Mergers, Acquisitions and Joint

Ventures

 Mohit Saraf
 Partner,
 Luthra and Luthra
 Why M&A

 Underlying principles for M&A

transactions
 2+2 > 4
 Additional Value of “Synergy”- Merger
of Bharti’s subsidiaries- Cellular and Infotel
with itself
 Why M&A?

q HORIZONTAL INTEGRATION: Buying a

competitor- UB Acquisition of SWCL


q MARKET EXTENSION-
 New Markets Existing Service – Bharti’s
foray into Rajasthan and Chennai
 New Services Existing Markets- Bharti
purchase of Comsat (VSAT and Broadband
services)

 Why M&A?

q Vertical Integration- Internalizing crucial forward

or backward activities
 Forward Integration: Buying a customer
 Backward Integration: Buying a Supplier-
Reliance buying out FLAG
q Diversification- Agriculture with Rothschild (Field
Fresh), Airports with DLF and CHAMPS
q Restructuring
 Transaction Issues

q Legal Due Diligence

Ø Acquirer/ Private Equity

Ø Seller

q Two types of transactions documents

Ø Subscription Agreement

Ø Shareholders Agreement


 Transaction Issues (…contd.)
Subscription Agreements
q Right to subscribe based on reliance upon various
reps and warranties
q Prominent elements
Ø Title w.r.t. transferred shares

Ø Standing of Company

Ø Adverse judicial orders

Ø Related party transactions

Ø Due authorization and valid execution of agreement


 Transaction Issues (…contd.)
Subscription Agreements
Ø Full Disclosure of liabilities
Ø Status of proprietary assets like IP, real estate
Ø Material contracts and obligations
Ø Financial statements must reveal true and fair
picture
Ø Labour dues
Ø Environmental compliances
Ø Disclosures in listed companies- Insider Trading
Regulations
Ø


 Transaction Issues (…contd.)
Subscription Agreements
q Closing Related Issues
Ø Conditions precedent to closing- govt. approvals,

shareholders approvals
Ø Indemnity

• Aggregate Liability

• De minimus

• Threshold

q Post Closing Adjustments

q Reps and Warranties survival vs. Claims survival
q Termination
 Transaction Issues (…contd.)
Shareholders Agreement
q Effectiveness of SHA
q Management Control
Ø Board Control

Ø Shareholders Meeting control

Ø quorum requirements

Ø affirmative list


 Transaction Issues (…contd.)
Shareholders Agreement
q Transferability Restrictions
Ø Public companies vs. Private

Ø Right of first Refusal

Ø Tag Along rights

Ø Drag along rights

Ø Put and call options

Ø Transfer restrictions fall at IPO

q Liquidation Preference
 Transaction Issues (…contd.)
Shareholders Agreement
q Non- Compete provisions on promoter
q Termination- if minority holding falls below
threshold

 Transaction Issues (…contd.)
Due Diligence Report
q Approvals and Permissions
q Material Agreements
q Indebtedness and Lender restrictions
q Insurance
q Litigation
q Human resources and IP
 Case Studies
Reliance Infocom- FLAG
q FLAG – bankrupt but sound asset base
q FLAG merged with private limited
subsidiary of Reliance Infocom
q Pivotal’s competing bid- Reliance’s strategy-
Voting agreement with Harbert and Triage.
 Case Studies
Bharti- Rothschild
q 50-50 JV to exploit inadequate exploitation of
agricultural sector
q Diversification exercise prompted by
Ø favorable tax and duty regimes
Ø by availability of surplus funds
Ø HR to spare from wide scale outsourcing of own activities.
q Confined to back-end of food retailing because of
FDI limitations.
q