1. CROSS BORDER MERGERS & ACQUISITIONS The Legal Landscape Madhurendra Nath Jha

2. © Paras Kuhad & Associates, Advocates Introduction Merger - A Merger may be defined as the combination of two or more independent business corporations into a single enterprise, usually involving the absorption of one or more firms by a dominant firm. Mergers may be broadly classified as Horizontal, Vertical or Conglomerate Acquisition may be defined as an act of one enterprise of acquiring, directly or indirectly of shares, voting rights, assets or control over the management, of another enterprise.

3. © Paras Kuhad & Associates, Advocates M&A Band Wagon Frenzied Activity in the field of M&A in recent years In 2007 out of Total 348 Cross Border Deals: Outbound: 240 ($32.37 billion) Inbound: 108 ($15.61 billion)

4. © Paras Kuhad & Associates, Advocates Increase in M& A

5. © Paras Kuhad & Associates, Advocates India Inc. Goes Global Tata Steel acquired UK based Corus for $ 8 billion. Suzlon Energy Ltd acquired German firm Repower Systems AG for $ 1.7 billion. United Spirits bought Scotch whisky distiller Whyte & Mackay for US$ 1.11 billion Hindalco acquired Novelis for $ 6 billion

6. © Paras Kuhad & Associates, Advocates India goes global TATA Chemical acquires US based Soda Ash Maker General Industrial Products for $ 1 billion Indian shipping company Great Offshore acquires UK based Sea Dragon for US$ 1.4 billion Essar Energy acquires 50% stake in Kenya Petroleum refineries ltd. Banswara Syntex to acquire France firm Carreman Michel Thierry for around US$ 125 million

7. © Paras Kuhad & Associates, Advocates Graphical representation of Indian outbound deals since 2000. Source: IBEF

8. © Paras Kuhad & Associates, Advocates Inbound Transactions Sistema, Russian Joint Stock Company’s acquisition of 74% stake in Shyam Telelink – Telecommunications French banking major BNP Paribas’s acquisition of 45% stake in financial services firm Sundaram Home Finance for $45.81 million Standard Chartered Bank bought 49% stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100% for $100 million

9. © Paras Kuhad & Associates, Advocates Fursa Mauritius’s acquisition of 42.63% equity in Gayatri Starchkem UBS Global Management’s Acquisition of Standard Chartered Asset Management Company for $ 117.78 Million EMC Corporations Acquisition of Valyd Software Pvt. Ltd. Orkla’s Acquisition of MTR foods for $ 100 Million

10. © Paras Kuhad & Associates, Advocates Destination India Liberal FDI Policy Framework FDI allowed in most sectors Entry Routes for Investment in India –Approval –Automatic

11. © Paras Kuhad & Associates, Advocates FDI and Portfolio Flows to India Source: RBI

12. © Paras Kuhad & Associates, Advocates Entry Strategies for Foreign Investors As a Foreign Company through: –Liaison office/Representative office –Project Office –Branch Office foreign company through: As an Indian company through: –a Joint Venture –Wholly Owned Subsidiary

13. © Paras Kuhad & Associates, Advocates Joint Ventures As An Entry Strategy JV’S regulated by Policies and Laws governing FDI Two Tier Approval Mechanism for JV’S: -Automatic Approval Route -FIPB Approval Route If the Foreign Partner has entered into JV in the same field before then NOC of the previous JV partner and approval of the Government also required

14. © Paras Kuhad & Associates, Advocates India-entry ‘Same Field’ may be defined as the 4 digit National Industrial Classification (NIC) Code Illustration: If the foreign investor has collaboration for the manufacture of tarpaulin Code 268.3, he can invest in the manufacture of rubberized cloth Code 268.2 as there is no restriction to enter into JV’s in allied fields. The restriction shall apply to any item whose code NIC code is 268.2.

15. © Paras Kuhad & Associates, Advocates India entry A ‘Conflict of Interest’ clause advisable in the JV/Collaboration agreement in case one of the Partners to the JV wants to set up another JV or wholly owned subsidiary in the same field

16. © Paras Kuhad & Associates, Advocates India entry-JV The Following are exempted from the restriction of entering into JV in the same field: 1)Information Technology sector 2) Investments made by multinational financial institutions 3)mining sector for the same area/mineral

17. © Paras Kuhad & Associates, Advocates Other inbound Prior government approval not required in certain cases: -Investment to be made by venture capital funds is registered with SEBI -Existing JV investment is less than 3% -Existing venture is defunct or sick

18. © Paras Kuhad & Associates, Advocates Remittances Determination of sale Price of Shares -Listed Company -Unlisted Company/Shares Thinly Traded on the Stock Exchange Remittance of Sale Proceeds: i.NOC from Income Tax Authority required ii.If the security has not been sold on a recognized stock exchange then prior approval of the RBI in form TS 1 has been obtained

19. © Paras Kuhad & Associates, Advocates Sectors Attracting Highest FDI Equity Flows

20. © Paras Kuhad & Associates, Advocates Indian Overseas Investment Favourable Policy framework -Overseas Investment Limit – 400% of Net Worth -Overseas portfolio investment - 50 per cent of Net Worth Permissible Funding: –Drawal of foreign exchange from an AD; –Capitalization of exports; –Swap of shares;

21. © Paras Kuhad & Associates, Advocates Funding Permissible Funding Cont. –Utilisation of proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs); –in exchange of ADRs/GDRs –Balances held in EEFC account of the Indian party; –Utilisation of proceeds of foreign currency funds raised through ADR / GDR issues.

22. © Paras Kuhad & Associates, Advocates India’s Direct Investment Abroad Source: RBI

23. © Paras Kuhad & Associates, Advocates Data on Overseas Direct Investments S.no.CountryOutflow 2006-2007 (In US$ Million) 1.US 313.379 2Canada 397.772 3China 3.176 4Netherlands1005.518 5Czech Republic 26.008 6Italy 7.104 7Germany 22.858 8France 0.693 9Portugal 0 10Poland 0.454 11Hungary 0

24. © Paras Kuhad & Associates, Advocates Overseas Direct Investment – Sector wise Breakup S.no.SectorOutflow 2006-2007 (In US$ Million) 1.Manufacturing2402.760 2.Financial Services 5.754 3.Non-Financial Services2249.960 4Trading 390.811 5Others 985.587

25. © Paras Kuhad & Associates, Advocates Regulatory Framework Applicable Indian Laws -Companies Act -Competition Act -Income Tax Act -Indian Stamp Act -SEBI Takeover Code -FEMA

26. © Paras Kuhad & Associates, Advocates Companies Act, 1956 Merger is a scheme of arrangement Scheme of arrangement has to be presented before the High Court for sanction Relevant Sections 391-394 Limited Scope in Cross Border M&A’s because Transferee company has to be a company incorporated in India

27. © Paras Kuhad & Associates, Advocates Competition Law, 2002 Salient Features: –Anti-competitive agreements; –Prohibition of abuse of dominant position – Regulation of Combinations including mergers –Unfair Trade Practices

28. © Paras Kuhad & Associates, Advocates India : Merger Law Monopolies and Restrictive Trade Practices Act, 1969 –Inadequate –Obsolete Still Prevailing

29. © Paras Kuhad & Associates, Advocates New Merger Law Competition Act, 2002 Combination The Indian law uses the word combinations to cover acquisition of control, shares, voting rights and assets, and mergers and amalgamations Relevant Sections: 5-6 & 29-32

30. © Paras Kuhad & Associates, Advocates Areas of Concern Applicable threshold Limits Based on: –Value of Assets –Turnover Notice Requirement –Mandatory –Within 30 days of Approval of proposal by BOD Execution of agreement/ document

31. © Paras Kuhad & Associates, Advocates Competition proposals Mandatory waiting Period for Approval –210 Days Extra Territorial Jurisdiction of CCI –CCI has power to inquire about combinations taking place outside India

32. © Paras Kuhad & Associates, Advocates Intent of National Security Legislations –Right to Intervene in case of perceived threat to National Security –Discretionary powers to prevent certain foreign companies from doing business in the country

33. © Paras Kuhad & Associates, Advocates Foreign Investments & National Security Legislations United States- Foreign Investment & National Security Act, 2007 (Exon-Florio Provision) China- Anti Monopoly Law European Union- Members are free to regulate International Mergers (Articles 81-85 EC Treaty regulates Competition)

34. © Paras Kuhad & Associates, Advocates security United Kingdom- Enterprises Act 2002 India- National Security Exception Bill yet to be passed by the Parliament

35. THANK YOU Should you have any questions on issues reported here or on other areas of law, you may contact Paras Kuhad and Associates at the following co- ordinates: Mr. M.N. JHA Paras Kuhad and Associates, Advocates A-238, Lower Ground Floor, Defence Colony, New Delhi- 110 024, India Tel: +91 (0) 11 46562525, 46562727 Fax: +91 (0) 11 46562000 Mob: +91/0-9811319922 Email : pkadelhi@paraskuhd.com, mnjha@hotmail.compkadelhi@paraskuhd.commnjha@hotmail.com Delhi Mumbai Kolkata Chennai Jaipur Pune Jodhpur

36. © Paras Kuhad & Associates, Advocates Disclaimer The contents of this document are intended for informational purposes only and are not in the nature of a legal opinion or advice. They may not encompass all possible regulations and circumstances applicable to the subject matter and readers are encouraged to seek legal counsel prior to acting upon any of the information provided herein. This Note is the exclusive copyright of Paras Kuhad and Associates, Advocates and may not be circulated, reproduced or otherwise used by the intended recipient without the prior permission of its originator. © Paras Kuhad and Associates, Advocates 2008