Introduction

Introduction to M&A
Transactions
By Kriti Sharma, Commercial Lawyer,

Mumbai, India
 Agenda
A. Chapter I
Today’s Agenda
C. Chapter III

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1. Takeovers - nature and types of regulation 8. Special transactions: Leveraged buyouts
2. Friendly and hostile takeovers and management buyouts
3. Voluntary and mandatory offers - launching 9. Deal making: Essence of due diligence
an open offer.
and documentation
10. Legal aspects of valuation
B. Chapter II
5. Persons acting in concerts; indirect

acquisitions
6. Takeover defences
7. Corporate governance issues in M&A
 Regulations
CHAPTER I

Take overs, nature and types of

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From legal perspective, takeover is of three types: [i] Friendly takeover, [ii] Bail out takeover, [iii] Hostile takeover


[i] Friendly or Negotiated Takeover:- Friendly takeover means takeover of one company by change in its management &
control through negotiations between the existing promoters and prospective investor in a friendly manner. Thus it is also
called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties.
Generally, friendly takeover takes place as per the provisions of Section 395 of the Companies Act, 1956.


[ii] Bail Out Takeover - Takeover of a financially sick company by a financially rich company as per the provisions of Sick
Industrial Companies (Special Provisions) Act, 1985 to bail out the former from losses.


[iii] Hostile takeover- Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of
another company without being into the knowledge of that other company. The most dominant purpose which has forced
most of the companies to resort to this kind of takeover is increase in market share. The hostile takeover takes place as
per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

 Conglomerate
CHAPTER I

VERTICAL Takeovers

In the context of business, takeover is of three types ; [i] Horizontal Takeover, [ii] Vertical takeover, [ii] Conglomerate takeover:


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[i] Horizontal Takeover- Takeover of one company by another company in the same industry. The main purpose behind this
kind of takeover is achieving the economies of scale or increasing the market share. E.g. takeover of Hutch by Vodafone.


[ii] Vertical Takeover - Takeover by one company with its suppliers or customers. The former is known as Backward integration
and latter is known as Forward integration. E.g. takeover of Sona Steerings Ltd. By Maruti Udyog Ltd. is backward takeover.
The main purpose behind this kind of takeover is reduction in costs.


[iii] Conglomerate takeover: Takeover of one company by another company operating in totally different industries. The main
purpose of this kind of takeover is diversification.
 Open offer
CHAPTER I

V O L U N TA RY
Voluntary and mandatory offers:
launching an open offer

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An open offer is a secondary market offering, similar to a rights issue. In an open offer, a shareholder is allowed to purchase
stock at a price that is lower than the current market price. The purpose of such an  offer  is to raise cash for the company
efficiently.
CHAPTER II

Acquisitions
Persons acting in concert and indirect
acquisitions

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Persons acting in concert: Persons acting in concert are persons who, pursuant to an agreement or understanding (whether formal or
informal), co-operate to obtain or consolidate control of a company or to frustrate the successful outcome of an offer for a company. A person
and each of its affiliated persons will be deemed to be acting in concert with each other.

Indirect acquisitions: it is imperative to understand the meaning and scope of ‘indirect acquisition’. As per Regulation 5 of the SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 2011, acquisition of shares or voting rights in, or control over, any company or
other entity, that would enable any person and persons acting in concert with him to exercise or direct the exercise of such percentage of
voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public
announcement of an open offer for acquiring shares under these regulations, shall be considered as an indirect acquisition of shares or voting
rights in, or control over the target company.
CHAPTER II

Governance
Corporate Governance and M&As

Corporate Governance = Top Management

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Top Management Value Creation Value Transfer

Profits/Efficiency

Shareholders, Employees, Customers, Suppliers, Creditors and Society

Take over
defences
defences

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The defensive strategies a company employs to thwart a hostile
takeover can have a significant impact on its shareholders, including
sometimes a decline in shareholder value.

Shark repellent refers to clauses a company can add to its charter that
are triggered by a hostile takeover attempt and make the company
unappealing to the would-be acquirer.

A poison pill is a common defensive tactic used by target companies to

Poison pills will frequently increase the cost of the takeover beyond
what the acquirer is willing or able to pay.

A shareholders' rights plan is an example of a poison pill that gives

BUYOUTS
Special transactions: management
buyouts & leveraged buyouts

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Management buyouts (MBOs) are favored exit strategies for large corporations that wish to pursue the sale of divisions that
are not part of their core business, or by private businesses where the owners wish to retire. The financing required for an
MBO is often quite substantial and is usually a combination of debt and equity that is derived from the buyers, financiers and
sometimes the seller.
In a management buyout (MBO), a management team pools resources to acquire all or part of a business they manage.
Funding usually comes from a mix of personal resources, private equity financiers, and seller-financing.

A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the
cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets
of the acquiring company.
DEAL MAKING
Due diligence
CHAPTER III

Deal making : essence of due diligence,

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 Legal aspects
CHAPTER III

VA L U AT I O N
Legal aspects of valuation

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Deal Valuation requires several phases or steps. When considering a transaction, it is of prime importance to evaluate the
target company from a variety of different standpoints to determine whether it is being acquired, merged or sold at a fair value.

•The first step is to look at the stand-alone of each party to the transaction.
•The second step is to look at the transaction related values for the target company.
•The third step is to analyze the proposed transaction and assess its possible impact on the surviving corporation.

It doesn’t matter whether the proposed deal is a merger, a joint venture or a split-off, all deals should be thought of in this type
of framework. While all deals won’t necessitate every analysis, the principles of the framework still apply.
 Governance
CHAPTER III

Governance is a two way street

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Corporation is Governance practices

responsible for its determine the process

stakeholders by which the firm’s

Good Governance after M&A

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Human Rights Labour Conditions

Environment Anti-Corruption

Precautionary approach to
Work against all forms of corruption
environmental challenges
including extortion and bribery

Environmental Responsibility

Environmental friendly technology

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