Mergers and Acquisitions: The Regulatory Perspectives

Conference on Mergers and Acquisitions, September 5, q , p , 2008

Why Mergers and Acquisitions?

Accelerate the companys growth company s Enhance profitability of the company through economies of scale, scale operating economies and synergy Facilitate di F ilit t diversification of risks of ifi ti f i k f the company Limits the severity of competition

Boom in M&A Activity

Boom in M and A Activity within the oo a d ct ty t t e country and across the borders In the recent past spurt in activity due to low valuations l l i Other major factors responsible for enhanced activity comprises buoyancy of economy, economy, additional available liquidity of corporate entities, dynamic attitude of Indian entrepreneurs and move towards globalization apart from favorable government policies

Regulation for Mergers and Acquisitions A i ii

Regulations aim at transparent deals and g p protecting the interest of all shareholders Mergers and Acquisitions are regulated by the Companies Act 1956 which lays down the procedures for valuation of shares and protection of the rights of investors SEBI has take over code which provides for transparent, economical and fast take over of listed companies apart from fl d f protecting interest of minority shareholders

Regulation for Mergers and Acquisitions A i ii

The Competition Act 2002 regulates various forms of business combinations through Competition Commission of India Foreign Exchange Management Act 1999 regulates mergers and acquisitions where cross border deals are involved

SEBI s SEBIs Take Over Code

SEBI Take over regulations provide for disclosure of acquisition/sale of shares beyond certain specified percentages SEBI Take over regulations provide for making of a tender offer to acquire shares from the shareholders of the target company when the acquisition exceeds certain specified limits

SEBI s SEBIs Take Over Code

The acquisition could be by an entity or a group q y y g p of entities acting in concert with one another, direct or indirect Mandatory requirement of acquisition specific disclosure cautions the existing management of an impending hostile bid by an acquirer The mandatory tender offer and the norms for determination of offer price provide for complimentary exit opportunity to the shareholders while enhances the value of shares held by them

SEBI s SEBIs Take Over Code

Exemptions from mandatory tender available for p y interse transfers among promoters, relatives, group companies, schemes of arrangement under India or Foreign law, take over panel etc. g , p Provides for limit on creeping acquisition of 5 per cent in a financial year in respect of acquirers holding more than 15 per cent and less than 55 per cent of shares or voting rights Clauses which make it difficult for acquirers to make frivolous offers and acquisitions

Dimensions of take over activity

During the period 1997 and 2000, 2000 3573 companies have undergone restructuring making use of the provisions of take over code Resultant open offers benefited large number of shareholders the benefit being of the order of Rs 82,000 crore 82 000

Some features of M&A Activity

Delays due to disputes e ays d sputes Disputes mainly on account of price adjustments for change in assumed fundamentals of business f d l fb i Risk potential is greatly enhanced in highly leveraged deals Companys appetite for risk is not often assessed correctly Merchant and Investment Bankers, major beneficiaries

Future of M &A Activity

Deals could become complex in futureea s cou d beco e co p e futureutu e environmental, legal and cultural complexities rampant Cross border activity could d C b d i i ld dampen temporarily due to not so encouraging world economic conditions Lower valuations may attract enhanced domestic activity during the days to come