CROSS BORDER MERGERS

& ACQUISITIONS
The Legal Landscape

Madhurendra Nath Jha

Introduction
Merger - A Merger may be defined as the
combination of two or more independent business
corporations into a single enterprise, usually
involving the absorption of one or more firms by a
dominant firm.
Mergers may be broadly classified as Horizontal,
Vertical or Conglomerate
Acquisition may be defined as an act of one
enterprise of acquiring, directly or indirectly of
shares, voting rights, assets or control over the
management, of another enterprise .
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M&A Band Wagon

Frenzied Activity in the field
of M&A in recent years
In 2007 out of Total 348
Cross Border Deals:
Outbound: 240 ($32.37
billion)
Inbound: 108 ($15.61
billion)
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Increase in M& A

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India Inc. Goes Global

Tata Steel acquired UK based
Corus for $ 8 billion.
Suzlon Energy Ltd acquired
German firm Repower Systems
AG for $ 1.7 billion.
United Spirits bought Scotch
whisky distiller Whyte &
Mackay for US$ 1.11 billion
Hindalco acquired Novelis for
$ 6 billion
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India goes global

TATA Chemical acquires US based Soda Ash Maker
General Industrial Products for $ 1 billion
Indian shipping company Great Offshore acquires UK
based Sea Dragon for US$ 1.4 billion
Essar Energy acquires 50% stake in Kenya
Petroleum refineries ltd.
Banswara Syntex to acquire France firm Carreman
Michel Thierry for around US$ 125 million

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Graphical representation of Indian

outbound deals since 2000.
Source:
IBEF

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Inbound Transactions
Sistema, Russian Joint Stock
Companys acquisition of 74%
stake in Shyam Telelink
Telecommunications
French banking major BNP
Paribass acquisition of 45%
stake in financial services firm
Sundaram Home Finance for
$45.81 million
Standard
Chartered
Bank
bought 49% stake for $34.19
million in UTI Securities and
Interpublic Group hiked its stake
in Lintas India to 100% for $100
million
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 Fursa Mauritiuss acquisition of 42.63% equity in

Gayatri Starchkem
UBS Global Managements Acquisition of
Standard Chartered Asset Management Company
for $ 117.78 Million
EMC Corporations Acquisition of Valyd Software
Pvt. Ltd.
Orklas Acquisition of MTR foods for $ 100 Million

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Destination India
Liberal FDI Policy Framework
FDI allowed in most sectors
Entry Routes for Investment in India
Approval
Automatic

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FDI and Portfolio Flows to India

Source: RBI

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Entry Strategies for Foreign Investors

As a Foreign Company through:

Liaison office/Representative office

Project Office
Branch Office foreign company through:

As an Indian company through:

a Joint Venture
Wholly Owned Subsidiary

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Joint Ventures As An Entry Strategy

JVS regulated by Policies and
Laws governing FDI
Two Tier Approval Mechanism
for JVS:
- Automatic Approval Route
- FIPB Approval Route
If the Foreign Partner has
entered into JV in the same
field before then NOC of the
previous JV partner and
approval of the Government
also required
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India-entry
Same Field may be defined as the 4 digit
National Industrial Classification (NIC) Code
Illustration:
If the foreign investor has collaboration for the
manufacture of tarpaulin Code 268.3, he can
invest in the manufacture of rubberized cloth
Code 268.2 as there is no restriction to enter
into JVs in allied fields. The restriction shall
apply to any item whose code NIC code is
268.2.
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India entry
A Conflict of Interest clause advisable in
the JV/Collaboration agreement in case one
of the Partners to the JV wants to set up
another JV or wholly owned subsidiary in
the same field

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India entry-JV

The Following are exempted from the

restriction of entering into JV in the same
field:
1) Information Technology sector
2) Investments made by multinational financial
institutions
3) mining sector for the same area/mineral

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Other inbound
Prior government approval not required in
certain cases:
- Investment to be made by venture capital
funds is registered with SEBI
- Existing JV investment is less than 3%
- Existing venture is defunct or sick

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Remittances

Determination of sale Price of Shares

Listed Company
Unlisted Company/Shares Thinly Traded on
the Stock Exchange
Remittance of Sale Proceeds:
i. NOC from Income Tax Authority required
ii. If the security has not been sold on a
recognized stock exchange then prior
approval of the RBI in form TS 1 has been
obtained
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Sectors Attracting Highest FDI Equity Flows

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Indian Overseas Investment

Favourable Policy framework
- Overseas Investment Limit 400% of Net Worth
- Overseas portfolio investment - 50 per cent of Net
Worth
Permissible Funding:
Drawal of foreign exchange from an AD;
Capitalization of exports;
Swap of shares;

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Funding
Permissible Funding Cont.
Utilisation of proceeds of External Commercial
Borrowings (ECBs) / Foreign Currency Convertible
Bonds (FCCBs);
in exchange of ADRs/GDRs
Balances held in EEFC account of the Indian
party;
Utilisation of proceeds of foreign currency funds
raised through ADR / GDR issues.
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Indias Direct Investment Abroad

Source: RBI

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Data on Overseas Direct Investments

S.no.

Country

Outflow 2006-2007
(In US$ Million)

1.

US

313.379

Canada

397.772

China

Netherlands

Czech Republic

26.008

Italy

7.104

Germany

France

0.693

Portugal

10

Poland

0.454

11

Hungary

3.176
1005.518

22.858

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Overseas Direct Investment

Sector wise Breakup
S.no.

Sector

Outflow 2006-2007
(In US$ Million)

1.

Manufacturing

2402.760

2.

Financial Services

3.

Non-Financial Services 2249.960

Trading

390.811

Others

985.587

5.754

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Regulatory Framework
Applicable
Indian
Laws
- Companies Act
- Competition Act
- Income Tax Act
- Indian Stamp Act
- SEBI
Takeover
Code
- FEMA
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Companies Act, 1956

Merger is a scheme of arrangement
Scheme of arrangement has to be presented
before the High Court for sanction
Relevant Sections 391-394
Limited Scope in Cross Border M&As because
Transferee company has to be a company
incorporated in India

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Competition Law, 2002

Salient Features:
Anti-competitive agreements;
Prohibition of abuse of dominant position
Regulation of Combinations including
mergers
Unfair Trade Practices

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India : Merger Law

Monopolies and
Restrictive Trade
Practices Act, 1969
Inadequate
Obsolete

Still Prevailing

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New Merger Law

Competition Act, 2002
Combination
The Indian law uses the word combinations
to cover acquisition of control, shares, voting
rights and assets, and mergers and
amalgamations
Relevant Sections: 5-6 & 29-32
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Areas of Concern
Applicable threshold Limits Based on:
Value of Assets
Turnover

Notice Requirement
Mandatory
Within 30 days of
Approval of proposal by BOD
Execution of agreement/ document

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Competition proposals
Mandatory waiting Period for Approval
210 Days

Extra Territorial Jurisdiction of CCI

CCI has power to inquire about combinations
taking place outside India

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Intent of National Security Legislations

Right to Intervene in case of perceived threat

to National Security
Discretionary powers to prevent certain foreign
companies from doing business in the country

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Foreign Investments & National

Security Legislations
United States- Foreign Investment & National
Security Act, 2007 (Exon-Florio Provision)
China- Anti Monopoly Law
European Union- Members are free to regulate
International Mergers (Articles 81-85 EC Treaty
regulates Competition)
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security
United Kingdom- Enterprises Act 2002
India- National Security Exception Bill yet to
be passed by the Parliament

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THANK YOU
Should you have any questions on issues reported here or on other areas
of law, you may contact Paras Kuhad and Associates at the following coordinates:
Mr. M.N. JHA
Paras Kuhad and Associates, Advocates
A-238, Lower Ground Floor,
Defence Colony,
New Delhi- 110 024, India
Tel: +91 (0) 11 46562525, 46562727 Fax: +91 (0) 11 46562000

Mob: +91/0-9811319922
Email :

pkadelhi@paraskuhd.com, mnjha@hotmail.com

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Disclaimer
The contents of this document are intended for informational
purposes only and are not in the nature of a legal opinion or
advice. They may not encompass all possible regulations and
circumstances applicable to the subject matter and readers are
encouraged to seek legal counsel prior to acting upon any of the
information provided herein.
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Paras Kuhad and Associates, Advocates
2008

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