Vivekananda Institute Of Professional Studies

Vivekananda School Of Law And Legal Studies

TAKEOVER CODE: COMAPARATIVE

ANALYSIS

Name – Prerna

Enrollment Number-14817703818

Semester- 5th

Section- 5c

Under the Guidance Of-

Ms. Honey Bhatia

1
 TAKEOVER CODE: COMPARATIVE ANALYSIS

Research Methodology: The research method used is doctrinal research from secondary
sources and is a qualitative analysis.

Research Objectives: The objective of this paper is to find out the difference in the takeover
code of India and the UK and a critical analysis of the two.

Hypothesis: The Indian takeover code is similar to that of the UK as many legislations of India
has drawn its inspiration from the UK legislation.

Research Question: Comparison between the takeover code of India and UK. And what is the
difference between the two?

ABSTRACT

This paper talks about the comparison of takeover regulations in India and the UK. The
reason for taking UK in comparison to India’s regulations concerning takeover code is that as
India has taken much inspiration in different fields from the UK, this research paper aims to
find out what is different, whether the difference is justified according to the economical and
demographical difference between these countries and can we take any inspiration from the
UK regulations to better our takeover process.

INTRODUCTION

The takeover code 2011 applies to direct or indirect acquisition of shares or voting
rights in or control over any target company. It is necessary to have a takeover regulation to
protect the rights of not only the stakeholders but the public and those affected by it. it is also
necessary for protecting the rights of the target company and to protect them from getting
exploited by the offeror company. The economic system of India and the UK is different. In
India, the policies and legislature are more focused on welfare for all along with growth
whereas in the UK the focus is more on open market competition and growth of the market.
So, this difference is also reflective in the provision for takeover code in the respective
countries.

Takeover

The first question which arises is what is takeover? A takeover in lay man’s language
means taking control of something. Takeover, in Cambridge Dictionary, has been defined as
“a situation in which a company gets control of another company by buying enough of its

2
shares.”1 In the words of M.A Weinberg, a takeover is defined as: “a transaction or a series of
transactions whereby a person acquires control over the assets of a company, either directly
by becoming the owner of those assets or indirectly by obtaining control of the management of
the company.”2

Types of takeover

Takeovers can be categorised into 4 types: -

1. Agreed/ Friendly takeovers- where the board of the target company is in agreement
with the acquirer for the takeover.3
2. Contested/ Hostile takeovers- where the board of the target company is not consulted
and a direct offer is given to shareholders without the knowledge of management.
3. Backflip takeovers- where a bidding company becomes the subsidiary of the target
company.
4. Reverse takeovers- where an unlisted private company buys a listed public company.4

Takeovers may also be categorized as:

1. Horizontal: where the parties belong to the same or similar industry.

2. Vertical: where one party is either the customer or the supplier of the other.
3. Conglomerate: where the parties are involved in different industries and intend to
expand or diversify their operations.5

Purpose of takeover

A company undergoes takeover with the strategy to enhance the overall business
abilities which include increasing market share, access economies of sale, secure better
distribution, overcome barriers to entry to target markets, eliminate competition, etc.6 It
increases the overall efficiency and performance of the Company.

1
https://dictionary.cambridge.org/dictionary/english/takeover
2
Seksaria, Janhavi, Analysis of the Definition of Control Under the Garb of the Subhkam Case (April 10, 2011).
Available at SSRN: https://ssrn.com/abstract=1809138 or http://dx.doi.org/10.2139/ssrn.1809138
3
Fiduciary Duties in Takeovers. UK & India Laws: A Comparision, Joy Dey, LLM(ICG&FR) University of
Warwick, UK , 2007-2008
4
TAKEOVERS | Definition, Types - Friendly, Hostile, Reverse, Backflip (efinancemanagement.com)
5
Joy dey, supra note 15
6
Takeovers | Business | tutor2u

3
 Companies also opt for acquisition once they not have the resources to run the corporate
and is facing loses. To safeguard the corporate and assets to travel vainly the corporate sells its
shares to avoid losses.

“Theorists argue that takeover also acts as an equilibrating process that reallocates
ownership of assets and optimum utilization of resources, insofar as more competent
management replaces inefficient management, ensuring profit maximisation and thus fostering
the speculation of ‘survival of the fittest.”7

How is takeover different from a merger?

Takeover and merger are very similar in corporate action. They both make two separate
companies into one entity. Nonetheless, there’s a difference between the two. The merger
involves the approaching together of two separate companies and forming a single company
whose value is more than its parts. On the opposite hand, takeover or acquisition takes place
when an even bigger company takes ownership of a smaller company.

The largest merger within the history was between Vodafone, a UK based company
and Mannesmann, a German-owned industrial conglomerate which occurred within the year
2000 and was worth $180 billion.8

An example of acquisition or takeover would be one amongst the highest takeovers

within the Indian history which is that of Corus, Europe’s second-largest steel company by
Tata steel India’s biggest steel company, for the worth of $12.02 billion making India the 5th
largest steel producer.9

Moreover, in India, the difference between the terms the merger and acquisition is that
acquisition between public companies is governed by SEBI, while merger is regulated under
Sections 230-234 of the Companies Act,2013.

Role of Takeover Regulation

Regulations for takeovers and acquisitions are necessary in order that the method is
administered during a well-defined and orderly manner following fairness and transparency. 10
The role however is greatly affected by government policies and regulation. The legislation

7
Michael C. Jensen, , “Takeovers: Their Causes and Consequences,” Journal of Economic Perspectives, 1988
2(1): 21-48.
8
13 Largest M&A Deals of All Times: Top Acquisition Examples (dealroom.net)
9
The 10 Biggest Ever Merger & Acquisition Deals In India - iPleaders
10
What are the Regulations of Takeovers by SEBI? (yourarticlelibrary.com)

4
would be different for countries which are inclined towards the advantage of the stakeholders
whereas those supporting the speculation of laissez-faire will provide minimal takeover
control.

The UK policy seems to be dominated by industrial growth strategy and want to

encourage competition. In India, government intervention has largely to do with the expansion
of the economy, and thus favors an investment approach, besides keeping a balance over
competition and investor protection. Being a welfare state, India has strong socialist ideologies
and there is a greater emphasis on the interest of other stakeholders, like the employees and the
community at large.11

Takeover regulations in India

Legislation

In the Companies Act, 2013 under Section 230 sub-section 11 provides that takeover offer
shall be as per regulations framed by the Securities and Exchange Board. Based on this
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover)
Regulation, 2011 which is additionally referred as the Takeover code, are made under the
Securities and Exchange Board of India Act, 1992. Various amendments have been taking
place in the takeover code since then and one is as recent as in June 2020. Other regulations
interrelated with corporate activities include the Code of Civil Procedure, 1908, The Indian
Trust Act, 1882, SEBI (Prohibition of Insider Trading) Regulation, 1992 and the Partnership
Act, 1932, among others.

Evolution of the takeover code

The evolution of the Takeover Code began with the SEBI Act, 1992 which provided to
mandatorily make regulation for the process of acquisition and takeovers. The resultant of this
was the takeover Regulation of 1994. In November 1995, SEBI appointed a committee to
review the takeover regulation, 1994 under the Chairmanship of Justice P.N Bhagwati. Upon
the suggestion of this committee Substantial Acquisition of (Shares and Takeovers)
Regulation,1997 was notified on February 20, 1997, repealing the code of 1994. However,
these regulations also turned out to be not enough with the increasing changes and complexities
in the takeover market for which another advisory committee, named Takeover Advisory
Committee under the Chairmanship of Mr C. Achuthan which was established on September

11
Supra 3

5
2009. On the recommendation of this committee the current Takeover Regulation of 2011 came
into effect repealing the 1997 code.12

Main provisions in the Indian takeover regulation

The objective of the Indian takeover code is to protect the interest of the small
shareholder and making the entire acquisition process fair, equitable and transparent by making
the incumbent management of the target company aware of the acquisition and ensure that the
process does not distort the security market.

An offer or a bid is when one company makes a general offer to acquire the whole of
the shares, or the whole of a class of shares, of another company either for cash, kind or a
combination of both.13 A mandatory offer or mandatory threshold is when a person obligated
by law to make such a general offer after a statutory minimum number of shares is acquired.
In India, the initial threshold limit was 15% which is now increased to 25% of the voting rights
of the Target Company.

Takeover regulation in UK

Legislation

The Companies Act, 1985 is the chief law governing the affairs of companies operating
in the UK. Apart from this law being the chief law, the companies in the UK is also governed
by the City code on Takeovers & mergers, which is a body of rules framed and administered
by the panel on Takeovers & Mergers.14 Other statutes which also touch upon various aspects
of corporate takeover activities include the Financial Services and markets Act, 2000,
Criminal Justice Act, 1993, Rules governing Substantial Acquisition of Shares, The
Competition Act, 1998 and the Enterprise Act,2002.15

Evolution

The City Code on Takeovers and Mergers has been developed since 1968. “Following
the implementation of the Takeovers Directive (2004/25/EC) (the “Directive”) by means of
Part 28 of the Companies Act 2006 (the “Act”), the rules set out in the Code have a statutory

12
Takeover Code Dissected.pdf (nishithdesai.com)
13
Pennington (1969), at 160.
14
John Armour & David A. Skeel, Jr., “Who Writes the Rules for Hostile Takeovers, and Why?—The Peculiar
Divergence of US and UK Takeover Regulation”, ECGI Law Working Paper No.73/2006, September 2006.
page 2.
15
Supra 3

6
basis in relation to the United Kingdom and comply with the relevant requirements of the
Directive.”16

Main features of the takeover regulations

The takeover code in UK is designed principally to ensure that shareholders in an

offeree company are treated fairly and are not denied an opportunity to decide on the merits of
a takeover and that shareholders in the offeree company of the same class are affordable
equivalent treatment by an offeror.

In the UK the mandatory threshold limit is set at a higher 30%. Therefore, a person
cannot acquire shares that entitle him to mote than 30% of the voting rights or, when he holds
more than 30% but less than 50 %, shares which increases his percentage of voting rights
without making a public offer under the City Code.

CONCLUSION

Takeovers are one of the key components of the capital markets and is part of the
capital markets of the country. A country’s economic growth consist of the development of
the capital markets as well. Thus, regulating the takeover code is necessary for the proper
economic growth of the country. Further, it could be observed that the regulations are in
congruence with the country’s policy and beliefs. Whereas the UK favors a shareholder-
oriented strategy in takeover regulations, Indian approach seems to be a balance between
state control ensuring fairness and value maximization of the stakeholders. Both of the
countries discourage the board from adopting frustrating tactic to defeat a takeover bid,
however, the diversity and frequency with which takeover defenses are employed in UK is
far greater than that in India.

It is as per the economic growth and other legislations and policies related to market
and economy that the takeover code is shaped and is suitable for that particular economy.
India’s takeover code is more focused on protecting the labor force and welfare while the
UK’s takeover code is more focused on the capital market. It is suitable as in India the
companies and industries use more labor-intensive process than that followed in the UK.
Therefore, after taking into consideration all the points of the takeover code of both the
countries it is difficult to say which one is better.

16
The Takeover Code :: The Takeover Panel

7
8