The Hindu Business Line : Corus-Tata deal: An instance of how laws can constrict M&A

The Corus-Tata deal continues to make news, even as both the companies continue to consider various options to combine. For watchers of M&A (merger and acquisition), the deal is a case study of how Indian acquirers have to consider takeover code and other laws in a different country, such as the UK. This, apart from taking care that Indian laws are complied with.

While the Indian Companies Act, 1956, usually governs mergers in India, international deals involve additional compliances with rules laid down under the FEMA (Foreign Exchange Management Act, 1999) and associated law. Further, listed companies are also subject to the rules and regulations laid down by the SEBI (Securities and Exchange Board of India).

"The latter two laws can complicate any cross-border M&A," says Mr Diljeet Titus of Titus & Co, Advocates, New Delhi.

"There are often occasions when an interplay between SEBI regulations and those of FEMA can make it difficult for deals to be structured.

The best example is the 3(3) notice required to be given in the case of inter-se promoter acquisition under the SEBI takeover code," he says, referring to Regulation 3(3) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.

"The 3(3) notice mandates that a notice has to be given to the stock exchange where the shares of the company are listed four days prior to any inter-se promoter transfer of shares.

"However, under the FEMA a non-resident can only acquire shares of an Indian company at market price."

Mr Titus reasons that if the four-day notice is given to the stock exchanges, it encourages speculation on the company's share price, making it difficult for the foreign acquirer to buy the shares at market price.

"Because the market price may not be the true price of the shares but just a speculative price over four days."

It is possible to make M&A less painful, feels Mr Titus. "SEBI and the RBI (Reserve Bank of India) may each establish an effective legal cell, which should be able to respond to questions raised by the parties to a merger on a timely basis," he suggests.

"A comprehensive database of FAQ (frequently asked questions) from these two organisations could help. For, many of the questions that arise in current deals may arise in future deals too."

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