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CROSS BORDER MERGERS

& ACQUISITIONS
The Legal Landscape

Madhurendra Nath Jha
Paras Kuhad & Associates,
Advocates
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 .
Paras Kuhad & Associates,
Advocates
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)

Paras Kuhad & Associates,
Advocates
Increase in M& A
0
100
200
300
400
500
600
700
2006 2007
No. of Deals
Amount (USD million)
Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
Graphical representation of Indian
outbound deals since 2000.
Source:
IBEF
Paras Kuhad & Associates,
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Inbound Transactions
Sistema, Russian Joint Stock
Companys acquisition of 74%
stake in Shyam Telelink
Telecommunications
French banking major BNP
Paribass 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

Paras Kuhad & Associates,
Advocates
Fursa Mauritiuss acquisition of 42.63% equity in
Gayatri Starchkem
UBS Global Managements Acquisition of
Standard Chartered Asset Management
Company for $ 117.78 Million
EMC Corporations Acquisition of Valyd Software
Pvt. Ltd.
Orklas Acquisition of MTR foods for $ 100
Million


Paras Kuhad & Associates,
Advocates
Destination India
Liberal FDI Policy Framework

FDI allowed in most sectors

Entry Routes for Investment in India
Approval
Automatic


Paras Kuhad & Associates,
Advocates
FDI and Portfolio Flows to India
Source: RBI
Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
Joint Ventures As An Entry Strategy
JVS regulated by Policies and
Laws governing FDI
Two Tier Approval Mechanism
for JVS:
- 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

Paras Kuhad & Associates,
Advocates
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 JVs in allied fields. The restriction shall
apply to any item whose code NIC code is
268.2.




Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
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

Paras Kuhad & Associates,
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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
Paras Kuhad & Associates,
Advocates
Sectors Attracting Highest FDI Equity Flows
0
500
1000
1500
2000
2500
3000
2004-05 2005-06 2006-07 2007-08
Computer Software &
Hardware
Construction Activities
Automobile Industry
Housing & Real Estate
Power
Drugs and Pharmaceuticals
Mettalurgic Industries
All Figures in US $(Million)
Paras Kuhad & Associates,
Advocates
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;
Paras Kuhad & Associates,
Advocates
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.

Paras Kuhad & Associates,
Advocates
Indias Direct Investment Abroad
Source: RBI
Paras Kuhad & Associates,
Advocates
Data on Overseas Direct Investments
S.no. Country Outflow 2006-2007
(In US$ Million)
1. US 313.379
2 Canada 397.772
3 China 3.176
4 Netherlands 1005.518
5 Czech Republic 26.008
6 Italy 7.104
7 Germany 22.858
8 France 0.693
9 Portugal 0
10 Poland 0.454
11 Hungary 0
Paras Kuhad & Associates,
Advocates
Overseas Direct Investment
Sector wise Breakup
S.no. Sector Outflow 2006-2007
(In US$ Million)
1. Manufacturing 2402.760
2. Financial Services 5.754
3. Non-Financial Services 2249.960
4 Trading 390.811
5 Others 985.587
Paras Kuhad & Associates,
Advocates
Regulatory Framework
Applicable Indian
Laws
- Companies Act
- Competition Act
- Income Tax Act
- Indian Stamp Act
- SEBI Takeover
Code
- FEMA
Paras Kuhad & Associates,
Advocates
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&As because
Transferee company has to be a company
incorporated in India

Paras Kuhad & Associates,
Advocates
Competition Law, 2002
Salient Features:
Anti-competitive agreements;
Prohibition of abuse of dominant position
Regulation of Combinations including
mergers
Unfair Trade Practices


Paras Kuhad & Associates,
Advocates
India : Merger Law

Monopolies and
Restrictive Trade
Practices Act, 1969
Inadequate
Obsolete

Still Prevailing

Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
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
Paras Kuhad & Associates,
Advocates
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

Paras Kuhad & Associates,
Advocates
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

Paras Kuhad & Associates,
Advocates
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)
Paras Kuhad & Associates,
Advocates
security

United Kingdom- Enterprises Act 2002

India- National Security Exception Bill yet to
be passed by the Parliament

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 co-
ordinates:
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
Mob: +91/0-9811319922

Email : pkadelhi@paraskuhd.com, mnjha@hotmail.com

Delhi Mumbai Kolkata Chennai J aipur Pune J odhpur
Paras Kuhad & Associates,
Advocates
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.

This Note is the exclusive copyright of Paras Kuhad and Associates,
Advocates and may not be circulated, reproduced or otherwise
used by the intended recipient without the prior permission of its
originator.
Paras Kuhad and Associates, Advocates
2008

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