TAKEOVER SAGA: A STUDY PERTAINING TO INDIAN SCENARIO

Swati Gupta Monica Agarwal

Samreen Farooqui

What is Takeover?

Acquisition of control of a company through purchase or exchange of shares with the objective of gaining control over the management of a company

Kinds of takeover

In business context
Horizontal Vertical Conglomerate

In legal context
Friendly Bail-out Hostile Reverse

Takeover Code

Objectives of Takeover Code

Substantial Acquisition - acquiring substantial quantity of

shares or voting rights Some Important regulations:

Reg. 7 entitle him to More than 5% or 10% or 15% or 54% or 74% must disclose within four days to the Company and Stock Exchange where shares are listed.

Any Acquirer who acquires shares or the Voting rights which would

Takeover Code (Contd.)

Reg. 10 No acquirer shall acquire which when acquire in single or in persons acting in concert with him entitle such acquirer to exercise 10% or more of the Voting rights in a company unless acquirer makes a public announcement.

Reg. 11 No acquirer shall acquire additional shares entitling him to exercise more than 10% voting rights along with the voting rights he already has in any financial year unless public announcement is made for such acquisition. No acquirer who holds 55% or more but less than 75% shall acquire either by himself or through the persons acting in concert unless public announcement for same has been made.

Takeover Code (Contd.)

Reg. 20 Where the shares of the Company are frequently traded: The minimum offer price will be the highest of the following:

The negotiated price as per the agreement. The highest of the price paid by the acquirer or persons acting in concert with him for any acquisition including by way of allotment or right issue during the 26 weeks period prior to date of public announcement. The price paid by the acquirer under the preferential allotment to him or the person acting in concert at any time during the 12 months period up to the date of closure of offer. The average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange during the 26 weeks, preceding to the date of public announcement.

Takeover Code (Contd.)

When the shares of the company are not frequently traded: The minimum offer price will be highest of the following: The first three points will be same as if the shares are frequently traded. The fourth point will be: price determined taking into consideration the factors like: Net profit of the Company, Earning per share, book value of shares of the target company.

Procedure for Takeover

Public Announcement Procedure to be followed after the Public Announcement Exemptions Minimum Offer Price and Payments made Safeguards incorporated so as to ensure that the Shareholders get their payments Penalties

Takeover Bid

Types of Takeover bid

Negotiated bid Tender offer Hostile takeover bid

Anti Takeover Defenses

Poison Pills Crown Jewel Shark Repellent

White Knight
Green Mail Golden Parachute Pacman Defense

Cases in Takeover

India Cements Takeover of Raasi Cements

Background Reasons for Acquisition

relatively low cost producer failed to capitalize on its low production cost due its weak marketing set-up

would help in ICL to acquire various markets of

Raasi, and interchangeable use of Raasi brand

names

India Cements Takeover of Raasi Cements(Contd.)

The Deal

Problems

B.V. Raju demanded a provision of buy back in law

The consideration paid by ICL was too high

Institutions having stake in RCL were in dilemma

India Cements Takeover of Raasi Cements(Contd.)

Post Takeover Synergy

Combined cement capacity of ICL increase up to 8

mtpa from 5.2 mtpa

The company was able to reduce its freight charges and utilize resources efficiently

Increase in the market share from 15% in 1997 to 25% in 1998

India Cements Takeover of Raasi Cements(Contd.)

Conclusion

ICL with subsidiary Raasi cement is going well, so

the takeover is valuable

The whole company currently has a production capacity of 9.1Mt/year.

With this acquisition, India Cements emerged as

south India's largest cement manufacturer with

about 7.5 million tonnes per annum Capacity.

Other Takeover Cases

Tata Steels Takeover of Corus Tata Motors Takeover of Jaguar Land Rover P&Gs Takeover of Gillette Tech Mahindras Takeover of Satyam Computers

Conclusion

Beliefs which promote Takeovers:

To become global Lack of vision and poor management Companies, overwhelming with debt and unacquainted with their efficiency level and capacity Better facilities and lower cost of production in Target Company Reduced dependency for supply of raw material and labor cost in home country and gaining access to international resources

Thank You