Understanding Hostile Takeovers in India

In 2019, Latakeover examples in indiaen and Toubro Ltd (L&T) took over Bengaluru-based Company Mindtree Ltd with a 61.08% stake. The former completed buying the 31% additional stake in Mindtree for Rs 4,988.82 crore through an open offer. With this, L&T completely controlled the software company’s board and management. When one company acquires another company without the permission of its board of directors then it is called takeover. Takeovers are generally performed by large companies to either remove competition or to expand. A takeover occurs when one company makes a successful bid to assume control of or acquire another.

Tribunal directs a company administrator to take over the assets & management of the other company. Secondly, a “golden parachute” clause in the employment agreement usually provides that in case of removal of a whole-time director or manager, the company would give substantial compensation to them. Section 202 of the Companies Act also provides that a company may make payment to a managing or whole-time director or manager for loss of office amongst other things. In terms of the golden parachute clause, apparently in the employment agreement of Twitter’s top executives who were removed post the acquisition by Elon Musk, the executives are entitled to compensation. We are not commenting on whether the compensation was paid or not or whether the same was contested or not. However, such a provision can act as a possible deterrent to any acquirer who would second-guess his decision to take over because of such possible liabilities post-acquisition.

The M&A landscape after the pandemic however changed drastically due to the innovations in lifestyle introduced during the funnel of the Lockdown era. With more and more e-commerce startups focusing on tech-driven consumer needs, such as fintech, e-commerce, B2C delivery services etc, the need for larger enterprises to acquire smaller, more niche companies for their expansion was seen more prominently. With India set to become the third largest economy in the world by 2050 in terms of nominal GDP and with rising M&A deals which have more tech-driven end-product, Indian Public M&A Scene is considering a serious revamping in the upcoming years.

• For example, if the target company is struggling financially, the acquirer may try to take over the company at a lower price.
• This resulted in the new company Arcelor-Mittal controlling10% of global steel production.
• Mergers and Acquisitions (M&A) have increased in the Indian subcontinent over the years.

Indus Towers was a joint venture between Bharti Infratel, UK-based Vodafone Group Plc, and Vodafone Idea. Bharti Infratel and Vodafone Group held 42 percent stake each in Indus. Vodafone Idea held an 11.15 percent stake and the remaining 4.85 percent was with private equity firm, Providence. A few other cases of hostile takeovers that have occurred abroad are Sanofi-Aventis’s acquisition of Genzyme Corporation, InBev’s acquisition of Anheuser-Busch in 2008, and Oracle’s acquisition of PeopleSoft in 2004. Some of the top cases of hostile takeovers in India and abroad are mentioned below.

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The strategies for executing a hostile takeover can vary depending on the specific circumstances and goals of the acquiring company. Some of the common strategies for hostile takeovers are mentioned below. Every company begins with a little capital and immense hard work and passion. The main driving force behind these startups is the capital they raise, which is in crores, making them capable of expanding at a fast pace. The main idea behind the expansion is to have an added customer base quickly, market share, and new territory to further try out new products and services.

In terms of volume and trade, over 60% of the transactions involved industrial products, energy, telecom, and media. Singhania & Partners LLP is not liable for any consequence of any action taken by the user relying on material / information provided on this website or through any external links thereon. S can create animosity and bad feeling between the employees of the two companies, which can lead to a decline in morale and productivity. The main reasons are to achieve growth by advanced technologies; and market enhancement, product development. The different types of a takeover are Friendly Takeover, Hostile Takeover, Reverse Takeover, Bail-out Takeover, Back Flip Takeover, etc.

There are various Mergers and Acquisitions advisory firms that control their customers through this change procedure, including complicated financial, legitimate, and accounting issues. Filing of the Orders with The Registrar of CompaniesThe genuine confirmed copy of the request for the High Court of the state must be documented with the registrar of companies within the limited time period as indicated by the High Court. A merger can be defined as the collaboration of two or more companies to form a new company in an expanded form. Here, one company will cease to exist, and the other company will absorb the former. For example, Company A merges with Company B to form a bigger company A, and company B ceases to exist. Arcelor shareholders earned 50.5 per cent and Mittal Steel shareholders received 49.5 per cent of the combined business, according to the terms of the agreement.

India based Mittal steel, in this spree, merged with Arcelor Steel in a deal valued at $33.1 Billion. The post-merger company, ArcelorMittal is one of the largest steel companies in the world right now. The post COVID scenario looks quite promising in developing nations such as India. With the economics shut and production halted for well over 1.5 years, the derailed economy seems to gain footing again once the situation normalizes.

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It is therefore imperative to conduct appropriate due diligence and to expect transparent disclosure . Vertical mergers occur when two companies, each working at different stages in the production of the same good, combine. A vertical merger can harm competition by making it difficult for competitors to gain access to an important component product or to an important channel of distribution. For example, if a manufacturer were to merge with a distributor of its products, such merger would have a huge impact on the other manufacturers and distributors belonging to the same sector. Non-disclosure Agreement is invariably the first agreement that any parties execute to start any business relationship which involves exchange of confidential, non-public and proprietary information.

• The sponsors utilized their political clout against Paul, notwithstanding his own binds to Prime Minister Indira Gandhi.
• It involves granting members of the target company’s executive team benefits such as bonuses, severance pay and stock options if they are ever terminated as a result of a takeover.
• Further, Regulation 3 permits such Acquirers to make a public announcement of an open offer for acquiring shares which will entitle the Acquirers to acquire more than 25 percent of the voting rights of the Target Company.
• However, Ford not only declined but proceeded to humiliate the company as well.
• This provision is significant as it prevents private companies from getting the benefits of publicly listed companies through the backdoor.

India, however, has remained rather averse to the idea of hostile takeovers. Restrictive government policies in the pre-liberalisation era i.e. pre-1991, made hostile takeovers a difficult proposition to achieve. Even post-liberalisation, corporate India has been witness to very few battles for wresting control. One of the most famous cases of a hostile takeover bid in the Indian context, took place in the early 1980s where Swraj Paul, a London-based businessman, sought to gain control of two Indian companies, Escorts Limited and Delhi Cloth Mills (“DCM”).

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Uber Eats, along with being late to the market, also didn’t have any exclusive point that made it stand out, resultantly had meagre success in the Indian market. Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes. In this article, we discussed the biggest Mergers and Acquisitions in India. While acquisitions are prevalent in almost every industry only a few of them turn out to be successful.

In the Form of Shares When the acquirer company decide to allot its shares to shareholders of the target company in proportion to their previous shareholding. Hold a Board Meeting After receiving the takeover bid, the target company holds a board meeting and accepts that 90% of its shares are subject to acquisition. Takeover Bid After obtaining the registration, the acquirer company can proceed further with the takeover bid by sending it to the target company. Bear Hug According to this, the Acquirer Company offers to purchase the shares of a Target Company at a price higher than the market price. Tax Benefits In a company takeover, the losses incurred by an acquirer company are set-off against the profits of a target company, thereby reducing the net taxable income.

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This offer is made with the aim to purchase a substantial portion or all of the outstanding shares of the target company directly from its shareholders. The offer is usually made at a premium price that is significantly above the current market value of shares of the target company. This increased offer is to incentivize the company’s shareholders to sell their shares. This is one of the classic examples of a hostile takeover in the Indian business industry resulting in the ultimate acquisition of the traget by a hostile bidder occurred in 1998 when BV Raju sold his 32% stake in Raasi Cements to India Cements.

If the acquirer is an indian listed company but the target company is a foreign listed company then these laws will not be applicable. If the acquirer is an indian listed company and the target company is also indian listed company then these laws will be applicable. The dispatch of a Voluntary Offer is dependent upon the satisfaction of specific conditions. Likewise, an acquirer who has launched a Voluntary Offer is not permitted to acquire any shares of the target company during the offer period other than under such tender offer. The Takeover Regulations provide a particular system to acquirers to make Voluntary Offers to public investors.

A Voluntary Offer might be made by a current investor or an acquirer who holds no shares in the target company. Under this type of takeover, an acquirer doesn’t offer any proposition to or make any arrangements with the target company. Acquirer quietly seeks after a push to deal with the target company against the wish of the administration and renunciation of the investors of the target company. The cash and stock deal resulted in Essel issuing 6.68 million shares to Propack’s promoters, in addition to a cash payment of $11 million. But as India emerged victorious in the merger and acquisition game, there were hurdles on the way as well. In many cases,questions were raised about the capabilities of Indian companies.

Walmart has put aside $2 billion for new investment as part of the deal. Since 2007, Tata Steel has become the world’s fifth-largest steel producer after acquiring European steel giant Corus for $12.02 billion. For a variety of reasons, Tata Steel and Corus were interested in the arrangement before it began.

The types of takeovers are Bail-out, Friendly, Hostile, Reverse and Backflip. It is the legal act where one company acquires another company & becomes its new owner. Backflip Takeover In Backflip Takeover, an acquirer company decides to become the subsidiary of the target company. Bail-out Takeover In this, a profit-earning company acquires a sick company to bail it out from the process of liquidation.

This has realised many questions related to hostile takeovers and popular instances of such cases in India and abroad. Given here is the meaning of hostile takeovers and related details of the same. A hostile takeover occurs when a company or a person attempts to take over another company against the wishes of the target company’s board/management. That is the “hostile” aspect of the hostile takeover- merging with or acquiring a company without the consent of that company’s board of directors.

By Forming a New Company An acquirer company can form a new company by acquiring shares of the target company. After that, shareholders of both the companies are allotted shares of the newly structured company. It doesn’t require extensive research to understand why wealthy businessmen put efforts into owning media houses. One, it helps them promote their company’s idea and perpetuate its grand image, along with silently suppressing criticism. Third, acquiring a media house popularly gaining fame for its quality journalism can’t be a bad deal. It first started in the 1980s when London-based NRI Swaraj Paul tried a hostile bid to control the management of two Indian companies, Escorts Limited and Delhi Cloth Mills Limited.

Best stock discovery tool with +130 filters, built for fundamental analysis. Search Stocks Industry-wise, Export Data For Offline Analysis, Customizable Filters. Most of these M&A are predatory and take place when the acquirer is doing well but unfortunately, there may be multiple reasons that may turn the M&A into a disaster.

After a long battle, the two businesses united to form the world’s largest steel company, controlling 10% of the global steel market. It is the acquisition of a controlling interest in the share capital of another existing company by one corporation. Even though the management of both companies changes following the takeover, the companies retain their respective legal identities. MRTP Act, 1969, are a major influence on the entities involved in the merger. According to this Act, a company or firm must go through a time-consuming and stressful process to obtain clearance for mergers and acquisitions. Is a type of corporate takeover which occurs when a bidder acquires a target company by going directly to the target’s shareholders, bypassing the board of directors.

Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. The takeover of Satyam Computer Services by Mahindra Tech was another instance of a hostile takeover in India. The former was involved in huge scandals of fraud and Mahindra Tech had taken over the company with the aim of restoring investor confidence. Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant.

A proxy vote is a method which allows acquiring firms to persuade current shareholders to vote out the target company’s management in order to take over easily. On the other hand, a tender offer is an offer to purchase shares from a shareholder of an acquirer’s business at a higher price than the market price. Takeovers, or acquisitions, are when one company (“Acquirer”) acquires a controlling stake in another company (“Target Company”). Friendly takeovers are when the management of the Target Company is on board with the transaction and both the Acquirer and the Target Company consider it beneficial.

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The target company’s management may resort to preemptive and reactive defences to prevent an unwanted takeover. StartupTalky is top startup media platform for latest startup news, ideas, industry research and reports, inspiring startup stories. Some of the popular examples of the reverse merger in India is ICICI merging with its arm ICICI Bank. Eddie Stobart merger with Westbury PropertyEddie Stobart commenced as an agricultural business in the mid-19th century, which was later turned into the largest privately-owned transport & distribution company by William Stobart and Andrew Tinkler in 1976.