SUBJECT: CORPORATE LAW

PROJECT TOPIC
TAKEOVER IN CORPORATE RESTRUCTURING

Submitted By

RICHA JOSHI
Roll no. 1225

4th Year, 8th Semester, B.B.A.LL.B(Hons.)

Submitted to

Mrs. Nandita Jha

Faculty of Corporate Law

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

APRIL, 2018
 ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my guide
Mrs. Nandita Jha for her exemplary guidance, monitoring and constant encouragement
throughout the course of this project. The blessing, help and guidance given by him time
to time shall carry me a long way in the journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude to my seniors, the library
staff and my friends for their valuable information and guidance, which helped me in
completing this task through various stages.

I would also thank my institution and my faculty members without whom this project
would have been a distant reality. I also extend my heartfelt thanks to my family and well
wishers.

-RICHA JOSHI

2
 AIMS AND OBJECTIVES

No stone has been left unturned to make this project a worthy task. To let it not go a
futile exercise every possible step has been taken. It is being believed by the researcher that
it will open a door of success in making many such academic researches and even better
than it, when needed.

It would quench the thirst for academic excellence and dealing with such wrong in
real life, if continued. Besides this it will also fulfill the desire of the researcher to
contribute services to the society.

The researcher will focus in answering the following questions:

1. What is the need of takeover in India?

2. What are the features that make takeover different from other forms of corporate
restructuring?

3. Is takeover ultimate boon or bane for corporate entities?

Takeover apart from merger and amalgamation is a very important mode of corporate
restructuring. Takeovers can be said to be a corporate action where an acquiring company
makes a bid for an acquiree. If the target company is publicly traded, the acquiring company
will make an offer for the outstanding shares. No statute specifically defines the term
“takeover”. Takeover is generally understood to imply the acquisition of shares carrying
voting rights in a company in a direct in a direct or indirect manner with a view to gaining
control over the management of the company. However, acquisition and takeover can be
made by following different means such as purchase of assets or shares of a target company
or by means of scheme of arrangement following the procedure laid down under the
Companies Act,1956 under section 391-396 A. In the ordinary case, the company taken over
is smaller but in reverse takeover a smaller company gains the control over the larger
company.

3
 SOURCES OF DATA

The following secondary sources of data have been used in the project-

1. Articles/Journals

2. Books

3. Websites

METHOD OF WRITING AND MODE OF CITATION SOURCES

The method adopted in making this project is the Doctrinal Method of research. The method
of writing followed in the course of this research paper is primarily analytical. The researcher has
followed a uniform mode of citation throughout the course of this research paper.

4
 TABLE OF CONTENTS

Corporate Restructuring: An Introduction to the Concept ......................................................... 6

Forms of Corporate Restructuring ............................................................................................. 7

Takeover: A form of Corporate Restructuring......................................................................... 10

Kinds of Takeovers .................................................................................................................. 11

Development of Law relating to Takeovers in India ............................................................... 12

Statutory Provisions in the Takeover Code 1997 vis a vis the Takeover Code 2011 .............. 15

Human Aspects of Mergers and Takeover............................................................................... 19

Advantages and Disadvantages of Takeovers.......................................................................... 20

Conclusion ............................................................................................................................... 21

Bibliography ............................................................................................................................ 22

5
CORPORATE RESTRUCTURING:
AN INTRODUCTION TO THE CONCEPT

Restructuring, reengineering, transformation, renewal, and reorientation are words that

describe the same general phenomenon - a change in how business is conducted. Only the
firms which are ready and able to realize continuous changes - the firms which approach
actively to a process of restructuring and (or) reengineering can be successful in the present
world. Restructuring is usually perceived as a change of a certain organism structure. We can
then distinguish changes at macro and micro levels, as results from the following definition.
It basically implies change of a particular economic area structure, change of production
programmes and enterprising activities. When dealing with a structural change of a national
economy particular field, the term of a macroeconomic restructuring is used. If a change is
being witnessed in an enterprise structure, the term „microeconomic restructuring‟ is used. In
terms of a microeconomic restructuring there might occur changes both at the company level
and at the levels of its particular parts. Restructuring represents an essential reconstruction of
an enterprise strategy, structures and processes and their tuning with the new reality.
Restructuring means overall enterprise reorganizing, renewing all its enterprising functions. It
represents „enterprise oriented‟ and „system holistic‟ changes of a managed organization unit.

The restructuring is a process of making a major change in organization structure that often
involves reducing management levels and possibly changing components of the organization
through divestiture and/or acquisition, as well as shrinking the size of the work force. It deals
with the structure of organization and is usually associated with cultural change. The first
stage is to conduct an economic model of the processes of the organization, to give a detailed
view of where and how value is created, and to ensure that resources can be provided to
different parts of the organization as and when required. The task is also to create a reward
structure to provide a powerful motivating force and then to build individual learning - the
encouragement for individuals to acquire the new skills necessary for the success of the
transformed company. The final stage is to develop the organization which will be able to
adapt constantly to changing circumstances. This corporate restructuring takes place through
various modes such as takeover, merger, amalgamation, demerger, divestiture etc.

In the present project we shall analyse the historical evolution of one these forms of
corporate restructuring i.e. takeovers with special reference to the Indian scenario.

6
FORMS OF CORPORATE RESTRUCTURING

In a rapidly changing world, companies are facing unprecedented turmoil in the global
markets. Severe competition, rapid technological change, and rising stock market‟s volatility
have increased the burden on managers to deliver superior performance and value for their
shareholders. In a response to these pressures, an increasing number of companies around the
world are dramatically restructuring their assets, operations and contractual relationship with
shareholders, creditors and other financial stakeholders. Corporate restructuring has
facilitated thousands of organisations to re-establish their competitive advantage and respond
more quickly and effectively to new opportunities and unexpected challenges. Corporate
restructuring has had an equally profound impact on the many more thousands of suppliers,
customers, and competitors that do business with restructured firms. However, having regard
to the condition of the business and the challenges that may be faced by a firm, different
modes of restructuring may be adopted to set off the adverse impact of the challenge before
the firm.

The "Corporate restructuring" is an umbrella term that includes mergers and consolidations,
divestitures and liquidations and various types of battles for corporate control. The essence of
corporate restructuring lies in achieving the long run goal of wealth maximisation. Generally
the term „merger and amalgamation‟ is used to refer to the process of restructuring. However
various modes of corporate restructuring exist depending on the primary object of
restructuring.

 Expansion: Where the objective of the business is the expansion and enlargement
of the business in that case, following modes can be adopted for restructuring.

a. Merger and Amalgamation:

The combining of two or more companies, generally by offering the stockholders
of one company securities in the acquiring company in exchange for the surrender
of their stock is called Merger. When one company purchases a majority interest
in another company is called acquisition.

b. Takeover and Acquisition:

7
 A takeover is a corporate action where an acquiring company makes a bid for an
acquiree. If the target company is publicly traded, the acquiring company will
make an offer for the outstanding shares thereby gaining control of the utilisation
of corporate assets and resources. This can be done either by taking control
through share holding or by purchase of the asset itself. The accounting treatment
differs depending upon the method of takeover.

c. Joint Ventures:
Cooperation between two or more companies in which the purpose is to achieve
jointly a specified business goal. Upon the attainment of the goal, the joint venture
is terminated. An example is when two businesses agree to share in the
development of a specific product. A joint venture, which is typically limited to
one project, differs from a partnership that can work jointly on many projects.

d. Strategic Alliances:
It is an arrangement between two companies who have decided to share resources
in a specific project. A strategic alliance is less involved than a joint venture
where two companies typically pool resources in creating a separate entity.

 Sell off: The rapid selling of securities, such as stocks, bonds and commodities. The
increase in supply leads to a decline in the value of the security.
a. Spin offs:
The creation of an independent company through the sale or distribution of new
shares of an existing business/division of a parent company is referred to as spin
offs. A spinoff is a type of divestiture.
b. Split offs:
A type of corporate reorganization whereby the stock of a subsidiary is exchanged
for shares in a parent company is referred to as split offs.
c. Split up:
A corporate action in which a single company splits into two or more separately
run companies is referred to as split up. Shares of the original company are
exchanged for shares in the new companies, with the exact distribution of shares
depending on each situation. This is an effective way to break up a company into

8
 several independent companies. After a split-up, the original company ceases to
exist.
d. Divestiture:
The partial or full disposal of an investment or asset through sale, exchange,
closure or bankruptcy is referred to as divestiture. Divestiture can be done slowly
and systematically over a long period of time, or in large lots over a short time
period. For a business, divestiture is the removal of assets from the books.
Businesses divest by the selling of ownership stakes, the closure of subsidiaries,
the bankruptcy of divisions, and so on.

 Change in ownership: Where the objective of the corporate restructuring is

changing the ownership of the companies, then the following modes may be
adopted:
a. Equity Carve Out:
A parent has substantial holding in a subsidiary. It sells part of that holding to the
public. „Public‟ does not necessarily mean a shareholder of the parent company.
Thus the asset item "Subsidiary Investment" in the balance-sheet of the parent
company is replaced with cash. Parent company keeps control of the subsidiary
but gets cash. This may be the first stage of a two-stage divestment (the process of
selling an asset) transaction.
b. Privatisation:
The transfer of ownership of property or businesses from a government to a
privately owned entity is known as privatization. It implies transition from a
publicly traded and owned company to a company which is privately owned and
no longer trades publicly on a stock exchange. When a publicly traded company
becomes private, investors can no longer purchase a stake in that company. One of
the main arguments for the privatization of publicly owned operations is the
estimated increases in efficiency that can result from private ownership.
The increased efficiency is thought to come from the greater importance
private owners tend to place on profit maximization as compared to government,
which tends to be less concerned about profits. Most companies start as private
companies funded by a small group of investors. As they grow in size, they will
often access the equity market for financing or ownership transfer through the sale
of shares. In some cases, the process is subsequently reversed when a group of

9
 investors or a private company purchases all of the shares in a public company,
making the company private and, therefore, removing it from the stock market.

TAKEOVER: A FORM OF CORPORATE RESTRUCTURING

Takeover apart from merger and amalgamation is a very important mode of corporate
restructuring. To define, takeovers can be said to be a corporate action where an acquiring
company makes a bid for an acquiree.1 If the target company is publicly traded, the acquiring
company will make an offer for the outstanding shares. So far as the statutory definition is
concerned, no statute specifically defines the term “takeover”. „Takeover bid‟ has also been
defined as an attempt by outsiders to wrest control from the incumbent management of a
target corporation.2 Takeover is generally understood to imply the acquisition of shares
carrying voting rights in a company in a direct in a direct or indirect manner with a view to
gaining control over the management of the company. However, acquisition and takeover can
be made by following different means such as purchase of assets or shares of a target
company or by means of scheme of arrangement following the procedure laid down under the
Companies Act,1956 under section 391-396 A. In the ordinary case, the company taken over
is smaller but in reverse takeover a smaller company gains the control over the larger
company. Where the shares are held by the public generally the takeover may be affected 3:

 By agreement between the acquirers and the controllers of the acquired company.
 By purchase of shares on the stock exchange.
 By means of a takeover bid whereby the assets and liabilities of the target company is
acquired.

However the regulatory framework for controlling the takeover activities of a company
consists of the Companies Act, 1956, Listing Agreement with stock Exchange and SEBI‟s
Takeover code 1997. Takeovers are quite often taken as a prelude to the mergers. Corporate
entities generally start with the acquisition of another company and then take steps to merge
or amalgamate the acquired company or merge or amalgamate with the acquired companies
and in the process also demerge certain undertakings. Takeover can be either friendly which
is done by a mutual agreement between two companies or it can be hostile.
1
http://www.investopedia.com/terms/t/takeover.asp#axzz1tpQ8fZpZ, visited on 8/4/18 at 12:09am.
2
Black‟s Law Dictionary, 7th Edn., p. 1466.
3
http://www.investopedia.com/terms/t/takeover.asp, visited on 8/4/2012 at 12:15 am.

10
KINDS OF TAKEOVERS

There are two kinds of takeover bids, they being as follows:

1. Friendly or negotiated Takeovers

2. Hostile Takeovers
3. Bail out Takeover

Friendly Takeovers

Takeovers can be through negotiations i.e. with the willingness and consent of acquiree
company‟s executives or Board of Directors. Such mergers are called friendly takeovers.
These takeovers are negotiated takeovers and if the parties do not reach to an agreement
during the negotiations, the proposal for takeover stands terminated and dropped out. This
kind of takeover is resorted to further some common objectives of both the parties. Generally,
friendly takeover takes place as per the provisions of Section 395 of the Companies Act,
1956. Section 395 of the Companies Act basically provides the power to acquire shares of the
shareholders dissenting from the scheme approved by the majority of shareholders.

Hostile Takeovers

An acquirer company may not offer to target company the proposal to acquire its undertaking
but silently and unilaterally may pursue efforts to gain controlling interest in it against the
wishes of the management. There are various ways in which an acquirer company may
pursue the matter to acquire the controlling interest in a target company. Such acts of the
acquirer are known as „takeover raids‟ in the corporate world. When organized in a
systematic way these raids are known as „takeover bids.‟ Both the raids and bids lead to
either takeover or merger. A takeover is hostile when it is in the form of „raid‟ The market
forces of competition and product failure provide strength and weakness to the rivals in the
industry, trade and commerce.

Bail out Takeovers

Bailout takeover is intended in respect of financially weak companies, i.e. a company not
being a sick industrial company, but which has the end of the previous financial year
accumulated losses, which has resulted in the erosion of more than 50 % but less than 100 %
of its net worth as at the beginning of the previous financial year, that is to say, of the sum

11
total of the paid-up capital and free reserves. The scheme of bailout takeover4 provides for the
acquisition of shares in financially weak company in any of the following manner:

a. Outright purchase of shares

b. Exchange of shares
c. Combination of both

DEVELOPMENT OF LAW RELATING TO TAKEOVERS IN INDIA

Situation of Indian economy prior to 1991 Economic Reforms

In 1991, India suffered a major economic crisis as a combination of the effects of oil price
shocks resulting from the 1990 Gulf War, the collapse of the Soviet Union which was a major
trading partner and source of foreign aid, and a sharp depletion of its foreign exchange
reserves caused largely by large and continuing government budget deficits. In 1991, India
had to service the country‟s $70 billion external debt, which had trebled over the previous
decade, as well as pay for the burgeoning costs of imports, especially oil. The country‟s
foreign exchange reserves dipped below $1 billion, barely enough to pay for two to three
weeks of imports. In addition, with the collapse of the Berlin Wall in November 1989, the
viability of socialism as an alternative model to capitalism had crumbled before the world‟s
eyes.5 Thus as a result of non-performance of the purely socialist system of economy in our
country, gates were opened to the outside world in order to synchronize itself with the global
market. The gates of the Indian market were opened for private companies, which hitherto
permitted only the public sector undertakings. And with the advent of the private entities in
the market, the corporate restructuring became more prominent and since then Indian
economy has witnessed a number of takeovers, mergers or amalgamations. The companies
rapidly underwent restructuring to make themselves globally competitive in wake of the
reduced tariff affording an opportunity to foreign players‟ advent in the Indian market. The
laws relating to the corporate restructuring is basically contained in the Companies Act 19566
and the SEBI Regulations.7 The laws relating to takeovers in India where not very organized
until the year 1994. Prior to 1990, before the establishment of SEBI, the takeover was

4
Chapter IV of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1996.
5
http://www.thinkers50.com/book_extracts/kumar.pdf, visited at 8/4/2018 at 7:06 pm .
6
Section 391-396 of the Companies Act 1956.
7
SEBI (Substantial Acquisition of Shares and Takeover) Regulations 1996.

12
regulated by the Clause 40 of the listing agreement, which provided for making a public offer
to the shareholders of a company by any person who sought to acquire 25 percent or more
voting rights in the company. The purpose of this clause was frustrated by the acquirers
simply by acquiring voting rights a little below the threshold limit of 25 percent which was
required for making a public offer.

Establishment of SEBI in 1990 and Amendment of clause 40:

SEBI after establishment in 1990, in order to regulate the takeovers and the abuse of clause
40 of the listing agreement amended the same thereby including the following provisions:

 lowering the threshold acquisition level for making a public offer by the acquirer,
from 25% to 10% ;
 bringing within its fold the aspect of change in management control under certain
circumstances (even without acquisition of shares beyond the threshold limit), as a
sufficient ground for making a public offer;
 introducing the requirement of acquiring a minimum of 20% from the shareholders
 stipulating a minimum price at which an offer should be made;
 providing for disclosure requirements through a mandatory public announcement
followed by mailing of an offer document with adequate disclosures to the
shareholders of the company; and
 requiring a shareholder to disclose his shareholding at level of 5% or above to serve
as an advance notice to the target company about the possible takeover threat.

These changes helped in making the process of acquisition of shares and takeovers
transparent, provided for protection of investors‟ interests in greater measure and introduced
an element of equity between the various parties concerned by increasing the disclosure
requirement. But the clause suffered from several deficiencies - particularly in its limited
applicability and weak enforceability. Being a part of the listing agreement, it could be made
binding only on listed companies and could not be effectively enforced against an acquirer
unless the acquirer itself was a listed company. The penalty for non-compliance was one
common to all violations of a listing agreement, namely, delisting of the company's shares,
which ran contrary to the interest of investors. The amended clause was unable to provide a
comprehensive regulatory framework governing takeovers; nonetheless, it made a positive
beginning.

13
Pre-Takeover Code situation

In fact calling it unorganized would rather be an understatement because laws relating to

takeovers in India until 1994 hardly existed. Except for certain provisions of the Companies
Act, 1956 such as Section 372, regarding inter-corporate loans by companies and Section
395, regarding acquisition of the shares of dissentient shareholders and clause 40 of the
listing agreement there was hardly anything solid enough to be called as organized takeover
laws.

Post Takeover Code situation

The guidelines of the Securities and Exchange board of India (Substantial acquisition of
shares and takeover) 1994 was the maiden Indian attempt towards an organized set of laws
for regulating takeovers in India. The need for changes in the regulation was felt just two
years after its inception. A need was certain changes in the regulation had been felt and so a
committee under the chairmanship of Justice P.N Bhagwati was constituted to review the
regulations and suggest the necessary changes required under the act.

Approach of the Justice P.N Bhagwati Committee Report on takeovers

 Nature of Regulations

The Committee was of the view that the Regulations for substantial acquisition of shares and
takeovers should operate principally to ensure fair and equal treatment of all shareholders in
relation to substantial acquisition of shares and takeovers. While on the one hand the
Regulations should not impose conditions which are too onerous to fulfil and hence make
substantial acquisitions and takeovers difficult, at the same time, they should ensure that such
processes do not take place in a clandestine manner without protecting the interests of the
shareholders. A balance must necessarily be struck between the two considerations.8

 Objectives of Regulations

The objective of the Regulations should therefore be to provide an orderly framework within
which such processes could be conducted. The Regulations should also help in evolving good

8
http://www.takeovercode.com/committee_reports/pnb_approach_committee.php, visited on 8/4/2018 at 8:11
pm.

14
business standards as to how fairness to shareholders can be achieved, as maintenance of
such standards is of importance to the integrity of the financial markets, and they should not
concern themselves with issues of competition, or financial or commercial advantages or
disadvantages of a takeover. The committee also noted that the process of substantial
acquisition of shares and takeovers is so intertwined with the warp and weft of the industry,
especially in the wake of economic reforms, that it would be unrealistic to make Regulations
in this area without taking into account the ground realities of the Indian industry.9

The Committee also recognised that the process of takeovers is complex and is interrelated to
the dynamics of the market place. It would therefore be impracticable to devise regulations in
such detail as to cover the entire range of situations which could arise in the process of
substantial acquisition of shares and takeovers. Therefore the committee recommended some
general principles to be kept in mind during the interpretation and operation of the of the
regulations, more so in the circumstances which may not be covered by the regulations.

The regulations were amended in 1997 and they finally were implementation. Since then the
regulations have been known as, Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeover) Guidelines, 1997 or Takeover Code 1997. Since then
many amendments have been made to the regulations. However, the Takeover Code 1997 has
been succeeded by the new Takeover Code 2011 that has become effective from 22nd October
2011.

STATUTORY PROVISIONS IN THE TAKEOVER CODE 1997 VIS A VIS

THE TAKEOVER CODE 2011

Disclosure Requirement

Regulation 7 of the Code 1997 stated that any person who along with the persons acting in
concert, if any, acquires shares or voting rights which when taken with the existing holdings
would entitle him to 5% or 10% or 14% or 54% or 74% shares or voting rights of the target
company, is required to disclose at every stage the aggregate of his shareholding or voting
rights to the target company and the Stock exchange where the shares of the target company
are traded within 2 days of the receipt of intimation of allotment of shares or acquisition

9
Ibid.

15
thereof. However an acquirer making an acquisition under the Takeover Code, 2011 in a
Target Company where the acquired shares and voting rights together with any existing
shares or voting rights of the Acquirer and PAC amount to 5% or more of the shareholding
of the Target Company, shall make disclosures of their aggregate shareholding and voting
rights in such Target Company and every Acquisition or disposal of shares of such Target
Company representing 2% or more of the shares or voting rights in such Target Company. 10

Open Offer

Where an acquirer intends to acquire shares which along with his existing shareholding
would entitle him to more than 15 % voting rights can acquire such additional shares only
after making a public announcement to acquire such shares through an open offer. 11 Under
the Takeover Code, 1997, an acquirer was mandated to make an open offer if he, alone or
through persons acting in concert, were acquiring 15% or more of voting right in the target
company.

This threshold of 15% has been increased to 25% under the Takeover Code, 2011. This is a
significant raise from the threshold prescribed in the old Takeover Code, 1997. It is perceived
that the increase in the threshold will be beneficial to private equity funds and institutional
investors who had to earlier restrict their stake to 14.99%. Now investors, including private
equity funds and minority foreign investors, will be able to increase their shareholding in
Target Companies up to 24.99% and will have greater say in the management of the Target
Companies.

Consolidation of Offers

No acquirer who, together with persons acting in concert with him, has acquired, in
accordance with the provisions of law, 15 per cent or more but less than fifty five per cent
(55%) of the shares or voting rights in a company, shall acquire, either by himself or through
or with persons acting in concert with him, additional shares or voting rights entitling him to
exercise more than 5% of the voting rights, in any financial year ending on 31st March unless
such acquirer makes a public announcement to acquire shares in accordance with the
regulations12

10
Regulation 28 of the Takeover Code 2011.
11
Regulation 10 of the Takeover Code 1997.
12
Regulation 11(1) of the Takeover Code 1997.

16
Further if an acquirer together with the persons acting in concert holds more than 55percent
but less than 75 percent of the shares or voting rights in the target company, for the purpose
of acquiring additional shares either by himself or through persons acting in concert thereby
entitling him to exercise voting rights, such an acquirer has to make public announcement to
acquire such shares in accordance with these regulations.13

Where an acquirer who together with persons acting in concert with him holds fifty-five per
cent (55%) or more but less than seventy-five per cent (75%) of the shares or voting rights in
a target company, is desirous of consolidating his holding while ensuring that the public
shareholding in the target company does not fall below the minimum level permitted by the
Listing Agreement, he may do so by making a public announcement in accordance with these
regulations.14

Acquisition of Control over a company

Notwithstanding the fact there has been any acquisition of shares or voting rights in a
company, no acquirer shall acquire control over the target company, unless such person
makes a public announcement to acquire shares and acquires such shares in accordance with
the regulations.15However such requirement is not necessary where such a change in control
takes place in pursuance to a special resolution passed in general meeting of shareholders.

Appointment of Merchant Banker

Before making any public announcement of offer referred to in regulation 10 or regulation 11

or regulation 12, the acquirer shall appoint a merchant banker in Category I holding a
certificate of registration granted by the Board, who is not an associate of or group of the
acquirer or the target company.16

Modes of Takeover

The acquirer company can acquire the target company either by:

a. Takeover Bid
i. Mandatory Bid
ii. Partial Bid

13
Regulation 11(2) of the Takeover Code 1997.
14
Regulation 11(2A) of the Takeover Code 1997.
15
Regulation 12 of the Takeover Code 1997.
16
Regulation 13 of the Takeover Code 1997.

17
 iii. Competitive bid
b. Tender Offer

Explanation:

A takeover bid gives impression of the intention reflected in the action of acquiring shares of
company to gain control of its affairs.

Regulation 10 and 12 of the SEBI Takeover Code 1997 provide for the making public
announcements which is in fact the mandatory bid. The situation in which such bid by way of
public announcement is to be made has been discussed earlier.

Conditions for Mandatory Bid

a. Consideration offer should be in cash and if in other securities, the same should be
undertaken for cash offer.
b. Offer price must be the highest price which offerer paid in past 12 months for same
class of shares.

Partial Bid

Partial bid is understood when a bid is made for acquiring part of shares of a class of capital
where the offerer intends to obtain effective control of the offeree through voting power.
Such a bid is made for equity shares carrying voting rights. Also in a situation where offerer
bids for whole of the issued shares of one class of capital in company other than equity share
capital carrying voting rights. Regulation 12 of SEBI Takeover Code 1997 qualifies partial
bid in the form of acquiring control over the target company irrespective of whether or not
there has been acquisition of shares or voting rights in a company.

Competitive Bid

There may be a situation, where a person other than the one being the acquirer having already
made the public announcement with respect to the acquisition of shares of the target
company, makes a bid to acquire the same target company. Such situation is regulated by
Regulation 25 of SEBI Takeover Code 1997 whereby „any person, other than the acquirer
who has made the first public announcement, who is desirous of making any offer, shall,
within 21 days of the public announcement of the first offer, make a public announcement of
his offer for acquisition of the shares of the same target company.‟ No public announcement

18
for an offer or competitive bid shall be made after 21 days from the date of public
announcement of the first offer.17

No public announcement for a competitive bid shall be made after an acquirer has already
made the public announcement under the proviso to sub-regulation (1) of regulation 14
pursuant to entering into a Share Purchase or Shareholders‟ Agreement with the Central
Government or the State Government as the case may be, for acquisition of shares or voting
rights or control of a Public Sector Undertaking.18

HUMAN ASPECTS OF MERGERS AND TAKEOVER

Mergers and acquisitions have become very common in the present economic scenario.
Numerous companies merge or are acquired, but as a matter of fact the maximum of these
mergers or takeovers result into a failure. One of the most important factor behind these
failures is the human aspect of these phenomena which in fact is beyond and a challenge to
corporate due diligence, owing to the fact that it has roots in the human psyche. Whenever
such merger or acquisition takes place in that case the management at the top tries to blend
the egos and energies of thousands of employees in unrealistic time limits. There is clash of
culture in fact. There may be a company which believes in pro-bono work and if it merges
with the company the sole motive whereof is profit making, then synchronizing the two
distinct ideologies and the culture is a task that is no less than herculean. One of the most
common consequences is the loss of loyalty from the employees who view themselves as
losers. Such a feeling is more intense in case of takeovers. There may be demotion or may be
a transfer to less important job. These negatively affect the human psyche and which may
have effect on his actions in the years to come. It has been observed that between 50-75
percent of the executive in the merged or acquired company plan to leave the company and
join some new organization.

The impact on the individuals involved in the whole process has in turn the impact on the
society in the long run. The societal implications may be perceived in form of lowered morale
of the people in general more particularly in the capitalistic economies where such activities
are more frequent, increased disloyalties, derailed corporate focus, groupism, resistance to
change, corporate criticism etc. Mergers and acquisitions are based and often planned on the

17
Regulation 25(2) of Takeover Code 1997.
18
Regulation 25(2A) of the Takeover Code 1997.

19
basis of cost savings or market synergies; and rarely the people and cultural issues are taken
into consideration. But as a matter of fact, it is the people who decide whether the acquisition
or merger would sink or swim. Thus for the HR managers it must be the prime objective to
conduct a cultural due diligence in order to do away with this problem.

ADVANTAGES AND DISADVANTAGES OF TAKEOVERS

Advantages:

 Results in growth and diversification of the existing corporations, which opt ofr
mergers or acquisitions.
 Enables dynamic firms to takeover inefficient firms and turn them into a more
efficient and profitable firm.
 New firm may benefit from economies of scale and share knowledge.
 Greater profit may enable more investment in research and development. For
example, this is important for pharmaceutical firms which engage in much risky
investment.
 Increases managerial skills and technology. If the firm cannot hire the management or
the technology it needs, it might combine with a compatible firm that has needed
managerial, personnel or technical expertise.
 Increase in the market share by reducing the competitors, and thereby enables to
secure more profit.

Disadvantages

 In a way takeovers lead to reduction of competition in the market leading to consumer

exploitation.
 The problem related to the human aspects of takeovers leads often to the failure of
takeovers ultimately leading to loss of time and money.
 Leads to development of monopolistic markets.
 Cartel formations and collusions may not be rules out.

20
CONCLUSION

Growth is always essential for the existence of a business concern. A business is bound to die
if it does not try to expand its activities. The expansion of a business may be in the form of
enlargement of its activities or acquisition of ownership. Internal expansion results gradual
increase in the activities of the concern. External expansion refers to “business combination”
where two or more concerns combine and expand their business activities. Takeovers in the
present scenario are often considered as prelude to mergers. However, as a matter of fact the
question arises that whether takeovers in the ultimate analysis, are boon or bane. Having a
glance at the advantages that are there, takeovers certainly for the corporate entities are
benediction. But how far are takeovers in the public interest; this question remain to be
examined. In this global market, acquisition of a domestic company by a foreign firm is not a
new concept and this is where the concerns like general public interest, national interest
come. Where a foreign entity is involved in takeovers, the regulations must take care of the
aspects related to the public interest and the national interest. In India, the bodies like the
Competition Commission, SEBI, and RBI (in case there is involvement of Banking
institutions) take care of these aspects. But still another aspect that renders most of the
takeovers futile is the human aspect where the synchronization of two different cultures has
to be made. It has manifold individuals and societal implications as discussed earlier. Thus
observed from this point of view takeovers may seem to attract more futility than utility.
However, with proper HR management, this problem of takeovers may be done away with
and then if they are not contrary to the public and national interest then they are certainly a
boon.

21
BIBLIOGRAPHY

Books:

1. J.C. Verma, Corporate Mergers, Amalgamation and Takeover, 5th ed., 2008, Bharat Law
House, New Delhi.

2. Taxmann, SEBI Manual, 13th ed. 2009, New Delhi.

3. Jayant Thakur, Takeover of Companies: Law, Practice and Pocedure, (Bombay, 1995).

4. Sridharan and Pandiyan, Guide to Takeover and Mergers, 2nd ed., 2006, Wadhwa, Nagpur.

22