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At the time of an initial listing of shares, a minimum offer is generally prescribed, while a minimum public float is prescribed for continued listing based on the Listing Agreement. Given the volatility of the global market since 2008, the Indian finance minister has proposed to raise the threshold for non-promoter, public shareholdings for all listed companies.
Mergers and acquisitions in India are governed by a large number of individual laws. The Indian government recently tabled its proposed Companies Bill 2011 before the Lower House of Parliament seeking to replace the outdated Companies Act 1956. A number of key changes have been proposed in the bill that are expected to impact on M&A transactions involving Indian companies.
M&A activity in India has witnessed a number of regulatory and legal changes in 2011. Policy changes in the past two months have generated uncertainty over the legality and enforceability of put and call options. These options are found in almost all modern investment agreements, despite the fact that they are not specifically codified under Indian law.
Every successfully negotiated multi-jurisdictional transaction should have a backbone of legally enforceable contracts. It is not sufficient only to spell out the rights, duties and obligations of the parties, but crucial also to lay down the process to be followed in case of a dispute. Therefore, a dispute resolution clause in any contract assumes tremendous significance, especially in cross-border M&A transactions.
The Supreme Court has provided clarity on the interpretation of the words 'persons acting in concert' as embodied in the Substantial Acquisition of Shares and Takeover Regulations 1997. The case involved a dispute surrounding the offer price quoted by Daiichi Sankyo in its public announcement for an indirect acquisition of shares in Zenotech Laboratories Ltd.
The Substantial Acquisition of Shares and Takeover Regulations 1997 (the Takeover Code) established the fundamental rules for mergers and acquisitions. With market conditions evolving, it was felt that the regulations needed to be amended to align them with those of other global markets. A panel has submitted new recommendations for takeovers. The changes are bold and could be sweeping when implemented.
In the last two years, Indian telecommunications giant Bharti Airtel has twice attempted to acquire South African telecommunications service provider MTN. However, Bharti failed on both accounts - each time for a different reason. Had the deal gone through, it would have resulted in the third-largest telecommunications company in the world, with combined annual revenues of over $20 billion and a subscriber base of over 200 million.