INDIA Law and Practice Contributed by: Raj Ramachandran, Varun Sriram, Krutamana Pisipati, Aadhitya Logeshen and Abheejit V, JSA
6.5 Common Conditions for a Takeover Offer/ Tender Offer Common conditions for a takeover offer include: • minimum mandatory offer; • price conditions; • escrow conditions; and • interest in the event of a delay in payment. 6.6 Deal Documentation In negotiated transactions, parties can enter into an acquisition agreement or a binding contract. These agreements would trigger a mandatory “open offer”. Target companies are typically contractually obliged to ensure that the company’s business and operations are run in the same manner, to ensure the non-aliena- tion of any assets, or to enter into voting arrangements and obligations of this nature. If the board considers the transaction beneficial, it will recommend it to its stakeholders and seek approv- al. Representations and warranties are included as negotiated to ensure that any unknown liabilities or claims do not erode the transaction value. Acquirers are intent on including specific warranties on DPDP compliance, data transfers, storage, and consent requirements, with suitable materiality thresholds aligned with the nature of the target company’s data processing activities. Conditions precedent to such transactions include specific regulatory approvals or filings as may be required. 6.7 Minimum Acceptance Conditions An acquirer may make an “open offer” conditional on the minimum level of acceptance, provided that there is a condition to the effect that in the event the desired level of acceptance of the “open offer” is not received, the acquirer will not acquire any shares under the “open offer” and the underlying transaction that trig- gered the “open offer”. 6.8 Squeeze-Out Mechanisms There are squeeze-out mechanisms that essential- ly allow acquirers to acquire a company’s delisted shares to consolidate ownership. Under the Indian Companies Act, 2013, if a scheme of arrangement or contract involving a share transfer is approved by those holding at least 90% in value within four months
of making an offer, the transferee company can notify dissenting shareholders within two months of the end of this period to acquire their shares. However, the dissenting shareholders can approach the National Company Law Tribunal to object to the acquisition of their shares if the scheme is not in the public interest, is not just, fair, or reasonable, or unfair- ly discriminates against a class of shareholders. There are also provisions for a 90% stakeholder in a company to notify the company to purchase the remaining stake in the company. A company can also buy back its shares. A board resolution is required for a buy-back of up to 10% of the company’s total paid-up capital and free reserves. However, a special resolution would have to be passed by the members of the company for the buy-back of 10% or more of the company’s total paid-up capital and free reserves. There is a further cap of 25% of the aggregate of the company’s paid-up capital and free reserves in any one financial year, and a subsequent offer of buy-back can only be made one year after the date of closure of the preceding offer of buy-back. However, buy-backs are merely offers by the company, and shareholders do not have to participate. Listed companies can delist their equity shares as per the relevant guidelines. 6.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer Before making the public announcement of an “open offer” for acquiring shares under the regulations, the acquirer will ensure that firm financial arrangements have been made for fulfilling the payment obligations under the “open offer” and that the acquirer is able to implement the “open offer”, subject to any statu- tory approvals for the “open offer” that may be neces- sary. Furthermore, the acquirer will, no later than two working days prior to the date of the detailed public statement of the “open offer” for acquiring shares, create an escrow account as security for performance of their obligations under the relevant regulations, and
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