MERGERS,TAKEOVERSAND ACQUISITIONSACORPORATE LAWSREFRESHER

JAYANTTHAKUR CHARTEREDACCOUNTANT WIRC2NDSEPTEMBER2009

BriefIntroduction
Mergers,acquisitionsandrestructuring

Scope

Mainlyacquisition/saletransactions Importantissues Currentdevelopments InvolvementofCharteredAccountantsevenless Noreasonwhy

Occasionaltransactions

Complicated

JayantThakur,WIRC,2ndSept,2009

Outlineofpresentation
Natureoftransactionsimportantdistinctionsand

implications 10importantconsiderations CompaniesBill2009Importantchanges

JayantThakur,WIRC,2ndSept,2009

Importantformsofrestructuring
Mergers

NewCompany Absorption

Demergers Takeovers Sale/divestitures/Acquisitions

JayantThakur,WIRC,2ndSept,2009

Importantconsiderations
Companylaw Documentations

MOU,Agreements,Schemes,notices,resolutions,filings

Valuation Tax

Respectivecompanies shareholders

SEBIlaws Stampduty

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Importantconsiderations
Accounting FinancialStructuring Indirecttaxes Generalcontractlaw

JayantThakur,WIRC,2ndSept,2009

Important10considerations
RegularroleofCharteredAccountantsin

restructuring Actualtransactionsquitecomplex However,like80/20principle,10considerations dominateeverytransaction

JayantThakur,WIRC,2ndSept,2009

CharteredAccountantsrole
ExpertiseofCharteredAccountantandsuitabilityfor

restructuring Preferencesgiventolawyers/merchantbankers Areas/lawsimportant Specialupdation/studyneeded

JayantThakur,WIRC,2ndSept,2009

WhyandwhenTakeovers?
SimplestinCompanylaw,etc. Fastest Mostlawsinapplicable Evendocumentationmaynotberequired Leaststampduty Lowerornotax Separationofundertakings Leastapprovals

JayantThakur,WIRC,2ndSept,2009

Whyandwhensale/acquisition?
Simplerthanmergers/demergers Fastbuteventualcompletionoverperiod Nocourtprocess Somedocumentation Combinationofundertakings Transferofliabilities Stampduty Lesstaxefficient Capitalgains Transferoflosses
JayantThakur,WIRC,2ndSept,2009

Whyandwhenmerger/demerger?
Mostcomplex

Numerousapprovalsandclearances Fixingofdate Realisationofprofits Capitalgains/carriedforwardlosses

Takesmosttimealso

Mosttaxeffective

Singlewindowapprovals Simultaneousfinancialrestructuring

JayantThakur,WIRC,2ndSept,2009

Advancepreparations
Formofrestructuring Valuation External/internalapprovals

Importantshareholdergroups SEBI/stockexchanges

InsiderTrading

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Clearingofaccounting/financialmess
Bloatedcapital Reserves Losses Valuationofassets Classesofcapital Dissentingshareholders

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Preliminarydocuments
Usuallyadvisable Longprocessbefore,duringandafterrestructuring Importantareas

Valuation Hiddenliabilities Duediligence Costsanddamages

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Obtainpreliminaryapprovals
Lenders/creditors Majorshareholders Externalauthorities

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Avoidsingle/dominantpurposeavoidanceoflaws
Tax Stampduty SEBIlaws

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Permittedbenefits
Somecaselawdrivenconcessions Authorisedcapital

Whetherseparateprocedurerequired Whetherauthorisedcapitalcanbecombined WhetherROCfeescanbenetted ElproInternationalLtd.2008(086)SCL0047BOM

ElForgeLtd.(2005)64SCL529(Mad.) DissentingdecisioninArevaT&DIndiaLtd.5thJuly2007

Reductionofcapitalseparateprocedure? Accounting/reserves Buyingoutshareholders.

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Provideforunexpectedhurdles/delays
Hurdles/Costs/delays Creditors Shareholdersuits Authorities

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ValuationSupremeCourtinSultania
G.L.Sultaniav.SEBI(2007)76SCL473(SC) Contextofopenoffer OriginalpurchasevalueRs.267,purchaseRs.40,

revisedtoRs.67 AlternatevaluationsRs.408/590. RelianceonDr.RenukaDatlav.Solvay PharmaceuticalsB.V .(2004)1SCC149courtwill interveneonlyifpatentmistakegoingtoroot. MiheerH.Mafatlalv.MafatlalIndustriesLtd.(1997) 1SCC519valuationbestlefttoexperts.

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ValuationSupremeCourtinSultania
These decisions clearly lay down the principle that

valuationofsharesisnotonlyaquestionoffact,but also raised technical and complex issues which may be appropriately left to the wisdom of the experts, having regard to the many imponderables which entertheprocessofvaluationofshares.Ifthevaluer adoptsthemethodofvaluationprescribed,orinthe absence of any prescribed method, adopts any recognisedmethodofvaluation,hisvaluationcannot beassailed.
JayantThakur,WIRC,2ndSept,2009

ValuationSupremeCourtinSultania
unlessitisshownthatthevaluationwasmadeon

a fundamentally erroneous basis, or that a patent mistakehadbeencommitted,orthevalueradopteda demonstrably wrong approach or a fundamental errorgoingtotherootofthematter.Whereamethod ofvaluationisprescribedthevaluationmustbemade by adopting scrupulously the method prescribed, takingintoaccountallrelevantfactorswhichmaybe enumeratedasrelevantforarrivingatthevaluation.

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ValuationSupremeCourtinSultania
The Court also held that it could not go into the

intricacies of valuation since these were really matterswithintherealmoftheexpertstodetermine and the Court may not be justified in delving into these matters, which must be left to the wisdom, expertiseandexperienceofaqualifiedvaluer.

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
Amendmentsof2002 Tribunal RoleofCharteredAccountants

Missinglinkremoved Presentcontroversy Expressclarification

Reductionofcapital

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
Buybackofshares

Presentcontroversyandhistory Courtdecisions SEBI/stockexchanges Expressclarification Overridingpowers? ControversytodayofconflictofpowersofBIFRandCourt

AbatementofBIFRSchemes

Transferofemployees

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
Mergeroflistedwithunlistedcompanies

Delisting Purchaseofsharesofdissentingshareholders Conflict/overlapwithSEBIlaws

Authorisedsharecapital Absorption/division/formationofnewcompany

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
Smallcompaniesmergers

Whatissmallcompany? Holding/wos

Onlymergers/demergers AvoidanceofTribunalapproval ROC/OL sobjections

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
RegisteredValuers MandatoryforvaluationsunderAct Registration CharteredAccountants

Theirpartners

CS/CostAccountant Company/bodycorporate Limitonfees

JayantThakur,WIRC,2ndSept,2009

CompaniesBill2009importantchanges
3yearlyreview

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CompaniesBill2009importantchanges
Crossbordermergers

ForeignCompany/IndianCompany IndianCompany/ForeignCompany

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NewSchemeforsickcompanies
Tribunaltooversee Newcriteriaforsickcompanies

Networthbasedcriteriadropped

Broadprocedure ConceptofInterimAdministrator ConceptofCompanyAdministrator

MaybeCharteredAccountant

Nooverridingpowersoverotherlaws

JayantThakur,WIRC,2ndSept,2009

NewSchemeforsickcompanies
Nopowerstostayproceedings/litigation

However,stayoverwindingup,recoveryofmoney, enforcementofsecurity,etc.maybegranted.

ApprovalofSchemeby1/4thunsecuredand3/4th

securedcreditors

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THANKYOU!
QUESTIONS/COMMENTS?
JayantThakur,WIRC,2ndSept,2009