INDIA Law and Practice Contributed by: Raj Ramachandran and Krutamana Pisipati, JSA
person or party, the purchase price cannot be lower than the fair market value as determined on an arm’s length basis by a registered valuer. There is also an option to make a deferred pay- ment to achieve any specific commercial out- come, provided that the payment is made within 18 months from the date of the transfer agree- ment. The deferred consideration or payment cannot exceed 25% of the total consideration and the amount effectively paid should be compliant with pricing norms. Similarly, sellers can only provide indemnity escrow of up to 25% of the total consideration and only up to 18 months, provided the amount effectively paid remains compliant with pricing norms. For takeover offers, there are minimum price stipulations as well. The regulations governing takeovers have various mechanisms to calculate the “open offer” price depending on the nature of the acquisition. 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 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 business and operations of the company are run in the same manner, carry out non-alienation of any assets or sell them, or enter into voting arrangements and obligations of this nature.
If the board considers that the transaction would be beneficial, it will recommend it to its stake- holders and seek approval. Representations and warranties are included as negotiated to ensure that any unknown liabilities or claims do not erode the transaction value. 6.7 Minimum Acceptance Conditions An acquirer may make an “open offer” condi- tional on the minimum level of acceptance, pro- vided 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 triggered the “open offer”. 6.8 Squeeze-Out Mechanisms There are squeeze-out mechanisms which essentially permit acquirers to acquire the del- isted shares of a company to consolidate owner- ship. 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 after mak- ing an offer, the transferee company can notify dissenting shareholders within two months after 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 in instances of the scheme not being in the public interest, it is not just, fair or reasonable, or the scheme unfairly 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.
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