INDIA Law and Practice Contributed by: Raj Ramachandran, Varun Sriram, Krutamana Pisipati, Aadhitya Logeshen and Abheejit V, JSA
6.3 Transaction Structures Acquiring a publicly listed company in India may be achieved through one or more or a combination of structures. Possibly the most straight forward structure is acqui- sition via stock exchanges or negotiated contracts. As part of negotiated contracts, block deals – where large-volume transactions are completed through dedicated trading windows based on pre-agreed terms between the buyer and seller – are popular. Acquisition of shares may be by way of fresh issu- ances as well. This structure requires a preferential allotment of shares by the listed company in terms of the Companies Act, 2013 and SEBI Issue of Capital and Disclosure Requirements Regulations. This route is taken when the listed company requires additional funding for its general business expansions or any specific projects, and sometimes these are done in combination with debt funding to maintain a healthy debt-equity ratio. There may also be cases where the sale or acquisition of particular business division/unit of a listed company is under discussion. In such scenarios, the concerned parties may consider a de-merger or slump sale of the business division to the acquirer. In the case of a de-merger route, it will be through a scheme of de- merger before the NCLT. Whereas a slump-sale trans- action can be undertaken through a private contract. A de-merger may have certain inherent tax and regu- latory advantages when compared to a slump-sale structure, although a slump-sale deal will generally be faster to execute and complete. There are also instances of listed companies being acquired through a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) before the NCLT. These are cases where the listed companies are generally not able to meet their debt obligations. Accordingly, the IBC provides a mechanism for these distressed companies to, inter alia, be taken over by potential acquirers through a resolution plan to be submitted and approved by the committee of creditors and the NCLT.
All these acquisitions are generally carried out through regulated mechanisms under the Companies Act, 2013, SEBI Regulations, IBC and, where applicable, the Competition Act, 2002. Also, open offer require- ments or creeping acquisition reporting will be part of such acquisitions as mentioned in 6.2 Mandatory Offer . 6.4 Consideration and Minimum Price In India, it is typical for cash to be the primary form of consideration, as discussed in 4.3 Liquidity Event: Form of Consideration. There are also certain pricing norms under the Indi- an Foreign Exchange Management Act, 1999. In the event a non-resident party purchases the stake from an Indian resident person or party, the purchase price cannot be lower than the fair market value, as deter- mined on an arm’s-length basis by a registered valuer. There is also an option to make a deferred payment to achieve a specific commercial outcome, provided the payment is made within 18 months of the date of the transfer agreement. The circular amending master directions issued on 20 January 2025 (“Master Direc- tions”) further clarify that such arrangements should be recorded in the share purchase/transfer agreement. The deferred consideration or payment cannot exceed 25% of the total consideration, and the amount effec- tively paid must comply with pricing norms. Similarly, sellers can provide an indemnity escrow of up to 25% of the total consideration for up to 18 months, pro- vided the amount effectively paid remains compliant with pricing norms. Pursuant to the Master Direction, the deferred consideration option has been extended to downstream investments by foreign-owned and controlled companies. For takeover offers, there are minimum price stipu- lations as well. The regulations governing takeovers provide various mechanisms for calculating the “open offer” price, depending on the nature of the acquisi- tion.
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