INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
4.11 Additional Governance Rights At the outset, public listed companies in India are required to ensure that at least 25% of their equity shares are held by non-promoters (public). Acquirers cannot acquire 100% shareholding of a public listed company without carrying out a delisting of the target company. Although Indian law permits majority shareholders to appoint nominee shareholders in the company, the directors have a fiduciary duty to act in the best inter- est of the company and not just in favour of the major- ity shareholders they represent. In fact, any arrange- ment where there is disproportionate allocation of governance rights in favour of majority shareholders vis-à-vis their shareholding – or that is detrimental to the minority shareholders ‒ is subject to regulatory scrutiny. In the context of profit-sharing arrangements, com- pensation or profit-sharing arrangements with regard to dealing in securities between a majority sharehold- er and an employee/director of the listed company requires the board of directors’ approval and a sepa- As discussed in 4.1 Stakebuilding , Indian listed companies are largely promoter-driven, with a high concentration of promoter/principal shareholder shareholding. As such, acquirers usually enter into arrangements with the promoters/principal sharehold- ers to acquire their shares, thereby triggering a MOO (subject to breach of relevant thresholds). However, the Takeover Regulations do not allow parties to such agreements to tender any of their shareholding in the MOO. Indian regulators do not view such commitments favourably with regard to listed companies. This is because these structures tend to compromise share- holder democracy and influence voting decisions. 4.13 Securities Regulator’s or Stock Exchange Process There is no requirement to obtain SEBI’s approval pri- or to launching the MOO or executing agreements that trigger the MOO. However, the draft offer is required rate minority shareholder approval. 4.12 Irrevocable Commitments
banking entities (given that Indian banks are restrict- ed from financing tender offers). Usually, debt-based financing is structured outside India through convert- ible instruments and the subscription amount is used to fund the open offer. In this context, note that bankers and financial advis- ers are not required to trigger an open offer as part of the acquisition of the shares by the buyer. In certain instances, based on specific facts, SEBI has viewed providers of equity financing as PACs – ie, where financiers were considered to be using the acquirer as only a conduit to carry out the open offer on their behalf. As discussed in 4.5 Common Conditions for a Take- over Offer/Tender Offer , the Takeover Regulations permit withdrawal of a mandatory tender offer only in certain limited cases. Inability to obtain financing is not one of them. In the context of business combinations, arrangement of financing may be agreed as a condition to com- pletion of the acquisition. From a corporate govern- ance perspective, the board of the listed company may have to justify to the minority shareholders the rationale for including such a condition in the transac- tion documents vis-à-vis the requirements for listed companies to have deal certainty. 4.10 Types of Deal Protection Measures As discussed in 4.6 Deal Documentation , corporate governance implication is one of the key considera- tions guiding the ability of listed companies to sup- port an acquisition transaction. Listed companies do not usually undertake additional obligations, unless proved to be favourable towards the shareholder body. Therefore, it is not typical for listed companies to grant any specific deal protection measures. However, as also discussed in 4.6 Deal Documenta- tion , the Takeover Regulations do prescribe certain value protection measures to be adhered to by the listed company during the period of the open offer. Obligations to continue to undertake business as usu- al and to not effect any change in capital structure of the company are among these measures.
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