Mergers & Acquisitions Watch

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Archive for category Mergers & Acquisitions

Research Report of Mergers and Acquisitions in Chinese Medical Circulation Industry, 2009

Jul 28

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Alice Chen asked:


In 2008, the medical wholesale enterprises in Chinese medical circulation industry were about 12 thousand in small scale. Only about 5 hundred exceeded the annual sales amounts of 50 million Yuan (7.1 million USD). The top three medical circulation enterprises accounted for 20% market shares of the total medical sales amounts. In the mature market, the medical industry was highly concentrated. The top three American medical circulation enterprises accounted for 90% market shares and 70% in Japan.

 

Chinese medical circulation channels generally can be divided into two steps: one is the wholesale and the other is retail. The circulation channel of Chinese pharmaceutical market is that the manufacturers sell their medicines to the retail dealers through the wholesale dealers. However, Chinese pharmaceuticals are not separated operation. The pharmacies in the hospitals, as special and monopolized retail link, account for over 30% market shares of the pharmaceutical retail market. The pharmaceuticals in the hospitals will be 3 or 4 folds prices from the manufacturers to the patients, leading to the retail prices of Chinese pharmaceuticals.      

 

As the pharmaceutical safety and the usage costs become more and more important, Chinese generic pharmaceutical industry and medical circulation industry will be favorably affected by the medical reform policies, and Chinese medical circulation industry is speeding up their market integration. To condense the circulation link is one of the medical reform trends. In the traditional pharmaceutical industry chains, the added prices in the circulation links are one of important factors leading to the high pharmaceutical prices. Therefore, the supervision departments will probably replace some small circulation enterprises through strictly implementing the professional standards.

 

It is favorable for the large medical separated sales enterprises to flatten the medical circulation. The circulation enterprises in large scale will become the major channels of the separated sales. From now on, the medicines will be distributed by the large circulation enterprises regardless of the community hospitals or the new rural medical centers, which is convenient to supervise. The separated sale networks are of great importance for the circulation enterprises. The price-negotiation ability of the enterprises in large-scale will be strengthened in the circulation link, and the large circulation enterprises are the regional second class pharmaceutical stations. Under the circumstances of the medical reform, they will be more advantageous when the government choose the distribution enterprises. Therefore, Chinese medical circulation industry is integrated by mergers and acquisitions to change the previous large quantities and low concentration.

 

In 2009, it is pointed out in Chinese New Medical Reform Advises that the retail guide prices of the essential pharmaceuticals used in the government public medical organizations are determined by the state; the provincial governments decide the purchase prices; the essential pharmaceuticals are purchased by public bidding, unite distributed, cut down the intermediate links, publicly bid by the provincial designated organizations and distributed by the chosen distribution enterprises. The advice will inevitably accelerate the rights for the provinces in the medical purchase.

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It is unavoidable that the regional governments will take protective measures in the process of purchase in the future. However, the national-wide medical commercial enterprises will become the first choice for the regional governments and the pharmaceutical enterprises because of their advantages in marketing channels and price-negotiation abilities.

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Meanwhile, because of the strong medical circulation enterprises in Shanghai, Jiangsu, Guangdong and Beijing etc and the high medical security level, regional protectionism will become the hot topic in Chinese medical circulation industry.

 

As for the canceling the additional medicine expenses in the hospitals, it is generally regarded as the favorable factors by the medical commercial enterprises. At present, 30 to 40 percent medicines are sold through the hospitals and the left parts are sold through other channels.

 

Apart from the medicine prices, it is clearer for the development of the medical circulation industry to reconstruct in the future in the new medical reform advices which concludes propelling the mergers and acquisition among the medical circulation enterprises, developing the united distributions, realizing the operations in scale and encouraging the development of the chain retail stores.

 

It is predicted that after the implementation of the medical reform, massive medium and small medical circulation enterprises will be closed down. A new shuffle will occur in Chinese medical circulation industry. Because the manufacturers need to face the terminal policy regulations directly, in objective sense, it enhances the manufacturers’ advantages in the competition as well as the position in the medical circulation. However, the medical circulation enterprises will be in the dilemma as well as the position decline. During this period, the shuffle and replacement in the medical circulation enterprises will be deteriorated. The large enterprises with abundant capitals will expand and extent the channels, but the small enterprises will have little choice to distribute the medicines for the manufacturers and probable to be replaced.   

 

At present, Chinese medical circulation giants have speed up their distributions in the whole country. In the beginning of 2009, the dominator of Chinese medical circulation industry, Shanghai Fosun Pharmaceutical (Group) Co., Ltd had invested 600 million Yuan (87 million USD) in China National Medicines Corporation Ltd so as to construct its retail networks all over the country. Another giant Jointown Pharmaceutical Group Co., Ltd was speeding up its distributions in the whole country, which was planning to set up 15 branch companies, 100 second class distribution centers and 5,000 chain retail stores.

To get more details, please visit http://www.shcri.com/reportdetail.asp?id=293

 



MAO

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Dennis Carey on How Boards and Ceos Can Create More Value With M&a Post Merger

Jul 21

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Prabhat786 asked:


While the volume of global mergers and acquisitions has fallen, companies with strong balance sheets will continue to investigate opportunities as a tool of growth. Even in what appears to be a bear environment, mergers will endure as a logical, efficient and profitable strategy for many companies in the global economy.

Yet among the thousands of mergers, large and small, most of them register some degree of failure, either because the merger fell short of delivering on the promise of the transaction or the deal simply didn’t work.

Politically correct terminology and newspaper headlines aside, mergers are virtually never “mergers of equals”. Whether companies and boards are joining forces in a merger or acquisition, in actuality one organization is always overtaking the other. (Article author: Dennis Carey)

With governance increasingly in the spotlight, more companies, whether involved in a merger or not, will be paying greater attention to getting their boards in line with key recommendations from the stock exchanges, as well as shareholder and government groups. Keep in mind that the merger presents the leadership with the opportunity to improve the quality of the board.

Immediately after the merger, CEOs may have less control than they would like regarding the composition of their board. Because of the public face they must present for one reason or another, until they are over the hump of getting the merger approved and on its feet, the combined company is often a case of simply coming the two boards and its directors. (Copyright Dennis C Carey) The merger presents the opportunity for leaders to think ahead and actively shape the new board into one that reflects many of the best practices firmly associated with the protection of the shareholder interests as well as the most successful companies.

When it comes to a hostile takeover, where there doesn’t have to be any public demonstration of cooperation and equality, many acquiring companies do what may in the short run appear most efficient by displacing the executives and directors of the acquired company with their own. (By Dennis Carey) As is often the case, however, the quick and easy solution may be short-sighted and mitigate against achieving longer-term objectives. Any company that wishes to boost morale as well as hold on to valuable management and board talent should carefully and systematically consider the resources in the company it is acquiring or merging with. Capable executives and directors are a valuable and scarce commodity; companies should think long and hard before cutting people loose for the sake of political expediency.

It’s considered best practice to strictly limit insiders on boards and prohibit inside directors from serving on compensation and audit or governance committees. Such practices were intended to strengthen directors’ identification with the shareholders, whose interests they represent. (Authored by Dennis Carey) However, during the giddy success of the late 1990s, there was a pack of newly minted e-commerce companies that defied much of the conventional wisdom on best practices because at the time the companies were achieving astounding gains for shareholders. One view was that the old rules did not apply to this new group. While returns were strong, that was fine. But after the Internet sector crashed and burned followed by the ensuing corporate scandals the attitudes about corporate governance and oversight changed dramatically.

Now there is greater emphasis than ever on creating transparency in the boardroom, hiring capable directors and adhering to corporate governance best practices. Finding and recruiting first-rate directors, however, is more difficult than ever before for several reasons. (Copyright Dennis C Carey) First, boards are generally getting smaller. The job of director has become much more demanding, forcing executives, particularly the traditional pool of board candidates, active CEOs to be increasingly selective about directorships they are willing to take on.

Despite the constraints and added difficulties of recruiting directors, those who can contribute in the boardroom are a vital resource. In view of recruiting directors in today’s business climate, companies should seize the opportunity to enhance their board with talented senior executives on the boards of companies they may be acquiring or merging with. (By Mr. Carey) A merger is also an ideal time to generally take stock of the ongoing board’s composition and practices and, to the extent possible, align the board with what are considered progressive and productive corporate governance guidelines.

Often the composition of the emerging company’s board is spelled out in the merger agreement, which is often given short shrift and may have more to do with ratios and formulas. One of the biggest difficulties is the size. When boards become much larger than 10 or 15 directors, performance tapers off.

Assembling the board that will guide the merged companies requires as much thought and planning as the merger itself. Putting the board together shouldn’t be an afterthought. The board and its operations in a post-merger era—its mission, size, principles and policies, have to be part of a formula that is pursued in advance of the close. It’s the CEO’s job to ensure that it is done properly. The merger team in a company can handle much of the integration mechanics, but the board is a step above the level at which the merger team is operating and therefore must be negotiated by the CEO.

One element is to determine the type of individuals who should NOT be on a post-merger board, specifically, individuals whose current professional activities include giving advice or selling services to similar companies including investment bankers, accountants, and management consultants. Age is also a factor. If the company has a required retirement age, it must honor it regardless.

In addition, the CEO of the merged company should seek directors who represent a broad group of shareholders avoiding those who have narrowly drawn constituencies. Most importantly is the critical objective of building a board whose members will be able to contribute to the substantive discussions of the issues, strategies and environments that the company operates in. That is, to have directors whose personal backgrounds and personal career developments have been in the key functions of the business.

Companies should not overlook directors who might be right under their nose. In an environment where director talent is increasingly difficult to attract, don’t automatically eschew capable directors on the board of a target company for an acquisition or merger. They can prove to be a valuable, available resource that may be a great asset to the new board.

Dennis C Carey is Senior Client Partner of Korn Ferry International where he is responsible for high-level CEO and corporate director recruitment. View Dennis Carey’s bio for more information. Review books by Dennis Carey at Amazon

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VILMA

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Mergers and acquisitions within the Hedge Fund market – is the trend set to increase?

Jul 16

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First Atlantic Commerce asked:


Another man’s pain is another man’s gain and more so now than ever.  The beleaguered hedge fund industry is rife with talk of consolidation as the downturn provides an opportunity for larger firms to acquire smaller firms at a bargain rate.  This is driven by dramatically shrinking assets making the smaller firms not the lucrative business they once were.  This is leading to businesses being sold to a larger partner that can keep assets managed at a minimum level.

However, in an industry dominated by individual managers and executives, barriers to deals still remain.  For instance, having built up a business during the good times, executives may be reluctant to see it absorbed by a larger firm.  There are a lot of egos with executives wanting to be the consolidator rather than consolidated as the entrepreneurial spirit defies logic.

The entrepreneurial spirit exists as hedge due to opportunities driven by minimal regulation.  Hedge funds have built a reputation of being lightly regulated in comparison with mutual funds as hedge funds do not fall under the 1940 Act because they participate in ‘private offerings’ to sophisticated investors alone unlike ‘public offerings’ of mutual funds.  Academics, industry professionals, and regulatory authorities overwhelmingly agree that due to much less regulations, hedge funds benefit the economy by mitigating price downturns, bearing risks that others will not, making securities more liquid, and ferreting out inefficiencies.  Compared to mutual funds, hedge funds are less restricted and transparent and they prosper for it…until now.  This has forced the question of whether the high returns outweigh the high risk.  In this economic climate, many are saying no.

One solution to this scepticism is to introduce better regulation.  This would produce more accountable hedge fund managers in future and the investors would be able to simply research the background of a hedge fund manager before entrusting their money into his or her hands.  The result is beneficial for both investor and hedge fund as regulation would produce a safer hedge fund market that would attract a larger number of investors.

With increased industry regulation the mergers and acquisitions of hedge funds could increase as executives calculate the viability of operating under red tape.



MIGUEL

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Where is a partner buyout reported for tax purposes?

Jul 7

Posted by Admin in Mergers & Acquisitions | 1 Comment

mattfox6 asked:


I have an LLC and I bought out my partner at the end of last year. I’m confused as to where the buyout is reported for tax purposes. I know that I have to fill out IRS form 8308, but the one thing I can’t figure out is where the buyout amount goes – Form 1065, K-1, or both. Any help would be greatly appreciated.

Thanks, Matt

MADALINE

How Do Mergers Affect Stocks?

Jun 28

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Jim Pretin asked:


From time to time, companies merge with one another. Sometimes, a merger involves a company that you are currently invested in and there are usually rumors of the proposed alliance before it actually takes place. So, the question is, how will this event affect the value of the stock and what should you do?

Mergers are made when the result of joining two companies together will increase the value of both companies. This process is also often referred to as an acquisition. Sometimes two businesses that are close to or equal in value come together and form a new corporation with new stock.

Other times, one company in the transaction is significantly larger than the other, and it buys the stock of the other company and absorbs all of its assets and businesses by issuing stock from the larger company to shareholders of the smaller company. Sometimes cash is paid, but stock-for-stock swaps are more common.

Knowing how a merger will affect your investment in a certain stock requires that you first understand the circumstances and the conditions of the buyout. You should ask yourself three important questions:

1) What is the current financial condition of each company? (If both companies are in good shape, then joining them together will likely make each entity stronger; if one company is in trouble, then the other will be saddled with the problems of the other)

2) How many shares will you have after the merger takes place? (Sometimes, if one company is eliminated after the alliance takes place, the shareholders of the eliminated company will not receive shares equal to what they currently have; you might only receive 1 share in the new company for every 4 shares you had in the old company, and depending upon the current market price, this could actually decrease the overall value of your investment, so you might want to sell before the merger takes place)

3) How much is the acquiring company paying for the smaller company? (If the acquirer is paying less than or equal to what the smaller business is worth, this might not be a good sign, but if they are paying a premium for the other company, this is a sign that the acquisition is remunerative and will increase their overall worth)

Shareholders will typically be given the opportunity to vote on a merger before it takes place. Each share you own will count for one vote. The management of the corporation usually holds most of the shares, so their votes count for the majority, but you should still consider your vote carefully.

You should exercise your right to vote, and your decision should be based upon what will be best for the future value of your shares. You should examine the income statement and balance sheet of the other company involved in the acquisition to get a sense of whether the merger will be beneficial or detrimental.

I hope this information will assist you with reviewing the pros and cons of a merger. Put together all of the relevant facts discussed in this article and you should be able to ascertain what the consequences will be. Just use your common sense and you should do fine.



CLINT

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The Microsoft and SAP merger – Is or is not to happen?

Jun 19

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Qbit Systems LLC asked:


Microsoft’s effort to facilitate further penetration in the ERM market and SAP’s lurk to enter new markets is now off to bin. The so called Microsoft – SAP merger in air would have been a well fitted deal if there weren’t any cultural and legal boundaries. But sadly it’s on hold, at least for the time being. It will still be interesting to know the underlying motives that bought Microsoft to SAP’s doorstep and SAP being happy to welcome. 

 

As we are all aware, SAP is a biggie in the enterprise software market catering fortune 1000 companies. This German company is sort after for its image of complex and expensive software products serving high end market. While on the other hand Microsoft’s enterprise softwares are more supplying to smaller customer base. So basically with this merger Microsoft was looking for a more posh identity for its line of business softwares aiming upscale customer base. Before its rival IBM could take a step, this was the hit by Microsoft to offset slowing growth in its conventional domain of operating systems and desktop software.

 

 “What’s in it for SAP”; lies in diminishing ERP sales, forcing the leading enterprise software companies to look for new markets or consider mergers and acquisitions in order to grow. Furthermore SAP has no prior experience of strategizing for the low end market to jump in by itself. According to Kagermann, co- CEO Sap, “a priority for SAP this year is to grow its revenue and customer base. A deal with Microsoft could have benefited existing SAP customers, through better integration between the companies’ products, and would have given SAP access to smaller customers.” Thus where German giant SAP is in the need of new markets, Microsoft is taking up a chore above its maturing product line.

  

The merger sure holds a great value for the end users as well but the question is whether it is to happen or not. Well the bad news is not. Why so? It is said to be a complicated affair mostly because of the regulation issues. Additionally, since SAP is a German company, its way of operating and business ethos are a lot different from that of Microsoft (an American company). Even after the fact that many SAP customers are also Microsoft, EU is highly against the thought.

 

So for time being SAP would be SAP and Microsoft would be Microsoft. But this does not mean that there will be no possible synergies between the two. We can at least look for alliance if not merger.



BERNADINE

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What happens to my employee stock options if the company I work for is bought out?

Jun 19

Posted by Admin in Mergers & Acquisitions | 1 Comment

coneym asked:


Would I be compensated for any outstanding shares at the buyout purchase price? What if the buyout purchase price is less than my current strike price? Thanks!

JENEVA

Mergers and Acquisitions in the Pharma-Biotech Panorama

Jun 3

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Andrea V. Smith asked:


The past ten years have proven challenging for the pharma industry, witnessing a large number of mergers and acquisitions within it. Recently, this tendency has been reinforced with what may be called super mergers and acquisitions. It is obvious that the financial reality, marked by an economic deceleration and credit compression, is behind this, but it is not the only important factor. Big pharma has been dealing for a long time with issues regarding patent expiry of blockbuster molecules, regulatory obstacles, generics competition, under utilization of resources, and declining product pipeline due to low R&D productivity, among others. All these factors, along with the current economic reality, have caused major lowering of stock market values, creating the perfect setting for super mergers and acquisitions.

Most eyes are set on big companies with strong drug development channels and low chances of patent expirations, but the real value behind these mergers is still unknown, as, in the past, they have not shown important additional value in terms of R&D productivity. In fact, these mergers will produce more mergers and acquisitions activity, because some of the secondary units of these companies may need to be parted with. A big plus could be the increase in bargaining capability with payors and government, making this a strategic move leading to the strengthening of the big pharma family, but not benefitting the patients.

An additional aspect that is very clear is the move of big pharma to biotech. The blockbuster model is not expected to disappear, as it has been responsible for turning the pharma industry into a high profit margin one. However, it may shift from a small molecule-based blockbuster model to a biologics based one, since many have seen the huge opportunity behind biologics, and super mergers and acquisitions have been developing activities related to the pharma-biotech field. Also, manufacturing and commercialization of biosimilars is more complicated than it is for small molecule generic drugs, minimizing the generic threat for biologics.

One thing is clear, any pharmaceutical consultant can confidently state that big pharma is becoming big biopharma. Big pharma is consolidating space by acquiring past partnerships and alliances with biotech companies. It can be seen that many of the acquired biotech companies had partnered before with their acquirer, and current alliances make acquisitions easier because of cultural compatibility and knowledge of the company.

Licensing deals attract acquirers and provide a revenue source to maintain business activity. Novel technology, biologics product portfolio and scientific talent are attractive factors drawing super mergers and acquisitions towards the pharma-biotech sphere. These advantages, added to the fact that many biotech companies’ valuation has declined in about 30%, present a tempting possibility of acquisition rather than to try to negotiate complex licensing deals.

Besides the super mergers and acquisitions taking place within the pharma biotech sphere, many biogenerics and biosimilars are expected to enter the market in the next years, and big biotech companies need to add new products to their portfolios and expand their current lines to stay competitive. These could also become preferred targets for big pharma.

The acquisition of so many biotech companies makes it difficult for small and medium ones to make it through, as investors will opt for the acquisition as a safe way out. However, these seldom succeed due to management inefficiency, which must be expert in order to do well at the right time and in the right way.

It is important to realize that these small biotech companies have great capacity to attract the best scientific talent because of their flexible and entrepreneurial culture, so, any attempt to force onto them the big pharma work culture will surely create a clash. These should be kept as independent business units and research entities, while big pharma centers on commercialization.

The pharma industry should focus on acquiring small and medium biotech companies instead of uniting into super mergers and acquisitions, saving both the struggling biotech industry and pharma.

If you enjoyed this article, please feel free to post it to your site or blog and forward this link to your friends. Have a great day!

Don’t forget to visit our blog: http://smartconsultinggroup.com/blog



LEILA

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An Insight Into the Takeover Code and Substantial Acquisition of Shares

Jun 3

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sukant vikram asked:


 

The Takeover Code or substantial acquisition of shares.

 

 

Name: Sukant Vikram

Class: 5th year BBA LLB

Symbiosis Law School

 

Introduction —-

With the announcement of the policy of globalization, the doors of Indian economy were opened for the overseas investors. But to compete at the world platform, the scale of business was needed to be increased. In this changed scenario, mergers and acquisitions were the best option available for the corporates considering the time factor involved in capturing the opportunities made available by the globalization.

But soon the predators with huge disposable wealth started exploiting this opportunity to the prejudice of retail investor. This created a need for some regulation to protect the interest of investors which were done through -:

1.Enactment of SEBI Act, 1992

2.Enactment of SEBI (Substantial acquisition of shares and takeover) Regulations, 1992.

In the light of then present circumstances, the need for some law to regulate takeover was strongly felt. Moreover to achieve its objectives as stated in SEBI Act, 1992, SEBI enacted SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994 in exercise of powers conferred under section 30 of the Act which laid down a procedure to be followed by an acquirer for acquiring majority shares or controlling in another company, so that process of takeover is carried out in a fair and transparent manner.

Thereafter, these regulations have been amended a number of times to address the changing circumstances and needs of corporate sector. In 1997 SEBI Takeover Code has been rechristened by enacting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 substituting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.

 

 

Merger&Acquisition Trends in Current Scenario —- Structured Reconstruction

In India it was only in 20th century that the concept of takeover took birth but even then the concept of hostile takeovers was not known to anybody. This concept emerged when Swaraj Paul started efforts to takeover Escorts Ltd. and DCM Ltd. He was the first hostile raider among the raiders of Indian stock market. Although Paul could not succeed in his efforts because the incumbents fend him off by using the technicalities of rules governing non-residents but this created a need for a takeover code.

This need was further accentuated in 1990s when the government initiated the policy of liberalization and globalization which resulted in growth of Indian economy at an increased pace, and it created a highly competitive business environment, which motivated many companies to restructure their corporate strategies by including the tools of mergers and takeovers.

In the meantime, SEBI was established in 1992 as a body corporate under the SEBI Act, 1992 with the main objectives to- i) protect the interest of investors in securities market, and ii) to provide for the orderly development of securities market. Thus while the possibility of takeover of a company through share acquisition is desirable in new competitive business environment for achieving strategic corporate objectives, there has to be well defined regulation so that the interest of all concerned are not jeopardized by sudden takeover threats.

In the light of then present circumstances, the need for some law to regulate takeover was strongly felt. Moreover to achieve its objectives as stated in SEBI Act, 1992, SEBI enacted SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994 in exercise of powers conferred under section 30 of the Act which laid down a procedure to be followed by an acquirer for acquiring majority shares or controlling in another company, so that process of takeover is carried out in a fair and transparent manner.

Thereafter, these regulations have been amended a number of times to address the changing circumstances and needs of corporate sector. In 1997 SEBI Takeover Code has been rechristened by enacting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 substituting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.

 

What is meant by Takeovers & Substantial acquisition of shares?

When an “acquirer” takes over the control of the “target company”, it is termed as Takeover. When an acquirer acquires “substantial quantity of shares or voting rights” of the Target Company, it results into substantial acquisition of shares. The term “Substantial” which is used in this context has been clarified subsequently

Meaning of substantial quantity of shares or voting rights

 The said Regulations have discussed this aspect of ‘substantial quantity of shares or voting rights’ separately for two different purposes:

(I) For the purpose of disclosures to be made by acquirer(s):

(1) 5% or more shares or voting rights:

A person who, along with ‘persons acting in concert’  (“PAC”), if any, acquires shares or voting rights (which when taken together with his existing holding) would entitle him to more than 5% or 10% or 14% shares or voting rights of target company, is required to disclose the aggregate of his shareholding or voting rights to the target company and the Stock Exchanges where the shares of the target company are traded within 2 days of receipt of intimation of allotment of shares or acquisition of shares .

2) More than 15% shares or voting rights:

An acquirer who holds more than 15% shares or voting rights of the target company, shall within 21 days from the financial year ending March 31 make yearly disclosures to the company in respect of his holdings as on the mentioned date.

The target company is, in turn, required to pass on such information to all stock exchanges where the shares of target company are listed, within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration.

(II) For the purpose of making an open offer by the acquirer

(1) 15% shares or voting rights:

An acquirer who intends to acquire shares which along with his existing shareholding would entitle him to more than 15% voting rights, can acquire such additional shares only after making a public announcement (“PA”) to acquire at least additional 20% of the voting capital of the target company from the shareholders through an open offer.

(2) Creeping limit of 5%:

An acquirer who is having 15% or more but less than 75% of shares or voting rights of a target company, can consolidate his holding up to 5% of the voting rights in any financial year ending 31st March. However, any additional acquisition over and above 5% can be made only after making a public announcement. However in pursuance of Reg. 7(1A) any purchase or sale aggregating to 2% or more of the share capital of the target company are to be disclosed to the Target Company and the Stock Exchange where the shares of the Target company are listed within 2 days of such purchase or sale along with the aggregate shareholding after such acquisition /sale. An acquirer who has made a public offer and seeks to acquire further shares under Reg. 11(1) shall not acquire such shares during the period of 6 months from the date of closure of the public offer at a price higher than the offer price.

(3) Consolidation of holding:

An acquirer who is having 75% shares or voting rights of target company, can acquire further shares or voting rights only after making a public announcement specifying the number of shares to be acquired through open offer from the shareholders of a target company .

In order to appreciate the implications arising here from, it is pertinent for us to consider the meaning of the term ‘public announcement’..

Penal Provisions

In the event of non-compliance of the provisions of SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997, commonly known as Takeover Code, the acquirer is liable for the penal provisions contained in the code itself. Regulation 45 of SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997 is dealing with the penal provisions for the non-compliance of the obligations contained in the Regulations.

As per regulation 45 of the Regulations, for failure to carry out obligations under the regulations, following consequences may follow:



The acquirer faces the consequences of the escrow amount being forfeited besides penalties.

The Board of Target Company shall be liable for action in terms of regulation and Act.

The intermediary would face suspension or cancellation of registration.



 

The penalties stated above may include:



Criminal prosecution under section 24 of the SEBI Act.



 

In addition to any award of penalty by the Adjudicating Officer under the Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations thereof., he shall be punishable with imprisonment for a term which may extend to one year, or with fine or with both. Further, non compliance of the directions of the Adjudicating Officer shall be punishable with imprisonment for a term which shall not be less than one month, but which may extend to three years or with fine which shall not be less than two thousand rupees, but which may extend to ten thousand rupees or with both.



Monetary penalties under section 15H of the SEBI Act.



 

If a person fails to disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate, or make a public announcement to acquire shares at a minimum price, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher



Directions under section 11B of the SEBI Act.



 

The Board may, in the interest of securities market, give directions, without prejudice to its right to prosecute under section 24 of the SEBI Act including:

a.) Directing the person concerned not to further deal in securities.

b.) Prohibiting disposal of securities acquired in violation of these regulations.

c.) Direct sale of securities acquired in violation of these regulations.



Directions under section 11(4) of the Act;



 

The authority may give the directions to the person in default & the directions may include the following:



 

Suspend the trading of any security in a recognised stock exchange;

Restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;

Suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;

Impound and retain the proceeds or securities in respect of any transaction which is under investigation

Attach bank accounts of persons involved in violation for a period not exceeding one month.

Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation





 

 



Cease and desist order in proceedings under section 11D of the Act;



 

A Cease and desist order can also be passed under section 11D of the SEBI Act from committing or causing any violation of the SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997.



Adjudication proceedings under section 15HB of the Act.



 

A residual clause has been provided in the Act, wherein it is mentioned that if any violation act is not specifically covered under the provisions, then the person may be held liable for a penalty which may extend to one crores rupe

 

 

 

Perceived pros and cons of takeover

Perceived pros and cons of a takeover differ from case to case but still there are a few worth mentioning.

Pros:



Increase in sales/revenues (e.g. Proctor & Gamble takeover of Gillette)

Venture into new businesses and markets

Profitability of target company

Increase market share

Decrease competition (from the perspective of the acquiring company)

Reduction of overcapacity in the industry

Enlarge brand portfolio (e.g. L’Oréal’s takeover of Bodyshop)

Increase in economies of sale 



 

Cons:



Reduced competition and choice for consumers in oligopoly markets. (Bad for consumers, although this is good for the companies involved in the takeover)

Likelihood of job cuts.

Cultural integration/conflict with new management

Hidden liabilities of target entity.



 

 

Mergers and Acquisitions are a natural process of economy. There is no point in fighting about them in a free economy. At the same time, the basic point that it thwarts or in a way hampers the substantial growth of the small retail businesses is also very true.

Too much of centralization of economic activities is bad either by government or Private individuals and companies.  It may give us the efficiency of economy to give additional benefits or facilities when buying from large conglomerates , but will kill the effectiveness of economy that allows many people to participate, thereby depriving them of livelihood.

In fact it would turn a huge amount of people into bio-mass of bigger businesses used and thrown at will, killing the entreprenuership of people that is needed to sustain a large economy such as ours.

Hence the solution is to exercise care and concern on which sectors efficiency is important and in which sectors effectiveness is important.

Today’s two big parties do not have that sense. They simply try to go the easy route

 

 

 

 



TAMMERA

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What are my obligations to the company after I am bought out?

Jun 3

Posted by Admin in Mergers & Acquisitions | 4 Comments

runnyBabbit asked:


I am in a partnership with two other partners. We do not have an operations or partnership agreement. We also do not have a buyout agreement. My partners want to buy me out and I want to sell. The company is not yet profitable and the only value of my buyout would be my initial investment to start the business. If I sell my share of the partnership does that end my obligations and liabilities to the company and to my partners?

In other words, if I agree to sell my share to them do I just walk away with what I am paid and never have to deal with the company again?

ALBERT