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India: M&A Landscape
Featuring Vineet Aneja
Partner
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.
Sectors
Pharmaceuticals,
automotives, software, Increasing
financial Services, number of inbound deals
real estate, 532 deals in 2006
hospitality, construction
services etc. [
3
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.
Corus
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 –
Vodafo
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
4
36.8 billion.
Top Deals In Commodities Sector
2006
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
Offshore
Mittal Investments Omimex de Columbia 425.00
Chevron Corporation Reliance Petroleum Limited 300.00
2007
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
Refinery
Tata Steel Corus 13,650.00
Source: Dealtracker, Grant Thornton 2007
5
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
stake
$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
value
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.
390-394
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
unsecured)
• Approval of Land Holders and under other contracts
• Approval of the High Court
• Approval of the Reserve Bank of India
9
Acquisitions
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).
10
Acquisitions
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
policy.
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.
11
Acquisitions
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 /
promoters
12
Joint Ventures
Gaining effective control of Joint Venture Companies
Differential Voting
Rights
Shareholding
51: 49 Joint
Venture Casting Vote
Control
Reserved Nominees
Matters on Board
Right to appoint
Top Management
13
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
Resolution
14
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.
15
Taxation
* 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
company.
Capital Gains tax payable on long term and short term gains
(varying rates depending upon whether listed or unlisted
company)
Service tax of 12% (12.36% including the education cess) applies to many
services.
16
Taxation
• Government of India, under Section 90 of the Income Tax Act,
has entered into double tax avoidance agreements with other
Double Tax
countries.
Avoidance
Agreements
• 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
etc.
17
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