Introduction

Hostile takeovers are becoming an increasingly popular way for companies to acquire other businesses in India. A hostile takeover is a process where a company acquires another company without the approval of the target company’s management. Hostile takeovers are often driven by the desire to gain control of a company’s assets or intellectual property, to eliminate competition or to gain market share.

In India, hostile takeovers have become more prevalent due to the country’s economic growth and the increasing number of companies operating in the market. However, there are many legal and regulatory challenges that companies face when attempting to carry out hostile takeovers in India.

This article will provide an overview of the legal and regulatory challenges associated with hostile takeovers in India. We will discuss the legal and regulatory framework governing hostile takeovers, the challenges, and implications of hostile takeovers, and provide case studies of recent hostile takeover cases in India. By the end of this article, readers will have a better understanding of the legal and regulatory landscape surrounding hostile takeovers in India and the challenges that companies may face in attempting to carry out such transactions.

Understanding Hostile Takeovers

Hostile takeovers are a common phenomenon in the business world and are often seen as a way for companies to gain control of their competitors or other companies in their industry. A hostile takeover is a type of corporate acquisition in which one company seeks to acquire another company against the wishes of the target company’s management and board of directors.

The hostile takeover process typically begins when an acquiring company identifies a target company that they believe would be a good strategic fit. The acquiring company then begins to build a stake in the target company by purchasing shares on the open market or making direct offers to shareholders. If the acquiring company is unable to build a sufficient stake in the target company, they may launch a tender offer to purchase the shares of the target company directly from shareholders.

Once the acquiring company has gained a controlling stake in the target company, they may then try to contest the board of directors by nominating their own candidates for election. This can be a challenging process, as the existing board of directors may be resistant to the takeover attempt. If the acquiring company is successful in gaining control of the target company, they can then proceed with the acquisition, which typically involves carrying out due diligence on the target company, negotiating a price for the acquisition, and obtaining regulatory approvals.

There are several key players involved in a hostile takeover. The acquiring company is the company that seeks to acquire the target company, while the target company is the company that is the subject of the takeover attempt. The board of directors of the target company is responsible for overseeing the management of the company and may be resistant to the takeover attempt. Shareholders of the target company may also play a role in the hostile takeover process, as they have the power to accept or reject the acquiring company’s offer to purchase their shares.

In recent years, there have been several high-profile hostile takeovers in India. One notable example is the takeover of Fortis Healthcare by Malaysia’s IHH Healthcare in 2018 was also a highly contentious and closely watched process. These examples highlight the legal and regulatory challenges involved in carrying out a hostile takeover in India, as well as the potential for significant financial and reputational risks.

Recent examples of hostile takeovers in India include:

1. The hostile takeover attempt of Mindtree by L&T Infotech in 2019: L&T Infotech attempted to acquire a controlling stake in Mindtree without the approval of the company’s management, resulting in a prolonged legal battle.
2. Essar Steel by ArcelorMittal, which was completed in 2019 after a prolonged legal battle. ArcelorMittal’s bid to acquire Essar Steel was met with resistance from the target company’s management and creditors, resulting in a long legal battle.

Hostile takeovers are a complex and challenging process that requires careful planning and execution. The legal and regulatory challenges involved in carrying out a hostile takeover in India are significant, and companies must ensure that they comply with all relevant laws and regulations governing the acquisition process.

Legal Framework for Hostile Takeovers in India

In India, the legal framework governing hostile takeovers is primarily governed by the Companies Act, Securities and Exchange Board of India (SEBI) regulations, and other applicable laws and regulations. These laws and regulations are designed to ensure that the interests of all stakeholders are protected and that the takeover process is carried out in a fair and transparent manner.

The Companies Act, which is the primary legislation governing the incorporation, management, and dissolution of companies in India, contains provisions that are relevant to hostile takeovers. For example, Section 235 of the Companies Act provides for an investigation into the affairs of a company where it is deemed to be in the public interest. This provision can be invoked in the context of a hostile takeover where there are concerns about the conduct of the target company’s management.

SEBI regulations also play a key role in regulating hostile takeovers in India. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provide a framework for the acquisition of shares and control of companies through hostile takeovers. These regulations require the acquiring company to make an open offer to the shareholders of the target company once they have acquired a substantial stake in the target company.

Other applicable laws and regulations include the Competition Act, which governs mergers and acquisitions in India, and the Foreign Exchange Management Act, which regulates foreign investment in Indian companies.

One of the key legal issues that can arise in the context of hostile takeovers is valuation. The acquiring company must determine the fair value of the shares of the target company, and this valuation can be a contentious issue. Minority shareholder rights are also an important consideration, as the acquiring company must ensure that the interests of all shareholders are protected during the takeover process. Disclosure requirements are another key legal issue, as the acquiring company must make accurate and timely disclosures to all stakeholders, including shareholders, regulators, and the stock exchanges.

In summary, the legal framework governing hostile takeovers in India is aimed at ensuring fairness, transparency, and protection of stakeholders’ interests. It is essential for companies to be aware of the legal requirements and considerations involved in the takeover process to avoid potential legal challenges.

Legal and Regulatory Challenges

Hostile takeovers in India face numerous legal and regulatory challenges. The Securities and Exchange Board of India (SEBI) plays a significant role in regulating hostile takeovers through its SEBI Takeover Regulations, which require acquiring companies to make an open offer to the shareholders of the target company once they have acquired a substantial stake. The Competition Commission of India (CCI) also plays an important role in regulating mergers and acquisitions, including hostile takeovers, by ensuring that such transactions do not have an adverse impact on competition in the market.

One of the significant legal and regulatory challenges in hostile takeovers is obtaining regulatory approvals. Acquiring companies must comply with a range of regulatory requirements, such as obtaining approval from the CCI, which can significantly delay the takeover process. Disclosure requirements are also essential, and acquiring companies must ensure that all disclosures are accurate and timely to avoid regulatory scrutiny.

Shareholder activism is another key legal and regulatory challenge that companies may face during hostile takeovers. Minority shareholders may resist the takeover, leading to prolonged litigation and regulatory intervention. Acquiring companies must ensure that they comply with all shareholder rights, such as the right to information and the right to vote, to avoid legal challenges.

SEBI (Securities and Exchange Board of India) and CCI (Competition Commission of India) in India that have the power to stop a hostile takeover under certain circumstances. Here’s how and when they can do so:

• SEBI: SEBI can intervene in a hostile takeover when it violates the rules and regulations of the Securities and Exchange Board of India. SEBI has the power to scrutinize and approve the open offer made by the acquiring company, which is a mandatory step for acquiring a controlling stake in a listed company.

If SEBI finds any irregularities in the open offer made by the acquiring company, it can reject the offer and prevent the hostile takeover. SEBI can also investigate cases of insider trading or price manipulation during the takeover process.

• CCI: The Competition Commission of India (CCI) can stop a hostile takeover if it violates the competition laws in India. The CCI can investigate the acquisition and determine whether it would lead to a monopoly or substantially reduce competition in the market.

If the CCI finds that the acquisition would harm competition, it can order the acquiring company to divest some of its assets or cancel the acquisition. The CCI can also impose penalties on companies that violate competition laws.

Overall, the regulatory challenges in hostile takeovers in India are significant and can impact the success of the transaction. Companies must be aware of the regulatory hurdles and ensure compliance with all legal and regulatory requirements to avoid regulatory scrutiny and legal challenges. SEBI, CCI, and other regulatory bodies play a crucial role in overseeing and approving hostile takeover transactions, and companies must engage with these bodies to ensure a smooth takeover process.SEBI and CCI can stop a hostile takeover if it violates the rules and regulations set by these regulatory bodies. They can scrutinize the open offer made by the acquiring company, investigate cases of insider trading or price manipulation, and determine if the acquisition would harm competition in the market.

Case Studies:

1. Fortis Healthcare– takeover battle in 2018, a hostile takeover battle ensued for Fortis Healthcare, a leading healthcare provider in India. The battle involved multiple bidders, including IHH Healthcare, TPG Capital and Manipal-TPG. IHH Healthcare eventually emerged as the winner, acquiring a controlling stake in Fortis Healthcare.

The regulatory challenges faced by the companies involved were mainly related to compliance with SEBI regulations. For instance, IHH Healthcare had to comply with SEBI’s regulations on the open offer process, including the pricing of the open offer, disclosure requirements, and timelines. The Fortis Healthcare takeover case illustrates the legal and regulatory complexities of hostile takeovers in India, particularly with respect to compliance with SEBI regulations.

2. Adani Ports and Special Economic Zone (APSEZ) acquisition of Krishnapatnam Port Company– In 2020, APSEZ acquired Krishnapatnam Port Company, a leading port operator in India. The acquisition was worth INR 13,500 crore and was the largest-ever acquisition in the port sector in India.

The legal and regulatory challenges faced by the acquirer and target, in this case, were related to compliance with CCI regulations. The CCI had to scrutinize the acquisition to determine whether it would lead to a monopoly or substantially reduce competition in the market.

The outcome of the transaction was positive, as the CCI approved the acquisition. The acquisition has significant implications for the Indian takeover landscape, particularly with respect to consolidation in the port sector.

3. Tata Steel’s acquisition of Bhushan Steel– In 2018, Tata Steel acquired Bhushan Steel, a leading steel manufacturer in India, for INR 35,200 crore. The acquisition was carried out through a bankruptcy process, with Tata Steel emerging as the highest bidder.

The legal and regulatory challenges faced by the acquirer and target, in this case, were related to compliance with the Insolvency and Bankruptcy Code, which governs the bankruptcy process in India. The acquisition had to be approved by the National Company Law Tribunal (NCLT) and the Competition Commission of India (CCI).

The outcome of the transaction was positive, as both the NCLT and the CCI approved the acquisition. The acquisition has significant implications for the Indian takeover landscape, particularly with respect to the bankruptcy process and the consolidation of the steel sector.

The case studies above illustrate the legal and regulatory challenges faced by companies involved in hostile takeovers in India. Compliance with SEBI and CCI regulations is crucial, and companies must ensure that they meet all the requirements of these regulatory bodies. The outcomes of these transactions have significant implications for the Indian takeover landscape and the consolidation of various sectors in the Indian economy.

Conclusion

In conclusion, this article discussed the legal and regulatory framework for hostile takeovers in India, focusing on the role of regulatory bodies such as SEBI and CCI. Three case studies were presented to illustrate the legal and regulatory complexities of hostile takeovers in India, as well as the implications of these transactions for the Indian takeover landscape.

The Fortis Healthcare takeover battle, Adani Ports and Special Economic Zone acquisition of Krishnapatnam Port Company, and Tata Steel’s acquisition of Bhushan Steel were all subject to intense scrutiny from regulatory bodies, highlighting the importance of compliance with SEBI and CCI regulations.

It is crucial for companies and investors to have a thorough understanding of the legal and regulatory framework for hostile takeovers in India. Compliance with SEBI and CCI regulations is essential, and companies must ensure that they meet all the requirements of these regulatory bodies. Companies and investors considering hostile takeovers in India should conduct thorough due diligence and seek legal and regulatory advice to ensure compliance with SEBI and CCI regulations. With the right approach, hostile takeovers can provide significant opportunities for companies and investors looking to expand their presence in the Indian market.

A way forward

Moving forward, companies and investors must continue to stay updated on changes to the legal and regulatory framework for hostile takeovers in India. This will involve regular monitoring of SEBI and CCI regulations and engagement with legal and regulatory experts to ensure compliance.

Furthermore, companies and investors must adopt a transparent approach to hostile takeovers and engage with stakeholders, including employees, customers, and shareholders. This will help to build trust and mitigate any potential negative impacts of the transaction.

Finally, there is a need for greater collaboration between regulatory bodies and industry stakeholders to ensure that the legal and regulatory framework for hostile takeovers in India is effective, efficient, and supportive of economic growth. This will involve regular dialogue, consultation, and feedback mechanisms to ensure that regulations are well-suited to the needs of businesses and investors.

By taking these steps, companies and investors can navigate the legal and regulatory complexities of hostile takeovers in India and capitalize on the significant opportunities available in this dynamic and rapidly growing market.