CROSS BORDER MERGERS AND ACQUISITIONS IN INDIA

8.5 Business Law II

Submitted by:

Nikita

UID-SF0116056

4th year, 8th Semester

National Law University and Judicial Academy,

Assam

June 2, 2020
 Table of Contents

Table of Statutes.......................................................................................................................i
Table of Abbreviations..............................................................................................................i
Abstract
Introduction..............................................................................................................................1
Aim...........................................................................................................................................2
Objectives.................................................................................................................................2
Research Methodology.............................................................................................................2
Research Questions...................................................................................................................2
Literature Review......................................................................................................................2
Cross Border Merger & Acquisition: Meaning....................................................................4
Applicable Laws.......................................................................................................................5
Sesa Goa Sterlite Deal............................................................................................................12
Conclusion..............................................................................................................................16
Bibliography..............................................................................................................................ii
Table of Statutes

2013-Companies Act
2002-Competition Act
1961-Income Tax Act
1989-Indian Stamp Act
1999-Foreign Exchange Management Act
1992-Securities and Exchange Board of India
1969-Monopolistic and Restrictive Trade Practice Act
1956-Companies Act
1996-Depository Act

Table of Abbreviations

1. % Per cent
2. CCI Competition Commission of India
3. FDI Foreign Direct Investment
4. FEMA Foreign Exchange Management Act
5. Gov. Government
6. IT Income Tax
7. M&A Merger and Acquisition
8. MCA Ministry of Corporate Affairs
9. MRTP Monopolies and Restrictive Trade Practices
10. NCLT National Company Law Tribunal
11. No. Number
12. RBI Reserve Bank of India
13. SEBI Securities and Exchange Board of India
14. Sec. Section
15. v. Versus
16. Vol. Volume

Abstract
The corporate sectors all over the world have been using Cross-border Merger and
Acquisition as a strategic tool for the attaining growth, competitive advantage, search for new
markets, etc. Similarly over the past several years, M&A activity in India is booming. In

i
particular, the percentage of cross-border transactions has risen significantly. The past decade
has witnessed the phenomenal growth of the Indian software industry and is responsible for
putting India back on the world economic map. Mergers and acquisitions are necessary for
the survival of the Indian industry if they wish to become global players and have a
worldwide presence. This paper provides with an overview of the cross-border mergers and
acquisitions in India in Part I. The applicable procedural aspects for regulating these
transactions have been provided in Part II. Further, the Sesa Goa Sterlite Deal has been
analyzed in Part III and finally in Part IV the paper has been concluded discussing the various
transactional issues required for finalizing the mergers and acquisitions in India.

Keywords: Cross-border, Merger & Acquisition, India.

ii
 INTRODUCTION

Mergers and acquisitions are primarily used by companies looking to scale up and grow their
businesses. Mergers are generally understood as events that result in target entities ceasing to
have separate corporate or legal identities and being subsumed into the acquirers, while
acquisitions are generally understood as events where target entities are acquired but continue
to retain their distinct corporate and legal identities.

Over the past several years, the mergers-and-acquisitions market in India has been very
active. In particular, the percentage of cross-border transactions has risen significantly. Cross-
border deals have taken the form of both inbound and outbound transactions. The growth in
inbound transactions can be attributed to the growing interest of foreign companies in making
acquisitions in India’s information-technology and telecom sectors. It has been observed that
overseas companies find it far more economical to acquire existing setups rather than opt for
organic growth. On the other hand, outbound transactions, too, have increased significantly,
with manufacturing companies acquiring entities overseas. It is evident that the appetite of
Indian companies for making global acquisitions has grown bigger with time.

According to survey, India is one of the top four markets for cross border reorganization. The
top four includes greater China (49%), North America (29%), South East Asia (27%) and
India (22%). However Asian bidders are concerned by issues of bribery and corruption and
undisclosed liabilities in India. The World Investment Report 2000categorically states that
most of the growth in international production has been through cross border M&A’s rather
than Greenfield Investment.1

Aim

The aim of this research paper is to study the concept of Cross-border M&A and analyse the
applicable Laws of Cross border mergers and acquisitions in India.

Objectives

 To analyse the concept of Cross Border Merger and Acquisition.

 To find out the Indian laws relating to Cross Border M&A.
To find out the relative importance of Cross-border M&A in corporate sector.

1
See World Investment report- “Cross Border Merger, Acquisitions and Development (2000)”, United Nations
(Geneva).

1
Research Methodology

The research methodology adopted is doctrinal type of research. The research is totally based
on library and other online sources. Various types of books were to get adequate data
essential for this research paper. Computer library was also used to get important data and
facts related to the topic. Several websites found to be essential to better understand the topic.

Research Questions

1. What are the applicable laws in India with respect to Cross border Mergers and
Acquisitions?
2. What is the relative importance of Cross-border M&A in corporate sector?

Literature Review

 Nayyar, Deepak (2007), “The Internationalisation of Firms from India: Investment,

Mergers and Acquisitions”, SLPTMD Working Paper Series No. 004, Department of
International Development, University of Oxford.

This paper examines what mergers and acquisitions are and how they are a part of any
organizations strategic planning policy. It has also discussed the various rationales for cross
border mergers and acquisitions like the strategic rationale, speculative rationale,
management failure rationale etc, along with their types that include vertical integration,
horizontal integration and conglomeration. It has also put light on how companies go
strategically about mergers and acquisitions. This paper further discusses the strategies that
firms can adopt and reap benefits or merging and/or acquiring through business rationales,
integration and conglomeration. Also, an attempt has been made to consolidated paper having
the stages, rationales and types of mergers and acquisitions.

 Pradhan, Jaya Prakash (2007), “Trends and Patterns of Overseas Acquisitions by

Indian Multinationals”, Working Paper No. 10, SID, October.
In this paper the author has analyzed and summarized a broad list of different merger motives
that has been proposed in the literature. The author in this article has proposed a
categorization of such motives based on the residual claimant of the mergers gains, namely
the owners or the managers of the merging firms, and on welfare effects. The author has also
reviewed the different empirical methods that have been proposed to investigate for merger
motives, gains and effects.

2
 Bresman, Birkinshaw and Nobel (1999), “Knowledge Transfer in International
Acquisitions”, Journal of International Business Studies, Vol. 30, No. 3, Third
Quarter.

In this research paper the author has basically talked about international Acquisition in great
details, the author has also explained the various aspect of knowledge transfer in the cross
border acquisitions and the author in this paper proposed a special interest in the area of the
transfer of knowledge which basically benefits the firms. The author has also discussed in
great detail various types of Acquisition namely Friendly Takeover, Hostile Takeover,
Leveraged Buyouts and Bailout Takeovers.

3
 CROSS BORDER MERGER & ACQUISITION: MEANING

The term Mergers & Acquisition (M&A) is defined in many ways in the literature. There is
no generally accepted definition; it is rather a collective term. The traditional subject of
M&A’s has been expanded to include takeovers and related issues of corporate restructuring,
corporate control, and changes in the ownership structure of firms. Thus, M&A in the broader
sense are all transactions that lead to changes in the ownership structure.

An important distinguishing character between M&A is the interdependence between the

involved companies. A merger describes the complete fusion of two or more legally and
economically independent companies into one company. At least one of the companies loses
its independence and is subordinated to the other company. In an acquisition, however, the
legal independence remains, where the target’s economic independence is limited or
completely lost.

Cross-border M&A means M&A transaction between two or more companies of different
countries it is also called overseas merger and acquisition. In a Cross-border merger, the
assets and operations of two or more firms belonging to two or more different countries are
combined to establish a new legal entity. In a Cross-border acquisition, the control of assets
and operations is transferred from local to a foreign company, the former becoming an
affiliate of the latter.2

Cross-border M&A supported by technological advancements, low cost financing

arrangements and robust conditions, which have made deal- makers confident and think more
creatively about their growth strategies.3 It will be used as a whole to mean the transactions
where operating enterprises merge with or acquire control of the whole or a part of the
business of other enterprises, with parties of different national origins or home countries. 4
According to the flow of transactions, Cross-border M&A could be Inbound (Foreign
businesses investing in India) or Outbound (Indian business making investment abroad. Some
considerations are common to Cross- border M&A such as :

 The impact of governmental regulations at all levels such as licensing, employment law,
taxation and subject matter regulation.

2
UNCTAD, WIR 2000 p-99.
3
Earnest & Young L.L.P, Mergers and Acquisitions in the newer of Companies Act 2013, 14 (2014).
4
OECD New Patterns of industrial globalization: Cross-border mergers and acquisitions and strategic alliances,
14 (2001).

4
 The potential difficulty of complying with the laws of both countries at all stage.
 The obstacles to integration posed by different cultures and languages.
 National security concerns and attendant restrictions.
 Barriers to due diligence in differing legal and cultural environments.
 Restriction of markets or the conduct of certain types of business in some countries.
 Co ordination of intellectual property rights.

In short Cross-border M&A is more difficult than domestic M&A, lot of think about due
diligence process, a qualified, experienced due diligence team can help ensure that you have
thoroughly considered all relevant factors, understand the legal requirements associated with
your proposed transaction.5

APPLICABLE LAWS
The Indian legal system regulates and governs various aspects of a Cross border M&A
transaction by a set of laws, most importantly the Companies Act, 2013; the Foreign
Investment Policy of the government of India along with press notes and clarificatory
circulars issued by the Department of Investment Policy and Promotion; Foreign Exchange
Management Act, 1999 (FEMA) and regulations made thereunder, including circulars and
notifications issued by the RBI from time to time (FEMA laws); the Securities and Exchange
Board of India Act, 1992 and regulations made thereunder (SEBI laws); the Income Tax Act,
1961 and the Competition Act, 2002 etc.6
The Competition Act, 2002
In the pursuit of globalization, India has opened up its economy, removing controls and
resorting to liberalization. The natural corollary to this is that the Indian market needs to face
competition from both within and outside the country. The MRTP Act, 1969, has become
obsolete in certain respects in light of international economic developments relating to
competition laws, and there is a need for India to shift its focus from curbing monopolies to
promoting competition. In furtherance of the foregoing philosophy, the Government of India
passed the Competition Act, 2002, which seeks to ensure fair competition in India by
prohibiting trade practices that cause an appreciable adverse effect on competition in markets
within India. For this purpose, the CA provides for the establishment of a quasi judicial body
called the Competition Commission of India, which also is empowered to undertake
5
Samit Kumar Maity Datta, Legal issues and challenges of cross-border merger and acquisition under the
companies Act 2013, 4(2) INTERNATIONAL JOURNAL OF LAW 09, 14 (2018).
6
SRIDHARAN & PANDIAN, GUIDE TO TAKEOVER AND MERGERS (2nd ed., 2006).

5
measures for the promotion of competition advocacy, creating awareness and offering
training about competition issues.

The CA draws upon concepts of competition law found in more liberalized economies, such
as those of the United States and the European Union. Of particular relevance to
multinational companies operating in India is that the proposed new regulatory body, the
CCI, will be empowered to scrutinize all mergers, acquisitions and joint-venture activity in
India when the asset value of the parties involved is more than Rs. 10 billion within India or
US $500 million globally, or when sales are greater than Rs. 30 million within India or US
$1,500 million globally. The main components of the CA are the prohibition of
anticompetitive agreements; the prevention of abuse by enterprises of their dominant
positions; the regulation of mergers and acquisitions; the establishment of the CCI; and fixing
the scope of the CCI’s powers.

The Companies Act, 2013

The Corporate sector all over the world used Merger and Acquisition as a major tool of
corporate restructuring in order to successfully overcome the challenges posed by the new
pattern of globalization. One of the most important features of the present wave of M&A is
the presence of large number of Cross-border M&A deals.7 In developed economies, M&A
has been prevalent for a long time but in India M&A picked up after introduced the
liberalization policies by the government of India in 1991. In this way a more contemporary,
simplified and nationalized legislation Companies Act 2013 passed to bring our Company
law at par with the best global practices. 8 The new Act of 2013 introduce pragmatic reforms
for M&A’s it make the process easier, faster an cleaner for companies, some of the highlights
include, setting up of NCLT to hear and decide on M&A proposals, cutting down on the
probability and scope of objection to M&A’s and easier as well as wider participation of
share-holders through postal ballot approval. These along with other more creative and
hurdle-free approaches towards M&A’s.9

The Companies Act, 2013 which comes into effect from 1st April 2014, replaced the 60 years
old Companies Act, 1956, and has done well in recognizing the importance and growing

7
Beena Saraswathy “Cross-Border Mergers and Acquisitions in India; Extent, Nature And Structure’. July 2010
www.cds.edu.
8
DR. G.K. KAPOOR AND SANJOY DHAMIJA, COMPANY LAW AND PRACTICE 03 (20th ed.).
9
Samit Kumar Maity Datta, Legal issues and challenges of cross-border merger and acquisition under the
companies Act 2013, 4(2) INTERNATIONAL JOURNAL OF LAW 09, 14 (2018).

6
needs of domestic and international companies involved in restructuring by way of M&A’s.
The New Act made M&A’s process smooth, transparent, faster, easier and cleaner for
companies. The merger provisions are contained in Chapter XV of the Companies Act, 2013
containing Sections 230-240, which deals with Compromises, Arrangements and
Amalgamations, of an Indian company with a foreign Company and vice-versa. In
Companies Act, 1956, there was no provision for merger of the Indian company with a
foreign company incorporated outside India (Outbound Merger) but it was possible for a
foreign company to merge with an Indian company (Inbound Merger). Therefore, the
Companies Act, 1956 did not permit Outbound Merger. Now the new Act, allows both
Inbound and Outbound Mergers between Indian and Foreign Companies. This is a welcome
step towards globalization.10

Companies Act 2013 promises to marry corporate law with globalized business needs.
Besides several talked-about concepts such as Corporate Social Responsibility, Auditor’s
rotation and One-Person Company, it brings about a clearer legal frame work for Cross-
border Mergers. The MCA vide its Notification dated 13th April 2017 notified Sec. 234 of the
Companies Act, 2013 along with the companies (Compromises, Arrangements and
Amalgamations) Rules 2017 to operationalize Sec. 234 of the Act. Sec. 234 of the Act
broadly applies to schemes of merger and amalgamation between Indian companies and
Foreign companies incorporated in foreign jurisdiction notified by the Central Government. It
provides for merger and amalgamations subject to prior approval from the RBI and the
Central Government is empowered rules, in consultation with the RBI, in relation to the
merger and amalgamation provisions under Sec. 234. The MCA vide its Notification dated
13th April 2017, has also amended the Companies (Compromises, Arrangements and
Amalgamations) Rules 2016 (Merger Rules) by inserting Rule 25-A for Merger or
Amalgamation of company with a foreign company and vice-versa.

Foreign Exchange Laws

The Foreign Direct Investment Policy of India41 needs to be followed when any foreign
company acquires an Indian company. FDI is completely prohibited in certain sectors such as
gambling and betting, lottery business, atomic energy, retail trading and agricultural or
plantation activities.

10
Samit Kumar Maity Datta, Legal issues and challenges of cross-border merger and acquisition under the
companies Act 2013, 4(2) INTERNATIONAL JOURNAL OF LAW 09, 14 (2018).

7
Inbound Cross Border M&A in India And FEMA Laws:

It has been observed that oversees companies find it far more economical to acquire existing
setups rather than opt for organic growth e.g. the beginning of 2007 saw the signing of the
largest Inbound deal in India’s history, Vodafone’s $ 11.1 billion acquisition of a controlling
interest in Hutchisson Essar. Foreign investment in India i.e. investment in India by a “person
resident outside India”11 is governed by FEMA 20.12 For the purpose of FEMA 20,
investment in India by a non-resident can be in respective schedules as under:

Investment under foreign Direct Investment scheme and Investment by Foreign institutional
investors under the Portfolio Investment Scheme; Investment by NRIs/OBCs under the
portfolio Investment Scheme; Purchase and sale of shares by NRIs/OCBs on non repatriation
basis; Purchase and sale of securities other than shares and convertible debentures of an
Indian company by a non-resident.

Regulation of Outbound Cross border M&A Transactions under FEMA Laws:

There are only certain special circumstances under which an Indian company is permitted to
make investments in a foreign company. An Indian party is not permitted to make any direct
investment in a foreign entity engaged in real estate business banking business without the
prior approval of RBI. Routes available to an Indian company which intends to invest in a
foreign company are:

Direct Investment in Joint Venture/Wholly Owned Subsidiary; Without seeking prior

approval of RBI subject to conditions stated in Regulation 6 FEMA 19; Regulation 6 (3)
FEMA 19 provides Direct Investment must be made only from sources stated; Investment in
a foreign company by ADR/GDR share swap or exchange; RBI approval in special cases;
Direct Investment by capitalization; Transfer by way of sale of shares of a JWC/WOS;
Pledge of shares of joint ventures and Wholly Owned subsidiaries Obligation of Indian
Parties, provided under Regulation 15 FEMA 19 can also be stated. The Press Notes are
announced by Ministry of Commerce and Industry. The ministry issued Press note 2, 2009
and Press Note 3, 2009, which deals with calculation of foreign investment in downstream
entities and requirement for Foreign Investment Promotion Board (FIPB) approval in relation

11
The term “person resident outside India” is defined as meaning “a person who is not resident in India” under
Section 2 (w) of FEMA. Person’ is defined under Sec. 2 (u) of FEMA. Sec. 2 (v) of FEMA defines “person
resident in India”.
12
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000.

8
to transfer of ownership or control in sectoral cap companies. These Press Notes raised
certain key issues, including with respect to the downstream investment. In March 2000, The
Ministry of Finance came out with Guidelines for Overseas Business acquisitions by Indian
companies engaged in Information Technology, Pharmaceuticals, Biotechnology,
Entertainment software through ADR/GDR stock swap.

Securities Laws

If the issuing company is a listed company and makes a preferential allotment of shares to the
acquirer, such an allotment would generally be exempt from the Public Offer provision of the
SEBI (Substantial Acquisition and Takeovers) regulations, 1997(SEBI Takeover Code)
provide that the disclosure requirement as prescribed in Regulation 3(1)(c) of the SEBI
Takeover Regulations are fulfilled. The listing Agreement requires inter alia filing of the
scheme of arrangement with the Stock Exchange prior to filing application with the High
Court for seeking approval of the scheme of arrangement.

Further upon completion of the acquisition and within 21 days from the issuance of shares to
the shareholders of the target company, a detailed report in the prescribed format would have
to be filed with SEBI. If the Indian company that is issuing its shares to the shareholders of
the foreign company as consideration for acquiring shares of the foreign company is listed on
the Stock exchange in India, then it will be required to comply with the guidelines for
preferential allotment under the SEBI (Disclosure and Investment Protection) Guidelines,
2000. Securities Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009 deals with the issue of specified securities and preferential allotment
regulations.

After a global merger between Eaton Industries Inc. (EII) and Aeroquip Vickers (AVI) , EII
came to hold 51% shares in Vickers system international limited (VSIL), a publicly listed
companies incorporated in India. It was held in Eaton Industries case 14 that the SEBI
Takeover Code would not get triggered since there was ample proof to suggest that there had
been a merger of EII with AVI under the laws of the state of Ohio in the US and indirect
acquisition of controlling interest of VSIL was purely a fallout and incidental to the global
restructuring arrangement.

9
SEBI has directed, vide Circular dated 15th April, 2010, the modification of the listing
agreement focusing on certain deviations from accounting standards commonly carried out as
part of scheme of mergers.

Japanese drug maker, Daiichi Sankyo Companies Limited, which owns India’s biggest drug
firm, Ranbaxy Laboratories Limited, has won the open offer price war with Hyderabad based
Zenotech Laboratories Limited in a Supreme Court. India’s Apex Court has struck down
ruling by the Securities Appellate Tribunal (SAT), thus allowing DAIICHI to launch an open
offer for a 20% stake in Zenotech at Rs. 113.62 per share. The Takeover Regulations
Advisory committee under the chairmanship of C. Achuthan, in its report to the SEBI, has
proposed sweeping changes on critical issues, including the open offer trigger, offer size,
indirect acquisition, exemption from open offer obligations, calculating the offer prize and
competing offers.13 The renewed Takeover Code would have certain changes such as
increasing the period for making a competing bid, prohibiting acquirers from being
represented in the board of Target Company, and permitting any competing acquirer to
negotiate and acquire the shares tendered to the other competing acquirer, at the same price
that was offered by him to the public. 14 Vedanta’s Takeover offer for Cairn energy has raised
some questions because it comes in wake of impending changes to a SEBI Takeover
Regulations that may make it potentially difficult for the acquirers to structure transactions.15

The Tax Laws

As important corporate activities, mergers and acquisitions are also governed and regulated
by provisions of the Income Tax Act, 1961. The IT Act provides that the accumulated losses
and unabsorbed depreciation of an amalgamating company (i.e., a company that does not
survive a merger) shall be allowed in the assessment of the amalgamated company (i.e., the
company that survives a merger), provided, inter alia, that the amalgamating company owned
an industrial undertaking, a hotel, or a ship; the amalgamated company holds at least three-
fourths of the book value of the fixed assets of the amalgamating company for a minimum,
continuous period of five years after the date of amalgamation16; and the amalgamated
13
“Indian Takeover Regulation- under reformed and over modified” by Sandeep Parekh W.P.NO. 2009/11/06
published on November 2009, IIM Ahmedabad.
14
“Decoding the New Takeover Code” by Shobhana Subramanian posted on July 20, 2010 at the Financial
Express.
15
New Takeover Code: Is it achievable for corporate India?” published on July 20, 2010 Source: CNBC-TV18
11:10 pm.
16
The amalgamating company must have held three-fourths of the book value of fixed assets for a period of two
years prior to the amalgamation and must have been engaged, for three years prior to the amalgamation, in the
business that is being absorbed, IT Act Sec. 72(A).

10
company continues the business of the amalgamating company for a minimum period of five
years. Other incentives, like the set-off of depreciation and the treatment of expenditures for
scientific research, the acquisition of patent rights or copyright, and expenditures for know-
how, as well as the set-off of bad debts, are also envisaged in the IT Act for amalgamated and
amalgamating companies.

An important aspect of any merger or acquisition is structuring the transaction so as to ensure

the most tax-efficient structure. India has entered into treaties with various countries for the
avoidance of double taxation. It has generally been observed that US investors, whether
investing through private equity investment or by means of a direct acquisition, have used the
Mauritius route for their investments in India.

The Indian Stamp Act, 1899

The Indian Stamp Act, 1899, provides for the levy of a stamp duty on the execution of an
instrument. The stamp duty is applicable to mergers and acquisitions, whether an asset or
stock acquisition. Under the Indian Stamp Act, 1899, an ‘instrument’ is defined to mean
every document by which any right or liability is, or purports to be, created, transferred,
limited, extended, extinguished or recorded. The applicability of the Indian Stamp Act to a
stock acquisition depends on the form of the shares. If the shares exist in a physical form, the
transfer of such shares is subject to a stamp duty at the prevailing rates. However, if the
shares exist in a dematerialized form, no stamp duty is applicable for any transfer, thereof
since such transfer is in the electronic form and does not require execution of any share
transfer deeds. Sec. 108 of the Companies Act provides that there can be no registration of a
transfer of shares in physical form without production of the certificate or allotment letter.
Further, every instrument of transfer has to be duly stamped by an authorized person and
executed by or on behalf of the transferor as well as the transferee. However, the Depository
Act, 1996, provides that the formalities prescribed by Section 108 do not apply to any
transfer of dematerialized shares between a transferor and transferee, both of whom are
entered as beneficial owners in the records of a depository. Dematerialization is the process
by which the physical certificates of an investor, at his request, are taken back by the
company and actually destroyed and an equivalent number of securities are credited in the
electronic holdings of the investor. For this, the investor will have to first open an account
with a Depository Participant (DP) and then request for dematerialization of his or her
certificates through the DP so that the dematerialized shares can be credited to his or her

11
account. The buyer is not required to apply to the company for registering the security in his
or her name and thus no stamp duty is payable.

SESA GOA- STERLITE DEAL:

This deal can be regarded as the best example of corporate restructuring, in which the UK-
based Vedanta Resources Plc will merge its Indian firms - Sesa Goa and Sterlite Industries
into a single entity Sesa Sterlite and also offload debt of $9 billion on it.

Investment banking firm, JP Morgan has initiated coverage of Sesa Goa with an overweight
rating and a Sept. 2013 target price of Rs 240. The investment bank has cited the earnings
prospect of Sesa Goa following its merger with Sterlite Industries, with high quality assets in
zinc and earnings growth driven by oil.

About Sesa Goa

Sesa Goa Limited is India's largest producer and exporter of iron ore in the private sector. For
more than five decades, Sesa is engaged in the business of exploration, mining and
processing of iron ore. In 2007, it became a majority-owned subsidiary 17 of Vedanta
Resources Plc, listed on the London Stock Exchange, when Vedanta acquired 51%
controlling stake from Mitsui & Co.

In fiscal 2011, it produced 18.8 m tonnes and 18.1 m tonnes (DMT) respectively of iron ore.
In the same year, its turnover was above US$ 2 billion 18. Sesa is among the low-cost
producers of iron ore in the World and is well placed to serve the growing demand of Asian
countries. Sesa's iron ore markets/customers are primarily in China, India, Japan, Korea,
Europe and other Asian countries. Sesa has mining operations in Goa and Karnataka in India.
While iron ore from its Goa mines is shipped through the Mormugoa port, the ore from
Karnataka mines is exported through the ports of Goa, Mangalore and Krishnapatnam.

As of 31 March 2011, Sesa owns or has rights to reserves and resources of 306 m tonnes of
iron ore; which has been independently reviewed and certified as per Joint Ore Reserves
Committee (JORC) standards. In August 2011, Sesa acquired 51% stake in Western Cluster
Limited, Liberia (WCL). WCL, which has mining interests / rights in the Western Cluster
iron ore project in Liberia with a potential reserves and resources of over 1 billion tonnes
over the last two decades, Sesa has diversified into manufacturing of pig iron and
17
Refer http://www.thehindubusinessline.com/companies/article2931666.ece last visited on 2 may, 2020.
18
Refer http://www.sesagoa.com/index.php?option=com_content&view=article&id=46&Itemid=53 last visited
on 10 may, 2020.

12
metllurgical coke. In Goa, Sesa operates a metallurgical coke plant with an installed capacity
of 280,000 tpa;19 and a pig iron plant with an installe capacity of 250,000 tpa and an
environmental clearance of 292,000 mtpa of pig iron and 60,000 tpa of slag. Sesa has also
developed and provides proprietary technology in metallurgical coke production and has
entered into technology licensing agreements with different licenses for marketing
technology for setting up non-recovery coke oven plants across the globe.

About Sterlite:
Sterlite Industries India Limited is the principal subsidiary of Vedanta Resources plc, a
diversified and integrated FTSE 100 metals and mining company, with principal operations
located in Australia and India.

Sterlite’s principal operating companies comprise Hindustan Zinc Limited for its fully
integrated zinc and lead operations; Sterlite Industries India Limited (Sterlite) and Copper
Mines of Tasmania Pty Limited for its copper operations in India/Australia; and Bharat
Aluminium Company (BALCO), for its aluminium and alumina operations and Sterlite
Energy for its commercial power generation business. Sterlite is India's largest non-ferrous
metals and mining company and is one of the fastest growing private sector companies.
Sterlite is listed on BSE, NSE and NYSE. It was the first Indian Metals & Mining Company
to list on the New York Stock Exchange. Sterlite has continually demonstrated its ability to
deliver major value creating projects, offering unparalleled growth at lowest costs and
generating superior financial returns for its shareholders. At the same time, it ensures that its
expansion projects meet high conservative financial norms and do not place an unwarranted
burden on its balance sheet and financial resources.

In addition, Sterlite Industries produces various chemical products, such as sulfuric acids,
phosphoric acids, phospho gypsum, hydro fluo silicic acids, and granulated slag. Further, the
company involves in trading gold, as well as in paper business.

The Deal:
The reconstruction which is done in this particular deal was although initiated previously in
2008 also where in the parent company intended to do the same but had failed due to
objections raised by some minority shareholders over valuation of a group firm, Konkola
Copper Mines. In Feb.2012 it again initiated the proceeding for restructuring of all its Indian
subsidiaries into a single unit to cut costs, and planned to issue American Depositary Shares
19
Ibid.

13
in the combined firm to be named Sesa Sterlite. It was also said that it will result in a cost cut
of Rs 1000 cr.

The present situation of the Vedanta, the parent group, has three major holdings companies
Sterlite (54.6 %), Sesa Goa (55.1%) and Cairn India (38.5%). Sesa Goa also holds 20% stake
in Cairn India. Both the stakes, after the restructuring plan goes through, will transfer to
Sterlite that will hold 58.8% in Cairn India.

Need of the reconstruction

The reconstruction was always in question as to what was the requirement of such
reconstruction. There are many reasons provided by various market experts after the
company got listed in London Stock Exchange. According to the management, they want to
align, simplify and restructure its different businesses under one roof. However, we believe
there is no synergy between Sesa Goa and Sterlite as both are into different businesses. Sesa
Goa is into iron ore (ferrous) mining whereas Sterlite is into non ferrous metal. Therefore the
merger can also be one of the ways to repay some of the debt obligations looming large on
the balance-sheet of the parent company i.e. the Vedanta Group. The Vedanta Group as of
Sept. 2011 had debts of USD 10 billion which includes the debt used to finance the Cairn
India acquisition. Sterlite has a strong balance-sheet and therefore one can expect a major
portion of the earnings to be used to service the debt. By merging Sesa Goa and Cairn India
the group company will get cash and bank balance of these companies which will give them
more leverage to raise further funds. Further, the company can collect dividend payouts from
these subsidiaries which can be used to service their interest obligations. Vedanta’s debt
covenants are all-restrictive which means the debt has been given on some conditions and if
those conditions or covenants get triggered, there could be an impact on the ratings.
Moreover, this restructuring is to de-leverage its balance-sheet for a further fund-raising
programme. The Vedanta Group was recently in the news to acquire the remaining stake of
its subsidiaries Bharat Aluminum and Hindustan Zinc. For that it will need a huge sum of
money. Also, it has its own huge capex programmes. This will in turn result into additional
debt burden and the gross debt could rise by 70-80% of the current debts in the books. That
will definitely not be sustainable

After Deal:
The deal will reach to its finality after all necessary approval from share holder and NOD
from regulatory body which are required for the finalization of the deal. it is most likely end

14
by the last week of December 2012. It collapses all the assets of Vedanta's listed and unlisted
companies in India-Sesa Goa, Sterlite, Vedanta Aluminium, Malco, Balco and Hindustan
Zinc-into Sesa Sterlite. The new company will also own the group's majority stake in Cairn
India, the oil & gas company whose acquisition was finally completed in December Post
merger will include the following things:-

1. Vedanta Resources, which is listed in London, will merge all of its Indian holdings,
particularly Sterlite Industries and Sesa Goa, into a single entity.
2. Vedanta will hold 58.3% in the new company
3. The merge will entail a share swap in the 3:5 ratio, wherein five shares of Sterlite will fetch
three shares of Sesa Goa.
4. The new entity, to be named Sesa-Sterlite, will have a market capitalization of about $22
billion, four billion more than the sum of the individual firms’ market cap.
5. The merged company will have consolidated net profit of $2.5 billion.
6. Unlisted Vedanta Aluminium, Madras Aluminium and Vedanta's 38.8% holding in oil and
gas producer Cairn India will also be transferred to Sesa Sterlite, whose stake in the company
will go up to 58.9%. Cairn India’s debt of $5.9 billion will also be transferred to Sesa-Sterlite.
7. Vedanta Resources will also issue American Depository Shares (ADS) in the new
company that will be listed on the New York Stock Exchange.
8. The restructuring does not include Vedanta’s African business – it holds a 79.4% stake in
Konkola Copper Mines Plc in Zambia.
9. Sesa Goa is India’s largest privately-held producer and exporter of iron ore, Sterlite
Industries is India’s largest non-ferrous metals and mining company.
10. The restructuring will come into effect only after some minority shareholders and
regulators in India and the UK give it their stamp of approval
So by looking at all these points, this merger makes Sesa Sterlite a natural resources
conglomerate with global size and scale, not too different from some of the world's top listed
resources monoliths like the Melbourne headquartered BHP Billiton, Vale in Rio de Janeiro
and London's Rio Tinto. Only Konkola Copper Mines in Zambia, in which Vedanta
Resources holds a 79% stake, will be controlled by the holding company.

CONCLUSION
Finalizing an acquisition requires that various transactional issues be discussed, negotiated,
finally agreed upon and properly reflected in the definitive purchase agreement. The

15
representations and warranties of the company to be acquired and of the seller especially the
representation that full disclosure has been made to the acquirer are an important part of that
agreement from the acquirer's perspective, whether or not the transaction involves a cross-
border Indian acquisition. The seller will seek to qualify its representations and warranties to
reflect what has come to light in the due diligence exercise.

India being a country with a vast number of laws, it is necessary for a foreign acquirer to
have the comfort of knowing to what extent the target company has been in compliance with
those laws; moreover, the acquirer will want full disclosure of those matters as to which there
has not been compliance. As for the issue of the post-closing survival of representations and
warranties, it is typical for the parties to agree to a survival period of between three and four
years. As for the issue of indemnity, the concepts of de minimis liability for which there is no
recourse and of an overall cap on potential liability, as well as requiring a minimum threshold
or basket amount before the seller can be held liable, are concepts that will likely be put
forward by the seller to reduce its exposure to a certain extent. In the negotiation of such
liability limits, it is essential for the acquirer (who, will seek a blanket indemnity without any
limits or caps) to keep in mind the local laws of the relevant country and the type and value
of the claims that may arise. Conditions precedent to closing are essential in addressing and
ensuring that all approvals and consents have been obtained to allow the transaction to be
consummated. Moreover, conditions precedent to closing that involve curing any problems
that were discovered during the due-diligence review help ensure that the acquirer will not
also acquire those problems at closing. An acquisition can also be limited to the acquisition of
a majority or minority stake in the target business. In a transaction involving the acquisition
of a minority stake, the acquirer would seek certain rights in relation to the management of
the company. Such rights would be in the nature of having representation on the board and
having veto rights regarding certain matters relating to the operations of the company. Other
rights that would be of concern to an acquirer of a minority stake include a guaranteed return
on investment, having a preference upon liquidation and the distribution of dividends,
antiratchet and anti-dilution provisions, exit options, and non-compete and non-solicitation
covenants. Also sometimes sought are restrictions on transfers of shares, such restrictions
taking the form of a right of first refusal, a right of first offer, tag-along rights, drag-along
rights, and put or call options, for example. It should be noted that all corporate matters and
rights extended to the parties to a transaction need to be adequately reflected in the articles of
association, so as to be enforceable against the Indian company. However, since an Indian

16
public company cannot restrict the transfer of its shares, shareholders, in addition to a
shareholders' agreement, also enter into a non disposal agreement, in which they agree to
transfer their shares only in the manner provided therein. An important element of merger
and acquisitions involving a foreign company and an Indian company is the status of the
Indian company, that is, whether it is a private limited company or a public limited company.
A private limited company is more able to provide for restrictions, and the investment
involving such a company can be structured in a more suitable manner since a private limited
company is not restricted to having only two classes of shares (equity and preference), as is
the case for a public company. There have been cases in which an acquirer has identified a
target company that is a public company, but, for the purpose of the acquisition, has
structured the transaction so as to convert the target company into a private limited company
before proceeding with the acquisition. In short, mergers and acquisitions come in various
forms, and investors need to understand what best suits their needs.

17
 BIBLIOGRAPHY

Books:

Dr. H.O. Agarwal, INTERNATIONAL LAW & HUMAN RIGHTS, 22 nd ed., 2019, Central
Law Publications, Allahabad.

Malcolm N. Shaw, INTERNATIONAL LAW, 6th ed., 2013, Cambridge University Press,
New York.

Online Materials:

Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory,

Advisory Opinion, 2004, I.C.J. Reports.

Pieter H. F. Bekker, The World Court's Ruling regarding Israel's West Bank Barrier and the
Primacy of International Law: An Insider's Perspective, 38, 2005, Cornell Int'l L.J.

Christian J. Tams, Light Treatment of a Complex Problem: The Law of Self-Defence in the
Wall Case, 16, Issue 5, November 2005, European Journal of International Law.

Iain Scobbie, Smoke, Mirrors and Killer Whales: the International Court’s Opinion on the
Israeli Barrier Wall, 05 No. 09, 2004, German Law Journal.

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