Jitendra Mohananey B. Com., LL.B., ACA, ACS Jitendra_mohananey@yahoo.

com +91 9810287311

Wk 4

Indias Out bound M & As Indian Companies Acquiring Abroad Legal Provisions India

Legal Provisions of the Country of Destination

Case Study - Any one case Process/Procedure Adopted Modus Operandi Legal Procedure

Situation pre acquisition Financial Marketing Production

Situation

Last date 15th April 2013 Submit Hard Copy and Soft Copy of the assignment Maximum Group Size 4 students

Pre merger Activities

Formulating Business Objectives Identify Target Company NDA Due Diligence Valuation Observation of Legal Requirements Preparation of Scheme

Formulate

Locate

Investigate

Negotiate

Integrate

Motivate
Long term Alignment of Organizational Levers with Business Strategy to sustain future organizational success Rules, Policies Goals and Measures Rewards & Recognition Training Communicati ons

Key Activities
Set Business Strategy Assess own strength SWOT Set Growth Strategy Define Acquisition Criteria Kind of Merger Start Strategy Due Diligence analysis Financial People/Culture Legal Environmental Operational IPR Findings Set Preliminary integration Plans Decide Negotiation Parameters Set Deal Terms Legal Structural Financial Secure Key talent Integrate team Close Deal Finalize Integration Plan

Identify Target Markets and Companies Select Target Sign NDA/Letter of Intent Develop M & A Plan

Implement Integration Plan Organization Process People Systems

Implementation

Issues, Risks & Challenges

ROI Value creation Strategic Fit Cultural Fit Timings/Dura tion/Period Leadership Fit Potential Synergies Viability Liabilities Human Capital Retention Human Capital Elimination Viability of Financial Aspect Integration issues Synergies and Economies of scale Speed Disruption Costs Revenues Results Perception Shareholders Public Customers Employees

Costs Competencies Customers Capital Capacity

Price Performance People Protection Governance

Sustainable Improvements, Changes Competitive Pressures Industry evolution, revolution

Set Business Strategy

Mission Objective Geography Current Position

Assess own SWOT Set Growth Strategy Define Acquisition Criteria

Organic Inorganic

Start Strategy Implementation

Horizontal - Competitors Vertical Vendors/Customers Conglomerate Brand Company Division/Part of the Business

Issues & Risks Costs Competencies Customers Capital Capacity

Identify or locate target Company/Division/Brand Will the target Company fit in to growth planned ? Impetus ? Strategic Fit/ Cultural Fit Or both M & A to result in maximum synergy New geographies/new markets/new products Resources (finance) to acquire ? Will it jeopardize current operations ? Problems to arise in integration Issues & Risks Areas of conflicts, cost of discontinuation ROI Value creation Time Frame
Strategic Fit Cultural Fit Timings Leadership Fit Potential Synergies Viability Overall

Once the Company is located :

NDA is the first document to be signed

Non Disclosure Agreement/Confidentiality Agreement
Both the parties commit to the confidentiality
Limited purpose Limited period Sample agreement

CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT THIS AGREEMENT is made the __ day of _________ BY AND BETWEEN _______________ Limited, an entity incorporated under the Companies Act 1956 and having its registered office at ________________________________, (hereinafter referred to as Proposed Acquirer which includes including its assigns, successors, promoters and authorized representatives) _______________________ Limited, an entity incorporated under the Companies Act 1956 and having its registered office at ___________________________________ (hereinafter referred to as Proposed Acquiree which include its assigns, successors, promoters and authorized representatives); Both Proposed Acquirer and Proposed Acquiree are individually referred to Party as such and collectively as the Parties.

WHEREAS in order to have majority stake in PROPOSED ACQUIREE, PROPOSED ACQUIRER intends to buy shares from existing shareholder(s) of PROPOSED ACQUIREE at a price to be mutually agreed in future (hereinafter referred to as Deal). AND WHEREAS, in order to facilitate the Deal and proceed in the matter both the Parties shall from time to time exchange Confidential and Price Sensitive information. NOW IT IS HEREBY AGREED AS FOLLOWS: DEFINITIONS
In this Agreement, the following words and phrases shall have the meanings ascribed to them below:

Agreement means this agreement; Associated Company in relation to a Party means any subsidiary and holding company of such Party or any subsidiary of such holding company or any other Company or concern in the group;

Confidential Information means, in relation to the obligations of the Party, all information (whether in written, oral or electronic format and whether disclosed directly or indirectly) designated as such by the other Party together with such other information which relates to the business, affairs, customers, products, programs, developments, operations, processes, trade secrets, design rights, know-how and personnel of that other Party (and of any Associated Company thereof) which might reasonably be regarded as the confidential information of that other Party (or of such Associated Company) Price Sensitive Information means and includes any information which if disclosed may substantially influence the Share Price of the Party.
CONFIDENTIALITY
Subject to Clauses 2.2 to 2.4, each Party shall:

2.1.1

use Confidential Information only for the purpose of the Deal;

disclose Confidential Information to a third party only with the prior consent of the disclosing Party or otherwise in accordance with Clauses 2.3 and 2.4; make all reasonable efforts to prevent the use or disclosure of the Confidential Information other than in accordance with the terms of this Agreement. The provisions of Clause 2.1 shall not apply to any Confidential Information which:

2.2.1

is or comes into the public domain other than by the default of the recipient Party;
can be shown to be or to have been independently generated by the recipient party; can be shown to be or to have been in the possession of or to be known by the recipient party prior to its receipt from the disclosing Party; can be shown to have been provided to the receiving party by any third party who was free of any restriction as to its user or disclosure.

To the extent that such disclosure is required for the purpose of the Discussions either Party may disclose Confidential Information to;

2.3.1 any Associated Company, provided that it shall procure that such Associated Company shall maintain the confidentiality of that information; and
to its professional advisors upon the execution by such professional advisors of a confidentiality undertaking on the terms of Clauses 2 and 4. Either Partymay make such disclosure of Confidential Information as shall be required to comply with the order of a Court of competent jurisdiction or with a mandatory requirement of a governing regulatory body. Each Party shall, forthwith upon becoming aware of any requirement for such disclosure, notify the other Party in writing.

PUBLICITY
Neither Party shall, without the prior approval in writing of the other, directly or indirectly:

4.1.1 Make any communication, public announcement, release or statement in any way connected with the Discussions; or
Disclose to any person other than those referred to in Clause 2 the fact of the conduct of the Discussions. Clause 4.1 shall not apply to a communication, public announcement, release or statement required by law or by regulation of a Stock Exchange or other governing regulatory body.

REMEDIES
The parties agree that monetary damages would not be a sufficient remedy for breach of the terms of this Agreement and that they shall be entitled, without prejudice to any other rights or remedies that may be available, to seek injunctive relief or specific performance as a remedy for any such breach.

NOTICES
All notices required or authorised to be delivered by one Party to the other Party under this Agreement shall be in writing sent by Registered post Any such notice shall be sent to the relevant Party at the address stated for that Party above and shall be marked for the attention of:

To :Proposed Acquiree : Attn: To Proposed Acquirer: Attn: LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with the laws of India, for the time being in force. The parties hereby submit to the exclusive jurisdiction of the Delhi High Court. ENTIRE AGREEMENT Save as expressly stated herein, this Agreement represents the entire understanding between the parties relating to the subject matter hereof and supersedes all previous agreements, understandings or commitments between the parties whether oral or written in respect to the subject matter hereof. DURATION The Agreement shall commence the day it is executed by both parties and shall remain in effect for three years from that date. AS WITNESS the hands of the duly authorised representatives of the parties at the date first above written. EXECUTED by the parties For and on behalf of Proposed Acquirer

Issues & Risks

Due Diligence analysis Financial People/Culture Legal Environmental Operational Findings Set Preliminary integration Plans Decide Negotiation Parameters

Liabilities Human Capital Retention Human Capital Elimination Viability of Financial Aspect Integration issues Synergies and Economies of scale

Due diligence is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care Knowing in details about the Company to be acquired Need arises out of the concept
Let the buyer beware

CAVEAT EMPTOR

Most Important pre merger activity Failure to do a due/proper due diligence generally results in a disastrous M & A or a takeover

Level of DD Size and importance of the transaction

DD = Detailed Investigation in M & A

DD is done by
The Company Acquirer And / or

External Agencies appointed by acquirer

Audit Firm and Law Firm

Generally jointly by the Company and the external agencies


External

Customers

Vendors Bankers/FIs Sources of DD

Public Domain Internet, News Papers, Journals etc

Tax Authorities Internal (From Company) Documents Industry

Agreements, M & AA, Orders, Correspondences, Confirmations, Minutes of Meetings

 DD

Aspects / Areas

Financial DD

Legal DD
Commercial DD/ Operational

 PRELIMINARY LIST OF INFORMATION REQUIRED

ABOUT THE BUSINESS OF THE COMPANY

1. CORPORATE
PROFILE/ HISTORY OF THE

COMPANY

Profile of the Company should cover the following

The various landmark developments, various firsts

The various stages in the increase in the activities of the company, since incorporation of the Company, which have had a material effect on the profit/loss Details of any other collaborations and tie-ups (marketing or other), present or being planned

 2. BUSINESS OF THE COMPANY Business and Growth strategy of the Company

Description of the business of the Company including segment-wise revenue and key customers, current distribution network/coverage. Growth strategy should be developed to provide guidance to investors on the likely nature, mix and scale of business in future and financial performance. Key elements of the growth strategy including but not limited to:
Plans on extending presence beyond the geography strategy to ensure competitiveness of its products Shifts in customer mix envisaged over the next 3-5 years Acquisition strategy Other business opportunities being explored by the company company. Internal management targets for IRR, RoCE and RoE

Steps taken by the Company towards implementing its strategy

 Business Model Current and Projected - Synergy Revenue Analysis

Current Size of Business Expansion Estimated increase in the business Potential Customers

Cost Analysis

Investment plans

Major elements of variable and fixed costs Separately - Segment wise Strategies to compress cost structure

Manufacturing advantage

Major Capex Mode of Financing New business initiatives planned by the Company Plans to expand in geographies
Patents. Trade Marks, Copy rights Cutting edge manufacturing practices Major competitive advantages derived by the company due to its distribution facilities Productivity achievements targets and plans to achieve them Advantages from product design Safety policy and systems for ensuring safe and reliable supply Current level of indigenization and level of indigenization to be achieved going forward

 Marketing Advantage

Organization structure

Marketing structure and sales set up Segment wise product positioning Pricing strategy Advertising and marketing strategy including Promotions, if any Credit Policy Any Policy on key customers

What is the current organization structure? What are the HR; Training and recruitment policies? Who are the key people? What are their educational qualifications and work experience? What is the total employee strength? What is the number of employees in each segment/ business area? What are the planned additions? What is the average cost per employee?

 R&D
Importance of R&D in the industry R&D setup and budgets Initiatives and key achievements

SWOT analysis as perceived by management

 Others

Collaborations, joint ventures of the Company (Potential) competition to the Companys business Any dividend policy details of the same Highlight a few decisions that emphasize the independent nature of the Board? What is the current contracting strategy for equipment / labor etc.? Is there any intention to provide any ESOPs to employees? If so, have any ESOP structures been contemplated? What are the commercial arrangements with Key Customers/Vendors Details of debt contracted so far (loan agreements) and changes to terms, if any What is the billing, receivables and payables cycle? - Working Capital ? Detailed financial model with assumptions etc. Details of break-up of revenue by customer and product segment in the past 5 years: volumes, price and usage. Historical (5 years) cost break-up by variable and fixed costs. Shareholders agreement if any Contribution to social causes such as environment friendly initiatives or initiatives for social welfare and society development

A. Permissions, Approvals, Compliances ..

Copies of all statutory RBI/ GoI/ FIPB/ various GoI agencies clearances and approvals received and copies of applications made if approval(s) awaited e.g. SIA registration, environmental clearance, approvals required for utilities, emission norms, approvals for foreign investment, approvals for export etc Minutes of Board and general body meetings of the company for the last three years Review of minutes of all stockholders meetings, stock books, stock ledgers and other records of stock issuances of the Company Information requirements, which have been highlighted, are likely to be part of additional review by the Legal Counsel. In addition, the Legal Counsel may require further information/ documents to give their opinion Review of internal audit reports for the last 5 years List of approvals that are required to undertake and continue the business e.g permission for electricity, water and other utilities from the relevant authorities Penalties, if any imposed by SEBI or any other regulatory body in India or abroad Name and address of the Auditors to the Company Name & address of the Compliance Officer of the Company with phone and fax numbers and the e-mail address Name, address of the of the legal advisors to the Company Name and Address of Bankers of the Company Details of all credit ratings received by the Company during the previous three years (including copies of the letters received from the rating agency(s)) giving the name of the rating agency(s), credit rating, borrowing programme etc.

Permissions, Approvals, Compliances ..

Date and place of original incorporation of the company and any changes thereafter in the name and registered office If there is a change in the name of the company at any time during the last 3 years, state reasons for change and whether and when the Objects clause of Memorandum of Association was amended to carry on activities as reflected by the new name Recent analyses of the Company prepared by investment bankers, engineers, management consultants, accountants, rating agencies or others, including marketing studies, credit reports and other types of reports, financial or otherwise Details of any branch, agency, place of business or any permanent establishment inside and outside India, including address, brief description of business and details of the personnel involved Details of any report, notice or correspondence relating to any violation or infringement by the Company of any Indian or other governmental regulation material compliance reports filed and significant correspondence with any regulatory agency all material governmental permits, consents and regulatory approvals of the Company List of and information relating to all material laws affecting operations of the Company Any reports, notices or correspondence to the Company regarding foreign payments or compliance with any countrys governmental regulations or currency requirements Any other agreements executed by the Company with the Indian government , whether at the central, state or municipal/local level All valid powers of attorney granted by the Company

B. Capital Structure

C. Management & Remuneration

Board of Directors etc.

Authorized, Issued, Subscribed, Paid up capital Share Premium Bonus issues/Right Issues ESOPs Outstanding Reserves Revaluation of Assets Details of all buy-back, (treasury stock/shares) stand by and similar arrangements for purchase of securities by the promoters, directors

CIBIL

Name, age, fathers name, occupation, address (as submitted to the RoC) of the Directors Form 29 & 32 which are filed with the RoC

Other directorships and the nominee capacity of the directors Changes in the directors in the three years preceding the date of filing the offer document: dates of appointment, resignation and reasons for resignation- certificate required Confirmation that the key management personnel are permanent employees Board resolution/ contract for the appointment and the remuneration of the managing director and other directors Interests of Directors, related party transactions, their borrowing powers and qualification shares Profiles of key managerial personnel including name, date of joining, qualification, details of previous employment, experience in the line of business, key strengths etc Changes in the key managerial personnel in the past one year: dates of appointment, resignation and reasons for resignation Organization structure with names, designations, functions and responsibility Corporate Governance Audit committee, remuneration committee, etc Documents providing for any bonus, retirement, profit sharing, incentive compensation, welfare and other employee benefit plans or agreements of the Company

Management & Remuneration

Board of Directors etc
Review of full particulars of any pension plan, pension arrangement, or proposed pension scheme, covenant or life assurance schemes of the Company. Details on compliance of the Provident Fund and Miscellaneous Provisions Act, maintaining of the registers prescribed thereunder and details of contributions and employees covered thereunder. Details of any other Provident Fund scheme or Trust. Details of availing any infancy benefits under Provident Fund and Bonus laws Details of bonus payments and registers required to be maintained pursuant to the Payment of Bonus Act. Details of compliance with Payment of Gratuity Act or other Gratuity Fund Scheme and any other Employee Welfare Schemes in existence.

D. Subsidiaries, Holding Companies, Group and Associate Companies Mode of money siphoning E. List of ALL VENTURES OF THE PROMOTERS (sole proprietorship, Firm, private company, limited company, listed company), giving activities undertaken, in brief. If any of these entities had faced/is facing any litigations/ defaults/ overdues OR labour problems/ closure etc., these may be mentioned under this para. The list to include all private/ listed companies of the issuer irrespective of whether they are under the same management as per Section 370(1B) of the Companies Act In case of common pursuits among the group companies and the Company, details of any conflict of interest (non Cometing) to be given, along with related party transactions and their financial implication on the issuer Company. If the promoters/ directors are involved one or more ventures in the same line of business as the issuer Company, potential conflict of interest to be given
SAME INFORMATION REQUIRED

F. Financial Performance

Audited Accounts for last 5 years Quarterly un audited accounts Significant Accounting Policies Changes in Accounting Policies in the last five years Relevant details of all the contingent liabilities Break up of Unsecured loans (separately showing loans from promoters/ promoter group/ group companies) Break up of Sundry Debtors (separately showing break up of receivables from promoters/ promoter group/ group companies) Loans and Advances made to person(s)/ companies in which directors of the Company are interested Break up of Loans and Advances (separately showing loans/ advances to promoters/ promoter group/ group companies) Break up of significant transactions with the promoter/ promoter group/ group companies of promoters Details of customer concentration (if the main customer(s) are foreign then details of the impacts on the financials due to currency fluctuations need to provided) Key Accounting ratios to be given as of the date of filing (to include any alteration in the capital structure after the date of audit), including EPS, NAV and RoNW and to be provided also in the post-diluted basis Brief terms and conditions of the term loans including re-schedulement, prepayment, penalty, default, etc. be incorporated along with suitable risk factor(s) for the negative developments Details of tax benefits, exemptions, subsidies etc Bank letters or agreements, including sanction letters, confirming lines of credit of the Company Review of all documents and agreements evidencing other material financing arrangements including sale and leaseback arrangements, installment purchases, etc Review of copies of Forms 8 and 13 filed with the Registrar of Companies in respect of any security created. Copies of Form 17 where such charges have been satisfied along with Nil Due Certificates issued by the Banks/ Lenders Details of all loans, guarantees and counter guarantees given by the Company to or on behalf of any subsidiary of the Company

Set Deal Terms

Legal Structural Financial

Secure Key talent Attrition/Non Solicitation Integrate team Close Deal Issues & Risks Price Performance Finalize Integration Plan People
Protection Governance

Implement Integration Plan Organization Process People Systems

Issues & Risks

Speed Disruption Costs Revenues Results Perception Shareholders Public Customers Employees

Long term Alignment of Organizational Levers with Business Strategy to sustain future organizational success Rules, Policies Goals and Measures Issues & Risks Sustainable Improvements, Rewards & Recognition Changes Competitive Pressures Industry evolution, Training revolution Communications

Thank you very much

jitendra_mohananey@yahoo.com +91 9810287311