CROSS BORDER MERGERS
& ACQUISITIONS
The Legal Landscape
Madhurendra Nath Jha
Introduction
Merger - A Merger may be defined as the
combination of two or more independent business
corporations into a single enterprise, usually
involving the absorption of one or more firms by a
dominant firm.
Mergers may be broadly classified as Horizontal,
Vertical or Conglomerate
Acquisition may be defined as an act of one
enterprise of acquiring, directly or indirectly of
shares, voting rights, assets or control over the
management, of another enterprise .
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M&A Band Wagon
• Frenzied Activity in the field
of M&A in recent years
• In 2007 out of Total 348
Cross Border Deals:
Outbound: 240 ($32.37
billion)
Inbound: 108 ($15.61
billion)
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Increase in M& A
700
600
500
400
No. of Deals
Amount (USD million)
300
200
100
0
2006
2007
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India Inc. Goes Global
 Tata Steel acquired UK based
Corus for $ 8 billion.
 Suzlon Energy Ltd acquired
German firm Repower Systems
AG for $ 1.7 billion.
 United Spirits bought Scotch
whisky distiller Whyte &
Mackay for US$ 1.11 billion
 Hindalco acquired Novelis for
$ 6 billion
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India goes global
 TATA Chemical acquires US based Soda Ash Maker
General Industrial Products for $ 1 billion
 Indian shipping company Great Offshore acquires UK
based Sea Dragon for US$ 1.4 billion
 Essar Energy acquires 50% stake in Kenya
Petroleum refineries ltd.
 Banswara Syntex to acquire France firm Carreman
Michel Thierry for around US$ 125 million
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Graphical representation of Indian
outbound deals since 2000.
Source:
IBEF
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Inbound Transactions
 Sistema, Russian Joint Stock
Company’s acquisition of 74%
stake in Shyam Telelink –
Telecommunications
 French banking major BNP
Paribas’s acquisition of 45%
stake in financial services firm
Sundaram Home Finance for
$45.81 million
 Standard
Chartered
Bank
bought 49% stake for $34.19
million in UTI Securities and
Interpublic Group hiked its
stake in Lintas India to 100% for
$100 million
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 Fursa Mauritius’s acquisition of 42.63% equity in
Gayatri Starchkem
 UBS Global Management’s Acquisition of
Standard
Chartered
Asset
Management
Company for $ 117.78 Million
 EMC Corporations Acquisition of Valyd Software
Pvt. Ltd.
 Orkla’s Acquisition of MTR foods for $ 100
Million
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Destination India
• Liberal FDI Policy Framework
• FDI allowed in most sectors
• Entry Routes for Investment in India
– Approval
– Automatic
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FDI and Portfolio Flows to India
Source: RBI
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Entry Strategies for Foreign Investors
•
As a Foreign Company through:
–
–
–
•
Liaison office/Representative office
Project Office
Branch Office foreign company through:
As an Indian company through:
–
–
a Joint Venture
Wholly Owned Subsidiary
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Joint Ventures As An Entry Strategy
• JV’S regulated by Policies and
Laws governing FDI
• Two Tier Approval Mechanism
for JV’S:
- Automatic Approval Route
- FIPB Approval Route
• If the Foreign Partner has
entered into JV in the same
field before then NOC of the
previous JV partner and
approval of the Government
also required
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India-entry
• ‘Same Field’ may be defined as the 4 digit
National Industrial Classification (NIC) Code
Illustration:
If the foreign investor has collaboration for the
manufacture of tarpaulin Code 268.3, he can
invest in the manufacture of rubberized cloth
Code 268.2 as there is no restriction to enter
into JV’s in allied fields. The restriction shall
apply to any item whose code NIC code is
268.2.
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India entry
• A ‘Conflict of Interest’ clause advisable in
the JV/Collaboration agreement in case one
of the Partners to the JV wants to set up
another JV or wholly owned subsidiary in
the same field
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India entry-JV
•
The Following are exempted from the
restriction of entering into JV in the same
field:
1) Information Technology sector
2) Investments made by multinational financial
institutions
3) mining sector for the same area/mineral
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Other inbound
• Prior government approval not required in
certain cases:
- Investment to be made by venture capital
funds is registered with SEBI
- Existing JV investment is less than 3%
- Existing venture is defunct or sick
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Remittances
•
-
Determination of sale Price of Shares
Listed Company
Unlisted Company/Shares Thinly Traded on
the Stock Exchange
• Remittance of Sale Proceeds:
i. NOC from Income Tax Authority required
ii. If the security has not been sold on a
recognized stock exchange then prior
approval of the RBI in form TS 1 has been
obtained
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Sectors Attracting Highest FDI Equity Flows
Computer Software &
Hardware
Construction Activities
3000
2500
Automobile Industry
2000
Housing & Real Estate
1500
Power
1000
Drugs and Pharmaceuticals
Mettalurgic Industries
500
All Figures in US $(Million)
0
2004-05
2005-06
2006-07
2007-08
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Indian Overseas Investment
• Favourable Policy framework
- Overseas Investment Limit – 400% of Net Worth
- Overseas portfolio investment - 50 per cent of Net
Worth
• Permissible Funding:
– Drawal of foreign exchange from an AD;
– Capitalization of exports;
– Swap of shares;
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Funding
Permissible Funding Cont.
– Utilisation of proceeds of External Commercial
Borrowings (ECBs) / Foreign Currency Convertible
Bonds (FCCBs);
– in exchange of ADRs/GDRs
– Balances held in EEFC account of the Indian
party;
– Utilisation of proceeds of foreign currency funds
raised through ADR / GDR issues.
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India’s Direct Investment Abroad
Source: RBI
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Data on Overseas Direct Investments
S.no.
Country
Outflow 2006-2007
(In US$ Million)
1.
US
313.379
2
Canada
397.772
3
China
4
Netherlands
5
Czech Republic
26.008
6
Italy
7.104
7
Germany
8
France
0.693
9
Portugal
0
10
Poland
0.454
11
Hungary
0
3.176
1005.518
22.858
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Overseas Direct Investment –
Sector wise Breakup
S.no.
Sector
Outflow 2006-2007
(In US$ Million)
1.
Manufacturing
2402.760
2.
Financial Services
3.
Non-Financial Services 2249.960
4
Trading
390.811
5
Others
985.587
5.754
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Regulatory Framework
• Applicable
Indian
Laws
- Companies Act
- Competition Act
- Income Tax Act
- Indian Stamp Act
- SEBI
Takeover
Code
- FEMA
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Companies Act, 1956
• Merger is a scheme of arrangement
• Scheme of arrangement has to be presented
before the High Court for sanction
• Relevant Sections 391-394
• Limited Scope in Cross Border M&A’s because
Transferee company has to be a company
incorporated in India
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Competition Law, 2002
• Salient Features:
– Anti-competitive agreements;
– Prohibition of abuse of dominant position
– Regulation of Combinations including
mergers
– Unfair Trade Practices
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India : Merger Law
• Monopolies and
Restrictive Trade
Practices Act, 1969
– Inadequate
– Obsolete
• Still Prevailing
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New Merger Law
Competition Act, 2002
• Combination
The Indian law uses the word combinations
to cover acquisition of control, shares, voting
rights and assets, and mergers and
amalgamations
• Relevant Sections: 5-6 & 29-32
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Areas of Concern
• Applicable threshold Limits Based on:
– Value of Assets
– Turnover
• Notice Requirement
– Mandatory
– Within 30 days of
• Approval of proposal by BOD
• Execution of agreement/ document
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Competition proposals
• Mandatory waiting Period for Approval
– 210 Days
• Extra Territorial Jurisdiction of CCI
– CCI has power to inquire about combinations
taking place outside India
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Intent of National Security Legislations
– Right to Intervene in case of perceived threat
to National Security
– Discretionary powers to prevent certain foreign
companies from doing business in the country
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Foreign Investments & National
Security Legislations
• United States- Foreign Investment & National
Security Act, 2007 (Exon-Florio Provision)
• China- Anti Monopoly Law
• European Union- Members are free to regulate
International Mergers (Articles 81-85 EC Treaty
regulates Competition)
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security
• United Kingdom- Enterprises Act 2002
• India- National Security Exception Bill yet to
be passed by the Parliament
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THANK YOU
Should you have any questions on issues reported here or on other areas
of law, you may contact Paras Kuhad and Associates at the following coordinates:
Mr. M.N. JHA
Paras Kuhad and Associates, Advocates
A-238, Lower Ground Floor,
Defence Colony,
New Delhi- 110 024, India
Tel: +91 (0) 11 46562525, 46562727 Fax: +91 (0) 11 46562000
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Disclaimer
The contents of this document are intended for informational
purposes only and are not in the nature of a legal opinion or
advice. They may not encompass all possible regulations and
circumstances applicable to the subject matter and readers are
encouraged to seek legal counsel prior to acting upon any of the
information provided herein.
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originator.
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2008
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