What is Mergers & Acquisitions Laws?

What is a merger?

What is an acquisition?

What is a takeover?

What is the need for Mergers & Acquisitions Laws?

How is Mergers & Acquisitions Laws legally recognized in India?

Vidhikarya will help you find a most suitable lawyer, for you in your city, who will be able to answer all your Mergers & Acquisitions Laws related queries and also guide you on how to resolve this matter with ease.

About the Mergers & Acquisitions Laws

The term 'merger' isn't characterized under the Companies Act, 1956 ('CA 1956'), and under Income Tax Act, 1961 ('ITA'). Be that as it may, the Companies Act, 2013 ('CA 2013') without entirely characterizing the term clarifies the idea. A 'merger' is a mix of at least two elements into one; the coveted impact being not only the gathering of advantages and liabilities of the particular elements, however association of such elements into one business. The conceivable goals of mergers are multidimensional - economies of scale, procurement of innovations, access to parts/markets and so forth. By and large, in a merger, the combining elements would stop to be in presence and would converge into a solitary surviving substance. There are several types of mergers, some of them are horizontal mergers take place between competing businesses, vertical mergers which refers to mergers between businesses that belong to different stages of the production process (a shoe company merging with a company manufacturing leather), conglomerate mergers which refers to merger between organisations belonging to unrelated industries.

Sections 390 to 394 & Sections 230 to 234 of the Companies Act 1956 look into the regulation of mergers.

Since a merger essentially involves an arrangement between the merging companies and their respective shareholders, each of the companies proposing to merge with the other(s) must make an application to the Company Court5 having jurisdiction over such company for calling meetings of its respective shareholders and/or creditors. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the Takeover Code) restricts and regulates the acquisition of shares, voting rights and control in listed companies.

Section 395 of the Companies Act envisages a complete takeover or squeeze-out without resort to court procedures. Section 395 provides that if a scheme or contract involving the transfer of shares or a class of shares in a company (the ‘transferor company’) to another company (the ‘transferee company’) is approved by the holders of at least 9/10ths (in value) of the shares whose transfer is involved, the transferee company may give notice to the dissenting shareholders that it desires to acquire the shares held by them.

Under the Companies Act 2013, if a person or group of persons acquire 90% or more of the shares of a company, then such person(s) have a right to make an offer to buy out the minority shareholders at a price determined by a registered valuer in accordance with prescribed rules.

The Takeover Code is applicable in cases of acquisition. Under the Takeover Code, an acquirer is mandatorily required to make an offer to acquire shares from the other shareholders in order to provide an exit opportunity to them prior to consummating the acquisition, if the acquisition fulfils the conditions as set out in Regulations 3, 4 and 5 of the Takeover Code. Under the Takeover Code, the obligation to make a mandatory open offer by the acquirer is triggered in the certain events.

An 'acquisition' or 'takeover' is the buying by an individual, of controlling interest in the share capital, or all or significantly the greater part of the assets as well as liabilities, of the target. A takeover might be friendly or hostile, also, it might be affected through settlements between the offeror and the bulk shareholders, buying of shares from the open market, or by making an offer for acquisition of the target’s shares to the whole group of shareholders.