Sunday, December 9, 2007

Why so many PE deals are blowing up?

This question was addressed by jack and Suzy Welch. Reference Mint, Campaign, 10 Dec 2007, Page C8

They say material adverse change clause is being invoked by buyers due to the credit constraints they are facing now. The MAC clause is vaguely worded and they emphasize on CEO taking interest in the contract till the last word rather than leaving it to lawyers. When stakes are high, you have no choice but to be there till the end.

Possible litigations mentioned:

Sallie Mae, Inc. vs. JC Flowers & Co., PE firm
United Rentals vs. Cerberus capital management, PE firm

Thursday, December 6, 2007

Takeover Code - India - 1

SECURITIES AND EXCHANGE BOARD OF INDIA
(SUBSTANTIAL ACQUISTION OF SHARES AND TAKEOVERS)
REGULATIONS, 1997





Some Important Provisions

CHAPTER I

PRELIMINARY
Short title and commencement

1 (1) These Regulations shall be called the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
(2) These Regulations shall come into force on the date of their publication in the Official Gazette.

Definitions

2 (1) In these Regulations, unless the context otherwise requires:-
(a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) "acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer;
(c) "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
["Explanation:(i) Where there are two or more persons in control over the target company, the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the natureand quantum of control amongst them constitute change in control of management.
Provided that the transfer from joint control to sole control iseffected in accordance with clause (e) of sub - regulation (1) of regulation3.
(ii). If consequent upon change in control of the target companyin accordance with regulation 3, the control acquired is equal to or lessthan the control exercised by person (s) prior to such acquisition of control,such control shall not be deemed to be a change in control".]
(cc) "disinvestment" means the sale by the Central Government 3[orby the State Government as the case may be] of its shares or voting rights and / or control in a listed Public Sector Undertaking;]

(d) "investigating officer" means any person appointed by the Board under Regulation 38;

(e) "person acting in concert" comprises, -
(1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal),directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company.
(2) Without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established :
(i) a company, its holding company, or subsidiary of such company or company under the same management either individually or together with each other;
(ii) a company with any of its directors, or any person entrusted with the management of the funds of the company;
(iii) directors of companies referred to in sub-clause(i) of clause (2) and their associates;
(iv) mutual fund with sponsor or trustee or asset management company;
(v) foreign institutional investors with sub account(s);
(vi) merchant bankers with their client(s) as acquirer;
(vii) portfolio managers with their client(s) as acquirer;
(viii) venture capital funds with sponsors;
(ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer.
Provided that sub-clause (ix)shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work.
(x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2% of the paid up capital of the latter company.
Note: For the purposes of this clause `associate' means:
(a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and
(b) family trusts and Hindu Undivided Families.
(f) "offer period" means the period between the date of entering into Memorandum of Understanding or the public announcement, as the case may be and the date of completion of offer formalities relating to the offer made under these regulations.];
(g) "panel" means a panel constituted by the Board for the purpose of Regulation4;
5
(h)."Promoter" means -

(a) any person who is in control of the target company;
(b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later;
and includes any person belonging to the promoter group as mentioned in Explanation I:
Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity.
Explanation I: For the purpose of this clause, 'promoter group' shall include:
(a) in case promoter is a body corporate -
(i) a subsidiary or holding company of that body corporate;
(ii) any company in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity capital of the promoter;
(iii) any company in which a group of individuals or companies or combinations thereof who holds 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the target company; and
(b) in case the promoter is an individual -
(i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse;
(ii) any company in which 10% or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member;
(iii) any company in which a company specified in (i) above, holds 10% or more, of the share capital; and
(iv) any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10% of the total.
Explanation II: Financial Institutions, Scheduled Banks, Foreign Institutional Investors (FIIs) and Mutual Funds shall not be deemed to be a promoter or promoter group merely by virtue of their shareholding. Provided that the Financial Institutions, Scheduled Banks and Foreign Institutional Investors (FIIs) shall be treated as promoters or promoter group for the subsidiaries or companies promoted by them or mutual funds sponsored by them.

(i) "public financial institution" means a public financial institution as defined in Section 4A of the Companies Act, 1956.
(ii)"Public Sector Undertaking" means a company in which the Central Government7[or a State Government holds 50% or more of its equity capital or is in control of the company;

(j)"public shareholding" means shareholding held by persons other than promoters as defined under clause (h)
(k) "shares" means shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights 8[but shall not include preference shares].

(l) "sick industrial company" shall have the same meaning assigned to it in clause (o) of sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any statutory re-enactment thereof.

(m) "state level financial institution" means a state financial corporation established under Section 3 of the State Financial Institutions Act, 1951and includes development corporation established as a company by a State Government with the object of development of industries or agricultural activities in the state;

(n) "stock exchange" means a stock exchange which has been granted recognition under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42of 1956);

(o) "target company" means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired;

(p) "working days" shall mean the working days of the Board."]

(2) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956, or the Companies Act, 1956, or any statutory modification or reenactment thereto, as the case may be.

The Takeover Panel


4. (1) The Board shall for the purposes of this Regulation constitute a Panel of majority of independent persons from within the categories mentioned in sub-section (5) of Section 4 of the Act.
(2) For seeking exemption underclause (l) of sub-regulation (1) of Regulation (3), the acquirer shall file an application 27[supported by a duly sworn affidavit] with the Board, giving details of the proposed acquisition and the grounds on which the exemption has been sought.[Formatof application]
(3) The acquirer shall, along with the application referred to under sub pay a fee of 27a [one lakh rupees] to the Board, either by a bankers cheque or demand draft in favor of the Securities and Exchange Board of India, payable at Mumbai.
(4) The Board shall within 5 days of the receipt of an application under sub-regulation(2) forward the application to the Panel.
(5) The Panel shall within 15 days from the date of receipt of application make a recommendation on the application to the Board.
(6) The Board shall after affording reasonable opportunity to the concerned parties and after considering all the relevant facts including the recommendations, if any, pass a reasoned order on the application under sub-regulation (2) within 30days thereof.
(7) The order of the Board under sub-regulation(6) shall be published by the Board.


CHAPTER II

DISCLOSURES OF SHAREHOLDING AND CONTROL IN A LISTED COMPANY

Acquisition of 5% and more shares of a company
7.(1) Any acquirer, who acquires shares or voting rights which(taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent. or fourteen percent.28aor fifty four per cent. or seventy four per cent shares or voting rights ina company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed.]
(1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation(1) of regulation 11, shall disclose purchase or sale aggregating two percent. or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale.]
[Explanation- for the purposes of sub-regulations (1) and (1A), the term 'acquirer? shall include a pledgee, other than a bank or a financial institution and such pledgee shall make disclosure to the target company and the stock exchange within two days of creation of pledge.]
(2) The disclosures mentioned in 31*[sub-regulations(1) and (1A)] shall be made within 32[twodays], -
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
(2A) The stock exchange shall immediately display the information received from the acquirer under sub-regulations (1) and (1A) on the trading screen, the notice board and also on its website.]
(3) Every company, whose shares are acquired in a manner referred to in 34*[sub-regulation(1) and (1A)] shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under35*[sub-regulations(1) and (1A)]

Continual disclosures

8. (1) Every person, including a person mentioned in Regulation6 who holds more than
fifteen percent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March.
(2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.
(3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March.
(4) Every company whose shares are listed on a stock exchange shall maintain a register in the specified format to record the information received under sub-regulation(3) of Regulation 6, sub-regulation (1) of Regulation7 and sub-regulation (2) of Regulation 8.

CHAPTER III

SUBSTANTIAL ACQUISITION OF SHARES OR VOTING RIGHTS IN AND ACQUISITIONOF CONTROL OVER A LISTED COMPANY

Acquisition of fifteen or more of the shares or voting rights of any company.

10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen percent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.





Consolidation of holdings

11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15per cent or more but less than fiftyfive 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 Regulations.

(2) No 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, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations:
Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent. (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures ?seventy five per cent. (75%)?, the words and figures ?ninety per cent. (90%)? were substituted.

(2A) 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 only by making a public announcement in accordance with these regulations:
Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent. (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures ?seventy five per cent. (75%)?, the words and figures ?ninety per cent. (90%)? were substituted.
43*[ (3)Not withstanding anything contained in Regulations10, 11 and 12, in case of disinvestment of a Public Sector Undertaking , an acquirer who together with persons acting in concert with him, has made a public announcement, shall not be required to make another public announcement at the subsequent stage of further acquisition of shares or voting rights or control of the Public Sector Undertaking provided:-
(i) both the acquirer and the seller are the same at all the stages of acquisition, and
(ii) disclosures regarding all the stages of acquisition, if any, are made in the letter of offer issued in terms of Regulation 18 and in the first public announcement.]
Explanation:- For the purposes of Regulation 10 andRegulation11, acquisition shall mean and include,-
(a) direct acquisition in a listed company to which the Regulations apply;
(b) indirect acquisition by virtue of acquisition of44[*]companies, whether listed or unlisted, whether in India or abroad.
Acquisition of control over a company
12. Irrespective of whether or not 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.
Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a 45[special resolution] passed by the shareholders in a general meeting.
46["Provided further that for passing of the special resolution facility of voting through postal ballot as specified under the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001 shall also be provided.]
Explanation:
47[For the purposes of this Regulation, acquisition shall include direct or indirect acquisition of control of target company by virtue of acquisition of companies, whether listed or unlisted and whether in India or abroad]
Appointment of a Merchant Banker
13. Before making any public announcement of offer referred to in Regulation10 or Regulation 11 or Regulation12, the acquirer shall appoint a merchant banker in Category-I holding a certificate of registration granted by the Board, who is not associate of or group of the acquirer or the target company
Timing of the Public Announcement of Offer
14. (1) The public announcement referred to in Regulation10 or Regulation 11 shall be made by the merchantbanker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein:
48*[Provided that in case of disinvestment of a Public Sector Undertaking, the public announcement shall be made by the merchant banker not later than 4 working days of the acquirer executing the Share Purchase Agreement or Shareholders Agreement with the Central Government 49[or the State Government as the case may be] for the acquisition of shares or voting rights exceeding the percentage of share holding referred to in Regulation 10 or Regulation11 or the transfer of control over a target Public Sector Undertaking]
(2) In case of an acquirer acquiring securities, including Global Depositories Receipts or American Depository Receipts which, when taken together with the voting rights, if any already held by him or persons acting in concert with him, would entitle him to voting rights, exceeding the percentage specified in Regulation 10 or Regulation11, the public announcement referred to in sub-regulation(1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be.
(3) The public announcement referred to in Regulation12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer.
50[(4) Incase of indirect acquisition or change in control, a public announcement shall be made by the acquirer within three months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company in India.]
Public Announcement of Offer
15. (1) The public announcement to be made under Regulations10 or Regulation 11 or Regulation12 shall be made in all editions of one English national daily with wide circulation, one Hindi national daily with wide circulation and a regional language daily with wide circulation at the place where the registered office of the target company is situated and at the place of the stock exchange where the shares of the target company are most frequently traded.
51[2) Simultaneously with publication of the announcement in the newspaper in terms of sub-regulation (1), a copy of the public announcement shall be,
(i) submitted to the Board through the merchant banker,
(ii) sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board,
(iii) sent to the target company at its registered office for being placed before the Board of Directors of the company.]
52[(3)]
?(4) The offer under these Regulations shall be deemed to have been made on the date on which the public announcement has appeared in any of the newspapers referred to in sub-regulation (1).
Contents of the Public Announcement of Offer
16. The public announcement referred to in Regulations 10 orRegulation11 or Regulation 12 shall contain the following particulars, namely :-
(i) the paid up share capital of the target company, the number of fully paid up and partly paid up shares;
(ii) the total number and percentage of shares proposed to be acquired from the public, subject to a minimum as specified in sub-regulation(1) of Regulation 21;
(iii) the minimum offer price for each fully paid-up or partly paid up share;
(iv) mode of payment of consideration;
(v) the identity of the acquirer(s) and in case the acquirer is a company or companies, the identity of the promoters and, or the persons having control over such company(ies) and the group, if any, to which the company(ies) belong;
(vi) the existing holding, if any, of the acquirer in the shares of the target company, including holdings of persons acting in concert with him;
52a(via)the existing shareholding, if any, of the merchant banker in the target company ;
(vii) salient features of the agreement, if any, such as the date, the name of the seller, the price at which the shares are being acquired, the manner of payment of the consideration and the number and percentage of shares in respect of which he acquirer has entered into the agreement to acquire the shares or the consideration, monetary or otherwise, for the acquisition of control over the target company, as the case maybe;
(viii) the highest and the average price paid by the acquirer or persons acting in concert with him for acquisition, if any, of shares of the target company made by him during the twelve month period prior to the date of public announcement;
(ix) Object and purpose of the acquisition of the shares and future plans, if any, of the acquirer for the target company, including disclosures whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company in the succeeding two years, except in the ordinary course of business of the target company
Provided that where the future plans are set out , the public announcement shall also set out how the acquirers propose to implement such future plans.
53["Provided further that the acquirer shall not sell, dispose of or otherwise encumber any substantial asset of the target company except with the prior approval of the shareholders.
(ixa) an undertaking that the acquirer shall not sell, dispose of or otherwise encumber any substantial asset of the target company except with the prior approval of the shareholders.]
(x) the `specified date' as mentioned in Regulation19;
(xi) the date by which individual letters of offer would be posted to each of the shareholders;
(xii) the date of opening and closure of the offer and the manner in which and the date by which the acceptance or rejection of the offer would be communicated to the shareholders;
(xiii) the date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted;
(xiv) disclosure to the effect that firm arrangement for financial resources required to implement the offer is already in place, including details regarding the sources of the funds whether domestic i.efrom banks, financial institutions, or otherwise or foreign i.e., from Non-Resident Indians or otherwise.
(xv) provision for acceptance of the offer by person(s)who own the shares but are not the registered holders of such shares;
(xvi) statutory approvals, if any, required to be obtained for the purpose of acquiring the shares under the Companies Act,1956 (1 of 1956), the Monopolies and Restrictive Trade Practices Act, 1969(54 of 1969), The Foreign Exchange Regulation Act, 1973, (46 of 1973) and/or any other applicable laws;
(xvii) approvals of banks or financial institutions required, if any;
(xviii) whether the offer is subject to a minimum level of acceptance from the shareholders; and
(xix) such other information as is essential for the shareholders to make an informed decision in regard to the offer.
Brochures, advertising material etc.
17. The public announcement of the offer or any other advertisement, circular, brochure, publicity material or letter of offer issued in relation to the acquisition of shares shall not contain any misleading information.
Submission of Letter of offer to the Board

18 (1) Within fourteen days from the date of public announcement made under Regulation 10, Regulation11 or Regulation 12 as the case may be, the acquirer shall, through its merchant banker, file with the Board, the draft of the letter of offer, containing disclosures as specified by the Board.

(2) The letter of offer shall be dispatched to the shareholders not earlier than 21 days from its submission to the Board under sub-regulation(1).
Provided that if, within 21 days from the date of submission of the letter of offer, the Board specifies changes, if any, in the letter of offer, (without being under any obligation to do so) the merchant banker and the acquirer shall carry out such changes before the letter of offer is dispatched to the shareholders.

Provided further that if the disclosures in the draft letter of offer are inadequate or the Board has received any complaint or has initiated any enquiry or investigation in respect of the public offer, the Board may call for revised letter of offer with or without rescheduling the date of opening or closing of the offer and may offer its comments to the revised letter of offer within seven working days of filing of such revised letter of offer.

55[Offer price.
20(1) The offer to acquire shares under regulations10,11 or 12 shall be made at a price not lower than the price determined as per sub-regulations (4)and (5).
(2) The offer price shall be payable -
(a) in cash ;
(b) by issue, exchange and, or transfer of shares (other than preference shares) of acquirer company, if the person seeking to acquire the shares is a listed body corporate; or
(c) by issue, exchange and, or transfer of secured instruments of acquirer company with a minimum ?A? grade rating from a credit rating agency registered with the Board;
(d) a combination of clause (a),(b)or (c) :
Provided that where the payment has been made in cash to any class of shareholders for acquiring their shares under any agreement or pursuant to any acquisition in the open market or in any other manner during the immediately preceding twelve months from the date of public announcement, the letter of offer shall provide an option to the shareholders to accept payment either in cash or by exchange of shares or other secured instruments referred to above:
Provided further that the mode of payment of consideration may be altered in case of revision in offer price or size subject to the condition that the amount to be paid in cash as mentioned in any announcement or the letter of offer is not reduced.
(3) In case the offer price consists of consideration payable in the form of securities issuance of which requires approval of the shareholders, such approval shall be obtained by the acquirer within 55i[seven days] from the date of closure of the offer:
Provided that in case the requisite approval is not obtained, the acquirer shall pay the entire consideration in cash.
(4) For the purposes of sub-regulation (1), the offer price shall be the highest of -
(a) the negotiated price under the agreement referred to in sub-regulation(1) of regulation 14;
(b) price paid by the acquirer or persons acting in concert with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of public announcement, whichever is higher;
(c) 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 where the shares of the company are most frequently traded during the twenty-six weeks or the average of the daily high and low of the 55ia{deleted}prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher.
55a[Provided that the requirement of average of the daily high and low of the closing prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, shall not be applicable in case of disinvestment of a Public Sector Undertaking.] ?
Explanation:
In case of disinvestment of a Public Sector Undertaking, the relevant date for the calculation of the average of the weekly prices of the shares of the Public Sector Undertaking, as quoted on the stock exchange where its shares are most frequently traded, shall be the date preceding the date when the Central Government or the State Government opens the financial bid.
(5) Where the shares of the target company are infrequently traded, the offer price shall be determined by the acquirer and the merchant banker taking into account the following factors:
(a) the negotiated price under the agreement referred to in sub-regulation(1) of regulation 14;
(b) the highest price paid by the acquirer or persons acting in concert with him for acquisitions, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of public announcement;
(c) other parameters including return on net worth, book value of the shares of the target company, earning per share, price earning multiple vis-୶is the industry average:
Provided that where considered necessary, the Board may require valuation of such infrequently traded shares by an independent merchant banker (other than the manager to the offer) or an independent chartered accountant of minimum ten
years? standing or a public financial institution.
Explanation :-
(i) For the purpose of sub-regulation (5), shares shall be deemed to be infrequently traded if on the stock exchange, the annualized trading turnover in that share during the preceding six calendar months prior to the month in which the public announcement is made is less than five percent. (by number of shares) of the listed shares. For this purpose, the weighted average number of shares listed during the said six months period may be taken.
(ii) In case of disinvestment of a Public Sector Undertaking, the shares of such an undertaking shall be deemed to be infrequently traded, if on the stock exchange, the annualized trading turnover in the shares during the preceding six calendar months prior to the month, in which the Central Government or the State Government as the case may be opens the financial bid, is less than five per cent. (by the number of shares) of the listed shares. For this purpose, the weighted average number of shares listed during the six months period may be taken.
(iii)In case of shares which have been listed within six months preceding the public announcement, the trading turnover may be annualised with reference to the actual number of days for which the shares have been listed.
(6) Notwithstanding anything contained in sub-regulation (5), in case of disinvestment of a Public Sector Undertaking, whose shares are infrequently traded, the minimum offer price shall be the price paid by the successful bidder to the Central Government or the State Government, arrived at after the process of competitive bidding of the Central Government or the State Government for the purpose of disinvestment.
(7) Notwithstanding anything contained in the provisions of sub-regulations(2), (4),(5) and (6), where the acquirer has acquired shares in the open market or through negotiation or otherwise, after the date of public announcement at a price higher than the offer price stated in the letter of offer, then, the highest price paid for such acquisition shall be payable for all acceptances received under the offer:
Provided that no such acquisition shall be made by the acquirer during the last seven working days prior to the closure of the offer.
55b[55c Provided further that nothing contained in sub-regulation (7) shall be construed to authorise an acquirer who makes a public announcement in terms of sub-regulation (2A) of regulation 11 to acquire any shares during the offer period in the open market or through negotiation or in any other manner otherwise than under the public offer.
(8) Any payment made to the persons other than the target company in respect of non compete agreement in excess of twenty five per cent. of the offer price arrived at under sub-regulations (4) or (5) or (6)shall be added to the offer price.
(9) In case where shares or secured instruments of the acquirer company are offered in lieu of cash payment, the value of such shares or secured instruments shall be determined in the same manner as specified in sub-regulation(4) or sub-regulation (5) to the extent applicable, as duly certified byan independent merchant banker (other than the manager to the offer) oran independent chartered accountant of a minimum ten years standing or a public financial institution.
(10) The offer price for partly paid up shares shall be calculated as the difference between the offer price and the amount due towards calls-in-arrears or calls remaining unpaid together with interest, if any, payable on the amount called up but remaining unpaid.
(11) The letter of offer shall contain justification or the basis on which the price has been determined.
Explanation:
(i) The highest price under clause (b) or the average price under clause(c) of sub-regulation (4) may be adjusted
for quotations, if any, on cum-rights or cum-bonus or cum-dividend basis during the said period.
(ii) Where the public announcement of offer is pursuant to acquisition by way of firm allotment in a public issue or preferential allotment, the average price under clause (c) of sub-regulation (4) shall be calculated with reference to twenty six week period preceding the date of the board resolution which authorized the firm allotment or preferential allotment.
(iii) Where the shareholders have been provided with an option to accept payment either in cash or by way of exchange of security, the pricing for the cash offer could be different from that of a share exchange offer or offer for
exchange with secured instruments provided that the disclosures in the letter of offer contains suitable justification for such differential pricing and the pricing is subject to other provisions of this regulation.
(iv) Where the offer is subject to a minimum level of acceptance, the acquirer may, subject to the other provisions of this regulation, indicate a lower price for the minimum acceptance upto twenty per cent., should the offer not receive full acceptance.
(12) The offer price for indirect acquisition or control shall be determined with reference to the date of the public announcement for the parent company and the date of the public announcement for acquisition of shares of the target company, whichever is higher, in accordance with sub-regulation (4) or sub-regulation (5).]
56[Acquisition price under creeping acquisition
"20A. (1) An acquirer who has made a public offer and seeks to acquire further shares under sub-regulation (1) of regulation 11 shall not acquire such shares during the period of 6 months from the date of closure of the public offer at a price higher than the offer price.
(2) Sub-regulation (1) shall not apply where the acquisition is made through the stock exchanges.]
Minimum number of shares to be acquired
57[21. (1)The public offer made by the acquirer to the shareholders of the target company shall be for a minimum twenty per cent of the voting capital of the company.]

Takeover Code - India - 5 Takover Law Cases

--------------------------
No open offer in Akzo Nobel’s ICI buyout

ET, 19 Dec 2007 page 9

Akzo Nobel is acquiring ICI in a deal valuing it at $8 billion.

The transaction is being done through a scheme of arrangement. This is similar to the Tata Corus deal too, which was implemented through a scheme of arrangement.

Sebi’ SAST rules have a clause that permits schemes of arrangement to avoid open offer.

Clause 3 of the regulations deal with the non-applicability of Clause 10 and 12, which require an open offer to be made.

Clause 3 (1) (j) (ii) says if a change in control happens, because of an arrangement or reconstruction, including amalgamation or merger or demerger under any law or regulation, Indian or foreign, then the takeover regulation which trigger an open offer will not apply.

Even though ICI case is an acquisition like Corus case, because the transaction is structured as a scheme of arrangement, its gets an exemption from making an open offer in India.
-----------------------

Wednesday, December 5, 2007

M&A - Accounting Standard - India - 1

AS 14


29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied:
i. All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.


ii. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.


iii. The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.


iv. The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.


v. No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

30.An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more of the conditions specified in paragraph 29 is not satisfied.

31.When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33-35.

32.When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36-39.

The Pooling of Interests Method

33.In preparing the transferee company’s financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The balance of the Profit and Loss Account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to the General Reserve, if any.

34.If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting Standard (AS) 5 ‘Prior Period and Extraordinary Items and Changes in Accounting Policies’. 4

35.The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves.
The Purchase Method

36.In preparing the transferee company’s financial statements, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the transferee company except as stated in paragraph 39.

37.Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee company’s financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve.

38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortisation period should not exceed five years unless a somewhat longer period can be justified.

39.Where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with, statutory reserves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., ‘Amalgamation Adjustment Account’) which should be disclosed as a part of ‘miscellaneous expenditure’ or other similar category in the balance sheet. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed.
Common Procedures

40.The consideration for the amalgamation should include any non-cash element at fair value. In case of issue of securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values.

41.Where the scheme of amalgamation provides for an adjustment to the consideration contingent on one or more future events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date].
Treatment of Reserves Specified in A Scheme of Amalgamation

42.Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. 5

Disclosure

43.For all amalgamations, the following disclosures should be made in the first financial statements following the amalgamation:
a. names and general nature of business of the amalgamating companies;


b. effective date of amalgamation for accounting purposes;


c. the method of accounting used to reflect the amalgamation; and


d. particulars of the scheme sanctioned under a statute.

44.For amalgamations accounted for under the pooling of interests method, the following additional disclosures should be made in the first financial statements following the amalgamation:
a. description and number of shares issued, together with the percentage of each company’s equity shares exchanged to effect the amalgamation;


b. the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.


45.For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation:
a. consideration for the amalgamation and a description of the consideration paid or contingently payable; and


b. the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.
Amalgamation after the Balance Sheet Date

46.When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure should be made in accordance with AS 4, ‘Contingencies and Events Occurring After the Balance Sheet Date’, but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained.




1 ............
2 AS 5 has been revised in February 1997. The title of revised AS 5 is ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’.

3 See also footnote to paragraph 42 of this Statement.

4 AS 5 has been revised in February 1997. The title of revised AS 5 is ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’.

5 See also General Clarification (GC) - 4/2002, issued by the Accounting Standards Board, published elsewhere in this Compendium.

M&A - Accounting Standard - India - 2

M&A - Accounting Standard - India - 3

M&A - Accounting Standard - India - 4

Company Law Provisions - India - 1

Company Law Provisions regarding Mergers and Acquisition in India

Statutory provisions relating to Merger and Amalgamations are contained under sections 390 to 396A of the Companies Act, 1956.


Sections 391 to 394 of the Act in combination with Companies (Court) Rules, 1959 serve as a complete guide in respect of provisions and procedures relating to sponsoring of the scheme, the approval thereof by the creditors and the members, and the sanction thereof by the court.

A Brief Overview

Section 390 interprets the expressions company, arrangement and unsecured creditors.

Section 391 lays down in details the power to make compromise or arrangements with creditors or members without going into liquidation.

Section 392 lays down the power of the High Court.

Section 393 specifies the information as to compromises or arrangements that is to be sent with every notice calling the meetings of members and creditors.

The provisions for facilitating reconstruction and amalgamation of companies are contained in Section 394.

Section 395 prescribes the power and duty of the transferee company to acquire shares of shareholders dissenting from scheme or contract approved by majority

Powers of Central Government to provide for amalgamation of companies in national interest is laid down under Section 396.

Section 396A specifies provisions for preservation of books and papers of amalgamated company.



Actual Provisions

390. Interpretation of sections 391 and 393

In sections 391 and 393,-


(a) the expression "company" means any company liable to be wound up under this Act;

(b) the Expression "arrangement" includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods; and

(c) unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.





391. Power to compromise or make arrangements with creditors and members


(1) Where a compromise or arrangement is proposed-


(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them,


the 1[Tribunal] may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the Tribunal directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:

Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.

(3) An order made by the Tribunal under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made.

(6) The Tribunal may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the Tribunal thinks fit, until the application is finally disposed of.

[1. Subs. by Act 11 of 2003, sec. 39, for "Court".]



392. Power of Tribunal to enforce compromise and arrangement.


(1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it-


(a) shall have power to supervise the carrying out of the compromise or an arrangement; and

(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.


(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act.

(3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement.






393. Information as to compromises or arrangements with creditors and members


(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391,-


(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any material interests of the directors, managing director or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests of the compromise or arrangement if, and in so far as, it is different from the effect on the like interests of other persons; and

(b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.


(2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors.

(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company:

Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, manager or trustee for debenture holders, to supply the necessary particulars as to his material interests.

(5) Every director, managing director, or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to 3five thousand rupees.


394. Provisions for facilitating reconstruction and amalgamation of companies

(1) Where an application is made to the Tribunal under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal-


(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and

(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a "transferor company") is to be transferred to another company (in this section referred to as "the transferee company");


the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:-


(i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company;

(ii) the allotment or appropriation by the transferee company of any shares, debentures policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;

(iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

(iv) the dissolution, without winding up, of any transferor company;

(v) the provision to be made for any persons who, within such time and in such manner as the Court directs dissent from the compromise or arrangement; and

(vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out:


Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies; shall be sanctioned by the Tribuna unless the Court has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest:

Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Tribunal that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.

(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order; that property shall be transferred to and vest in and those liabilities shall be transferred to and become the liabilities of the transferee company and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.

(3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.

(4) In this section-


(a) "property" includes property rights and powers of every description; and "liabilities" includes duties of every description; and

(b) "Transferee company" does not include any company other than a company within the meaning of this Act; but "transferor company" includes any body corporate, whether a company within the meaning of this Act or not.

-----------------------

394A. Notice to be given to Central Government for applications under sections 391 and 394

The Tribunal shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections.

395. Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority


(1) Where a scheme or contract involving the transfer of shares or any class of shares in a company (in this section referred to as "the transferor company") to another company (in this section referred to as "the transferee company"), has, within four months after the making of the offer in that behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary), the transferee company may, at any time within two months after the expiry of the said four months, give notice in the prescribed manner to any dissenting shareholder, that it desires to acquire his shares; and when such a notice is given, the transferee company shall, unless, on an application made by the dissenting shareholder within one month from the date on which the notice was given the 1[Tribunal] thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company:

Provided that where shares in the transferor company of the same class as the shares whose transfer is involved are already held as aforesaid to a value greater than one-tenth of the aggregate of the values of all the shares in the company of such class, the foregoing provisions of this sub-section shall not apply, unless-


(a) the transferee company offers the same terms to all holders of the shares of that class (other than those already held as aforesaid) whose transfer is involved; and

(b) the holders who approve the scheme or contract besides holding not less than nine-tenths in value of the shares (other than those already held as aforesaid) whose transfer is involved, are not less than three-fourths in number of the holders of those shares.


(2) Where, in pursuance of any such scheme or contract as aforesaid, shares, or shares of any class, in a company are transferred to another company or its nominee, and those shares together with any other shares or any other shares of the same class, as the case may be, in the first-mentioned company held at the date of the transfer by, or by a nominee for, the transferee company or its subsidiary comprise nine-tenths in value of the shares, or the shares of that class, as the case may be, in the first-mentioned company, then,-


(a) the transferee company shall, within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement), give notice of that fact in the prescribed manner to the holders of the remaining shares or of the remaining shares of that class, as the case may be, who have not assented to the scheme or contract; and

(b) any such holder may, within three months from the giving of the notice to him, require the transferee company to acquire the shares in question,

and where a shareholder gives notice under clause (b) with respect to any shares, the transferee company shall be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders were transferred to it, or on such other terms as may be agreed, or as the 1[Tribunal] on the application of either the transferee company or the shareholder thinks fit to order,


(3) Where a notice has been given by the transferee company under sub-section (1) and the Tribunal has not, on an application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the expiry of one month from the date on which the notice has been given, or, if an application to the Tribunal by the dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice to the transferor company together with an instrument of transfer executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company, and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which, by virtue of this section, that company is entitled to acquire; and 2[the transferor company shall-


(a) thereupon register the transferee company as the holder of those shares, and

(b) within one month of the date of such registration, inform the dissenting shareholders of the fact of such registration and of the receipt of the amount or other consideration representing the price payable to them by the transferee company:


Provided that an instrument of transfer shall not be required for any share for which a share warrant is for the time being outstanding.

(4) Any sums received by the transferor company under this section shall be paid into a separate bank account, and any such sums and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which the said sums or other consideration were respectively received.

(4A)
(a) The following provisions shall apply in relation to every offer of a scheme or contract involving the transfer of shares or any class of shares in the transferor company to the transferee company, namely:-


(i) every such offer or every circular containing such offer or every recommendation to the members of the transferor company by its directors to accept such offer shall be accompanied by such information as may be prescribed;

(ii) every such offer shall contain a statement by or on behalf of the transferee company, disclosing the steps it has taken to ensure that necessary cash will be available;

(iii) every circular containing, or recommending acceptance of, such offer shall be presented to the Registrar for registration and no such circular shall be issued until it is so registered;

(iv) the Registrar may refuse to register any such circular which does not contain the information required to be given under sub-clause (i) or which sets out such information in a manner likely to give a false impression; and

(v) an appeal shall lie to the Tribunal against an order of the Registrar refusing to register any such circular.


(b) Whoever issues a circular referred to in sub-clause (iii) of clause (a) which has not been registered, shall be punishable with fine which may extend to 4[five thousand rupees].


(5) In this section-


(a) "dissenting shareholder" includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract;

(b) "transferor company" and "transferee company" shall have the same meaning as in section 394.


(6) In relation to an offer made by the transferee company to shareholders of the transferor company before the commencement of this Act, this section shall have effect-


(a) with the substitution, in sub-section (1), for the words "the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary)," of the words "the shares affected" and with the omission of the proviso to that subsection;

(b) with the omission of sub-section (2);

(c) with the omission in sub-section (3) of the words "together with an instrument of transfer executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company" and of the proviso to that sub-section; and

(d) with the omission of clause (b) of sub-section (5).


396. Power of Central Government to provide for amalgamation of companies in 1public interest.



(1) Where the Central Government is satisfied that it is essential in the 1[public interest] that two or more companies should amalgamate, then, notwithstanding anything contained in sections 394 and 395 but subject to the provisions of this section, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution; with such property, powers, rights, interests, authorities and privileges; and with such liabilities, duties, and obligations; as may be specified in the order.

(2) The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and may also] contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

(3) Every member or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or creditor; and to the extent to which the interest or rights of such member or creditor in or against the company resulting from the amalgamation are less than his interest in or rights against the original company, he shall be entitled to compensation which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the Official Gazette,

The compensation so assessed shall be paid to the member, or creditor concerned by the company resulting from the amalgamation.

4(3A) Any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may, within thirty days from the date of publication of such assessment in the Official Gazette prefer an appeal to the Tribunal and thereupon the assessment of the compensation shall be made by the Tribunal.

(4) No order shall be made under this section, unless-


(a) a copy of the proposed order has been sent in draft to each of the companies concerned;

4(aa) the time for preferring an appeal under sub-section (3A) has expired, or where any such appeal has been preferred, the appeal has been finally disposed of; and

(b) the Central Government has considered, and made such modifications, if any, in the draft order as may seem to it desirable in the light of any suggestions and objections which may be received by it from any such company within such period as the Central Government may fix in that behalf, not being less than two months from the date on which the copy aforesaid is received by that company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof.


(5) Copies of every order made under this section shall, as soon as may be after it has been made, be laid before both Houses of Parliament.


396A. Preservation of books and papers of amalgamated company.-


The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the first-mentioned company or its amalgamation or the acquisition of its shares.

Company Law Provisions - India - 2

Company Law Provisions - India - 3

Company Law Provisions - India - 4

Company Law Provisions - India - 5

Tuesday, December 4, 2007

Income Tax Issues India - 1

Important Sections Related to income from Business and Professions

Section 28
The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession", - 
(i) The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;

(iv) The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 
(v) Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : 
Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause
(b) Of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted;


Explanation 1 : Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business.

Section 29

INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION, HOW COMPUTED.
The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D.


Sec 30
RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR BUILDINGS.

31
REPAIRS AND INSURANCE OF MACHINERY, PLANT AND FURNITURE.
32
DEPRECIATION.
35A
EXPENDITURE ON ACQUISITION OF PATENT RIGHTS OR COPYRIGHTS.

36
OTHER DEDUCTIONS.

Section 36
OTHER DEDUCTIONS.
(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (i) The amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession;
(ia) The amount of any premium paid by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co-operative society;
(ib) The amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), and approved by the Central Government;

(ii) Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;
(iia) A sum equal to one and one-third times the amount of the expenditure incurred on payment of any salary for any period of employment before the 1st day of March, 1984 to an employee who, as at the end of the previous year, - (a) Is totally blind, or
(b) Is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation :
Provided that the assessee produces before the Assessing Officer, in respect of the first assessment year for which deduction is claimed in relation to each such employee under this clause, - (i) In a case referred to in sub-clause (a), a certificate as to his total blindness from a registered medical practitioner being an oculist; and
(ii) In a case referred to in sub-clause (b), a certificate as to the permanent physical disability referred to in the said sub-clause from a registered medical practitioner :
Provided further that nothing contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head "Salaries" exceeds twenty thousand rupees.
Explanation 1 : In this clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise.
Explanation 2 : For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year; 575 ]

(iii) The amount of the interest paid in respect of capital borrowed for the purposes of the business or profession.
Explanation : Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;
(iv) Any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed 579 for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions 580 as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the numbers of members of the fund;
(v) Any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust;
(va) Any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.

(vi) In respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals;
(vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year:
Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;
(viia) In respect of any provision for bad and doubtful debts made by - (a) A scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding [ 585c ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner;
Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent. of the amount of such assets shown in the books of account of the bank on the last day of the previous year.

(b) A bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A);
(c) A public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A).




(viii) In respect of any special reserve created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head "Profits and gains of business or profession" before making any deduction under this clause 590a ]) carried to such reserve account :
Provided that the corporation or as the case may be the company is for the time being approved by the Central Government for the purposes of clause :
Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess;

(ix) Any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees :
Provided that where such expenditure or any part thereof is of a capital nature, one-fifth of such expenditure shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years :
Provided further that the provisions of sub-section (2) of section 32 or sub-section (2) of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation :
Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of sub-section (2) and sub-section (5) of section 35, of sub-section (3) of section 41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research;

(x) Any sum paid by a public financial institution by way of contribution towards any fund specified under clause (23E) of section 10.
Explanation : For the purposes of this clause, "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956).

(xi) Any expenditure incurred by the assessee, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, wholly and exclusively in respect of a non-Y2K compliant computer system, owned by the assessee and used for the purposes of his business or profession, so as to make such computer system Y2K compliant computer system :
Provided that no such deduction shall be allowed in respect of such expenditure under any other provisions of this Act :
Provided further that no such deduction shall be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this clause.
Explanation. - For the purposes of this clause, - (a) "Computer system" means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, logic, arithmetic, data storage and retrieval, communication and control;
(b) "Y2K compliant computer system" means a computer system capable of correctly processing, providing or receiving data relating to date within and between the twentieth and twenty-first century.
(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply - (i) No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;
(ii) If the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made;
(iii) Any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year;
(iv) Where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, provisions of sub-section (6) of section 155 shall apply;
(v) Where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.


37
General
(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

Income Tax Issues India - 2

Income Tax Issues India - 3

Income Tax Issues 4

Income Tax Issues 5

Acquisition Process

Weston

Strategy formulation-- Economics of the industry
-- Organization system
-- Multiple strategies for value growth

Search processes

Economic basis-— synergy potentials
-- Restructuring potentials

Due diligence
-– legal and business
-- Cultural factors

Valuation

Negotiation

Deal structuring

Implementation and integration

Reviews and renewal process

Idea of Acquisition

Stategic Planning for Acquisition - 1

Stategic Planning for Acquisition - 2

Stategic Planning for Acquisition - 3

Stategic Planning for Acquisition - 3

Stategic Planning for Acquisition - 4

Stategic Planning for Acquisition - 5

Team for Acquisitions - 2

Team for Acquisitions - 1

Team for Acquisitions - 2

Team for Acquisitions - 3

Search Process - 1

Search Process - 2

Search Process - 3

Search Process - 4

Search Process - 5

Initial Evaluation - 1

Initial Evaluation - 2

Initial Evaluation - 3

Synergy Evaluation - 1

Synergy Evaluation - 2

Synergy Evaluation - 3

Synergy Evaluation - 4

Synergy Evaluation - 5

Initial Valuation - 1

Initial Valuation - 2

Initial Valuation - 3

Making an Offer of Bid - 1

Making an Offer or Bid - 2

Due Diligence - 1

Due Diligence - 2

Due Diligence - 3

Due Diligence - 4

Due Diligence - 5

Due Diligence - 6 - Commerical

Text

Commercial Due Diligence: The Key to Understanding Value in an Acquisition

Peter Howson

Gower Publishing Limited
Aldershot, England
2006
----------------
Commercial Due Diligence
A guide to reducing risk in acquisitions
Denzil Rankine
Jun 1999, Paperback, 160 pages
Pearson Educations
----------------------


Definition

Definition of CDD: CDD is a mini-strategy review that is carried out by acquirers of companies to:

- confirm that the company they are buying has the commercial prospects they think it has;
- help plan integation;
- show how to position an acquisition or the combined entity for maximum value.

Due Diligence - 7

Due Diligence - 8

Due Diligence - 9

Due Diligence - 10

Evaluation of Due Diligence Information - 1

Evaluation of Due Diligence Information - 2

Final Valuation 1

Final Valuation - 2

Final Decision to Negotiate and Acquire

Negotiation - 1

Negotiation - 2

Negotiation - 3

Negotiation - 4

Negotiation - 5

Structuring the Deal

Structuring the Deal - 2

Implementing the Deal - 1

Implementing the Deal - 2

Implementing the Deal - 3

Implementing the Deal - 4

Implementing the Deal - 5

Financing the Acquisition - 1

Financing the Acquisition - 2

Financing the Acquisition - 3

Financing the Acquisition - 4

Financing the Acquisition - 5

Integration 1

Integration 2

Integration 3

Integration 4

Integration 5

Reviews and renewal process 1

Reviews and renewal process 2

Reviews and renewal process 3

Reviews and renewal process 4

Reviews and renewal process 5