Structuring JV and acquisition agreements

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Nidhi Khadria and Arun Madhu of Phoenix Legal highlight regulatory changes that will affect the drafting of M&A contracts

In late 2009, the Indian securities market regulator tasked a group of industry experts with the job of re-examining India’s existing legislation governing takeovers of publicly listed companies (which was framed in 1997). The group, known as the Takeover Regulations Advisory Committee or TRAC, released its report in mid-July this year, proposing radical reforms to the existing framework.

Arun Madhu
Arun Madhu

The Takeover Code: version 3.0

Salient highlights of the report include a proposal to revise the trigger for a mandatory tender offer from 15% to 25%. Currently, purchasers acquiring 15% or more of a target company are expected to make a mandatory open offer of at least 20% to provide an exit option to the other shareholders. Increasing the threshold to 25% is a move which has been long sought after, given that a 15% purchase does not result in the acquisition of discernible control. Another highlight is the suggested change in the minimum offer size from 20% to 100%, which will result in purchasers (who acquire more than 25%) having to make an open offer to buy out the entire share capital of the company.

Those active in the PIPE (private investment in public equity) space are likely to welcome these changes as they pave the way for larger deals without being burdened with the arduous and expensive open offer process. The increase in the minimum offer size, however, will lead to a consequent rise in acquisition costs, leading to the likelihood that there will only be room for serious players in the public M&A game.

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Nidhi Khadria is a counsel and Arun Madhu is a senior associate at Phoenix Legal in Mumbai. They can be reached at nidhi.khadria@phoenixlegal.in and arun.madhu@phoenixlegal.in.

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