Reverse Merger: Is the backdoor still open?

In Adani Group vs NDTV’s case, the former chose to acquire the channel by purchasing large stocks.

Can be effected through a tender offer, open market purchase, or other means. When a profit-earning company acquires a sick company to bail it out from the process of liquidation, the same is known as Bail-out Takeover. The term “Back Flip Takeover” denotes a situation in which an acquirer company decides to become the subsidiary of the target company. The term “Company Takeover” denotes a legal act where one company acquires another company and becomes its new owner. The steps to survive a corporate takeover are Plan for the worst situation, Plan for the best situation, Prepare your elevator pitch, let the executive team know that you are prepared, and Update all your technical information and documentation.

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These public companies are known as shell companies; they become targets of the reverse merger. The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only.

It is not always started through existing corporations to eliminate competition. Low-interest rates make borrowing money cheaper, making it easier to make a hostile bid. Yes, the process of company takeover assists in diversifying the existing product line of the bidder company by entering into a new market.

After making an open offer to L&T, the company bought the shares from Siddhartha, making the stake of L&T higher than 13% of the current promoters. Since it was against SEBI law, L&T offered to buy 31% of the stake, which was denied by the promoters. L&T then initiated a hostile takeover and bought the rest of the shares from the open market, with its stake reaching as high as 28.9%.

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Although it is referred to as takeover examples in india IPOs, the profit is not dependent on the market conditions like in the case of IPOs. The disadvantages are there is risk involved; therefore, due diligence on a reasonable scale is required for the interest of everyone. There is also additional regulatory compliance to be followed in case of reverse mergers, as we will see below.

Board Resolution The directors of an acquirer company need to pass a board resolution to approve Bidding for the shares of a target company. Casual Pass In this strategy, the acquirer company normally contacts the Target Company through a formal inquiry or intermediary. If the Target Company rejects the initial offer, the acquirer company can either to choose to walk away or adopt a friendly approach. It can also adopt more aggressive strategies of taking over the Target Company. Aerospatiale merger with MatraLaunched in 1970 and operating as a State-owned corporation until 1998, Aerospatiale is primarily known as an aerospace and defense manufacturing company.

Mindtree founders planned for a buy back offer to block L&T as they felt that L&T did not have compliance/corporate governance and there was a disconnect between what management wants and what shareholders want, but they failed. L&T said that Mindtree will run as a separate entity, distinct from L&T infotech and L&T technology services. Takeovers in India are primarily governed by the SEBI Regulations, 2011 (“Takeover Code”). It defines an Acquirer as “any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting on concert with him, shares or voting rights in, or control over a Target Company”. Further, Regulation 3 permits such Acquirers to make a public announcement of an open offer for acquiring shares which will entitle the Acquirers to acquire more than 25 percent of the voting rights of the Target Company.

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Companies may choose to merge into request to increase a superior distribution or advertising system. Audit and Accounting Firms – these organizations work in auditing, bookkeeping, and tax assessment matters. They give expert advice in the financial matter related to M&A advisory firms.

HUL announced its merger with GlaxoSmithKline Consumer Healthcare Ltd in December 2018, however, GSK Consumer’s parent firm, GlaxoSmithKline Plc , did not sell the HUL shares it received as compensation until May 2020. Since the allegations of the 2G Scam appeared, government regulations and market factors have harmed this sector. The assets and liabilities of the amalgamated company or companies are acquired by the survivor.

Described below are some of the commonly employed tactics by the target company to counter hostile takeover bids. In 2008, hostile takeover triggered between Emami and Zandu in May 2008 when Emami acquired 24 per cent stake in Zandu from Vaidyas (co-founders) at Rs 6,900 per share. Open offer for further 20 per cent stake followed with co-founders giving in their 18% after 4 months of futility to save the company.

Takeovers include the steps used in mergers as both include combining one or more companies and establishing a single business entity. The main idea behind a company taking a controlling stake in another company is the expansion and ensuring that the acquirer company increases its customer base and, thus, sales and profitability. A takeover is a business phenomenon where a company successfully bids to take control of another company.

Takeover regulations in India

A normal takeover (friendly/ peaceful takeover) is different from a “hostile takeover” because in a “hostile takeover,” the current management or the owners resists the entry of the acquirer and the exercise of his control over the company. The concept of takeover emerged in the late 19th century in countries like the UK and US when the first wave of mergers and acquisitions started. However in India the concept emerged only in the 20th century but the concept of hostile takeovers was still unknown. Acquisition occurs when one company purchases another, typically by acquiring a majority (50% or greater) stake in the company. The acquired company may or may not keep its name, brand value, and staff.

We know that there are motives behind any merger, acquisition, or amalgamation, and such motives can be value creation which consists of revenue synergies and cost synergies. Other purposes include diversification, asset acquisition, and tax purposes. IPO can, at many times, be risky, time-consuming as well as expensive for the corporates that want to go public; they tend to choose other rapid growth methods, one of them being reverse mergers.

Filing Of The Orders With The Registrar Of CompaniesThe genuine confirmed copy of the request for the High Court of the state must be documented with the registrar of companies within the limited time period as indicated by the High Court. Mergers and acquisitions occur for some, key business reasons, however the most widely recognized explanations behind any business mix are monetary at their centre. Increasing a competitive advantage or bigger piece of the overall industry.

A competing offer is required to be made within 15 business days of the original tender offer. In October, Tata Steel acquired Anglo-Dutch firm Corus Group for Rs 60,000 crore. In subsequent years, Essel Propack continued acquisitions across the world and ventured into manufacturing of medical devices with the acquisition of Tapro Inc.,US and Avalon Medical Services, Singapore. The battle for control of Dhirubhai Ambani’s hard-won empire was the stuff of 24×7 headline news channels, but divisions alone did not define Indian business in the post-liberalisation period.

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With renowned brands like Horlicks and Boost and a product portfolio backed by solid nutritional claims, GSK CH India is the market leader in the HFD category. The merger is in line with Hindustan Unilever’s aim of exploiting the megatrend of health and wellness to establish a sustainable and successful Foods and Refreshment (F&R) business in India. It was a beneficial agreement for both Idea and Vodafone, since Vodafone now owns 45.1 per cent of the combined firm, with the Aditya Birla group owning 26 per cent and Idea owning the rest. As the telecom business became increasingly competitive, both companies struggled. “ZEEL is on a strong growth trajectory and the board believes that this merger will significantly enhance its growth trajectory,” says R Gopalan, chairman of Zee Entertainment.

The news of business tycoon Gautam Adani taking over the New Delhi Television Ltd news channel has come as a major shock for the viewers with people calling it a “hostile takeover”. This is because, the news channel has claimed that the 29.18% of NDTV has been acquired without “discussion, consent or notice”. After the takeover, it depends on the agreed-upon terms whether the acquiree company will be merged with the acquirer company’s name or will operate independently. Notably, if the acquirer company thinks the brand name of the acquiree company is well established, they may leave it to be independent even after taking over the business.

• Flipkart, the proud Indian e-commerce giant funded by Singapore based companies, acquired the fashion label ‘Myntra’ in 2014 whose product offering spanned across fashion and life-style products.
• The agreement has the potential to make the newly created company one of the country’s largest and most sought after.
• After making an open offer to L&T, the company bought the shares from Siddhartha, making the stake of L&T higher than 13% of the current promoters.
• Acquisition is also known as the takeover that includes selling and buying of entire business between the included entities.
• A corporation has a number of methods for avoiding a hostile takeover such as Poison Pill, Sale of Assets, The White Knight, Shark Repellents, Pac-man Defense, Greenmail to name a few.
• Most Indian companies are held closely by their promoters, which is in stark contrast to the management-driven approach that most companies espouse in developed economies.

Under Section 163 of Companies Act, a company has the option to provide in its Article of Association for the appointment of at least two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation. Under the principle, amongst other mechanisms, the appointment of directors can be done by way of a single transferable vote or cumulative voting, and the appointment may be done once in three years. This is because if the company adopts this principle in its article of association, then in terms of the proviso to Section 169 of the Companies Act, the directors would not be vulnerable to being removed by ordinary resolution. The acquirers would lose the incentive to acquire as they might not be in a position to acquire a seat on the Board of directors of the target company immediately even if they succeed in acquiring.

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Once a competing offer has been launched, the two competing offers are treated on par and the target company would have to extend equal levels of information and support to each competing acquirer. The Target company can’t support one acquirer over the other or delegate such acquirer’s chosen people on the top managerial staff of the objective organisation, forthcoming finishing of the contending offers. A competitive offer can be restrictive upon a base degree of acknowledgment just if the first delicate offer is additionally contingent.