INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
through the execution of share subscription or share purchase agreements with the promoters of the listed company and the open offer process are typically con- ducted as a simultaneous process. In the context of the reporting requirements under the Takeover Regulations, if the acquisition in the first instance crosses 5% of the voting shares/voting rights in the listed company, the acquirer is required to make a disclosure of its holding and of the persons act- ing in concert (PAC) with such acquirer to the stock exchanges and the listed company. An acquirer (along with the PAC) already holding 5% or more of voting shares/voting rights is required to disclose any change in their shareholding exceeding 2% of voting shares/ voting rights. These disclosures must be made to the stock exchanges within two working days of such acquisition or change. The Takeover Regulations do not obligate the acquir- er acquiring a stake in a listed company to publicly disclose the purpose of the acquisition or the intent regarding the acquisition with regard to the company. However, if the mandatory open offer (MOO) require- ment is triggered (as discussed in 4.2 Mandatory Offer ), the material portions of the acquisition ‒ includ- ing the reasons for the acquisition, the commercial reasoning (long-term) and strategic plans ‒ must be provided in the offer document. 4.2 Mandatory Offer Under the Takeover Regulations, an acquirer (along with PACs) is required to carry out a MOO in the fol- lowing instances (both direct and indirect). • If the acquirer (along with PACs) holds less than 25% of the total voting shares/voting rights of a listed company and acquires or agrees to acquire such number of voting shares/voting rights, which results in such acquirer (along with PACs) holding 25% or more of the voting shares/voting rights of the listed company. • If the acquirer (along with PACs) already holds between 25% and 75% of the total voting shares/ voting rights of a listed company and acquires or agrees to acquire such number of voting shares/ voting rights, which results in such acquirer (along with PACs) holding 5% or more of the voting
shares/voting rights of the listed company, in any financial year. • Notwithstanding the acquisition of voting shares/ voting rights, if any acquirer or its PACs acquire control of a listed company. 4.3 Transaction Structures Acquisition of a public company is typically structured in either of the two forms: • share acquisition for cash (either primary or sec- ondary) up to the mandatory takeover thresholds as discussed in 4.2 Mandatory Offer , followed by an open offer; and • merger through the merger scheme route, typically structured as a share swap requiring an approval from the NCLT. Under the merger scheme route, a minimum of 75% of the shareholders of the merging entity are required to receive their consideration in the form of shares. In the event of a failure to meet this criterion, the transaction leads to tax implications in the hands of the recipient receiving the consideration. Further, no approval of the shareholders of the listed company is required in the event of a share acquisition for cash. However, the merger scheme requires the approval of 75% of shareholders, and an additional minority shareholders’ approval in a few select cases. Particularly in the case of energy and infrastructure companies, the acquisition of public listed companies is also structured as a business transfer whereby the acquirer and the listed company enter into a bilaterally negotiated business transfer agreement to purchase the listed company’s business or certain identified undertakings. Another structuring option is that of demerger, which involves demerging the business of the listed company in favour of the acquirer in consid- eration for shares to be issued by the acquirer to the shareholders of the listed company. From a regulatory perspective, the demerger scheme and its process is similar to a merger scheme as discussed earlier. Business transfers do not trigger the MOO obligations but require the approval of 75% of the shareholders and a separate approval from the minority sharehold-
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