INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
ers. Business transfers are prone to tax implications and therefore should be structured with caution to ensure the least tax incidence for the parties involved. 4.4 Consideration and Minimum Price As discussed in 4.3 Transaction Structures , the acquisition of a public company is commonly struc- tured as an acquisition-for-cash transaction. In certain instances, transactions also structured as partly stock and partly cash deals – although this is rare. Minimum Price Requirement In the context of pricing, other than in specific instanc- es (eg, if acquisitions are undertaken through the exchanges or if the transaction is regulated under the extant foreign exchange laws), pricing is not typically regulated for acquisitions which trigger a MOO. However, the Takeover Regulations prescribe the min- imum price requirement for the price at which an offer in the MOO can be made. This price is to be deter- mined as the highest of the following parameters: • negotiated price per share of the underlying acqui- sition attracting the MOO; • volume-weighted average price paid or payable for acquisitions by the acquirer (and its PACs) during the 52 weeks immediately preceding the date of the public announcement; • price paid or payable for any acquisition by the acquirer (and its PACs) during the 26 weeks imme- diately preceding the date of the public announce- ment; or • volume-weighted average market price of such shares, during the 60 trading days immediately preceding the date of the public announcement, if the listed company’s shares are frequently traded. In a merger or demerger transaction, the pricing is determined based on the valuation report of the entities involved. In context of a business transfer, although the pricing is not per se regulated, the deter- mination of pricing is commonly based on tax impli- cations. Deferred Consideration or Contingent Payments Although it is not typical to carry out valuation adjust- ments through deferred consideration or contingent
payments, in certain instances, parties do devise structures to address valuation uncertainties – for example, issuance and subscription of convertible instruments, or escrows (share-based or cash-based) to control deals and effect any future valuation adjust- ments. Note that under the foreign exchange laws of India, only 25% of the consideration can be paid by the acquirer as deferred consideration to be settled within 18 months from the date of the transfer agree- ment. 4.5 Common Conditions for a Takeover Offer/ Tender Offer The Takeover Regulations prescribe several common conditions for takeover or tender offers, such as: • minimum percentage of shares to be acquired (26% of the voting share capital); • the minimum offer price and parameters, as dis- cussed in 4.4 Consideration and Minimum Price ; and • the appointment of merchant bankers. There may be certain exemptions in specified instanc- es where the acquisition is between relatives or pro- moters, etc. The Takeover Regulations do allow conditional MOOs. These are akin to standard open offers, except that ‒ if the desired level of shares is not tendered by exist - ing shareholders (a limit that is specified in the ten- der offer documents) ‒ the investor is not obligated to acquire any shares at all under the open offer. A con- ditional open offer ensures that an acquirer meets its objective from the transaction. However, if the desired level of acceptance has not been met and the acquir- er decides not to proceed with the transaction, the underlying acquisition that triggered the MOO is also not allowed to be completed. In the Indian context, conditional offers are an all-or-nothing commitment for the acquirer. 4.6 Deal Documentation As discussed in 4.1 Stakebuilding , it is customary to enter into share subscription or share purchase agree- ments with the promoters/principal shareholders as a parallel process to the open offer. On the other hand, merger and demerger transactions are required to be
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