TCB DN-V3N10-11

8/6/2019 TCB DN-V3N10-11

http://slidepdf.com/reader/full/tcb-dn-v3n10-11 1/12

Director Notes

No. DN-V3N10

MAY 2011

Outbound Mergers and Acquisitions by Indian Firmsby Afra Afsharipour

Changes to India’s laws governing Indian multinational corporations since the 1990shave had a significant impact on both the number and structure of cross-borderacquisitions by Indian companies. This report discusses the legal reforms implementedby the government to help facilitate overseas acquisitions by Indian firms, the subsequentincrease in outbound mergers and acquisitions, and the regulatory impediments that

still exist to mergers and acquisitions by Indian firms.

India is one of the fastest growing economies in the world and

is predicted to become the third largest economy after the

United States and China. India’s economic transformation

has allowed Indian firms to gain significant attention in

the world economy, particularly as acquirers of non-Indian

firms. This report outlines the rise in outbound mergers

and acquisitions (M&A) by Indian firms. It then focuses on

several of the areas of Indian law that affect outbound M&A

by Indian firms and the regulatory framework within which

Indian firms operate when undertaking outbound M&A.

Overall, legal reforms in India have played an important

role in setting the stage for outbound acquisitions by

Indian firms. Moreover, Indian law has shaped outbound

acquisitions both in terms of transaction structure and size.

However, legal constraints on M&A activity by Indian

firms continue to impose substantial restrictions not only

on the methods used by Indian multinationals in pursuing

outbound acquisitions, but also on the future potential

of Indian multinationals.

Chahart 1t 1

The Rise in M&A Activityhe Rise in M&A Activity

2006 2007 2008 2009 2010

Total outbound deal value (USD billions)

Source: Dealtracker Yearly 2010, Grant Thornton India.

0

5

10

15

20

25

30

35

8/6/2019 TCB DN-V3N10-11


Director Notes outbound mergers and acquisitions by indian firms www..2

India’s economic transformation has included substantial

M&A activity by Indian firms. The rise in general M&A

activity has included a rapid expansion of outbound

acquisitions by Indian firms.1 While Indian firms have

long been active in outside investments, they are now able

to compete with the strongest multinationals of developed

countries.2 Once absent from discussions about cross-border

M&A, Indian firms’ outbound M&A activity is now well-documented in the business news.3

Indian firms’ outbound M&A activity gained traction

beginning around 2000 and picked up considerable speed in

2005.4 By 2005, Indian firms’ outbound M&A deals generated

$9.5 billion, representing 58 percent of the country’s deal value

for the year.5 Of the outbound deals in 2005, the majority of

Indian firms’ acquisitions were concentrated in Europe and

North America.6 India’s outbound M&A deals and value

skyrocketed in 2007 with the rise of cross-border mega-deals.7

In 2007, six of India’s top 10 outbound M&A deals totaled

more than $30 billion in value, five times that of the previousyear.8 Moreover, there is some evidence that in 2007 and 2008,

outbound acquisitions by Indian firms exceeded inbound

investment by foreign multinationals into India.

Mega-deals by Indian firms include:

• T Sl’ $12 ll Al-Dh

vl, C;

• Hl’ $6 ll h U.S.-C

Nvl, h wl’ l p l

ll p;

• Szl E’ ph 33.85 p k

G w k RE Pw $1.7 ll.

With the advent of the global credit crisis, Indian M&A

activity slowed considerably in 2009. However, 2010 saw a

significant recovery, with total outbound deals valued at

approximately $22.5 bill ion. Outbound deals accounted for

45 percent of total M&A deal value in 2010, compared to

12 percent in 2009. Both the number and value of outbound

deals were significantly larger in 2010 than in 2009. Outbound

deals in 2010 also appeared to be in line with predictions

that Indian firms would veer away from targets in developed

economies to targets in emerging economies, as well asin the other BRIC countries, Brazil, Russia, and China.9

See Table 1.

Table 1

abl 2010 Oubund M&A Tanan

Acquirer Target Sector US $ millions Deal type Target’s nation Consideration

Bh Al Z A BV Tl 10,700.00 AA (v

)All h

Hj Gp KBL Ep PvBk Bk &Fl Sv 1,863.00 A Bl All h

H Z L(V R)

Al A Pl –Z

Ml & O 1,340.00 A U K All h

L Ih L G Cl M 845 A Al All h

F Hlh L Pkw Hl LPh, Hlh

& Bh685.3 S k Sp All h

Sh I Pw Gv H hl Hpl 648.6 A U K All h

E MlR L

T ClCp LLC

M 600 A U S All h

E A HlZw I

Sl CpMl & O 500 A Zw All h

Jl Sl & Pw LSh I

Sl C LLCMl & O 464 A O All h

JSW E L CIC E Cp M 415 A C All h

Source: Grant Thornton India, Dealtracker Yearly 2010

8/6/2019 TCB DN-V3N10-11


www.. Director Notes outbound mergers and acquisitions by indian firms 3

There are a number of important business reasons

underlying the interest of Indian firms in outbound M&A.

“Unlike Western companies, which use M&A primarily

to increase size and eff iciency, emerging [multinationals]

acquire firms to obtain competencies, technology, and

knowledge essential to their strategy.”10 For Indian firms,

acquiring established companies provides a consumer base

and market shares in competitive markets, as well as theability to consolidate manufacturing costs and diversify

products.11 Furthermore, acquiring established businesses

in developed economies provides Indian multinationals

access to other necessary business resources, such as raw

materials, technology, and intellectual property.12

Economic Liberalization

and Outbound M&A

The feasibility of outbound acquisitions by Indian firms

can be traced to an economic liberalization process that

commenced in the early 1990s.13 Economic liberalization

and globalization have given Indian multinationals relatively

easy access to multiple sources of funding, including

domestic and foreign capital markets. Legal reforms during

the liberalization period involved “the wholesale scrapping

of legislation facilitating government intervention in

markets and the introduction of a more market-facilitative

legal infrastructure.”14 During liberalization, the Indian

government facilitated the upsurge of overseas acquisitions

by relaxing regulations for the outbound flow of capital.

Relaxed regulations enabled Indian corporations to sell

securities and raise financing abroad with more ease.15

Further, the government lowered India’s import tariffs,

creating domestic competition which in turn compelled

corporations to access markets abroad.

Tanfman f va nvmn law Significant

reforms related to overseas investment have facilitated the

current wave of Indian outbound acquisitions.16 Starting in

early 2000, the Indian government took steps to overhaul

its foreign exchange regime.17 Enactment of these legal

reforms has been critical to the ability of Indian firms to

carry out outbound acquisitions.18

In June 2000, the government passed the Foreign ExchangeManagement Act (“FEMA”),19 making outward remittances

of overseas acquisitions possible.20 FEMA was heralded

as a great change in Indian law and facilitated the global

economic transformation of Indian firms.21 FEMA allows

quite a bit of flexibility to adapt to market conditions with

discretionary powers exercised by the government and

the Reserve Bank of India (“RBI”), India’s central bank.22

For example, the RBI has been able to continuously relax

regulations pertaining to joint ventures and wholly owned

subsidiaries.23 FEMA gives the RBI the power to specify

which capital account transactions are permissible and to

provide a limit on the amount of foreign exchange that will

be admissible.24

In March 2003, the government signif icantly revisedthe “Automatic Route” (i.e., without prior government

approval) for overseas investment.25 By 2010, Indian

firms were permitted to invest up to 400 percent of the

companies’ net worth.26 While the ability to invest up to

400 percent of an Indian company’s net worth is certainly

a benefit for conducting outbound M&A, it is also a

restriction on an Indian company’s investment activity

abroad.27 This limitation, along with an inability to pledge

Indian assets for guarantees or debt financing without RBI

approval (which is rarely given in practice), is an important

limitation on size and scope of outbound M&A from India.

As part of the legal reforms regarding foreign exchange,

the Indian government also liberalized the amount of

remittances that could be sent to India from foreign acquired

companies.28 These reforms allow Indian companies to

invest abroad either through the automatic route or with

the approval of the RBI.29 Interestingly, the number of

Indian banks establishing branches abroad has increased

with the rise of outbound M&A activity.30 Thus, Indian

corporations can “borrow offshore specifically for cross-

border investments and without government approval.”31

A glbal apal Although Indian multinationals

have engaged in numerous outbound acquisitions, the

vast majority of the transactions have been structured as

friendly, all-cash acquisitions of the target company, with

few using shares as consideration.32 Economic and business

incentives influence transaction structures, but they are not

the only determining factors. As discussed below, a number

of regulatory restrictions imposed by Indian law limit the

ability of Indian firms to acquire other firms by any means

other than all-cash transactions.33

The use of cash as the primary form of consideration is not

surprising because many of the largest Indian companies

are cash-rich.34 In addition to existing cash reserves and

relatively low leverage, some Indian firms have been able to

obtain additional cash from global capital markets because

of relaxed regulations that have allowed them to sell

securities and raise financing abroad.35

8/6/2019 TCB DN-V3N10-11



Traditionally, access to capital has been significantly easier

for Indian firms outside of India. Some Indian firms have

been able to list on foreign exchanges to increase their

ability to raise debt.36 Indian firms have been able to use

American Depository Receipts to ease access to foreign

capital markets and to use Global Depository Receipts

to facilitate M&A activities in foreign markets.37 Banks

have also become somewhat comfortable funding Indianmultinationals’ cross-border M&A because of the growing

success of India’s outbound acquisitions.38

Indian law continues to placesignificant burdens on firms that attempt M&A transactions, whichmay drive Indian firms to undertakeacquisitions abroad and also may

limit their ability to be creativein undertaking diferent types o acquisition structures.

While Indian firms have been able to raise acquisition

financing abroad, they have faced difficulty in raising

acquisition financing in India due to regulations that restrict

the ability of Indian banks to provide acquisition financing.39

The RBI prevents banks from providing loans for the purchase

of shares to ensure the safety of Indian banks.40 The RBI

has allowed banks to provide financing for some outboundacquisitions, but these are subject to RBI guidelines and

require the bank to ensure that such acquisitions are beneficial

to the borrowing company.41 The RBI also prevents a bank’s

total exposure to the capital markets.42 These restrictions

“make it virtually impossible for a financial investor to finance

an LBO [leveraged buyout]” using an Indian bank.43 Thus,

most Indian multinationals who have used the LBO structure44

to raise bank financing use the laws of the jurisdiction of

the target company. Many Indian companies, including

Tata Tea, Tata Steel, UB Group, Suzlon Energy, Essar Steel

Holdings, and Tata Motors, have used LBOs in making foreign

acquisitions by setting up offshore special purpose vehicles

(“SPV”) and obtaining financing abroad.45

The typical structure is for the Indian acquirer to set up an

SPV by providing some equity financing and then to raise

large amounts in the SPV through senior debt and mezzanine

financing for which the target company’s assets will be

provided as security.46 Thus, Indian multinationals are able to

avail themselves of funding structures to carry out outbound

acquisitions that are not available for domestic acquisitions.47

Legal Rules Governing M&A Transactions

Indian law continues to place significant burdens on

firms that attempt M&A transactions, whether domestic

or outbound. Such burdens may drive Indian firms to

undertake acquisitions abroad to escape the confines of

Indian corporate law, and also may limit the ability of

Indian firms to be creative in undertaking different types

of acquisition structures.

Th Cmpan A Merger transactions in India are

governed by the Companies Act, 195648

which sets forth acomplex set of procedures in Sections 390–395.49 Indian

companies that aim to undertake a cross-border acquisition

using a merger structure may be subject to the rules of the

Companies Act, as well as the merger rules of the target

entity’s jurisdiction. The cumbersome merger process under

the Companies Act has come under criticism.50 Due to

the complexities involved in effecting a merger under the

Companies Act, outbound acquisitions using the merger

structure are rare.

Mg anan und h Cmpan A In order

to undertake a merger transaction, section 393 of theCompanies Act requires the acquirer to prepare a “scheme”

or “arrangement” of amalgamation. Under the Companies

Act, a merger is considered to be an arrangement made

between the company and its members.51 To effect a merger

each of the merging companies must submit an application

calling for a meeting of each company’s creditors and

shareholders to the relevant regional High Court with

jurisdiction over the company.52 Generally, the courts will

permit a single joint application for convening a meeting by

the two merging companies involved in the arrangement,

although the application will need to be f iled in court by

way of two separate petitions, one for each company.53

8/6/2019 TCB DN-V3N10-11



The Companies Act requires that merger transactions be

approved by the shareholders of each constituent firm.54

Under the Companies Act, this would technically include

shareholders of both the acquiring Indian company and

the foreign target entity. In addition, creditor approval is

needed for any creditors of either of the merging firms.55

The Act requires class meetings for each of the classes

of shares, as well as each of the classes of creditors (e.g.,secured, unsecured, and trade).56 Under Section 391(2) of

the Companies Act, a majority representing three-fourths

in value of the creditors and shareholders of the company

present and voting at the meeting must vote in favor of the

transaction. Under some circumstances, however, the court

can dispense with the meeting.57

Overall, a merger process involves the shareholders of each

of the merging companies, the courts, and each company’s

creditors.58Thus, the merger approval process can be quite

lengthy, ranging from six months to one year.59 In addition,

“shareholder or creditor objections can significantlylengthen the process.”60 Some commentators have stated

that the court’s jurisdiction under Section 394 of the

Companies Act is supervisory; the court is not allowed to

second-guess the economic wisdom of the deal.61 While the

duties of the sanctioning court are largely procedural, the

sanctioning court can prevent a deal that runs contrary to

the public interest.62 Some commentators have argued that

this public interest test seems to have more strength when

a foreign company attempts to acquire an Indian f irm,

suggesting that the court is more comfortable with Indian

firms acquiring foreign assets.63 However, the courts have

not explicitly made such pronouncements to date.

With respect to merger transactions, the Companies Act

places severe restrictions on the surviving entity from the

merger transaction.64 A cross-border merger of a “foreign

body corporate” (foreign corporation) into an Indian

Company is permissible, but rare in practice. The cross-

border merger of an Indian company into a foreign body

corporate is not permissible under the Companies Act.65

However, an Indian company can merge with the Indian

establishment of a foreign company.66 The Companies Act

provisions governing amalgamation may apply to cross-

border amalgamations. Section 394(4)(b) of the CompaniesAct requires that the “transferee company” be a company

within the meaning of the Companies Act (i.e., an Indian

company); however, a “transferor company” may be any

body corporate, whether or not it is a company within the

meaning of the Companies Act. A “body corporate” is

defined in Section 2(7) of the Companies Act to include a

company incorporated outside India.

“A forward looking law on mergers

and amalgamations needs to alsorecognize that an Indian companyought to be permitted with a foreigncompany to merger. Both contract based mergers between an Indiancompany and a foreign company andcourt based mergers between suchentities where the foreign company is

the transferee, needs to be recognizedin Indian Law. The Committeerecognizes that this would requiresome pioneering work betweenvarious jurisdictions in which suchmergers and acquisitions are beingexecuted/created.”

Source: Ian Cmm Rp, 2005.

The Companies Act also imposes restrictions on an Indian

buyer when investing in a target company in excess of 60

percent of the buyer’s net worth or 100 percent of its free

reserves. In such transactions, under Section 372A of the

Companies Act, the buyer must receive prior shareholder

approval. This provision has been criticized by Indian

industry groups, including the Confederation of Indian

Industry, who note that such an approval requirement

“necessitates disclosure of vital details about the proposed

acquisition company to the shareholders, including the

price being paid. As a result, sensitive and confidential

information, which could be of critical importance tocompeting bidders, becomes available in the public domain

even prior to submitting a bid to the target company.”67

8/6/2019 TCB DN-V3N10-11



Amp fm h Cmpan A Over the past

decade, the Ministry of Corporate Affairs (MCA) has

made several attempts to modernize India’s company law.

As a result of more than five years of comments and review,

a legislative overhaul of the Companies Act is currently

pending in the Indian Parliament.

The first significant effort to reform the Companies Actwas launched in December 2004 when the MCA convened

the Irani Committee, chaired by J.J. Irani, a director

of Tata Sons, Ltd.68 In its report, the Irani Committee

“observed that the process of mergers and acquisitions in

India is a court-driven, long and drawn-out process that

is problematic.”69 The committee recommended that the

merger process allow for:

• l (.., wh v),

• - M&A h wl p

I p p

v-v,

• I hhl v

l I h (pll l

p) h h wl h

p hl wh

h I.70

Despite publicity regarding the committee’s recommendations,

the Indian government has been unable to translate them

into legislation.71 The Companies (Amendment) Bill was

introduced in the Indian Parliament in October 2008,72

but failed to become law. In August 2009, the Companies

Bill, 200973

a duplicate of the earlier version, was introducedin the Lok Sabha (the lower house of parliament in India).74

However, passage has been deferred, and the Companies Bill is

expected to be further amended as a result of an August 2010

report by the Standing Committee on Finance of Parliament.75

While the Irani committee indicated that it would recommend

allowing transaction structures where a non-Indian company

could be the surviving entity, the government, in its proposed

amendment of the Act, “decided not to allow the merger of

Indian companies with foreign companies,” concluding that

“. . . merger of an Indian company with a foreign company

would lead to a situation where shareholders of the Indian

company hold shares . . . in the foreign company,” which thegovernment saw as a migration of an Indian company to other

jurisdictions.76 The Companies Bill, 2009 would also limit the

amount of step-down subsidiaries (subsidiaries of subsidiaries),

which would put Indian corporations at a disadvantage in

corporate structuring and effecting mergers and acquisitions.77

Th Takv Cd While the provisions of the Takeover

Code do not apply directly to outbound acquisitions, the code

has had significant indirect influence on Indian companies.

On the one hand, Indian firms launched outbound deals with

a deep understanding of the complexities of takeover rules,

since most Indian firms that undertook outbound M&A

gained considerable experience in M&A transactions generally

by first undertaking domestic acquisitions.78 On the otherhand, in part due to the Takeover Code’s extensive restrictions

on hostile acquisitions, Indian firms have been reluctant to

undertake hostile outbound acquisition.79

“Given that laws in India are not sympathetic to hostile takeovers,Indian firms until now have sought to make global acquisitions in a sot

manner, ater obtaining the buy-in o the potential target’s management.”

Source: India’s Global Powerhouses: How They Are Taking on the World.

The Indian Takeover Code has come under significant

criticism for its entrenchment of promoters (controlling

stockholders) and its failure to provide a market for

corporate control.80 The takeover regulations, initially

intended to create a market for corporate control, were

modeled after the takeover-friendly UK City Code of

Takeover and Mergers (“UK City Code”).81 Although the

Securities and Exchange Board of India (“SEBI”) modeledthe Takeover Code after the UK City Code, it diverges

from its predecessor in some important aspects and in its

practical effect.82 The UK City Code is generally known

to be takeover-friendly because of its strong inclination

to protect shareholder interests while deprioritizing

management entrenchment.83 In contrast, India’s Takeover

Code has a distinct bias towards entrenched management

and controlling shareholders.84 The Takeover Code allows

several methods through which controlling shareholders

can “consolidate their holdings and successfully resist”

a takeover.85 For example, despite the mandatory offer

requirements under the code, the Takeover Code permits

“creeping acquisitions” by holders of a company’s stock,

so long as they hold between 15 percent and 55 percent of

the company’s shares.86 The creeping acquisition provision

in the Takeover Code allows such shareholders to acquire

up to 5 percent of the company’s stock each year without

8/6/2019 TCB DN-V3N10-11



making an open offer.87 That provision is especially useful

to promoters because it allows them to slowly increase their

shareholdings (and as a corollary, their control over the

corporation) by up to 5 percent each year without having to

pay any premium for these shares.

As a result of the Takeover Code’s substantial restrictions

on hostile takeovers, Indian firms have generally beenunfamiliar with this acquisition route.88 While Indian

multinationals have signif icant experience in domestic

M&A activity, almost all of these transactions have been

friendly deals.89

Of course, legal restrictions on hostile takeovers are not

the sole reason for the reluctance of Indian multinationals

to engage in hostile takeover activity. Some Indian M&A

experts have expressed the view that culture plays as

significant a role in the dearth of hostile takeover activity.90

According to these experts, Indian firms did not want to

be tainted with the hostile acquirer label and felt that theycould achieve their acquisition goals more efficiently by

persuading the target’s management to come to the table.

Lman n k-wap anan India’s complex

regulatory regime has led to much difficulty for Indian

firms that use shares as consideration in an acquisition

(i.e., a stock swap transaction).91 Instead, Indian firms are

relegated primarily to using cash as consideration.92 As

opposed to cash deals, stock-swap deals are more difficult

and risky to implement because of the significant role

of the government in such deals.93 Lawyers involved in

Indian firms’ outbound M&A consistently agree that the

need for such approval and valuation has led to significant

regulatory uncertainty in stock-swap deals.94 In the long

term, it is neither desirable nor sustainable for Indian firms

to continue to use solely cash in outbound acquisitions.95

Under Section 81(1A) of the Companies Act, in a stock-

swap transaction, the Indian acquirer would need to pass a

special resolution permitting the issuance of shares to the

shareholders of the foreign target.96 A publicly listed Indian

firm issuing shares in an acquisition transaction may also

trigger certain disclosure obligations under the Takeover

Code and risks triggering the public offer provisions of the

code in the event of the issuance of securities over a certain

amount.97 Publicly listed Indian acquirers using shares

may also be subject to the SEBI (Disclosure and Investor

Protection) Guidelines, 2000 (“SEBI DIP Guidelines”)

regarding pricing.98

Acquisition by swapping the equity shares of a foreign

target for the shares of an Indian company may also require

approval from the RBI and, for some deals, the Foreign

Investment and Promotion Board (“FIPB”).99 For example,

under Regulation 7 of the Foreign Exchange Management

(Transfer or Issue of Security by a Person Resident Outside

India) Regulations, 2000 (“FEMA regulations”), once the

relevant court has approved the merger transaction, theacquirer may issue shares to the shareholders of the target

entity who are not Indian residents, subject to the condition

that the percentage of nonresident holdings in the acquiring

company does not exceed the limits for which approval has

been granted by the Reserve Bank of India (RBI) or the

prescribed sectoral ceiling under the foreign direct investmen

(FDI) policy set under the FEMA regulations.100 If the

new share allotment exceeds such limits, the company will

have to obtain the prior approval of the FIPB and the RBI

before issuing shares to the nonresidents.101 However, foreign

investments in sectors or activities that may use the RBI’s

automatic route do not require prior approval of the FIPB.102

Irrespective of the amount, transferring shares to

nonresidents of India is an incredibly arduous process

that involves the need to obtain valuation of the shares

along with approval of the RBI (even when these powers

have been delegated to an authorized dealer — a bank

authorized to deal in foreign exchange).103 The authorized

dealer must be a merchant banker registered with SEBI or

an investment banker or merchant banker outside India

registered with the appropriate authority (irrespective of

the amount).104

Despite the rapid liberalization of the Indian foreign

investment regime in the early 1990s, impediments to FDI

still exist in certain sectors in the Indian economy.105 Under

these FDI limitations, persons residing outside of India and

foreign corporations may only own or control up to a certain

percentage of Indian corporations operating in identified

sectors.106 Specifically, FDI sectoral caps have been in place

for “defen[s]e production, air transport services, ground

handling services, asset reconstruction companies, private

sector banking, broadcasting, commodity exchanges,

credit information companies, insurance, print media,

telecommunications, and satellites.”107 The FIPB, whichformulates foreign investment policy, and the RBI are the

primary regulatory authorities charged with implementing

and enforcing these FDI limitations.108

8/6/2019 TCB DN-V3N10-11



The FDI caps limit the structure of acquisition transactions

for Indian firms and their ability to use their own shares

as consideration in overseas acquisitions.109 The Ministry

of Commerce and Industry’s 2011 Consolidated FDI

policy provides that “[t]he transfer of capital instruments

of companies engaged in [the above mentioned sectors]

from residents to non-residents by way of sale or otherwise

requires Government approval followed by permissionfrom RBI.”110 Thus, Indian corporations subject to these

regulatory hurdles and that are interested in overseas

acquisitions must either obtain regulatory approval to use

their shares as consideration for such transactions, limit

the use of their shares in these transactions so as not to

run afoul of the FDI caps, establish overseas subsidiaries

to facilitate such acquisitions, or resort to cash deals.

Certainly, these considerations have a deep impact on

the transaction structures that Indian corporations may

employ in foreign acquisitions.

Cmpn A f 2002 The Competition Act of 2002also mandates merger regulation. Section 32 of the

Competition Act expressly provides for extra-territorial

reach of the statute. Any anticompetitive activity taking

place outside India but having an appreciable adverse

effect on competition within India will be subject to its

application.

In March 2011 the MCA issued notice that sections 5, 6, 20,

29, 30, and 31 of the Competition Act, dealing with merger

control, will be enforced beginning June 1, 2011.111 These

sections regulate combinations, statutorily defined in

section 5 as an acquisition if:112

• h p h h $500 ll

h v h $1500 ll;

• h wl hv vl v $2 ll

v v $6 ll;

• p k p l h

l p p,

, ll h

h p h p h v

$500 ll v h $1500 ll,

h wl vl v $2 ll

v v $6 ll.

Following complaints that these numbers are too low, the

MCA responded by enhancing the thresholds by 50 percent.113

The MCA has further modif ied the scope of the Competition

Act of 2002 in regulating combinations. Any acquisition of

a target company with approximately $55 million or less in

assets, or $165 million or less in turnover, is exempt from being

classified as a combination for a period of five years.114 Groups

with less than 50 percent of voting rights in an enterprise arealso exempt from triggering the regulations for five years.115

Under the Competition Act, regulators have committed

to resolving reviews of applications within an outside

date of 210 days. The timing provisions have come under

criticism from deal-makers concerned about the delay

these regulations would cause, especially for time-sensitive

deals.116 The draft regulations combat time sensitivity issues

in three ways: 1) companies can informally consult with the

Competition Commission 2) mergers that are not likely to

distort the market can use a shorter process to get approval

within 30 days and 3) the Competition Commission willendeavor to come to a decision within 180 days instead of

the 210 day limit.117

Conclusion

The transformation of Indian law following the

liberalization period has substantially contributed to the

growth of Indian multinationals. Legal reforms since

economic liberalization have not only set the stage for

outbound acquisitions, they have also shaped outbound

acquisitions in terms of transaction structure and size.

While the internationalization of Indian firms is expectedto grow, Indian law may need further reform to allow

Indian firms to achieve their M&A goals. Some of the

current legal constraints on M&A activity by Indian f irms,

such as roadblocks in their ability to carry out cross-border

stock swap transactions, impose substantial restrictions

not only on the methods used by Indian multinationals

in pursuing outbound acquisitions but also on the future

potential of Indian multinationals.

8/6/2019 TCB DN-V3N10-11


.. Director Notes outbound mergers and acquisitions by indian firms

Endn

S D. N, “T Iz F I: Iv,M A,” Oxford Dev . Stud . , - (); NK, “I U,” Bus. Strategy Rev . 8, 13 (2009) [ K,“I U”].

J Pk P, “E M I C: O,Ip G” , (M P RPE Av, Wk PpN. , ), v p..-.///MPRA_

pp_.p. S, e.g., R G, “I I. G Spp,” E W Mk:

I, F , , v ..//GTC//I/Pv%/GT_TD_EI_F.p ( M&A v I); A G,“C Tkv: I Ep v E P,” Int’l Herald Trib.,F. , ( j v T Gp’ A-D, C); A O’C, “I’ F — O Bk O Sp W, Times (L), J , , 4 ( xp I p UK W k); D W,“T Ep Sk Bk; T T D,” Times (L), M , ( T Gp’ T).

4 S , e.g., J.P. P, “I M W E:Ip Dvp” (). T v M&A I p p - M&A v, p vp . S O-KHp, W B. T, & Dk V, “T C P: W DF Dvp C B H?” (J. , ) (pp), v ./=.

Rv B, “I I. Ck $. B M&A D LY,” Rediff , J. , , ../////j/..

S B, supra ; “KPMG Rp Up I M&A Av,”Hindu Bus. Line, J , , ../////.; “T V M&A, PE D $,” Hindu Bus. Line, J. , [ Total Value of M&A], ..///4//44..

P, “E M,” -4; “Pv M&A AppF,” Hindu Bus. Line, D. 4, , .

Sp Tk, “C I Dv M&A P,” Rediff , D. ,, .//////..

S J D, “S O D D Lk T Y,” Hindu

Bus. Line, J. , , ../////.) ; “K T M&A ,”Hindu Bus. Line, D. , , ..////

/4.; “R C D S MPv E D: E&Y,” Hindu Bus. Line, M , , ../////..

N K, “H E G A R R M&A,”Harvard Business Review , M , , .

S, .., G, p , .

S S A & Sp Kp, “I: T Iz C I F — T, Mv S,” I. &Cp. C, , - ().

S N K Pp K. Mp & Sj Ck,“I’ G P: H T A Tk W” , -4() [ G P].; Rv R & J V. S,“I M: G Iz S,” EM E Mk 110, 115 (Rv R & J V.S ., ); Jø D P, “P F B R I M Ep: A E P E,” T R O

I M , - (K P. Sv . ., ., ).4 J A & P L, “L, F, P: T C I,” 4

Law & Soc’y Rev . 4, ().

S S & A I, “A F I,” Global

Securitisation And Structured Finance , (), v ../_GBP/GBP_GSSF___I.p.

F pv p p v v, SGp, Dp Gv, Rv Bk I, “Ov Iv I Cp: Ev P T,” K A I C I C-B P/A (J., ), v ../v/.p.

S M S, “F D Iv I C: T

C B R Gz E,” 4 Cornell Int’l L.J. , - ().

N Dp, “I Cp Iv U S: AI R P T,” J Pk P & K P.Sv, “I: T R I M Ep: RvK I,” “T R I M” (K P. Sv . ., .,) [, T R I M], , 4.

T F Ex M A, , N. 4, A P, (I), v ../_/p__/p_k_v/FEMA__.p; F E x M (T I S P R O I) R, ,Gz I, II()() (M , ).

S Gp, p , -.

S S Tk D, “F P R: A A F.E.M.A. ,” Chemical Bus., M. , ; S K. Mj,“I T: Pp R R C S F F I,” India Rev . , ().

K. R, Op-E, “FEMA: F ‘R’ ‘F’ Exp,” Hindu

Bus. Line, M , , ../////..; “B Sp F ,” Bus. Asia, Sp. ,, , .

S Pk R, “C B M A I Sp R FEMA” (p p), v .x./x/--_..

4 T F Ex M A, , N. 4, A P, (I) v ../_/p__/p_k_v/FEMA__.p.

I.

Rv Bk I, RBI/-/ M C N. /-, M C D Iv R J V (JV)/ W O S (WOS) A 4 (J , ) [RBI M C], v ...///PDF/MCDIR.p. T pp v

Ex E’ F C ADR/GDR. S .

S M N J, P K & A., “C B M A: T L Lp” (), .pk.//CROSS%BORDER%MERGERS%&%ACQUISITIONS.pp.

S E. I U, C C I 56-57 (T E .., ).

S Gp, p , .

I. .

G, p .

S, .., A K, “D V I A E E F: T C I F” -4 (Uv. M.,Wk Pp N. 4, ), v ./=( I p k p); “H I Cp F T O v A,”India Knowledge@Wharton. (D. 4, ), k..p./

/.?=4 (“Uk M& A p k p , I v p p , p .”)

S E & Y Pv. L. & F’ O I C O C &I., “I C T Ep, Cp G A Tx Rv IT US” () [ E & Y L. & FICCI], v ./EY-FICCI-Rp--v-US-I.p .

4 S N K, “H E G A R R M&A,”Harv. Bus. Rev ., M , .

8/6/2019 TCB DN-V3N10-11


Director Notes outbound mergers and acquisitions by indian firms ..

Endn (continued)

S D Rjp & S Pk, I Lk O: C-B M&A I Cp — C C, North American Free Trade

& Investment Report 3-5 (); K, p , .

S Mj K , “ F I I F’ F L D:A Sv B App” (I I. M., Wk Pp N. ,), v pp..//pp.?_=.

S . -. “‘Dp Rp’ (DR)

I Dp k, I p, p Rp p p C k I. DR Sk Ex US, Sp, Lx, . DR US k k A Dp Rp (ADR) / k G Dp Rp (GDR).” Dp’ I. P’ & P, M C & I., Gv’ I,C FDI P () [ C FDI P], v pp../F_C/FDI_C__M.p.

“W G App F, M P P Mk E,” Econ. Times,J 4, , ..//44..

S & I, p .

4 N Ck, “C F Ex Lv B I Ev G B” , (Ap. , ) (pp), v 4.../k//Ck.p.

4 I. .

4 I. .

4 I.

44 I p v , p’ p’ v . J B, “PvE T: U S F P p,” Bus. L.

Today , J./F. , , -. T I p LBO S C p A, p p pv .H, I p pv p LBO , k LBO p I.

4 S “C B: T M G Lv B,” Econ. Times, O., , ..//4.; “EG Tk Lv B R A B,” Econ. Times, Ap., , . ./N/N-B-Cp/E-Cp/E-Gp/E-G--k-v----A-//.?p=; “I I’ L LvB C,” Hindu Bus. Line, J , , ..

/////.; “H I Cp FT Ov A,” India Knowledge@Wharton. (D. 4, )

4 S “D A F F H,” Fin. Express, J. ,, .xp.//----/4/.

4 T xp pv v I k . S .

4 T Cp A, N. , I C (). F vv p vv Cp A, A S. J, “M A I: A P,” Mich. Bus. L.J.,S , 4, 4-.

4 T Cp A. I, Cp A . T Cp A, § -. F pp pp, .

Sp M ., “M A T I,”M, O’Mv & M LLP, F , v ..//p/MA%T%%A.p

A “” z p p , v , . TCp A, § . T v p p p .

S N D A., “M A I” (F. )(p p), v ../R_Pp/MA%Pp%.p.

S Av S, Cp L ( . ).

4 T Cp A, § - (pv k p pv p).

J, p 4, 4.

S S D & A., “J V M A I— L Tx Ap” ().

I. -.

J, p 4, 44-4.

S G L Gp., “T I Cpv L G : M A” 2009, (), v ...k/x.pp?=4&_=&k_p_=&p_=4.p.

S J. M, “H Tkv I: N Pp, C, R Opp,” Colum. Bus. L. Rev . 800, 806 . (2007).

S Rv S & Rjv V, “L R C B MU Cp A ,” 1956, SEBI Corp. L. (), v pp..//pp.?_=; Av S, CpL - ( . ); “M A T I”M Sp M ., 4 ( “[] p p p,” p v ).

S S & V , p , -.

I. -.

4 S V Aj, “C-B M&A I,” Int’l L. Practicum , -4() (v I pp - M&A).

N D A., p , ; Moschip Semiconductor

Technology , (4) C.L.A. 4 (A P H.C.) (I). I Mp, vv I p C p, A P H C, , CCp C pv I , vvp p p. T , v, “ z, v xp k p p v , v, .”

S S D & A., p , .

C I I, P R, “N R F Ov A” (F , ) v ../PD.px?=pZ/vGARMZHHA==.

J J. I ., Exp C. C. L, Rp Exp

C Av Gv N Cp L ()[ I Rp], v .p./p/JJ%I%Rp-MCA.p. I vxp, p v p, p pz, v. I. -4, .

Aj, p 4, .

S I Rp, p , . X, p. -.

Uk V, “Cp B R P,” I Cp. L.B ,A. 4, , :44 PM, p.p.///p---. [ Cp B R].

“B I Mz S Cp R T C,”P R, M Cp A (I), O. , , v .p..//.p?=444.

S Cp B (), v ..v./M/_.; “Cp B I Lk S,” P R,

M Cp A, Gv I, A. , , v .p..//.p?=

4 S Ck R & Av C, Lv B: T Cp B,, PRS Lv R, A. , , v .p./p//Cp/Lv%B--p%%.p.

S S C F (-), F Lk S, TCp B, , T-F Rp A ; Uk V,“P S C Cp B, ,” ICp. L. B Sp. , , : PM, p.p.///p---..

8/6/2019 TCB DN-V3N10-11


.. Director Notes outbound mergers and acquisitions by indian firms

Endn (continued)

Uk V, “C B M,” I Cp. L. B, Sp. , ,:4 AM, p.p.///--..

Cj Bj, “Cp B M Hp S,” Econ. Times, F.4, v .../--4//__-p---p.

S N K Pp K. Mp & Sj Ck,“I’ G P: H T A Tk W” , 4- ()

[ G P]. S . .

S C Pp, J Bj , “T Mk Cp C:Tkv R I,” Ox’ Q Ez H C (J4–, ), ..x..k//-pp/j.p( v kv p), 4-.

T C C Tkv M . . ( . ); M,p , .

S M, supra , ; Bj, p , -.

S J A & Dv A. Sk, J., “W W R HTkv, W? — T P Dv US U.K. TkvR,” 95 Geo. L.J. 1727, 1729 (2007).

4 S Bj, p , -; M K T, I TkvC: I S Ex (A C S App) (Ap. ,) (p p), v ...4/p//pp/4/4.p p.

J A, Jk B. J & C J. Mp, “T Ev HTkv R Dvp E Mk: A AFk,” Harv. Int’l L.J. , ().

S Ex B I (S A S Tkv) R, , Gz I, III() (F. , )[ Tkv C], v ..v.//..

I § .

S G P, p , .

S .

S A C, “I I. R H Tkv”, Fin. Express, J , , .xp.//-----kv/4/; “R M&A G : H Tkv P P,” T F, J , , ../_.pp?=4.

A k p p , p , . I , I v p j . S Rv Bk I , “FAQ Ov D Iv,”.../p/FAQV.px?I= ( ) /k p .

S E & Y L. & FICCI, p , .

S k-p vv p I, : Cp FEMA, . Kp v , Gv p / x / , PN, . T Dp I P P (DIPP), M C & I, Gv I k p p FDI P N/ P R Rv Bk I N.FEMA /-RB M , .. . . T p Rv Bk I vA.P.D. () C. T k v p

A, R, P N, P R, C, .C FDI P, p , .

4 S Rj G, “E C-B S Sp M&A C,” Fin.

Express, J , , .xp.//---p--&--/4/.

S E & Y L. & FICCI, p , .

T Cp A, N. , I C ().

S N D A., p , -; Uk V,“Dp Rp Tkv R,” I Cp. L. B ( J, , : PM), p.p.///p-p--kv..

S S Gp, N, “F A: Tk I G”,India L.J., Ap.–J , .j./v/_/__ .. T v SEBIDIP G, . S “HHp M&A,” Int’l Fin. L. Rev., M , , ../A/4/H-p--M-A. ; G, p .

S S D & A., p -. U R FEMA, v ppv , Cp A, -I p j p p x ppv RBI p FDI p FEMA . I v x , ppv FIPB RBI . S Aj, p 4, .

Aj, p 4, .

I.

I.

S S D & A., p , -. F v, v ppv “ .” I , I ADR/GDR p ADR/GDR k x I, k , I x p, v

v k k pz p. S RBI M C, p , -.

4 S S D & A., p -.

S D. K.C. Ck, Dp Gv, Rv Bk I, A A I Mk C M (Sp. , ) (pv .../p/BS_VB.px?I=).

I.

C FDI P, p , .

Sp K & S Sk, “F D Iv I: A F K I,” L., ../jp///LAI.jp?=4 ( v O. , ).

S & I, p , .

C FDI P, p , .

R S, “N M Rv Pv U CpL, I Cp.” L. B (M. , , : AM), p.p.///---v.; N, M

Cp A (I), M , v ..v./M//p/N_4%%.p

Cp A, v ..v./M//p/T_p_A_.p

S R. G & R R, “T Up, W T L: MS U Cp A,” Econ. Times, M. , v ../p/-p-------p-//4.; NM Cp A (I), M , v ..v./M//p/N_4%4%.p.

4 S p ; N, M Cp A (I),M , v ..v./M//p/N_4.p.

S p ; N, M Cp A (I),M , v ..v./M//p/N_4%%.p.

I.

I.

8/6/2019 TCB DN-V3N10-11


About the AuthorAfra Afsharipour is Assistant Professor of Law at University of

California, Davis School of Law. Professor Afsharipour conducts

research on comparative corporate law, corporate governance,

corporate social responsibility, mergers and acquisitions, and transac-

tional law. Prior to joining the Davis faculty, Professor Afsharipour wasan associate in the corporate department of Davis Polk & Wardwell,

where she advised clients on domestic and cross-border mergers and

acquisitions, public and private securities offerings, and corporate gov-

ernance and compliance matters. She also served as a law clerk to the

Honorable Rosemary Barkett of the Eleventh Circuit Court of Appeals.

She received a J.D. from Columbia Law School and a B.A. from Cornell

University. Professor Afsharipour’s scholarship has appeared in a num-

ber of law reviews, including the Columbia Law Review, the Vanderbilt

Law Review , the UC Davis Law Review , and the Northwestern Journal of

International Law and Business. In addition, Professor Afsharipour is a

contributing editor at the M&A Law Prof Blog.

Editor’s Note: Portions of this Director Notes have been adapted fromAfsharipour’s prior article, “Rising Multinationals: Law and the Evolution

of Outbound Acquisitions by Indian Companies,” 44 U.C. Davis Law

Review 1029 (2011).

AcknowledgmentsThe author is grateful to Khalil Mohseni for invaluable research

assistance.

About Director NotesDirector Notes is a series of online publications in which The

Conference Board engages experts from several disciplines of busi-

ness leadership, including corporate governance, risk oversight, and

sustainability, in an open dialogue about topical issues of concern to

member companies. The opinions expressed in this report are thoseof the author(s) only and do not necessarily reflect the views of The

Conference Board. The Conference Board makes no representation

as to the accuracy and completeness of the content. This report is not

intended to provide legal advice with respect to any particular situation

and no legal or business decision should be based solely on its content

About the Series DirectorMatteo Tonello is the research director of corporate leadership at The

Conference Board in New York. In his role, Tonello advises members of

The Conference Board on matters of corporate governance, regulatory

compliance, and risk management. He regularly conducts analyses

and research in these areas in collaboration with leading corporations,

institutional investors, and professional firms. Also, he participates as

a speaker and moderator in educational programs on governance best

practices. Recently, Tonello served as the co-chair of The Conference

Board’s Expert Committee on Shareholder Activism and as a member

of the Technical Advisory Group to The Conference Board Task Force

on Executive Compensation. Before joining The Conference Board, he

practiced corporate law at Davis Polk & Wardwell. Tonello is a graduate

of Harvard Law School and the University of Bologna.

About The Conference Board

The Conference Board is the world’s preeminent business membershipand research organization. Best known for the Consumer Confidence

Index and the Leading Economic Indicators, The Conference Board

has, for over 90 years, equipped the world’s leading corporations with

practical knowledge through issues-oriented research and senior

executive peer-to-peer meetings.

© 2011 by The Conference Board, Inc. All rights reserved. Pr inted in the U.S.A.

The Conference Board® and the torch logo are registered trademarks of The Conference Board, Inc.

For more information on this report, please contact:

Matteo Tonello, LL.M., S.J.D., research director, corporate leadership at 212 339 0335 or [email protected].

THE CONFERENCE BOARD, INC. www.conferenceboard.org

AMERICAS + 1 212 759 0900 / [email protected]

ASIA-PACIFIC + 65 6325 3121 / [email protected]

EUROPE/AFRICA/MIDDLE EAST + 32 2 675 54 05 / [email protected]

SOUTH ASIA + 91 22 23051402 / [email protected]

THE CONFERENCE BOARD OF CANADA +1 613 526 3280 / www.conferenceboard.ca

Documents

TCB DN-V3N10-11