SEBI yesterday published its informal guidance in the matter pertaining to Bharti Airtel Limited. The question was whether the acquisition of 36% global depository receipts (GDRs) in Bharti Airtel Limited by MTN and its shareholders as part of the combination transaction would trigger various obligations under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. There are...
Squeezing Out Minority Shareholders: A Recent Judgment
The question of squeezing out minority shareholders (also known as freezeouts in some jurisdictions) is always a vexed question. This is because the law in certain circumstances allows minority shareholders to be forcibly bought out by the majority shareholders or the company such that they are forced out of the company. The controversy arises because this might amount to a deprivation of...
Indian Acquisitions Abroad
(In the following post, Rajvendra Sarswat, an Indian lawyer, examines the current trends in acquisition activity in India, with particular reference to overseas acquisitions by Indian companies) The news of an Indian company making any global acquisition or financing any project might have been surprising few years back, but not anymore. In the year 2006, for example, Indian companies announced...
Reactions to the Satyam Sale
The swiftness with which the sale of Satyam was effected has made headlines (please see links below). At stake were not only the interests of the company and its stakeholders (including shareholders, employees, customer, and so on) but also the credibility of India as an investment destination (particularly in the IT sector). These interests can largely be said to have been preserved (without...
Proposed Change in Takeover Rules: More than Just Satyam
A few days ago, when newspapers reported that SEBI was considering an exemption from the minimum pricing norms in the context of a potential takeover offer on Satyam, the obvious question arose as to how an exception can be made in respect of a single company, and that too one which has been the subject matter of alleged fraud. The minimum pricing norms require that when an acquirer obtains 15%...
Recent amendment allowing additional 5% creeping acquisition for 55-75% slab – some issues
1) SEBI amended vide notification dated 30th October 2008 the Takeover Regulations Takeover to, in essence, permit an acquirer, with persons acting in concert with him, to increase his holding by 5% by acquiring additional shares or voting rights upto 5% through open market purchases or pursuant to buyback of shares by the target company. This was following a Press Release discussed here and...
Tax Implications of Demergers
(The following post is contributed by Mihir Naniwadekar) Generally, the gains arising from a demerger are exempt from capital gains tax, while those arising from a slump sale are not. But, then, what exactly is a ‘demerger’ for the purposes of the exemption from capital gains tax? Can a demerger ever be characterized as a ‘slump sale’? Several sections of the Income Tax Act, 1961 deal with these...
Cross-Border Mergers
Under the present provisions of Sections 391-394 of the Companies Act, 1956 it is possible for a foreign company to merge with an Indian company, but an Indian company cannot be merged with a foreign company. This is intended to ensure that the company that continues after the merger is an Indian company over which the Indian regulatory authorities continue to exercise control. Although there was...
Fairness Reports for Mergers
In a change announced last week, SEBI has amended the listing agreement making it mandatory for companies involved in merger transactions to obtain a fairness opinion. SEBI describes the highlights of this amendment as follows: “1. “Fairness Opinion” of independent merchant banker: In order to safeguard the interest of shareholders, the listed company as well as the unlisted company which are...
Squeezing Out the Minority: Is it a Viable Option?
Although most jurisdictions confer powers on controlling (or majority) shareholders to squeeze out minority shareholders, the position under Indian company law does not appear to be all that straightforward. There exists a powerful provision in the form of Section 395 of the Companies Act, 1956 that allows controlling shareholders, in certain circumstances, to compel minority shareholders to sell...
Recent Comments