to the United Kingdom (UK) and other countries that
have adopted the UK model or its variants, I argue in this paper that takeover
regulation in India bears fundamental differences and unique characteristics
that have necessitated special treatment.
Due to the
prevalence of concentrated shareholdings in Indian companies, the incidence of
hostile takeovers has been negligible. While SEBI’s takeover regulations do not
confer much power to the target’s board to set up takeover defences, the nature
of concentration of shareholdings and other factors offer sufficient protection
to incumbent shareholders and managements against corporate raiders. Hence,
substantial attention in India is focused on the mandatory bid rule (MBR),
which operates to grant equality of treatment to minority shareholders by
conferring them an exit option in case of a change in control. India’s takeover
regulations are arguably stringent in implementing the MBR. This impedes
value-enhancing takeovers unless they are effected with the concurrence of the
controlling shareholders, who could potentially block them.
Added to this,
India’s takeover regulations confer benefits on incumbents that would impede a
market for corporate control in the conventional sense. For example, promoters
can take advantage of creeping acquisition limits, and also certain exemptions
from the MBR when they enhance their positions in the company. Hence, while the
takeover regulation overtly appears designed to engender a market for corporate
control, its operation coupled with the corporate structure and culture in
India attenuate the possibility of takeovers.
Relying upon the
political economy of takeover regulation, and more specifically the interest
group theory, my goal in this paper is to demonstrate the influence of
promoters in shaping India’s takeover regulation. I seek to do so both
analytically and empirically. While the Indian markets have witnessed a
constant stream of takeovers, they are almost entirely organized changes of
control in a friendly manner that trigger the MBR. Voluntary, unsolicited
offers that are common in the more developed markets are miniscule in number in
India.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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