Acquisitions of shares or control of a publicly listed Indian company are governed by the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (a.k.a. the Takeover Code). Although this piece of regulation is only about a decade old, it has been tested several times in transactions and before SEBI, the appellate tribunal and courts owing to its intricate set...
CSX/TCI Judgment – Some Thoughts on the SEBI Takeover Regulations
In a closely followed case, the U.S. District Court for the Southern District of New York issued its decision regarding the reporting requirements of a hedge fund (TCI) that had entered into “total return equity swaps” with counterparties in respect of the shares of CSX. Although TCI only entered into cash-settled swaps (without any obligations to obtain delivery of CSX’s shares), the...
Bharti-MTN: Structural Problems
The proposed deal between Bharti and MTN to combine their businesses fell through over the weekend. Although the principal reason for the fallout appears to be disagreement over who would control the combined entity, that was aided by problems with structuring the deal from a regulatory perspective. As The Economic Times reports: “In addition, there are other factors that may have contributed to...
Taxation on Sale of Shares in a Foreign Holding Company
Often, divestments by foreign owners of Indian companies are effected through a sale of the stake outside India. More specifically, where foreign companies hold shares in Indian companies through intermediate offshore investment companies, they can effect a divestment by merely selling off shares of the offshore holding companies. This does not in any way result in a transfer of shares of the...
Taxation on Slump Sales
A ‘slump sale’ is one of the methods available to give effect to a transfer of a division or undertaking of a company to another company. Under this method, all the assets and liabilities of (or relatable to) the undertaking are transferred for a ‘lump sum’ consideration without assigning values to the individual assets and liabilities of that undertaking. Unlike certain other types of merger and...
Indian Corporates on an African Trail
Several large as well as medium sized Indian companies have undertaken outbound investments and offshore acquisitions in the last decade. These have primarily been in developed markets such as the United States or in various European countries such as the United Kingdom, Germany and so on. The year 2008 has witnessed the emergence of a new phenomenon, whereby Indian companies are seen scouting in...
Differential Voting Rights as a Takeover Defence
Shares with differential voting rights (DVRs) have been permitted to be issued by Indian companies since 2001 when the Companies (Issue of Share Capital with Differential Voting Rights) Rules were issued. Not only have there been stringent conditions imposed with respect to issuance of shares with DVRs, but the rules themselves have given rise to several issues (particularly with reference to...
Micro..hoo: A New Twist
This new development on the international M&A front is worth briefly noting on this blog. We had all expected to see a highly-contested battle for control of Yahoo! panning out over the next few months. A hostile bid by Microsoft was keenly on the cards. But, it all ended last weekend turning out to be a damp squib, with CEO Steve Ballmer announcing Microsoft intention of withdrawing from the...
New Merger Norms for Telcos
The Indian telecommunications industry has witnessed significant consolidation over the last few years, with several large scale investments and mergers having occurred in this space. The Department of Telecommunications (DOT) has now issued Guidelines for intra-circle merger of licencees, which seek to strengthen DOT’s control and oversight of such mergers. While these guidelines incorporate...
Consolidation in the Indian Financial Sector
The financial services sector in India (both in the banking and non-banking finance industry) has witnessed consolidation over the last few years through various mergers & acquisitions. This trend will perhaps continue in the future as well. A recent speech by V. Leeladhar, Deputy Governor of the Reserve Bank of India contains a good overview of the statutory and regulatory framework that...
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