THE FRAMEWORK OF MERGERS AND ACQUISITIONS IN INDIA:

BACKGROUND, IMPLICATIONS AND EMERGING ISSUES

Dr. Rabi Narayan Kar

Associate Professor
University of Delhi, India

ABSTRACT

The economic reforms since 1991 has resulted in a change of financial regulatory
environment for the corporate sector in India, boosting in the process, a market for
corporate control characterized by mergers and acquisitions( M&As) and other
forms of restructuring. It is also widely believed that the policy initiatives and the
regulatory framework governing takeovers have facilitated this transformation in
the Indian corporate sector-giving rise to the increasing takeover activity. These
governing legislations mainly include the Indian Companies Act, 1956, the Income
Tax Act 1961, the Securities and Exchange Board of India Act (SEBI) 1992, SEBI
(Substantial Acquisitions of Shares and Takeovers) Regulations, 1994 and SEBI
(Substantial Acquisitions of Shares and Takeovers) Regulations, 1997. In this
context, an attempt has been made to assess the impact of the regulatory
framework on M&As activity.

There has been continuous news and reporting about M&As in the Indian
Corporate sector. However, there is dearth of research studies for Indian M&As in
the post liberalisation period. Therefore, there are certain research issues in this
critical area of financial regulation which is having bearing on mergers and
acquisitions which need to be investigated. In this regard an attempt has been made
to throw some light on some of these aspects. Further, the paper aims at focusing
the implications of the regulatory framework on mergers and acquisitions and
successfully found out the emerging issues on this area.
Key Words: Mergers, Acquisitions, Restructuring
JEL Classification: G34 - Mergers; Acquisitions; Restructuring; Corporate
Governance

Electronic copy available at: http://ssrn.com/abstract=1886324

1. INTRODUCTION
The developments in the sphere of economic reforms since 1991 has resulted in a
radical change of environment for the corporate sector, boosting in the process, a
market for corporate control characterized by mergers and acquisitions (hereafter
M&A) and other forms of restructuring. This process of restructuring has been
hastened by the arrival of foreign competitors. It is also widely believed that the
policy initiatives and the regulatory framework, governing takeovers have
facilitated this transformation in the Indian corporate sector-giving rise to the
increasing takeover activity in the India.
The M&A activities are continuing with the existing legal regime, which provides
the regulatory framework for takeover activities. The governing legislations mainly
include the Indian Companies Act, 1956, the Income Tax Act 1961, the Securities
and Exchange Board of India Act (SEBI) 1992, SEBI (Substantial Acquisitions of
Shares and Takeovers) Regulations, 1994 and SEBI (Substantial Acquisitions of
Shares and Takeovers) Regulations, 1997. Moreover, a joint stock company may
be viewed as a collection of different stakeholders (such as shareholders, debt-
holders, board of directors, top-management, middle management, workers,
suppliers and customers and finally the consumers) with conflicting interests, many
of which do not relate to firm profits. How far the interests of the different
stakeholders in a company are protected in an M&A process depends on the
prevailing regulating structure and the position of the market for corporate control
within that structure. In this paper an attempt has been made to examine some of
the issues relating to the field of financial regulations, which is having a bearing on
corporate M&A activity. In this context, an attempt has been made to assess the
impact of the regulatory framework on M&As activity. Further, the paper tries to
find out important policy implications and issues relating to these developments.

2. RESEARCH ISSUES AND OBJECTIVES

A merger is popularly understood to be a fusion of two companies. Generally,
acquisition is the purchase by one company of a substantial part of the assets or
securities of another (Acquisitions and Takeovers are used as synonyms in this
study). The most popular types of mergers are horizontal, vertical, conglomerate
and consolidations. Mergers and acquisitions are means of corporate expansion and
growth. They are not the only means of corporate growth, but are an alternative to
organic growth. From time to time companies have preferred the external growth
through M&As than organic growth due to some strategic objectives. These
strategic objectives may be varied, including growth and expansion of the firm,
reduction of cost and economies of scale, gaining competitive advantage in
existing product markets, market or product extension, or risk reduction. As has
been described earlier, it is widely believed that the changes in policy initiatives

Electronic copy available at: http://ssrn.com/abstract=1886324

and regulations have paved the way for increasing merger and acquisition activity
in India.
There has been continuous news and reporting about M&As in the Indian
Corporate sector. However, there is dearth of research studies for Indian M&As in
the post liberalisation period. Therefore, there are certain research issues in the
sphere of mergers and acquisitions, which need to be investigated.
 Why there is a sudden spurt in mergers and acquisitions in the post 1991
period?
 Has the new regulatory framework facilitated increasing merger and
acquisition
activity?
 In what way the present mergers and acquisitions are different from earlier
mergers and acquisitions?
 Are companies using it as a survival strategy in the presence of foreign players
in the post 1991 period?
 What will be the impact of mergers and acquisitions on companies share price
behaviour and growth rates?
 Are Indian shareholders behaving like mute spectators or active participants in
the game of mergers and acquisitions?
 How to find out ways & means to make mergers and acquisitions transparent
in India?
 Where do the Indian enterprises look upon for financing mergers and
acquisitions?
However, the specific objective of this paper is to empirically investigate the trend
of M&As in India for different sectors of the Indian corporate enterprises in the
post 1991 period so that increasing takeover activity during the last decade vis-à-
vis regulatory policy regime can be examined.

3. M&A IN INDIA: A REVIEW

M&As have played an important role in the transformation of the industrial sector
of India since the Second World War period. The economic and political
conditions during the Second World War and post–war periods (including several
years after independence) gave rise to a spate of M&As. The inflationary situation

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during the wartime enabled many Indian businessmen to amass income by way of
high profits and dividends and black money.This led to “wholesale infiltration of
businessmen in industry during war period giving rise to hectic activity in stock
exchanges. There was a craze to acquire control over industrial units in spite of
swollen prices of shares. The practice of cornering shares in the open market and
trafficking of managing agency rights with a view to acquiring control over the
management of established and reputed companies had come prominently to light.
The net effect of these two practices, viz of acquiring control over ownership of
companies and of acquiring control over managing agencies, was that large number
of concerns passed into the hands of prominent industrial houses of the country. As
it became clear that India would be gaining independence, British managing
agency houses gradually liquidated their holdings at fabulous prices offered by
Indian Business community. Besides the transfer of managing agencies, there were
a large number of cases of transfer of interests in individual industrial units from
British to Indian hands. Further, at that time it used to be the fashion to obtain
control of insurance companies for the purpose of utilising their funds to acquire
substantial holdings in other companies. The big industrialists also floated banks
and investment companies for furtherance of the objective of acquiring control
over established concerns.
The post-war period is regarded as an era of M&As. Large number of M&As
occurred in industries like jute, cotton textiles, sugar, insurance banking and
electricity and tea plantation. It has been found that, although there was a large
number of M&As in the early post independence period, the anti-big government
policies and regulations of the 1960s and 1970s seriously deterred M&As. This
does not, of course, mean that M&As were uncommon during the controlled
regime. The deterrent was mostly to horizontal combinations, which result in
concentration of economic power to the common detriment. However, there were
many conglomerate combinations. In some cases even the Government encouraged
M&As; especially for sick units. Further, the formation of the Life Insurance
Corporation and nationalization of the life insurance business in 1956 resulted in
the take over of 243 insurance companies. There was a similar development in the
general insurance business. The national textiles corporation (NTC) took over a
large number of sick textiles units.

4. BRIEF REVIEW OF DEVELOPMENTS IN M&A IN INDIA

The importance and significance of M&As has undergone a sea change since
liberalisation in India. The MRTP Act and other legislations have been amended
paving way for large business groups and foreign companies to resort to the M&A
route for growth. Further The SEBI (Substantial Acquisition of Shares and Take
over) Regulations 1994 and 1997 have been notified. The decision of the Govt. to

4
allow companies to buy back their shares through the promulgation of buy back
ordinance and subsequent amendment in the Companies Act 1956, all these
developments have influenced the market for corporate control in India. More
recently, the Competition Act, 2002 has come into effect instead of the MRTP Act,
1969 to regulate and facilitate the market for corporate control.
Mergers and Acquisitions as a strategy have been employed by several corporate
groups like R.P. Goenka, Vijay Mallya and Manu Chhabria for growth and
expansion of the empires in India. Some of the companies taken over by RPG
group included Dunlop, Ceat, Philips Carbon black, Gramaphone India. Mallya’s
UB group was straddled mostly by mergers and acquisitions. Companies under the
UB conglomerate included Best and Crompton, Mangalore Chemicals and
Fertilissers, Kissan Foods besides four liquor firms (United Breweries, Carew
Phipson , Herbertson and Mcdowell). Further, in the post liberalization period, the
giant Hindustan Lever Limited has employed M&A as an important growth
strategy. The Ajay Piramal group has almost entirely been built up by M&As. As a
result of liberalization measures, the south based, Murugappa group has built an
empire by employing M&A as a strategy. Some of the companies acquired by
Murugappa group include, EID Parry, Coromondol Fertilizers, Bharat Pulverising
Mills, Sterling Abrasives, Cut Fast Abrasives etc. Other companies and groups
whose growth has been contributed by M&A s include Ranbaxy Laboratories
Limited and Sun Pharmaceuticals Industries particularly during the later half of the
1990s.

5. DEVELOPING RESEARCH FRAMEWORK

In order to empirically analyze the objectives of this paper, a comprehensive
review of literature has been undertaken in the first place to develop research
dimensions for the present study. From the survey of literature of western studies,
key research dimensions relevant to this present study have been found out. The
literature gives a detailed account of the trends of M&As in the United States and
the reasons there of (Table No1).

Table No- 1 Merger Movements in USA

Period Type of Industry Reasons Motives
M&A Types
Horizonl Manufacturing -Advent of electricity and -Economy of scale
coal fuelled economic -Regional firms
1895-1904

growth want to become

-Completion of the national firms
transcontinental rail road -Technological
system advancement

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 Vertical Public utilities -Development in -Shortening of
integration Banking transportation (mainly processes
Food- motor vehicles) -Reliability of
1922-1929

processing -Development of input supply

Chemical communication through
Mining home radio
-Merchandise
Vertical Steel -Post war period propelled -Circumvent price
integration economic growth controls and
(movement allocations
1940-1947

in small- -Desire for a new

scale) product or
product-
organisation
Conglome- Rail roads -Booming economy -To avoid sales &
rate Types Automobiles profit instability
Transport -To avoid adverse
Chemical growth
-To avoid
technological
obsolescence
1965-1969

-To avoid
uncertainties
associated with
their industries
Mainly Oil & gas -Consolidation -Growth
horizontal Electronic- -Deregulation of financial integrated to
hostile Equipment institutions achieve synergy
Industrial -Increasing competition in -Gradually shifted
machinery the financial services towards core
Transport- -Easy availability of finance consolidation
Equipment for acquisitions
&1984-1989

Food
Post 1976

Chemical
Cement
Banking
Airlines
Broadcasting -Deregulation & -Strategic
Communicatio globalisatin of industries considerations
Leisure -Technological due to pressure of
Entertainment advancement competition
1993 - ???

Insurance -Increasing threat of -Growth through

Health- takeover bids consolidation
services

The structure of an industry depends on factors such as technology, government

policy and demand and supply conditions. A shock in any factor causes a shift in
the industry’s structure. It can range from deregulation and input price volatility, to
technological changes. Firms respond either through expansion or externally

6
through takeovers or mergers. Mitchell and Mulherin (1996) feel that the takeover
activities are driven in part by industry shocks rather than by the actual source of
performance changes. From the survey of studies on Indian M&As., it has been
found that studies mainly dealt with types and motives of M&As. Some studies had
investigated the nature and causes of M&As. However, number of merger cases
analyzed by various studies is much less than the total number of mergers and
acquisitions in the post 1991 period. Though Beena [1998] constructed the list of
mergers for 1974-1975 to 1994-95 from official sources yet it did not incorporate
all M&As. Further, all these studies have taken only mergers and leaving
acquisitions. However, the present study has taken both M&As. Further, it has
been found that none of the studies dealt comprehensively on trend of the M&As
for the post 1991 period to examine the impact of liberalization and consequent
deregulations.

6. RESEARCH METHODOLOGY
In order to have a comprehensive analysis of M&A in India our first task was to
build a database on M&A in India, as there is no official database available which
gives a complete picture of M&As in India.

6.1. Data Collection: Before testing the sources, from which database on M&A
was created, we highlight the modus oprandi for M&As in India as this gave us the
hint about the sources from which data on M&A could be obtained.
The general law relating to M&A is embodied in section 391 to 396 of the
companies act, 1956. Hence, a merger in India has to comply with the provisions of
this act. Section 391 gives the high court the power to sanction a compromise or
arrangement with creditors and members [shareholders] subject to certain
conditions. Section 392 gives the power to the high court to enforce and supervise
carrying out of such compromises or arrangements with creditors and members.
Section 393 provides for the availability of the information required by the
creditors and members of the concerned company. When according to such an
arrangement section 394 makes provision for facilitating reconstruction and
amalgamation of companies. Section 395 gives power and duty to acquire the
shares of shareholders dissenting from the scheme or contract approved by the
majority. Section 396 deals with the power of the central govt. to provide for an
amalgamation companies in the national interest.
On an average, it takes about a year from the board meeting approving the merger
scheme to getting the approval of the high court. In addition for listed companies:
clause 40 of the listing agreement stipulates that, “a public announcement should
be made through newspapers and the stock exchanges where the shares are listed
must be notified immediately after the board meeting approves the scheme”.

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SEBI Takeover Code requirement: According to the takeover regulations, the
acquirer has to inform the stock exchanges once his holdings cross five percent in a
particular target company. Further, when holdings cross fifteen percent, the buyer
has to make an offer to buy another twenty percent of the shares from the public.
6.2. Sources of Merger and Acquisition Data in India: The data on mergers and
acquisitions in India are found from the following sources.
1. Registration and liquidation of joint stock companies in India (RLGC) [annual
publication of R&L division of Department of Company Affairs]. It gives
information about the names of acquirers and target companies along with the
month of merger. This annual publication provides only merger data on a regular
basis since 1974. However, this publication was not traceable for the years 1985,
1986, 1987, 1989 and 1995.
2. Company News and Notes. (Monthly publication of DCA). This publication
provides information on mergers but not on a regular basis.
3. Data on mergers and acquisitions is extracted largely from Monthly Review of
Indian Economy, (a publication of CMIE, Bombay). It provides information on
mergers and acquisitions regularly from 1995.
4. Websites of Bombay Stock Exchange (BSE) and National Stock Exchange
(NSE) also give the names of acquirer and target companies and not the year of
merger. The list is not exhaustive.
5. SEBI website is the only source of getting information of open offers both
number and value wise. However, it stated only from 1996-97.
6.3. Building a Data Base: An exhaustive data base for M&As in India from the
period 1990-91 to 2000-2001 have been prepared quoting from CMIE, DCA and
SEBI sources for Indian listed companies. As stated earlier, this study takes into
account both mergers and acquisitions for the post liberalization period, as
acquisitions have different connotations, here we take all deals, which have the
effect of change in control. By employing this method, a total of 1386 mergers and
acquisitions have been found out.
6.4.Classification of Data and Analysis: the whole constructed data banks on
M&As have been classified under sixteen broad industrial groupings. This
classification has been done according to the National Industrial Classification
[NIC] 1987 Codes. From the NIC classification code, we follow broadly two-digit
industrial classification code, which is modified by looking into various
classifications followed by CMIE data bank, Capital market online data bank, BSE,
and NSE. Method of least squares has been applied to investigate the trends of
mergers and acquisitions for the entire period of study.

8
Table No- 2 Classification of the Sample
Industry Groups
1.Chemicals, Drugs & Pharma
2.Petrochemical, Plastic & Rubber
3.Energy, Gas, Power & Oil
4.Non Metallic Minerals
5.Airlines, Hotels& Travels
6.Paper, Printing & Publishing
7.Food Industry
8.Textiles & Wearing Apparel
9.Finance & Banking
10.IT & Telecom
11.Electrical &Electronics
12.Basic Metal & Alloy
13.Machinery & Equipment
14.Transport Machinery & Spares
15.Tobacco & Beverages
16.Others

7. FINDINGS ON TRENDS OF MERGERS AND ACQUISITIONS

The total M&As from 1990-91 to 2000-01 has been analyzed under this caption.
There are thirteen hundred and eighty six M&As identified during the period of the
study using the methodology given earlier. The maximum number of M&As
reported is in the year 1999-2000 and the lowest found out in the year 1991-92.The
momentum of M&As build up from the year 1995-96 in which thirty three M&As
are found during the span of the study. In 1996-97, the number of M&As increased
to 124, which is 275.75 percent growth in M&As activity.

Table No-3 Distribution of M&A across Industry Groups from 1990-91 to

2000-01
19995-96
1990- 91

1991-92

1992-93

1993-94

1994-95

1996-97

1997-98

1998-99

1999-00

2000-01

TOTAL

INDUSTRY / YEARS
PHARMA 2 0 5 27 47 29 57 34 201
PETRO CHEM 4 11 5 11 13 13 57
ENERGY, GAS,
POWER 1 0 3 6 13 15 16 17 71

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NON METTALIC
MINERAL 2 3 2 11 11 19 7 55
TOURISM,TRAVELS 2 4 7 6 13 3 35
PAPER PRODUCTS 1 9 4 1 4 19
FOOD PRODUCTS 3 1 2 8 8 10 9 20 13 74
TEXTILES,
WEARING 1 0 0 0 1 0 4 4 12 6 6 34
FINANCE,
BNANKING 1 0 1 0 7 24 35 51 33 152
IT & TELECOM 3 0 0 11 20 31 45 51 161
ELECTRICALS, ELE 2 0 0 7 11 13 11 13 57
BASIC METAL,
ALLOY 1 3 4 9 13 15 15 11 71
MACHINERY EQUIP 4 3 2 12 26 25 30 11 113
TRANSPORT EQUIP 1 4 13 13 24 10 65
TOBACCO,
BEVERAGES 2 2 0 0 4 3 5 6 22
OTHERS 12 31 37 61 58 199
TOTAL M& A 1 0 4 16 14 33 124 248 269 387 290 1386

Figure No-2 Trend of Total M&A

Trend line equation

Total M&A= - 110.768+ 39.518 years

The resultant behaviour and pattern of trends in M&As activity during the period
of study may have been occurred due to the following factors.
1. The post reforms which led to amended MRTP Act and other policy initiatives
has set the stage for corporates to think about restructuring
2. Further, an enabling policy improvement has come about through the
formulation of takeover code in 1994 and the issue of simplified takeover

10
regulations by the Securities Exchange Board of India [SEBI] in 1997 on the basis
of the Bhagawati committee report.
3.The process of restructuring of Indian industry did not commence immediately
after liberalization. It was the industrial slow down since 1996, which squeezed the
profit margins of Indian corporate entities and forced them to restructure their
operations to achieve grater competitiveness. This has driven the companies to go
for expansion and consolidation through mergers and acquisitions.
4. The slow down in industrial sector was further depreciated in 1997-98 with a
disappointing rate of growth just being 4.1 percent (lowest after 1992-93). The
slow down resulted due to declining agricultural production, depreciated capital
markets for the last couple of years resulting in drying up of resources of investible
funds for industry. Further, banks have been very cautious while providing funds to
particularly small and medium sector due to high incidence of NPAs .
5. Export growth has been sluggish since 1996-97 with the year 1998-99 being
particularly disappointing. This low demand has severely affected industrial
production.
6. Although the Indian rupee has depreciated since August 1997, there has been
much greater depreciation in East Asian currencies following the outbreak of the
East Asian crisis in mid 1997. This higher depreciation has eroded the
competitiveness of Indian products overseas by making them more expensive.
It has been observed in this study that the pattern of the M&As activity during the
last decade is that, in the first half there is negligible M&As activity. However in
the second half of the decade, that is post 1995-96, M&As activity has been
substantially increased. Therefore, the second half the last decade can be termed as
the first M&As wave in India. In case of industry groups, the chemicals, drugs and
pharmaceuticals group has accounted for the highest number of M&As followed by
the others and diversified group.

8. IMPLICATIONS AND EMERGING ISSUES

8.1. Trends of M&A
This study has successfully empirically probed the presence of trends / waves of
M&As in India during the last decade. The theoretical arguments and empirical
findings of the present study might be helpful to the industry associations and
governing bodies like SEBI, BSE, NSE and DCA while framing policy guidelines
which is having wide implications. According to Weston (1999), M&As and
restructuring processes moved resources to their highest and best uses and
contributed positively to the outstanding economic performance of the US
economy since 1982. The present study has also established that an M&As wave

11
has been underway since 1996-97 in India. This increasing M&As activity and
threats of it may encourage companies to embrace professionalism and change to
increase their level of efficiency, which could lead to outstanding performance of
the Indian economy.
8.2. M&A & the Competition Policy
Developing countries do need a competition policy in the wake of the international
merger movement as well as because of privatization, deregulation and
liberalization which have occurred in their domestic economies and the resultant
domestic M&As. In India, the MRTP Act, 1969 (now repealed) and the Consumer
Protection Act, 1986 (CPA) deal with the anti-competitive practices. However, the
MRTP Act is limited in its scope and hence it fails to fulfill the need of a
competition law in an age of growing liberalization and globalisation. In this
context, a High-Level Committee on Competition Policy and Law was set up in
October 1999 under the chairmanship of Shri S.V.S Raghavan to examine the
existing MRTP Act, 1969 for shifting the focus of the law from curbing
monopolies to promoting competition and to suggest a modern competition law in
line with international developments to suit Indian conditions. The Committee
submitted its report in May 2000, which has been notified in the form of
Competition Act in October 2003.
Most laws make a distinction between “Horizontal” and “Vertical” agreements
between firms. The Committee on competition law felt that the Competition Law
should cover both these types of M&As, if it is established that they prejudice
competition. The present study has also established that most of the mergers and
acquisitions in India are both horizontal and vertical types. However, the
agreements that contribute to the improvement of production and distribution and
promote technical and economic progress, while allowing consumers a fair share of
the benefits, should be dealt with leniently. On the contrary, certain anti-
competitive practices, such as, blatant price, quantity bid and territory sharing
agreements and cartels should be presumed to be illegal. Abuse of dominance
should be the key to Competition Policy/Law. Mergers should be discouraged, if
they reduce or harm competition. Very rightly the Committee did not favour
monitoring of all mergers by the adjudicating authority, because very few Indian
companies are of international size and there is a need for mergers as part of the
growing economic process before Indian companies can compete with global
giants. The Committee has, therefore, recommended pre-notification for a
prescribed threshold limit for the value of assets of the merged entity. However,
from the present study it has been found that the scale of M&As in India is very
small in comparison to developed capital markets, like USA. Therefore, there is a
need for facilitating M&As for Indian companies to promote efficiency by raising
the threshold limit for the value of assets of the merged entity. On the other hand,
there is a need to regulate M&As effected by multinational companies or through

12
their subsidiaries by scaling down the threshold limit required for them so that
more and more M&As of this type could be reviewed by the competition
commission.
8.3. M&A & the Take Over Code
In the course of analyzing M&As, another area, which is having concern for small
investors, is the provision relating to open offers, mainly its size and pricing. There
is an absence of simple and transparent regulations and a high degree of adhocism
and confusion on how the changes in ownership stake at the global level affect the
application of the Code. The present creeping acquisitions limit of as high as 10 per
cent hardly leaves any room for raiders to put the inefficient managements on their
toes and should be reduced. However, special provisions should be made for
professionally managed companies to protect them from hostile takeovers.
8.4. Controversies regarding Offer Pricing
An acquirer is expected to bid for control if he sees the prospect of value that can
be unlocked by taking control. This value and the need to buy a sizeable stake that
would provide for control over management are reasons why an acquirer is willing
to pay a sizable premium over the market price. If the bid price is in the range of
normal prices, quite clearly the acquirer is at an advantage. The acquirer does not
pay anything extra for the expected value to be uncovered as well as the value for
control. From research literature it was found that the premium for corporate
control has been anywhere between 100 to 150 percent of the market prices of
shares in important deals. However, in the past, offer of Rs. 190 by Grasim for
L&T has again given importance to pricing issues and had generated lot of debate.
The shareholders of L&T have every reason to upset as Grasim had acquired a 10
percent stake at Rs 306 per share from Reliance in November 2001. In this case the
SEBI takeover code, designed to protect the interests of shareholders in a takeover
situation, has failed in spirit.
The SEBI takeover code allows the board of directors to offer an independent view
on the pricing. A company board can come out and tell their shareholders that the
price is unattractive and not to take the offer unless it is improved. This is routinely
done in United States. In the recent past also, there were controversies regarding
pricing of BSES scrips acquired by Reliance and Sterlite buy back schemes. Until
recently valuations have been the prerogative of a few management experts having
expertise in M&A deals. There have been no overall guidelines or specific
directives on this subject, which gives ample scope for subjectivity and
manipulation to the advantage of vested interest players. The department of
company affairs has taken note of these allegations and has come up with
directives to reduce the subjectivity within some parameters

13
It has been observed in majority of cases that there is heavy build up of share
prices during the period leading to M&As. This suggests that existence of insider
trading in our stock exchanges. Here, SEBI needs to be more proactive as few
persons privy to such price sensitive information ought to benefit from such
situations. The general members of the acquirer company may not get much
advantage from this build up.
8.5. Problematic Areas in Buy-Back of Share
In a simple way buyback offer meant at enhancing the share value in the long run,
enhancing the share prices and to give an honorable exit option to the shareholders
who want to exit from the company at a premium price. However, if we analyse
recent buy-backs in the corporate front, one would find that shareholders have
given a raw deal. First of all, in majority of such offers promoters and persons in
control do not participate. The ultimate out come of the offer is that the total
shareholding of promoters rises without spending anything from their pocket. The
ordinary shareholders who are interested in the dividend and the capital
appreciation will fall for the offer seeing the offer made at a premium vis-à-vis the
average market price and will go for it. However, little does he know that the future
values of shares are more than what is offered to him for his exit?

9. CONCLUSION
The major objectives of any framework of regulations governing M&As are (a)
protection of shareholders’ rights and interests, (b) adequate compensation for
shareholders in open offers, (c) allowing a free, fair, transparent and equitable
market for corporate control, (d) allowing a honorable exit option for shareholders
in case of buy-back schemes and (e) curbing malpractices in such transactions. In
this regard, government through its regulatory bodies, SEBI and DCA has been
working tirelessly in the last few years to restore confidence of investors in the
capital markets and to protect the interest of minority shareholders. As a result
there have been changes in the regulatory framework which includes listing
guidelines, constant monitoring of M&A activities under SEBI Takeover code and
directions to stock exchanges for taking serious actions against non compliance of
listing agreements. The amended clause 40B of the listing agreement provides that
the takeover offer shall be placed, in the first instance before the board of directors
of the offeree company and shall contain detailed information. It restrains the board
of the offeree company from issuing any authorized but unissued shares or sell and
dispose of assets of substantial amount without approval of the general body. These
steps were initiated to discourage takeover bids whenever they threatened public
interest. In addition to this, under clause 29[1] of the Competition Act, the CCI can
issue a notice to the parties to a combination that the CCI considers anti-
competitive. Under clause 29[2] of the act, the CCI may require the parties to a

14
combination to publish the details of the combination. Pursuant to clause 29[3], the
CCI may invite any person or member of the public affected or likely to be affected
by the combination, to file a written objection.
SEBI is making it mandatory for acquirers to divulge their source of funds. Further,
the raiders have to reveal whether the funds have come from domestic or foreign
sources. This requirement is included in the takeover code to enable the market
regulators to effectively track the people or entities that are behind such bids.
Henceforth, it is expected that boards will take up all these contentious issues in a
transparent, fair and just manner so that all stakeholders have something to feel
good about M&A deals. In the past, we have seen that most of the M&A/takeover
attempts were prevented by Financial Institutions’ support to exiting managements.
However, the trend is slowly changing; Financial Institutions no longer remain as
passive spectators on the boards of the companies. Now, Financial institutions have
also realized that the market for corporate control in India would gradually
increase. Which in turn sound an alarm for the company management and
promoters to remain extremely careful and watchful. The companies would have to
try hard to remove inefficiency and non-transparency and further focus its attention
on better corporate governance practices. Otherwise they become easy targets of
the M&A game.

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