The Hindu Business Line : Shareholders may have exit option in mergers

Measures on the anvil
Fair valuation rules for buy-back by promoters
Single window for approval of all aspects of mergers and acquisitions.
Delisting issues may be left untouched, for SEBI to consider

Richa Mishra

New Delhi, Sept. 14 The revamped Company Law is likely to propose a mechanism that would protect shareholders’ value in cases where a listed entity is merged with an unlisted one and vice-versa.

The soon-to-be-introduced Companies Bill, 2008, is expected to stipulate that in such situations, the shareholders should be given an exit option with a safety net, an official told Business Line.

The Bill is likely to envisage that while the consent of the shareholders to merge a listed company with an unlisted one and vice-versa is required, those investors who want to exit would be allowed to do so at a pre-determined price based on fair valuation.

This is to ensure that after the merger, the public shareholders do not lose the value of their investment, he explained.

“With mergers becoming the common form of inorganic growth process of corporates, particularly in sectors such as information technology, telecommunications and business process outsourcing, a need was felt to have a proper mechanism in place. Currently, the process of mergers is court-driven and long-drawn. The existing Companies Act does not provide for a clear mechanism for such situations,” he added.

Irani panel views

Besides, this proposal is based on the J.J. Irani Committee’s recommendation on company law. The committee, after examining issues relating to the merger of a listed company with an unlisted one and vice-versa, felt that the law needs to provide specifically that de-listing through a scheme of merger under the existing Section 391-394 of the Companies Act, 1956, is possible by merging a listed company with an unlisted one. However, such a process should enable a safety net or a clear exit option for the public shareholders of the listed company.

Similarly, if substantial assets are moved out of a listed company in the case of de-merger, a safety net or exit option needs to be provided to the shareholders and the residual company needs to be de-listed in case more than 90 per cent of the shareholders exercise such an option, the committee had proposed.

The new Bill is likely to be silent on the issue of de-listing as the matter is the domain of the capital market regulator, he explained.

The committee had also suggested that the law should enable companies to purchase the stake of minority shareholders in order to prevent exploitation of such shareholders where a promoter has bought back more than 90 per cent of the equity.

“Such purchases should be on the basis of a fair offer. Appropriate valuation rules for this purpose should be prescribed….,” the committee had suggested.

This is likely to be dealt with in the Bill in some way, the official added.

Further, the new Companies Bill is also likely to envisage a single window for approval of all aspects of mergers/acquisitions.

It is expected to propose that the notice relating to the merger of companies be required to be sent to regulatory authorities such as the Securities and Exchange Board of India, Reserve Bank of India and the Competition Commission of India.

The authorities are required to respond within a time period and if no response is received, they shall be deemed to have agreed to the scheme.

Related Stories:
Cabinet to consider new simplified company law
‘New Cos Bill will pave way for more flexibility’

More Stories on : Company Law | Mergers & Acquisitions | Investor Protection

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page