INDIA Law and Practice Contributed by: Raj Ramachandran and Krutamana Pisipati, JSA
6.10 Types of Deal Protection Measures The following deal protection measures may be available. • Break-up fees or reverse break-up fees are not very common in the Indian transaction market. There is also a restriction on public companies to provide financial assistance for the purchase or subscription of their own shares. • Matching rights would apply akin to a right of refusal where there is a competing bid, although the same would not come into play where there is an exclusivity period. • Exclusivity periods are typically stipulated to prevent companies from soliciting other bids and to give effect to any conditions that may need to be complied with. • In most instances of a proposal for transfer of shares involving a material or significant stake, approval of the shareholders of the company is required based on the terms of a shareholders’ agreement executed between the parties. 6.11 Additional Governance Rights The buyer would typically have visibility on the minimum quantum of shares that they would hold after the acquisition. So long as the unacquired shares are not significant enough in quantum to have an impact on the manner in which the acquirer would prefer to operate the business, the acquirer may proceed with the transaction. No alterations solely affecting the rights of the remaining shareholders which may be consid- ered prejudicial or disproportionate can be made. However, certain challenges would remain in giv- ing effect to related party transactions within the acquirer group.
A company can also buy-back its shares. A board resolution is required for a buy-back of up to 10% of the total paid up capital and free reserves of the company. However, a spe- cial resolution would have to be passed by the members of the company for a buy-back of 10% or more of the total paid up capital and free reserves of the company. There is a further cap of 25% of the aggregate of the paid up capital and free reserves of the company in 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 only an offer 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 regu- lations, the acquirer will ensure that firm finan- cial 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 statutory approv- als for the “open offer” that may be necessary. Furthermore, the acquirer will no later than two working days prior to the date of the detailed public statement of the “open offer” for acquir- ing shares, create an escrow account as security for performance of their obligations under the relevant regulations, and deposit such aggregate amount in the escrow account as per the rel- evant regulations.
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