INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
4.7 Minimum Acceptance Conditions In the case of an MOO, the open offer is required to be for at least 26% of the voting share capital of the listed company. Unless conditional in nature (as discussed in 4.5 Common Conditions for a Takeover Offer/Ten - der Offer ), the acquirer is required to acquire the ten- der received subsequent to the offer. In the case of a voluntary open offer, the acquirer is required to acquire at least such number of shares that would lead to the acquirer exercising 10% of the voting rights in the target company. 4.8 Squeeze-Out Mechanisms Under the Takeover Regulations, the acquirer is allowed to make a delisting-cum-tender offer. Under the recently amended delisting laws applicable in India, an acquirer can carry out a delisting of the target company if: • tender received in the offer is such that the total shareholding of such acquirer (together with the underlying acquisition) is not less than 75%; and • 50% of the public shareholding has been tendered. Note that the minority shareholders of the listed com- pany are not under an obligation to tender in the offer. Any forced exit or squeeze-out of the minority share- holders must be through a capital reduction process (to be approved by the NCLT) and requires an approv- al of 75% of shareholders. That said, in such cases, the minority shareholders have the right to approach courts and regulatory authorities to block the squeeze- out. The NCLT’s ambit of judicial review is limited to adjudicating on the fairness of the scheme. 4.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer The acquirer is required to have firm financial arrange- ments in place for fulfilling its payment obligations under an open offer, prior to launching the open offer. The financial arrangements are required to be verified by a SEBI-registered merchant banker hired to run the open offer process. Tender offers are typically financed through internal accruals, equity financing or debt financing from non-
documented through a scheme of merger/demerger and are required to be approved by the NCLT, along with an implementation agreement that sets out the obligations of the parties in the context of the transac- tion. Business transfer agreements are documented through a business transfer or asset transfer agree- ment. Other than the obligation to constitute a committee of independent directors as discussed in 9.2 Special or Ad Hoc Committees , the target/listed company is typically required to obtain the necessary regulatory approvals as may be required for the deal. The Takeo- ver Code also places certain obligations on the listed company – for example, the business of the listed company is to be undertaken as usual, consistent with past practice, during the offer period. The listed com- pany is also restricted from carrying out the following acts without the consent of 75% of shareholders: • alienating any material assets; • undertaking any material borrowing other than in the ordinary course; • issuing or allotting any unissued securities having voting rights; • conducting any share buybacks or change the capital structure of the company; and • entering into, amending or terminating any material contracts, etc. Considering that public listed companies are required to make periodic disclosures under applicable laws, all price-sensitive information is available in the public domain; therefore, public listed companies typically do not provide representations and warranties in the context of the deal. Owing to corporate governance implications, listed companies also do not usually undertake additional obligations unless robust rea- sons can be evidenced towards benefits of the trans- action in favour of the shareholders. However, in select instances, listed companies may provide fundamental warranties (such as authority and capacity, as well as due issuance of shares for subscription transac- tions). However, business warranties are based on commercial negotiations and usually provided if the acquisition is of a controlling interest and not a minor- ity acquisition.
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