Abstract
A merger is the combination of two separate companies into one, while an acquisition is where one company buys another and assumes decision-making control as the new owner. When a company is acquired by another company without board approval, the takeover becomes hostile. The target company is the company to be acquired and the other is the company which acquires in such cases, the acquirer will try to reach out to the company’s shareholders or bring in new management to gain approval for the acquisition. Hostile takeovers are often initiated in these two ways: takeover bids and proxy battles. A tender offer is a tender offer for a majority of the shares of a target company at a set price, usually higher than the current open market price of the shares. Buyers use higher prices to lure shareholders to sell their holdings. The offer may contain additional terms and conditions that the target company must comply with if the offer is accepted by shareholders. Buyers are trying to manipulate shareholders to vote out current management and boards to support new management who will accept the takeover in a proxy contest. The term “proxy” means the power of a shareholder to obtain an external vote. For example, an acquirer collects votes for new management through an agent.
Keywords
Hostile Takeover, Merger, Acquisition, Tender Offer, Proxy Fight, Target Company.
Introduction
In a friendly takeover, shareholders as well as management of both companies agree on the deal and support the idea of both companies merging. A hostile takeover takes place when the board of directors of the entity being purchased is not in favour of the arrangement and the company is unwilling to be bought, but the acquirer nonetheless proceeds by appealing directly to the shareholders and bypassing the board. When the initial surge of mergers and acquisitions began in countries such as the USA, England n , and others in the late nineteenth century, the concept of takeover came into existence. However, in India, the notion of takeovers had not come into the picture until the end of twentieth century, and even then, the idea of hostile takeovers did not exist. This concept arose when Swaraj Paul began his attempts to buyout two companies, Escorts Ltd. and DCM Ltd. He was the among the very first aggressive trader amongst the Indian market raiders. Although, Paul was unable to succeed in his attempts due to the incumbents’ adherence to technicalities regulating non-residents. However, this established the need for a regulated structure for takeovers. This need was exacerbated during the 1990s when the government out forward the policies of liberalisation, globalisation and privatisation, which bolstered the growth of the Indian economy and a super competitive business arena, motivating numerous businesses to reorganise their business models by making the use of mergers and takeovers.
Research Objectives
1. To analyse the existing legal and regulatory structures pertaining to takeovers in India.
2. To assess regulatory organisations in India oversee and resolve issues involving hostile takeovers.
3. To examine case studies of notable hostile takeovers in India and draw conclusions from it.
Research methodology
The information from this paper is compiled from various articles, websites and other research papers, etc. It is a descriptive paper that is based on a qualitative approach. It uses a general descriptive approach since it provides a broad overview of the subject and the issue. No primary data was used or gathered to produce this work. The paper solely depends on secondary sources.
Literature Review
1. “Muskaan Bhasin, Exploring the conception of Hostile Takeovers in India Overviewing Defenses, Takeover Code & Barriers., 4 International Journal of Legal Science & Innovation (2022).” This paper assesses the overall sustainability of conducting aggressive takeovers in India and the strategies and remedies that local target companies can employ to thwart these kinds of deals. It also focuses on the anti-acquirer nature of the Takeovers Code, 2011 while understanding hostile takeovers in relation to it. Finally, it looks at the current obstacles to hostile takeover activities in the nation, such as dominant promoter ownership and regulatory restrictions on obtaining financing. We might infer from the discussion above that Indian corporate law deems typical takeover defences mostly ineffective, giving target companies very few practical options for resisting aggressive offers. Due to the regulatory framework’s dearth of takeover protections, Indian businesses are in danger. India must imitate Delaware’s comprehensive acquisition jurisprudence given the growing possibility of takeover fights and the dearth of takeover safeguards like the poison pill and staggered board.
2. “Bhanu Singh Rohilla & Deb Zyoti Das, Defensive Tactics Vis-À-Vis Hostile Takeovers: An Indian Perspective, 4 International Journal of Law Management and Humanities 490–501 (2021).” This paper examines the Indian legislations and makes suggestions on how to strengthen them by using examples from other nations. It focuses on the gaps that exist in the multispectral arena of online investment and M&A deals in today’s times. The essay fills the gap between recent investment trends and decades-old research studies by establishing India as a top investment market. Companies are reportedly using takeover defences less frequently, according to a US study. Only the Golden Parachute defence is gaining ground on the other defences. On the other side, takeover defences are essential during business reorganisation. In India, laws and acts prohibit the majority of takeover defences used by target firms in the US. The need for such regulation in the takeover context has never been more evident. The legislature has acknowledged this and given SEBI the responsibility. The Bhagwati Committee’s scope of reference demonstrates SEBI’s efforts to stay ahead of the market in this industry. The time has arrived for another fundamental statute, the Companies Act, to take into account similar defences. As a result, takeovers may be used to replace ineffective management and/or traditionally family-run companies, boosting productivity in a more competitive global marketplace.
Legal Framework in India
In India, the primary legislation governing companies is the “Companies Act, 2013.” The legal framework for provisions related to corporate governance, mergers, acquisitions and takeovers are given in this act. Some relevant provisions under this act that pertain to takeovers are as follows:
- The power to grant merger, consolidation and reconstruction approvals shall be conferred upon the board of directors pursuant to “Section 179(3).”[1]
- The Board of Directors shall be empowered to take over another firm, or gain a majority or substantial shareholding in another company by virtue of “Section 179(3).”[1]
- outlines the procedure for corporate mergers and acquisitions in great detail.
- .[3]
- [4]
- is concerned with ownership acquired by major stake owners through the extinguishment of minority shareholding. In this case, “90% of the shares constitute the majority, and the share price must be assessed both by a Certified Valuer and in consultation with the minority shareholders.” [5]
- [6]
It is important to note that provisions of the “Companies Act, 2013” must be read along with rules and regulations of the “Securities and Exchange Board of India (SEBI)” pertaining to takeovers. “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.” This “Takeover Code” put formulated a structure that would regulate acquisitions and takeover of companies. Some relevant provisions are as follows:
- states that “when a bidder gains more than 25% of a target’s ownership or voting power, it constitutes a large acquisition and that the buyer is required to make a public offer. When the purchaser surpasses the trigger threshold, this relates to the first time purchase of stocks by outsiders or non-shareholders.” [8]
- : “Regulations also apply to the accumulation of shares held by members who own more than 25% of the voting or equity interests in the company. This applies to any purchase of 25% to 75% of the voting rights or shares of the target. In these circumstances, each time the buyer obtains more than 5%, an open offer must be made.”[8]
- – Whether or whether not shares are bought, this regulation is relevant to the acquisition of control. Typically, this entails having the power to appoint a completely new board of directors. [9]
- has made voluntarily publicly traded offerings by non-shareholders all but impossible because it only permits people having at least a 25% interest in the firm. A traditional hostile takeover is also made extremely difficult by rules like those that prohibit buying shares of the selected firm for a period of 52 weeks beforehand or following placing of a voluntary public bid. [10]
- – Regulations are further applicable to indirect takeovers, which are defined as the acquisition of a controlling position in a listed firm by an unlisted company.
- – This regulation imposes specific requirements on the target entity, including:
- [11]
“The Competition Act, 2002 read with the Competition Commission of India (Procedure in Regard to the transaction of business relating to Combinations) Regulations, 2011.”
The Competition Act of 2002, often known as anti-trust/anti-competition laws, regulates market competition and prohibits unfair trade practises. These Regulations are the only provisions of Indian Laws governing hostile takeovers; nonetheless, their reach remains quite limited. Among the essential provisions are the following:
Significant Cases
“India Cements and Raasi Cements”
“Mindtree Ltd and Larsen & Toubro (L&T)Ltd.”
“New Delhi Television Ltd (NDTV) and Adani Group.”
“Competition (Amendment) Act, 2023.”
The “Competition (Amendment) Bill, 2022” was put forth to amend “The Competition Act of 2002”. “The Competition (Amendment) Act, 2023 (“CAA”)” was approved by the Parliament of India and received the President’s assent in April 2023. The CAA makes numerous significant modifications to India’s competition law regime. Significant provisions of it are summarised below:
Conclusion
While the following rules provide for shareholder protection, the “Takeover Code” lacks any kind of explicit provision protecting corporations from hostile acquisitions. Aggressive bids are a rare occurrence in India due to one significant cause: the stockholding pattern contrasts sharply with the Western World. Most often, the organisation that promotes owns a majority stake, almost fifty percent or more. This makes a hostile offer nearly difficult because the bidder will be unable to obtain an overwhelming vote by a majority. Bidders are discouraged by resistance from present management and the likelihood of the takeover attempt becoming entangled in legal disputes. Things are, however, changing. Previously, the law allowed current promoters/management to obstruct the transfer of shares to a bidder. This barrier was lifted for a reason unrelated to allowing hostile bids: to allow the transfer of shares that are held in electronically or in digitalised form. The revisions to the “Competition Act,2002” recognise the distinctiveness of the present system for regulating a hostile acquisition. Although India does not yet have a prominent space for corporate governance, and effective hostile takeovers are rare, the vision of the New Act is critical for the industry’s growth. Therefore, it enables the legislature able to achieve its goals of enhancing the ease of conducting business in India by eliminating the presently restrictive antitrust system governing hostile takeovers and, as a result, facilitating the Indian market for corporate control.
References
1. Dasgupta., P. (2022) White Knight Defence to hostile takeovers under the takeover code, Indian Commercial Law Review and Practice Blog. Available at: https://iclrap.in/white-knight-defence-to-hostile-takeovers-under-the-takeover-code/#_ftnref2 (Accessed: 14 July 2023).
2. Ganti, A. (2023) Hostile takeover explained: What it is, how it works, examples, Investopedia. Available at: https://www.investopedia.com/terms/h/hostiletakeover.asp (Accessed: 14 July 2023).
3. Garg, R. (2021) How much do takeover laws matter in the light of last decade’s hostile takeover, iPleaders. Available at: https://blog.ipleaders.in/much-takeover-laws-matter-light-last-decades-hostile-takeover/#The_Competition_Act_2002_read_with_the_Competition_Commission_of_India_Procedure_in_Regard_to_the_transaction_of_business_relating_to_Combinations_Regulations_2011_Business_Combinations_Regulations (Accessed: 14 July 2023).
4. Gaur, N. (no date) Hostile takeover in India, Legal Service India – Law, Lawyers and Legal Resources. Available at: https://www.legalserviceindia.com/legal/article-9274-hostile-takeover-in-india.html (Accessed: 14 July 2023).
5. Gupta, Y. (2019) SEBI takeover code- detailed analysis, TaxGuru. Available at: https://taxguru.in/sebi/sebi-takeover-code.html#:~:text=Moreover%20to%20achieve%20its%20objectives,majority%20shares%20or%20controlling%20in (Accessed: 14 July 2023).
6. Maloo, R. (2020) Competition Regulatory Framework governing hostile takeovers in India, IndiaCorpLaw. Available at: https://indiacorplaw.in/2020/06/competition-regulatory-framework-governing-hostile-takeovers-in-india.html (Accessed: 14 July 2023).
7. Raj, T. (2021) Hostile takeover – tender offer and proxy fight, CAclubindia. Available at: https://www.caclubindia.com/articles/hostile-takeover–5038.asp (Accessed: 14 July 2023).
8. Rastogi, A. (2022) Hostile takeover in India: A study covering statutory and regulatory background, cases and defenses, LinkedIn. Available at: https://www.linkedin.com/pulse/hostile-takeover-india-study-covering-statutory-cases-ayush-rastogi/ (Accessed: 14 July 2023).
9. Thakur, J. (2022) No country for hostile takeovers: Why Indian promoters Breathe Easy, Moneycontrol. Available at: https://www.moneycontrol.com/news/opinion/no-country-for-hostile-takeovers-why-indian-promoters-breathe-easy-8396201.html (Accessed: 14 July 2023).
10. The competition (amendment) Bill, 2022 (2023) PRS Legislative Research. Available at: https://prsindia.org/billtrack/the-competition-amendment-bill-2022 (Accessed: 14 July 2023).
11. Kenton, W. (2023) Friendly takeover: What it means, how it works, Investopedia. Available at: https://www.investopedia.com/terms/f/friendly-takeover.asp#:~:text=These%20are%20friendly%20takeovers%2C%20hostile,want%20to%20be%20taken%20over. (Accessed: 14 July 2023).
12. Thomas, C. (2022) Billionaire adani to control nearly 65% of NDTV as Founders Sell Stake, Reuters. Available at: https://www.reuters.com/business/media-telecom/indias-ndtv-founders-transfer-most-their-stake-adani-2022-12-23/ (Accessed: 14 July 2023).
Bibliography
1. Muskaan Bhasin, Exploring the conception of Hostile Takeovers in India Overviewing Defenses, Takeover Code & Barriers., 4 International Journal of Legal Science & Innovation (2022).
2. Bhanu Singh Rohilla & Deb Zyoti Das, Defensive Tactics Vis-À-Vis Hostile Takeovers: An Indian Perspective, 4 International Journal of Law Management and Humanities 490–501 (2021).
Name: Vibha Luhar
Third-Year B.L.S./LL.B. Student at SVKM’s Pravin Gandhi College of Law, Mumbai.
“[1] Section 179, Companies Act 2013”
“[1] Section 179, Companies Act 2013”
“[3] Section 233 and Section 234, Companies Act 2013”
“[4] Section 235, Companies Act 2013”
“[5] Section 236 Companies Act 2013”
“[6] Section 230 Companies Act 2013”
“[8] Regulation 3, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”
“[8] Regulation 3, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”
“[9] Regulation 4, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”
“[10] Regulation 6, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”
“[11] Regulation 26, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”
“[12] Section 5, The Competition Act 2002”
“[13] Section 6, The Competition Act 2002”
“[13] Section 6, The Competition Act 2002”
“[14] Regulation 5, The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011”