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India: M&A Landscape

Featuring Vineet Aneja
Fox Mandal Little

GLG Institute Seminar
24th April 2007, Hong Kong

 Council Member Biography

 Vineet Aneja

 Vineet Aneja is the head of the corporate practice at Fox Mandal Little, one of
 India's oldest and largest full service legal Organization. He specializes in joint
 ventures, mergers and acquisitions, project finance, corporate, corporate
 consultancy, SEBI related laws and foreign exchange laws. Mr. Aneja’s scope of
 advice includes structuring corporate transactions in a tax efficient manner,
 advice on general corporate issues, due diligence and legal audits, entry and
 exit strategies to foreign investors, seeking approvals and registrations with
 various government and other bodies, and advice on Foreign Exchange
 Management Act issues. He has advised various Indian and foreign companies
 on general corporate matters including regulation, companies Act etc. This
 includes Gas Authority of India Limited, Nuclear Power Corporation of India
 Limited, Alcatel, Fidelity Group, Colt Telecom, ExxonMobil Corporation, JP
 Morgan Fleming, Goldman Sachs, Alchemy Partners LLP and Ashmore
 Investments (UK).

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          Mergers and Acquisitions 2007
Source: Assocham Eco Pulse Analysis

                 Outward FDI flow           Destinations for
                                            Corporate India
              Expected to be more
                     than                    China, Brazil,
                USD 15 billion              USA and Africa.

             automotives, software,          Increasing
             financial Services,       number of inbound deals
             real estate,                 532 deals in 2006
             hospitality, construction
             services etc.                        [

            Mergers and Acquisitions 2007

                        •   Increasing number of outbound deals as compared
                            to inbound investments.

                        •   High value Merger and Acquisition (“M&A”) deals in
      Tata -                commodities (especially metals) and telecom.

Holcim -                •   Growth of M& A activity in the commodities sector
           Hindalco -
Gujarat                     due to factors such as economic growth,
Ambuja      Novelis
                            international commodity prices, exports, growth of
                            infrastructure, cheap labor etc.
      Hutch –
        ne              •   Rationale for major inbound deals such as Holcim’s
                            investment in Gujarat Ambuja and Ambuja Cements
                            mostly to expand capacity in India.

                        •   In January and February 2007 alone, 102 M&A deals
                            have taken place with a total value of almost USD
                            36.8 billion.
Top Deals In Commodities Sector
         Acquirer                   Target                Acquisition
                                                           (Mn USD)
Holcim                Gujarat Ambuja Cements Limited      470.00
Essar Group           Essar Oil Limited                   760.81
Aban Lloyd Chiles     Sinvest ASA                         446.00
Mittal Investments    Omimex de Columbia                  425.00
Chevron Corporation   Reliance Petroleum Limited          300.00
         Acquirer                   Target                 Acquisition
                                                            (Mn USD)
Hindalco Industries   Novelis Inc                         6,000.00
Rain Commodities      GLC Carbon Canada Inc               360.89
Holcim                Ambuja Cement India Limited         117.00
Mittal Investments    GSSRL – HPCL’s Bhatinda             711.11
Tata Steel            Corus                                13,650.00
                                    Source: Dealtracker, Grant Thornton 2007
                 Vodafone - Hutch

                    Fourth largest deal of the year 2007 (to date) at $13.3 bn
Deal size and
                    ($11.1 bn plus $2 bn debt). Hutchison Essar valued at
                    $18.8 bn.

                    Vodafone acquisition is subject to a number of
Regulatory          approvals including from the Department of
Approvals           Telecommunications and the Government (FIPB).

Foreign             Vodafone filed for an approval from the FIPB .
Investment          Application still not been approved due to issues
Promotion           relating to the total direct and indirect foreign
Board               holding in Hutchison Essar.

Foreign Direct       Press Note 5 of 2005 provides that direct and
Investment           indirect foreign shareholding in a telecom
Policy               company cannot exceed 74%.

Department          The Department of Telecommunication has given its nod
of Telecom          All licensing conditions to be met by Vodafone.
Sector wise Break-Up- PE deals by
      Jan 2007

 Feb 2007

     Source: Dealtracker, Grant Thornton 2007Jan 2007
       Regulation of Mergers in India
Mergers are primarily governed by the Company Court and the Ministry of
Company Affairs…

 108A-108I      Restrictions on transfer / acquisition of shares where acquirer’s shareholding :
Companies       -    results in a dominant undertaking (“DU”)
 Act , 1956     -    in case of existing DU, increase substantially the production, supply
                     of goods and services.
                Central Government approval required if in excess of threshold prescribed.

Companies       Section 390 to 394 of the Companies Act –Governs schemes of
Act , 1956      Arrangement between companies and their respective shareholders and
                creditors under supervision of the Company Court.
        Merger or Amalgamation under a
            scheme of arrangement

                 Most convenient and common method of obtaining a
                 complete merger or amalgamation between companies.

                   • Active involvement of Court
                   • Court sanction under Section 394 (2) required
                   • Court order to be filed with the Registrar of
 Section 390 –        Companies
                     Various approvals required in respect of scheme of
  396A of the
Companies Act,         amalgamation:
     1956            • Approval of the Board of Directors
                     • Approval of Stock Exchanges
                     • Approval of Shareholders/ Creditors (secured and
                     • Approval of Land Holders and under other contracts
                     • Approval of the High Court
                     • Approval of the Reserve Bank of India
Acquisition of shares in an Indian company by Non Residents
governed by the Foreign Exchange Management (Transfer or issue of
Security by a Person Resident outside India) Regulations, 2000.

No approval required for purchase of shares ( including existing
shares from Residents to Non-Residents or vice versa, subject to
pricing and reporting requirements.

Press Note 1 of 2005 read with Press Note 3 of 2005 to be complied
with in case of existing joint ventures. Proposals in the Information
Technology sector, investments by multinational financial institutions
and in the mining sector for same area/mineral exempted.

Acquisition of shares in an Indian listed company, have to be in
compliance with the provisions under the Substantial Acquisition of
Shares and Takeovers Regulations 1997 (Takeover Code).

               Issues under FEMA

Circular No.        • General permission, in respect of transfers from R to
                      NR & NR to R.
    16              • Conditions under Circular 16 to be met & reporting
                      requirements to be complied with.

 Sectoral           • Under the current FDI policy, most sectors under the
                      automatic route for investment up to 100% including
  Caps                manufacturing and services sector.
                    • Approval required for proposals outside sectoral

  FIPB              Prior approval from the Government required for
                    manufacture of cigars/ cigarettes of tobacco, electronic
Approval            aerospace & defense equipments, items reserved for
                    small scale sector and FDI in Single Brand retail.

    Issues under the Takeover Code
      Open Offer                      Disclosures

Making of an open offer on         Upon acquisition of 5% or
holding crossing15%                more
(Reg. 10)

Open offer on holding              Disclosure at 5% or 10% or
crossing 5 % in a financial        14% or 54% or 74% (shares
year (for  15% holding to          or voting rights)
55% holding)
                                   Purchase and sale of every
Any shares beyond 55%,             2% (for 15% holding to 55%
less than 75%                      holding)

Open offer on change of            Yearly   disclosures     by
control    (regardless of          persons holding more than
acquisition of shares)             15%, by persons in control /
              Joint Ventures
Gaining effective control of Joint Venture Companies

                      Differential Voting
    51: 49 Joint
     Venture                           Casting Vote


   Reserved                            Nominees
   Matters                             on Board

                    Right to appoint
                   Top Management

Key Shareholding Thresholds

                 26% - Special Resolutions
                      can be blocked

                 51% - Ordinary Resolutions
                       can be passed

   75% - Approval of at least 75% (shareholders present
          and voting) required to pass a Special

  Exit Mechanisms

Repatriation of profits from made by Indian companies to
foreign investors as dividends is freely permitted.

Exit route in the form of a transfer of the shares of the
Indian company.

Exit route in the form of a transfer of the assets of the
Indian company.

Gains derived from transfer of shares in Indian companies
are subject to tax in India, subject to tax treaties, if any.

* Please note the below rates have been proposed in the recent finance bill.

                                            Effective rate of corporate tax for non-
                                            resident companies and their branches
                                            is 42.23%.

                                     Effective rate of corporate tax for domestic
                                     companies is 33.99%.

                        Dividend distribution tax of 16.995 % is payable by the
                Capital Gains tax payable on long term and short term gains
                (varying rates depending upon whether listed or unlisted
       Service tax of 12% (12.36% including the education cess) applies to many


              • Government of India, under Section 90 of the Income Tax Act,
                has entered into double tax avoidance agreements with other
Double Tax
              • Tax Treaties provide protection to taxpayers against double
              taxation and prevent discouragement, which the double taxation
              may otherwise promote in the free flow of international trade,
              international investment and international transfer of technology.

              • India has entered into DTAA with 65 countries including
              USA. In case of countries with which India has DTAAs, the tax rates
              are determined by such agreements. Credit on foreign tax paid
              domestic corporations is granted.

Tax havens include Mauritius, Singapore, Caymon Islands, Netherlands

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