UNIVERSITY OF PETROLEUM & ENERGY STUDIES

COLLEGE OF LEGAL STUDIES

B.A., LL.B. (HONS.)
SEMESTER- VI
ACADEMIC YEAR: 2015-16
JAN-MAY

SESSIONS:
PROJECT
ON

COMPARITIVE ANALYSIS OF ENGLISH AND INDIAN LAWS GOVERNING

MERGER AND ACQUISITION
FOR
Company Law II(LLBL422)
Under the Supervision of: Shruti Reddy

NAME:

AHMARABRAR

SAP NO:

500028425

ROLL NO:

R450213010

Index

Introduction.03

Law regulating Merger and Acquisition in India.05

English law governing Merger and Acquisition.13

Cases on Merger and Acquisition19

Conclusion .21

INTRODUCTION
A merger is a combination of two companies where one corporation is completely absorbed by
another corporation. The less important company loses its identity and becomes part of the more
important corporation, which retains its identity. It may involve absorption or consolidation.
while in acquisition is the purchase of one company by another company.
Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies.
All assets, liabilities and the stock of one company stand transferred to Transferee Company in
consideration of payment in the form of:
(i) Equity shares in the transferee company,
(ii) Debentures in the transferee company,
(iii) Cash, or
(iv) A mix of the above mode.

Motives Behind Mergers of The Company1

(i)
Economies of Scale: This generally refers to a method in which the average cost per
(ii)

unit is decreased through increased production

Increased revenue /Increased Market Share: This motive assumes that the company

(iii)

will be absorbing the major competitor and thus increase its to set prices.
Cross selling: For example, a bank buying a stock broker could then sell its banking
products to the stock brokers customers, while the broker can sign up the bank

(iv)

customers for brokerage account.

Corporate Synergy: Better use of complimentary resources. It may take the form of

(v)

revenue enhancement and cost savings.

Taxes: A profitable can buy a loss maker to use the targets tax right off i.e. wherein a

(vi)

sick company is bought by giants.

Geographical or other diversification: This is designed to smooth the earning results
of a company, which over the long term smoothens the stock price of the company

1 Retrived from http://business.mapsofindia.com/finance/mergersacquisitions/mergers-and-acquisitions.html on march 27 at 10:50 pm.

3

giving conservative investors more confidence in investing in the company. However,

this does not always deliver value to shareholders.

Types of Mergers

From the perception of business organizations, there is a whole host of different mergers.
However, from an economist point of view i.e. based on the relationship between the two
merging companies, mergers are classified into following2:
(1) Horizontal merger- Two companies that are in direct competition and share the same product
lines and markets i.e. it results in the consolidation of firms that are direct rivals. E.g. Exxon and
Mobil, Ford and Volvo, Volkswagen and Rolls Royce and Lamborghini
(2) Vertical merger- A customer and company or a supplier and company i.e. merger of firms that
have actual or potential buyer-seller relationship eg. Ford- Bendix
(3) Conglomerate merger- generally a merger between companies which do not have any
common business areas or no common relationship of any kind. Consolidated firma may sell
related products or share marketing and distribution channels or production processes.
On a general analysis, it can be concluded that Horizontal mergers eliminate sellers and hence
reshape the market structure i.e. they have direct impact on seller concentration whereas vertical
and conglomerate mergers do not affect market structures e.g. the seller concentration directly.
They do not have anticompetitive consequences.3
The circumstances and reasons for every merger are different and these circumstances impact the
way the deal is dealt, approached, managed and executed. .However, the success of mergers
depends on how well the deal makers can integrate two companies while maintaining day-to-day
operations. Each deal has its own flips which are influenced by various extraneous factors such
as human capital component and the leadership. Much of it depends on the companys leadership
and the ability to retain people who are key to companyson going success. It is important, that
both the parties should be clear in their mind as to the motive of such acquisition i.e. there should
2Retrived from http://www.legalserviceindia.com/article/l463-Laws-RegulatingMergers-&-Acquisition-In-India.html on march 27 at 10:50 pm.
3 Ibid.
4

be censusad- idiom.4
Profits, intellectual property, costumer base are peripheral or central to the acquiring company,
the motive will determine the risk profile of such M&A. Generally before the onset of any deal,
due diligence is conducted so as to gauze the risks involved, the quantum of assets and liabilities
that are acquired etc.

Laws Regulating Merger & Acquisition in India

Following are the laws that regulate the merger of the company5:-

(I) The Companies Act , 1956

Section 390 to 395 of Companies Act, 1956 deal with arrangements, amalgamations, mergers
and the procedure to be followed for getting the arrangement, compromise or the scheme of
amalgamation approved. Though, section 391 deals with the issue of compromise or arrangement
which is different from the issue of amalgamation as deal with under section 394, as section 394
too refers to the procedure under section 391 etc., all the section are to be seen together while
understanding the procedure of getting the scheme of amalgamation approved. Again, it is true
that while the procedure to be followed in case of amalgamation of two companies is wider than
the scheme of compromise or arrangement though there exist substantial overlapping.
The procedure to be followed while getting the scheme of amalgamation and the important
points, are as follows:(1) Any company, creditors of the company, class of them, members or the class of members can
file an application under section 391 seeking sanction of any scheme of compromise or
arrangement. However, by its very nature it can be understood that the scheme of amalgamation
is normally presented by the company. While filing an application either under section 391 or
section 394, the applicant is supposed to disclose all material particulars in accordance with the
provisions of the Act.
4 Supra note 1.
5 Ibid.
5

(2) Upon satisfying that the scheme is prima facie workable and fair, the Tribunal order for the
meeting of the members, class of members, creditors or the class of creditors. Rather, passing an
order calling for meeting, if the requirements of holding meetings with class of shareholders or
the members, are specifically dealt with in the order calling meeting, then, there wont be any
subsequent litigation. The scope of conduct of meeting with such class of members or the
shareholders is wider in case of amalgamation than where a scheme of compromise or
arrangement is sought for under section 391
(3) The scheme must get approved by the majority of the stake holders viz., the members, class
of members, creditors or such class of creditors. The scope of conduct of meeting with the
members, class of members, creditors or such class of creditors will be restrictive some what in
an application seeking compromise or arrangement.
(4) There should be due notice disclosing all material particulars and annexing the copy of the
scheme as the case may be while calling the meeting.
(5) In a case where amalgamation of two companies is sought for, before approving the scheme
of amalgamation, a report is to be received form the registrar of companies that the approval of
scheme will not prejudice the interests of the shareholders.
(6) The Central Government is also required to file its report in an application seeking approval
of compromise, arrangement or the amalgamation as the case may be under section 394A.
(7) After complying with all the requirements, if the scheme is approved, then, the certified copy
of the order is to be filed with the concerned authorities.6
(II) The Competition Act ,2002
Following provisions of the Competition Act, 2002 deals with mergers of the company:(1) Section 5 of the Competition Act, 2002 deals with Combinations which defines
combination by reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.
For example, an Indian company with turnover of Rs. 3000 crores cannot acquire another Indian
company without prior notification and approval of the Competition Commission. On the other
6 A.P. Dash, Mergers and Acquisitions, I.K. International Publishing House Pvt. Ltd.,
2010, pp.40.
6

hand, a foreign company with turnover outside India of more than USD 1.5 billion (or in excess
of Rs. 4500 crores) may acquire a company in India with sales just short of Rs. 1500 crores
without any notification to (or approval of) the Competition Commission being required.
(2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and such a combination shall be void. All types of intra-group
combinations, mergers, demergers, reorganizations and other similar transactions should be
specifically exempted from the notification procedure and appropriate clauses should be
incorporated in sub-regulation 5(2) of the Regulations. These transactions do not have any
competitive impact on the market for assessment under the Competition Act, Section 6.7

(III) Foreign Exchange Management Act,1999

The foreign exchange laws relating to issuance and allotment of shares to foreign entities are
contained in The Foreign Exchange Management (Transfer or Issue of Security by a person
residing out of India) Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May, 2000.
These regulations provide general guidelines on issuance of shares or securities by an Indian
entity to a person residing outside India or recording in its books any transfer of security from or
to such person. RBI has issued detailed guidelines on foreign investment in India vide Foreign
Direct Investment Scheme contained in Schedule 1 of said regulation.8

(IV) SEBI Take over Code 1994

SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to
55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the target
company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However,
acquisition of shares or voting rights beyond 26% would apparently attract the notification
7 Retrived from http://www.affairscloud.com/mergers-and-acquisitions-of-indiancompanies-in-2015/ on 28 march at 09:00 am.
8 Retrived from http://business.mapsofindia.com/fibp/foreign-exchangemanagament-act.html on march 28 at 09:01 am.
7

procedure under the Act. It should be clarified that notification to CCI will not be required for
consolidation of shares or voting rights permitted under the SEBI Takeover Regulations.9
Similarly the acquirer who has already acquired control of a company (say a listed company),
after adhering to all requirements of SEBI Takeover Regulations and also the Act, should be
exempted from the Act for further acquisition of shares or voting rights in the same company.

(V) The Indian Income Tax Act (ITA), 1961

Merger has not been defined under the ITA but has been covered under the term 'amalgamation'
as defined in section 2(1B) of the Act. To encourage restructuring, merger and demerger has been
given a special treatment in the Income-tax Act since the beginning. The Finance Act, 1999
clarified many issues relating to Business Reorganizations thereby facilitating and making
business restructuring tax neutral. As per Finance Minister this has been done to accelerate
internal liberalization. Certain provisions applicable to mergers/demergers are as under:
Definition of Amalgamation/Merger Section 2(1B).10
Amalgamation means merger of either one or more companies with another company or
merger of two or more companies to form one company in such a manner that:
(1) All the properties and liabilities of the transferor company/companies become the properties
and liabilities of Transferee Company.
(2) Shareholders holding not less than 75% of the value of shares in the transferor company
(other than shares which are held by, or by a nominee for, the transferee company or its
subsidiaries) become shareholders of the transferee company.
The following provisions would be applicable to merger only if the conditions laid down in
section 2(1B) relating to merger are fulfilled:
(1) Taxability in the hands of Transferee Company Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the
9 Supra note 6.
10 Retrived from http://taxguru.in/company-law/merger-amalgamation-india.html on
march 28 at 10:09 am.
8

transferee company on merger is not regarded as transfer and hence gains arising from the same
are not chargeable to tax in the hands of the shareholders of the transferee company. [Section
47(vii)]
(b) In case of merger, cost of acquisition of shares of the transferee company, which were
acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor
company. [Section 49(2)]
(VI) Mandatory permission by the courts
Any scheme for mergers has to be sanctioned by the courts of the country. The company act
provides that the high court of the respective states where the transferor and the transferee
companies have their respective registered offices have the necessary jurisdiction to direct the
winding up or regulate the merger of the companies registered in or outside India.
The high courts can also supervise any arrangements or modifications in the arrangements after
having sanctioned the scheme of mergers as per the section 392 of the Company Act. Thereafter
the courts would issue the necessary sanctions for the scheme of mergers after dealing with the
application for the merger if they are convinced that the impending merger is fair and
reasonable.11
The courts also have a certain limit to their powers to exercise their jurisdiction which have
essentially evolved from their own rulings. For example, the courts will not allow the merger to
come through the intervention of the courts, if the same can be effected through some other
provisions of the Companies Act; further, the courts cannot allow for the merger to proceed if
there was something that the parties themselves could not agree to; also, if the merger, if
allowed, would be in contravention of certain conditions laid down by the law, such a merger
also cannot be permitted. The courts have no special jurisdiction with regard to the issuance of
writs to entertain an appeal over a matter that is otherwise final, conclusive and binding as per
the section 391 of the Company act.12
(VII) Stamp duty
Stamp act varies from state to State. As per Bombay Stamp Act, conveyance includes an order in
11 Supra note 2.
12 Ibid.
9

respect of amalgamation; by which property is transferred to or vested in any other person. As

per this Act, rate of stamp duty is 10 per cent.

Intellectual Property Due Diligence In Mergers And Acquisitions

The increased profile, frequency, and value of intellectual property related transactions have
elevated the need for all legal and financial professionals and Intellectual Property (IP) owner to
have thorough understanding of the assessment and the valuation of these assets, and their role in
commercial transaction. A detailed assessment of intellectual property asset is becoming an
increasingly integrated part of commercial transaction. Due diligence is the process of
investigating a partys ownership, right to use, and right to stop others from using the IP rights
involved in sale or merger ---the nature of transaction and the rights being acquired will
determine the extent and focus of the due diligence review. Due Diligence in IP for valuation
would help in building strategy,
where in:(a) If Intellectual Property asset is underplayed the plans for maximization would be discussed.
(b) If the Trademark has been maximized to the point that it has lost its cachet in the market
place, reclaiming may be considered.
(c) If mark is undergoing generalization and is becoming generic, reclaiming the mark from
slipping to generic status would need to be considered.
(d) Certain events can devalue an Intellectual Property Asset, in the same way a fire can
suddenly destroy a piece of real property. These sudden events in respect of IP could be adverse
publicity or personal injury arising from a product. An essential part of the due diligence and
valuation process accounts for the impact of product and company-related events on assets
management can use risk information revealed in the due diligence.
(e) Due diligence could highlight contingent risk which do not always arise from Intellectual
Property law itself but may be significantly affected by product liability and contract law and
other non Intellectual Property realms.
Therefore Intellectual Property due diligence and valuation can be correlated with the overall
legal due diligence to provide an accurate conclusion regarding the asset present and future
10

value.13

Legal Procedure For Bringing About Merger of Companies

(1) Examination of object clauses:
The MOA of both the companies should be examined to check the power to amalgamate
is available. Further, the object clause of the merging company should permit it to carry
on the business of the merged company. If such clauses do not exist, necessary approvals
of the share holders, board of directors, and company law board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be informed
about the merger proposal. From time to time, copies of all notices, resolutions, and
orders should be mailed to the concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BODs. The board of
each company should pass a resolution authorizing its directors/executives to pursue the
matter further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each company
should make an application to the high court of the state where its registered office is
situated so that it can convene the meetings of share holders and creditors for passing the
merger proposal.
(5) Dispatch of notice to share holders and creditors:
In order to convene the meetings of share holders and creditors, a notice and an
explanatory statement of the meeting, as approved by the high court, should be
dispatched by each company to its shareholders and creditors so that they get 21 days
advance intimation. The notice of the meetings should also be published in two news
papers.
(6) Holding of meetings of share holders and creditors:
13 Retrived from http://www.mca.gov.in/MinistryV2/chapter10.html on 28 march at
10:50 am.
11

A meeting of share holders should be held by each company for passing the scheme of
mergers at least 75% of shareholders who vote either in person or by proxy must approve
the scheme of merger. Same applies to creditors also.
(7) Petition to High Court for confirmation and passing of HC orders:
Once the mergers scheme is passed by the share holders and creditors, the companies
involved in the merger should present a petition to the HC for confirming the scheme of
merger. A notice about the same has to be published in 2 newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of companies
within the time limit specified by the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HCs, all the assets and liabilities of
the merged company will have to be transferred to the merging company.
(10) Issue of shares and debentures:
The merging company, after fulfilling the provisions of the law, should issue shares and
debentures of the merging company. The new shares and debentures so issued will then
be listed on the stock exchange.14

Waiting Period In Merger

International experience shows that 80-85% of mergers and acquisitions do not raise
competitive concerns and are generally approved between 30-60 days. The rest tend to
take longer time and, therefore, laws permit sufficient time for looking into complex
cases. The International Competition Network, an association of global competition
authorities, had recommended that the straight forward cases should be dealt with within
six weeks and complex cases within six months.
The Indian competition law prescribes a maximum of 210 days for determination of
combination, which includes mergers, amalgamations, acquisitions etc. This however
should not be read as the minimum period of compulsory wait for parties who will notify
the Competition Commission.
In fact, the law clearly states that the compulsory wait period is either 210 days from the

14 Supra note 1.
12

filing of the notice or the order of the Commission, whichever is earlier. In the event the
Commission approves a proposed combination on the 30th day, it can take effect on the
31st day. The internal time limits within the overall gap of 210 days are proposed to be
built in the regulations that the Commission will be drafting, so that the over whelming
proportion of mergers would receive approval within a much shorter period.
The time lines prescribed under the Act and the Regulations do not take cognizance of the
compliances to be observed under other statutory provisions like the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (SEBI Takeover Regulations).
SEBI Takeover Regulations require the acquirer to complete all procedures relating to the
public offer including payment of consideration to the shareholders who have accepted
the offer, within 90 days from the date of public announcement. Similarly, mergers and
amalgamations get completed generally in 3-4 months time. Failure to make payments to
the shareholders in the public offer within the time stipulated in the SEBI Takeover
Regulations entails payment of interest by the acquirer at a rate as may be specified by
SEBI. [Regulation 22(12) of the SEBI Takeover Regulations] It would therefore be
essential that the maximum turnaround time for CCI should be reduced from 210 days to
90 days.15

ENGLISH LAW GOVERNING M&A

In contrast to civil law jurisdictions the common law places greater importance on judicial
decisions and applies the doctrine of precedent, which aims to decide similar cases based on
previous decisions of higher courts. Operating alongside this system in the UK is a series of
conventions and principles which have stood the test of time and remain part of the legal system
to this day. One of the most significant of these is the principle of 'Caveat emptor', which
translates from Latin as "let the buyer beware". It is central to UK law on commercial contracts,
including mergers and acquisitions.
When buying a company or business in the UK there is very limited statutory protection for the
buyer on the nature or extent of the assets and liabilities being acquired. The buyer is responsible
15 Supra note 6.
13

for learning about the assets and liabilities it is acquiring. This means that even a small company
can have potentially unlimited liabilities that would remain with the company and transfer to the
buyer (on a share purchase).
'Caveat Emptor' does not mean that a seller can deliberately conceal liabilities or misrepresent
the state of the company. In these circumstances a buyer that has been induced by the
misrepresentation to buy the business can take action against the seller for misrepresentation.
However, the seller will not be at fault in cases where they have failed to mention a problem
about which they have not been asked, made an innocent mistake or have no knowledge of a
particular issue. The buyer must therefore ensure it is fully protected in the sale and purchase
contract and undertake a rigorous due diligence process.16
.

ENGLISH LAW AND DISPUTE RESOLUTION

English law is chosen by buyers and sellers around the world to govern M&A agreements even
where the deal has little or no connection to the UK. The basic principle under English law is that
parties have freedom to contract on whatever terms they choose. There are very limited areas
where English law principles will override the express terms of the contract and terms are rarely
implied into a contract by English law or the English courts. This means that the principle of
caveat emptor, or buyer beware, applies a buyer will only get the protection that is written
into the contract; there is also a lower possibility of claims outside the contract. In terms of
dispute resolution, generally English courts are considered fair and of good quality. Cases are
decided by a judge rather than a jury and damages are also determined by a judge. Litigation
costs generally are borne on a loser pays principle and unlike other jurisdictions there is little
risk of punitive damages. As well as English contract law, buyers may need to consider the
requirements of the UK Companies Act 2006 (the main statute regulating companies in the UK),
the UK Takeover Code and relevant securities laws including the Listing Rules applicable to
companies with UK listed shares.17

16 Retrived from https://gowlingwlg.com/en/united-kingdom/insights-resources/anintroduction-to-uk-mergers-acquisitions-law on 30 march at 05:10 pm.

14

PUBLIC M&A In the UK,

An acquisition (or takeover) of a publicly traded company is generally effected in one of two
ways. Which method is used will be driven by certain factors on the deal, for example whether
the takeover is hostile or recommended by the target board of directors. The first method is a
contractual offer, similar to a US tender offer, where an offer is made by the bidder to the
target shareholders who choose whether or not to accept. The offer will be subject to a series of
conditions, in particular an acceptance condition. If the bidder acquires or receives acceptances
in respect of more than 50% of the shares in the target company, the bidder will be able to close
the deal, though often it will decide only to close once it receives a higher level of acceptances.
Generally, if the bidder acquires 90% of the target shares it is able to squeeze out the minority.
The other method is by way of a court approved scheme of arrangement proposed by the target
board. Under this statutory procedure the scheme must approved by a majority in number,
representing at least 75% in value, of target shareholders who vote. The scheme must then be
sanctioned by the court and is only effective once the court order sanctioning the scheme has
been registered at the companies registry. The effect of the scheme is to make the bidder the
holder of all of the shares in the target company. Whichever method is used, a takeover of a UK
public company is governed by the UK Takeover Code and overseen by the UK Takeover Panel.
The Takeover Code is based on a set of six General Principles underpinned by more detailed
rules which govern, amongst other things, the timetable for the offer and the information which
each party must give to the target shareholders. The Takeover Panel itself is not interested in the
merits of the bid but ensures that the Takeover Code is adhered to. It plays a very important, and
active, role in regulating bids and its hands-on approach is different to most regulators. There is
very little court intervention or tactical litigation in public M&A in the UK in part because of the
role that the Takeover Panel plays. Under the UK regime if a possible bidders interest becomes
known in the market, for example if there is a leak, then the interest of the possible offeror must
be publicly announced and under the put up or shut up regime the bidder then has 28 days to
announce either a firm intention to make an offer or that it does not intend to make an offer (after
which it will be locked out for six months). The requirement to announce potential bids when
there has been market rumour or untoward share price movements is tightly policed and enforced
17 Retrived from https://www.lawontheweb.co.uk/business/mergers-and-acquisition
on 30 march at 05:15 pm.
15

by the Takeover Panel. AT&T was forced to announce the end of its interest in a possible offer
for Vodafone during 2014 following press speculation of a possible bid18
A particular requirement of the Takeover Code is that once a bidder announces a firm intention to
make an offer it will generally be required to proceed with the offer. Aside from the acceptance
condition, and UK or EU anti-trust conditions, an offer will often contain detailed business
conditions including relating to material adverse change in the target (MAC). However, the
threshold at which the Takeover Panel will permit a bidder to invoke such conditions is very high
meaning that a bidder is rarely permitted by the Takeover Panel to invoke such conditions.There
will be only limited due diligence, particularly in a hostile situation, and very limited warranty
protection. Unlike in the US and most other European jurisdictions there is also a wide-ranging
prohibition on the target entering into offer-related arrangements, such as break fees and other
deal protection measures, so a bidder will typically have little or no comfort that its offer will
succeed when launched. Conversely the target board is not allowed to take action which might
frustrate a bid and in the UK companies do not use poison pills or similar devices to ward off
an unwanted bidder.19

PRIVATE M&A

The sale and purchase agreement A private or unlisted company is usually sold pursuant to a sale
and purchase agreement entered into between the buyer and seller. The common form, used on a
bilateral acquisition of shares or assets, is a long form sale and purchase agreement, prepared by
the purchaser and its advisers. It will set out in full the terms of the transaction, its conditions and
extensive warranties. In an auction process, a shorter seller-drafted agreement is used at least as a
starting point. The initial covenants offered by the seller are usually limited, and the prospective
purchasers are invited to add protections that they feel are necessary and their approach to the
documents will form part of the assessment of their bid.20 Private equity sellers will also look to
18 Financial Times, Vodafone and liberty locked in cable war, 28 January 2014.
19 Ibid.
20 Supra not 16.
16

limit any warranty package effectively to title and capacity, reflecting their role in the
management of the business and in part so that the proceeds of sale can be distributed to
investors once the deal has completed without risk of recourse. The form of agreement used on a
distressed deal where the seller is facing insolvency and the process is led by an administrator
(appointed usually by the creditor bank(s)) is likely to contain only the mechanics of the deal
required to transfer title, with little protection for the purchaser other than the capacity of the
administrator to effect the transfer. Conditions Typically the conditions to an acquisition will be
limited to specific issues which go to the heart of the deal, for example antitrust approvals
without which the deal cannot lawfully close, as well as any other similar third party approvals
and consents from key counterparties without which either party is not prepared to proceed. As
discussed above, the UK Listing Rules may also require a UK listed company that is party to the
transaction to get shareholder approval for significant transactions or transactions with related
parties. The inclusion of a general MAC condition concerning the targets economic condition is
not standard practice, although their use did increase in popularity during the last recession.21
Price adjustment The most common price adjustment method is through the preparation of full
completion accounts, or at least to reflect the key variables such as cash and working capital.
Locked box processes became popular for sellers for their simplicity, speed and the certainty of
price. Under a locked box mechanism, the price is agreed by reference to a historic but relatively
recent balance sheet, the idea being that economic risk and benefit passes to the buyer as of the
locked box date. This is then backed up by an indemnity from the seller in relation to any
leakage after the locked box date such as transfers, dividends or other payments in favour of
the seller group. However, as the locked box method is not appropriate in all cases and does not
protect a purchaser in respect of changes in the trading position of the target after the locked box
date, sellers will still seek completion accounts as a favoured adjustment in appropriate cases.
Warranties The starting point in the UK is for detailed warranties to be set out in a schedule to
the agreement. A disclosure letter will be produced by the sellers setting out any specific
disclosures against the warranties and it is standard in the UK for there to be UNITED
KINGDOM general disclosure made of all the data which has been provided in the data room.
The remedy for a warranty breach is a contractual action for damages, requiring the buyer to
demonstrate that the breach of the warranty has reduced the value of the target company often
21 Ibid.
17

difficult to establish. It is unusual to have warranties on an indemnity basis i.e. a recovery on a

pound-for-pound (or dollar-for-dollar) basis. In the UK market, indemnities tend to be reserved
to specific matters where a particular issue has been identified by the buyer. Representations are
different from warranties under English law. They give rise to a different measure of damages,
and can also give rise to the remedy of rescission, allowing the buyer to walk away. Accordingly,
they are infrequently given. There is no standard set of limitations on the protection package in
the UK and each deal will be driven by its own dynamics. An example of what parties may agree
is as follows. Some warranties, such as those relating to tax, accounts and fundamental
warranties like title to shares, will be capped at the overall consideration for the deal. Depending
upon the counterparties and the competitive pressure, there is likely to be a different cap on
liability for other warranty breaches. This will probably be capped somewhere in the range of
20% - 70% of the overall consideration. The warranties are likely to have a duration of around 18
months to two years. There are likely to be minimum thresholds which have to be reached before
a claim can be made. In a share sale, there will be a stand-alone tax indemnity for certain historic
and current year tax liabilities. Employee and pensions issues There are rules (known as TUPE)
which are designed to protect businesses and employees on business and asset sales (they do not
apply on a share sale). The rules operate to transfer the employees of the business automatically
and on exactly the same employment terms to the buyer. It is difficult to change the terms of
employment or exclude employees from the transfer. There is also an obligation to inform and
consult with the employees before closing. On public M&A, the Takeover Code requires bidders
to state their intentions with regards to employees and the impact of their strategy on the
workforce. Parties to a takeover bid must also provide information to employees and the trustees
of any pension scheme the target has. Employee representatives and pension scheme trustees also
have an opportunity to publish their opinion. Where a target has a defined benefit pension
scheme, trustees can wield considerable power in the M&A process they will often scrutinise a
transaction to assess whether it will have negative effect on the scheme and the employers
ability to fund scheme liabilities. They may seek assurances and commitments to mitigate against
that risk. Depending on the terms of the scheme, the trustees may have powers to impact the
contributions required from the participating employers including the target. The UK Pensions

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Regulator also has power to require parties to contribute to or support a pension scheme22. These
powers need to be fully understood before embarking on an M&A process. Merger control The
UK is an open market and foreign investment has been encouraged for a number of years.
Intervention by the government on the grounds of public or national interest has not historically
featured in the UK M&A market.23 The basic principle is that, with a few exceptions, UK merger
control is based on a competition test assessed independently of government, not a wider public
interest test. Where a merger has a European dimension, the EU Merger Regulation will apply
which is again a competition-based test. The UK government has only limited power to intervene
where there are specific public interest concerns, and which are currently limited to three areas:
national security; media plurality, quality and standards; and financial stability.24

Cases on merger and acquisition

TATA & CORUS: A CASE OF ACQUISITION

Tata steel was set up by Indian parsi specialist jamshedjitata in 1907, yet began its operations in
1912. Tata steel holds extremely indispensable place in indian business history. With the
progression of time tata began putting resources into different systematic oil processes, carriers,
distributed, furthermore went into fares known as tata fares. Wheras discussing corus gathering
was framed on sixth October 1999 through the merger of two companiesbritish steel and
koniklijkehoogovens. Organization comprises of four divisions which incorporate strip items,
long items, alumunium and appropriation having headquarter in London. Tata procured Corus,
which is four times bigger than its size and the biggest steel maker in the U.K. The arrangement,
which makes the world's fifth-biggest steelmaker, is India's biggest ever remote takeover and
takes after Mittal Steel's $31 billion securing of opponent Arcelor around the same time. Tata
22 HM Treasury Consultation on the fair Deal Policy: Treatment of Pension on
Compulsory Transfer of staff from Public Sector March 2011.
23 Office for National Statistics, Statistical Bulletin: Mergers and Acquisitions
Involving UK Companies, Q4 2013 (March 2014).
24 Retrived from http://us.practicallaw.com/1-583-5679 on 30 march at 09:00 pm.
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obtained Corus on the second of April 2007 at a cost of $12 billion making the Indian
organization the world's fifth biggest steel maker. This obtaining handle has begun long back in
the year 2005. This arrangement is a 100% obtaining and the new substance will be controlled by
one of Tata's steel auxiliaries. As expressed by Tata, the underlying intention behind the finish of
the arrangement was not Corus' income measure, but instead its reasonable worth.
Tata has purportedly financed just $4 billion of the Corus buy from inner organization assets,
implying that more than 66% of the arrangement has must be financed through credits from
significant banks. The day after the obtaining was authoritatively reported, Tata steel's share fell
by 10.7 percent on the Bombay securities exchange.. So in general examination it can be
watched that tata- corus deal was perceived to be a dream acusition, given the long term strategy
and positioning of tata in European markets at critical juncture.25

Arcelormittal case of hostile takeover

On August 1, 2006, Mittal Steel procured 91.9% of the share capital of Arcelor (on a completely
weakened premise). Through ensuing exchanges Mittal Steel expanded its proprietorship to
94.2%, which incorporated the issued and extraordinary shares of Arcelor and the majority of
Arcelor's convertible securities, which were procured in return for around 680 million Mittal
Steel class A typical shares and roughly 8.0 billion ($10.4 billion) in real money. On August 1,
2006, Arcelor turned into an auxiliary of Mittal Steel and its aftereffects of operations were
incorporated into Mittal Steel's solidified consequences of operations from that date. The
securing was represented utilizing the buy strategy for bookkeeping, which requires that the
benefits obtained and liabilities expected be recorded at their evaluated reasonable values at the
date of acquisition.In a Memorandum of Understanding went into among Mittal Steel, Arcelor
and the Significant shareholder on June 25, 2006, (the "Memorendum of Understanding" or
"MoU"), Mittal Steel concurred that it would converge into Arcelor when practicable after
consummation of its changed offer for Arcelor, and that the joined substance would be
consolidated, domiciled and headquartered in Luxembourg. Taking after examinations at a
meeting hung on April 27, 2007, the Mittal Steel Board of Directors chose to sort out a two-stage
25 A.P. Dash, Mergers and Acquisitions, I.K. International Publishing House Pvt. Ltd.,
2010, pp. 196.
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prepare compliant with which Mittal Steel would first be converged into ArcelorMittal, which
would in this way be converged into Arcelor as a definitive surviving entity.ArcelorMittal was
fused on August 13, 2004 under the name Verger Investments S.A. It was an entirely possessed
backup of Mittal Steel from April 24, 2007 and was renamed "ArcelorMittal" on April 26, 2007.
It didn't direct any operations before the merger condensed underneath. Successful September 3,
2007, Mittal Steel converged into ArcelorMittal, by method for retention by ArcelorMittal of
Mittal Steel and without liquidation of Mittal Steel, and the consolidated organization was
renamed "ArcelorMittal".26

CONCLUSION
Investors ought to take a mindful way to deal with a UK acquisition and should complete broad
due ingenuity regardless of the possibility that a cozy association with the seller has as of now
been set up. In a typical law purview like the UK the littlest organization, regardless of the fact
that it has not very many resources, can in any case have critical liabilities so a painstakingly
drafted contract is vital. The positive side of the normal law framework is that it permits
significant opportunity of agreement, and the financial specialist can tailor a consent to ensure
the merger or acquisition is the right arrangement at the right cost. In India With the FDI
approaches turning out to be more changed, Mergers, Acquisitions and partnership talks are
warming up in India and are developing with a perpetually expanding rhythm. They are not any
more restricted to one specific sort of business. The rundown of past and foreseen mergers
covers each size and assortment of business - mergers are on the increment over the entire
commercial center, giving stages to the little organizations being procured by greater ones. The
essential explanation for mergers and acquisitions is that associations consolidation and shape a
solitary element to accomplish economies of scale, enlarge their compass, secure vital abilities,
and increase upper hand.
26Retrieve from http://corporate.arcelormittal.com/corporate-responsibilityold/workplace/training-and-development/case-study on 3rd april at 11:09 pm.
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