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India: M&A Landscape

Featuring Vineet Aneja

Partner
Fox Mandal Little

GLG Institute Seminar

24th April 2007, Hong Kong
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Council Member Biography

Vineet Aneja

Vineet Aneja is the head of the corporate practice at Fox Mandal Little, one of
India's oldest and largest full service legal Organization. He specializes in joint
ventures, mergers and acquisitions, project finance, corporate, corporate
consultancy, SEBI related laws and foreign exchange laws. Mr. Aneja’s scope of
advice includes structuring corporate transactions in a tax efficient manner,
advice on general corporate issues, due diligence and legal audits, entry and
exit strategies to foreign investors, seeking approvals and registrations with
various government and other bodies, and advice on Foreign Exchange
Management Act issues. He has advised various Indian and foreign companies
on general corporate matters including regulation, companies Act etc. This
includes Gas Authority of India Limited, Nuclear Power Corporation of India
Limited, Alcatel, Fidelity Group, Colt Telecom, ExxonMobil Corporation, JP
Morgan Fleming, Goldman Sachs, Alchemy Partners LLP and Ashmore
Investments (UK).

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 Mergers and Acquisitions 2007
Source: Assocham Eco Pulse Analysis

Outward FDI flow Destinations for

Corporate India
Expected to be more
than China, Brazil, USA
USD 15 billion and Africa.

Sectors
Pharmaceuticals,
automotives, software, Increasing
financial Services, number of inbound deals
real estate, 532 deals in 2006
hospitality, construction
services etc. [

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 Mergers and Acquisitions 2007

• Increasing number of outbound deals as compared to

inbound investments.

• High value Merger and Acquisition (“M&A”) deals in

Tata -
commodities (especially metals) and telecom.
Corus

Holcim - • Growth of M& A activity in the commodities sector due to

Gujarat Hindalco -
Novelis factors such as economic growth, international commodity
Ambuja
prices, exports, growth of infrastructure, cheap labor etc.
Hutch –
Vodafo • Rationale for major inbound deals such as Holcim’s
ne investment in Gujarat Ambuja and Ambuja Cements
mostly to expand capacity in India.

• In January and February 2007 alone, 102 M&A deals have

taken place with a total value of almost USD 36.8 billion.
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 Top Deals In Commodities Sector
2006
Acquirer Target Acquisition
(Mn USD)
Holcim Gujarat Ambuja Cements Limited 470.00
Essar Group Essar Oil Limited 760.81
Aban Lloyd Chiles Offshore Sinvest ASA 446.00
Mittal Investments Omimex de Columbia 425.00
Chevron Corporation Reliance Petroleum Limited 300.00

2007
Acquirer Target Acquisition
(Mn USD)
Hindalco Industries Novelis Inc 6,000.00
Rain Commodities GLC Carbon Canada Inc 360.89
Holcim Ambuja Cement India Limited 117.00
Mittal Investments GSSRL – HPCL’s Bhatinda Refinery 711.11
Tata Steel Corus 13,650.00
Source: Dealtracker, Grant Thornton 2007
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 Vodafone - Hutch

Fourth largest deal of the year 2007 (to date) at $13.3 bn

Deal size and stake ($11.1 bn plus $2 bn debt). Hutchison Essar valued at
$18.8 bn.

Vodafone acquisition is subject to a number of

Regulatory approvals including from the Department of
Approvals Telecommunications and the Government (FIPB).

Vodafone filed for an approval from the FIPB .

Foreign Investment Application still not been approved due to issues
Promotion Board relating to the total direct and indirect foreign holding
in Hutchison Essar.

Press Note 5 of 2005 provides that direct and indirect

Foreign Direct
foreign shareholding in a telecom company cannot
Investment Policy
exceed 74%.

Department The Department of Telecommunication has given its nod

of Telecom All licensing conditions to be met by Vodafone.
Sector wise Break-Up- PE deals by value

Jan 2007

Feb 2007

Source: Dealtracker, Grant Thornton 2007Jan 2007

 Regulation of Mergers in India
Mergers
Mergers are
are primarily
primarily governed
governed by
by the
the Company
Company Court
Court and
and the
the Ministry
Ministry of
of
Company
Company Affairs…
Affairs…

108A-108I Restrictions on transfer / acquisition of shares where acquirer’s shareholding :

Companies - results in a dominant undertaking (“DU”)
Act , 1956 - in case of existing DU, increase substantially the production, supply
of goods and services.
Central Government approval required if in excess of threshold prescribed.

390-394
Companies Section 390 to 394 of the Companies Act –Governs schemes of
Act , 1956 Arrangement between companies and their respective shareholders and
creditors under supervision of the Company Court.
 Merger or Amalgamation under a scheme
of arrangement

Most convenient and common method of obtaining a complete

merger or amalgamation between companies.

• Active involvement of Court

• Court sanction under Section 394 (2) required
• Court order to be filed with the Registrar of Companies
Section 390 –
Various approvals required in respect of scheme of
396A of the
Companies Act, amalgamation:
1956 • Approval of the Board of Directors
• Approval of Stock Exchanges
• Approval of Shareholders/ Creditors (secured and
unsecured)
• Approval of Land Holders and under other contracts
• Approval of the High Court
• Approval of the Reserve Bank of India
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 Acquisitions
Acquisition of shares in an Indian company by Non Residents governed by the
Foreign Exchange Management (Transfer or issue of Security by a Person
Resident outside India) Regulations, 2000.

No approval required for purchase of shares ( including existing shares from

Residents to Non-Residents or vice versa, subject to pricing and reporting
requirements.

Press Note 1 of 2005 read with Press Note 3 of 2005 to be complied with in case
of existing joint ventures. Proposals in the Information Technology sector,
investments by multinational financial institutions and in the mining sector for
same area/mineral exempted.

Acquisition of shares in an Indian listed company, have to be in compliance

with the provisions under the Substantial Acquisition of Shares and
Takeovers Regulations 1997 (Takeover Code).

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 Acquisitions
Issues under FEMA

Circular No. • General permission, in respect of transfers from R to NR

& NR to R.
16 • Conditions under Circular 16 to be met & reporting
requirements to be complied with.

Sectoral • Under the current FDI policy, most sectors under the
automatic route for investment up to 100% including
Caps manufacturing and services sector.
• Approval required for proposals outside sectoral policy.

Prior approval from the Government required for

FIPB manufacture of cigars/ cigarettes of tobacco, electronic
Approval aerospace & defense equipments, items reserved for small
scale sector and FDI in Single Brand retail.

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 Acquisitions
Issues under the Takeover Code
Open Offer
Making of an open offer on
holding crossing15%
(Reg. 10)
Open offer on holding crossing
5 % in a financial year (for
15% holding to 55% holding)
Any shares beyond 55%, less
than 75%
Open offer on change of control
(regardless of acquisition of
shares)
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Disclosures
Upon acquisition of 5% or
more
Disclosure at 5% or 10% or
14% or 54% or 74% (shares or
voting rights)
Purchase and sale of every 2%
(for 15% holding to 55%
holding)
Yearly disclosures by persons
holding more than 15%, by
persons in control / promoters
 Joint Ventures
Gaining effective control of Joint Venture Companies

Differential Voting
Rights
Shareholding
51: 49 Joint
Venture Casting Vote

Control

Reserved Nominees
Matters on Board

Right to appoint
Top Management

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Key Shareholding Thresholds

26% - Special Resolutions

can be blocked

51% - Ordinary Resolutions

can be passed

75% - Approval of at least 75% (shareholders present

and voting) required to pass a Special
Resolution

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 Exit Mechanisms

Repatriation
Repatriation ofof profits
profits from
from made
made byby Indian
Indian companies
companies to
to
foreign investors as dividends is freely permitted.
foreign investors as dividends is freely permitted.

Exit
Exit route
route in
in the
the form
form of
of aa transfer
transfer of
of the
the shares
shares of
of the
the Indian
Indian
company..
company

Exit
Exit route
route in
in the
the form
form of
of aa transfer
transfer of
of the
the assets
assets of
of the
the Indian
Indian
company..
company

Gains
Gains derived
derived fromfrom transfer
transfer ofof shares
shares in
inIndian
Indian companies
companies
are
are subject
subject to
to tax
tax in
inIndia,
India, subject
subject to
to tax
tax treaties,
treaties, ifif any.
any.

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 Taxation
* Please note the below rates have been proposed in the recent finance bill.

Effective rate of corporate tax for non-

resident companies and their branches is
42.23%.

Effective rate of corporate tax for domestic

companies is 33.99%.

Dividend distribution tax of 16.995 % is payable by the

company.

Capital Gains tax payable on long term and short term gains (varying
rates depending upon whether listed or unlisted company)

Service tax of 12% (12.36% including the education cess) applies to many services.

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 Taxation

• Government of India, under Section 90 of the Income Tax Act,

has entered into double tax avoidance agreements with other
Double Tax
countries.
Avoidance
Agreements
• Tax Treaties provide protection to taxpayers against double
taxation and prevent discouragement, which the double taxation
may otherwise promote in the free flow of international trade,
international investment and international transfer of technology.

• India has entered into DTAA with 65 countries including

USA. In case of countries with which India has DTAAs, the tax rates
are determined by such agreements. Credit on foreign tax paid
domestic corporations is granted.

Tax
Tax havens
havens include
include Mauritius,
Mauritius, Singapore,
Singapore, Caymon
Caymon Islands,
Islands, Netherlands
Netherlands etc.
etc.

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