Company Takeover

Company Takeover is governed under the provisions of (Substantial Acquisition of Shares & Takeover)
Regulation, 2011. It is a business expansion tool wherein one company purchases another company.
Tribunal directs a company administrator to take over the assets & management of the other company.

Package Inclusions:-

Insight on Planning

Documentation

Due Diligence

Preparation of Agreement

Takeover of Company

How to Start a Company Takeover

How to Start a Company Takeover

Overview of Company Takeover

In the era of growing competition, dynamism and technologies, existing businesses face

several challenges to sustain their existence. For this, they tend to undergo several

structural modifications to strengthen their financial performance and market position.

The various growth-oriented strategies used by corporates houses to enter new markets

and expand their market base include Merger, Amalgamation, Acquisition and Company

Takeover.

In India, company takeover is one of the most preferred growth-oriented strategies. It is

a process in which one company acquires control over another by purchasing the

majority stake in that company. The company acquiring the majority stake is known as

the Bidder or Acquirer, and the company whose control is acquired is known as the

Target Company.

Advantages of Company Takeover

he advantages of Company Takeover are as follows:

 Increase in Business Size

 Takeover is the best way for a company to expand its business operation in a

short duration.

 Reduce Competition

When a bidder company acquires the controlling stake in a target company, it

directly reduces the competition in the market.

 Tax Benefits

In a company takeover, the losses incurred by an acquirer company are set-off

against the profits of a target company, thereby reducing the net taxable income.

Regulatory Framework for Company Takeover

In India, the legal provisions regulating the Company Takeover are as follows:

 Section 230 (11) of the Companies Act, 2013

This Section deals with every form of compromise and arrangement.

 Section 250 (3) of the Companies Act, 2013

As per this section, NCLT has the power to direct any company administrator to

take over the assets and management of that company.

 Section 261 of the Companies Act, 2013

According to this section, NCLT authorises a company administrator to prepare a

scheme of rehabilitation and revival, including the takeover of a sick company by

a solvent company.

 SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 2011

The provisions of SEBI govern the process of takeover by a listed company.

Reasons to Choose Company Takeover

The reasons for choosing a Company Takeover can be summarised as:

 To achieve growth by advanced technologies, market enhancement and product

development of the target company;

 To diversify the existing product line and market of the bidder company by entering into

a new market;

 To increase productivity and profitability of the acquirer company;

  To increase the market size of the acquirer company.

Types of Company Takeover

The different types of Company Takeover in India are as follows:

 Reverse Takeover

In Reverse Takeover, a private company decides to acquire a public listed

company to become eligible to list its shares at a recognised stock exchange

without undergoing the process of Initial Public Offer.

 Bail-out Takeover
 In this, a profit-earning company acquires a sick company to bail it out from the

process of liquidation.

 Friendly Takeover

When the acquirer company takes the consent of the target company before

undergoing the process of Takeover, it is known as the Friendly Takeover.

Therefore, it is a process where both the parties mutually agree to the terms and

conditions of a takeover.

 Hostile Takeover

This takeover is opposite to a friendly takeover. In this, the acquirer company

does not obtain any prior consent of the target company and forcefully pursues

the process of takeover.

 Backflip Takeover

In Backflip Takeover, an acquirer company decides to become the subsidiary of

the target company.

Company Takeover Checklist

The steps involved in the process of evaluating a decision for Takeover are as follows:

 Planning

An acquirer company needs to first analyse the industry by reviewing the overall

objective of takeover in context of the strength, opportunities, weakness and

threats (SWOT). It also involves going through other factors like management

quality, capital structure and market size. before Company Takeover.

  Screening of Candidates

The company needs to search and short-list the suitable candidates for takeover

by taking into consideration, all the relevant factors mentioned above.

 Financial Evaluation

The points to be considered while evaluating the financial health of a company

are as follows:

o Cash flows;

o Maximum price payable for takeover;

o Method to finance the Takeover.

Strategies of Company Takeover

In India, the different types of strategies that can be followed by the companies are as

follows:
 Casual Pass

In this strategy, the acquirer company normally contacts the Target Company

through a formal inquiry or intermediary. If the Target Company rejects the initial

offer, the acquirer company can either to choose to walk away or adopt a friendly

approach. It can also adopt more aggressive strategies of taking over the Target

Company.

 Bear Hug

According to this, the Acquirer Company offers to purchase the shares of a

Target Company at a price higher than the market price.

 Tender Offer

In a tender offer, a bidder makes an offer to the public in the form of an invitation

or open letter, or by publishing in a newspaper or through advertisement to the

shareholders of the public companies to sell their shares at a prescribed time and

price.

 Proxy Fights

In this, the acquirer company forces the shareholders of the target company to

either agree or gather proxies to win the corporate vote. According to this

method, shareholders of the target company vote out the management for

making the process of takeover easier.

 Stock Repurchase
 This strategy is also known as the Self Tender Offer in which the target company

repurchases its shares from the shareholders. This technique is one of the most

effective Anti-Takeover Strategies.

Procedure for Company Takeover

After completing the steps involved in the company takeover checklist, an acquirer

company can proceed further with the process of Company Takeover in India. The

process of company takeover can be summarised as:

 Board Resolution

The directors of an acquirer company need to pass a board resolution to approve

Bidding for the shares of a target company.

 Application to the Commission

The company needs to apply with the commission by filing an application for the

approval of takeover bid. The company files the application together with the

following attachments:

o Takeover Bid;

o Information Memorandum;

o NOC (No Objection Certificate) from the relevant government authority.

 Registration of the Proposed Bid

After receiving the approval, the acquirer company needs to file an application to

register the proposed bid again with the commission.

 Takeover Bid

After obtaining the registration, the acquirer company can proceed further with

the takeover bid by sending it to the target company.

 Hold a Board Meeting

 After receiving the takeover bid, the target company holds a board meeting and

accepts that 90% of its shares are subject to acquisition.

 Filing of the Report of Takeover

Once the process of Takeover is complete, the acquirer company files a report of

takeover within seven days of the conclusion of Takeover to the commission.

Consideration of Company Takeover

The term ‘consideration’ refers to the amount paid for the acquisition of the target

company. The different forms of paying consideration are as follows:

 In the form of Cash

 When the acquirer company pays the consideration for the shares acquired in

the form of cash to the target company.

 In the Form of Shares

When the acquirer company decide to allot its shares to shareholders of the

target company in proportion to their previous shareholding.

 By Forming a New Company

An acquirer company can form a new company by acquiring shares of the target

company. After that, shareholders of both the companies are allotted shares of

the newly structured company.

 By Acquiring Minority Shares

An acquirer company can plan to acquire at least 50% of the shares of the Target

Company.

Difference between Merger and Company Takeover

Point of Merger Company Takeover

Difference

Definition When two or more companies mutually It is the legal act where one company
decide to combine and form a new acquires another company & becomes
company, it is known as Merger. its new owner.
Therefore, the process of merger
means consolation of multiple
businesses into one.

Dissolution In Merger, both the companies dissolve The target company automatically gets
to structure a new company. dissolved when it gets acquired by the
 acquirer company.

Shareholding The shareholding of both the Shares of the target company are
companies are surrendered and fresh transferred to the bidder company.
shares of the new company are issued
to the shareholders.

Size of the In the process of merger, both the A profit-earning company takes over a
companies companies are comparatively of the sick company and becomes the owner
same size and structure. of the formed company.

Types The types of mergers are Vertical, The types of takeovers are Bail-out,
Horizontal, Conglomerate, Co-centric, Friendly, Hostile, Reverse and Backflip.
Forward, Cash and Backward Merger.

Difference between Company Takeover and

Acquisition

Acquisition Company Takeover

An acquisition is similar to a company In a Company takeover, a bidder

takeover as in both the cases, one company company acquires the major

acquires the other. However, an acquisition controlling stake in the target

is carried out in a pre-planned manner in company.

which both the companies mutually agree.

Acquisition is a pre-planned operation. Company Takeover is a Hostile Act.

Acquisition is based on the concept of a Company takeover is not based on

mutual decision. the concept of a mutual decision.

FAQs of Company Takeover

How to Takeover a Company in India?

The steps included in the procedure to take over a company in India are determining the

market; identification of candidates; evaluation of financial position; take the final

decision; assessing the value of the market; Due Diligence; and Implementing

Takeover.

What is a Company Hostile Takeover?

The term “Hostile Takeover” denotes a situation in which an acquirer company does not

obtain any prior consent of the target company and forcefully pursues the process of a

takeover.

What is a Takeover?

The term “Takeover” denotes a process in which one company acquires control over

another by purchasing the majority stake in that company.

What is the difference between a Takeover and Acquisition?

The main difference between the both is that the former is a Hostile Act. In contrast, the

latter is a pre-planned and orderly act.

What are the Types of Takeover Strategy?

The different types of Takeover Strategy are Casual Pass, Bear Hug, Tender Offer,

Proxy Fights, Stock Repurchase, etc.

Is Hostile Takeover an Ethical Act?

Yes, Hostile Takeover is an Ethical Act.

How to survive a corporate takeover?

The steps to survive a corporate takeover are Plan for the worst situation, Plan for the

best situation, Prepare your elevator pitch, let the executive team know that you are

prepared, and Update all your technical information and documentation.

What are the regulations governing a takeover?

The regulations that are governing the concept of takeover Section 230 (11) of the

companies Act 2013, SEBI (Substantial Acquisition of Shares and Takeover) Regulation

2011, Section 250 (3) of the Companies Act 2013, Section 261 of the Companies Act

2013.

What are the types of takeovers?

The different types of a takeover are Friendly Takeover, Hostile Takeover, Reverse

Takeover, Bail-out Takeover, Back Flip Takeover, etc.

What is a takeover bid?

A takeover bid is a kind of corporate action in which a company makes an offer to

acquire another corporation.

What are the Parties to a Takeover?

The company acquiring the majority stake is known as the Bidder or Acquirer, and the

company whose control is acquired is known as the Target Company.

What is the Company Takeover Checklist?

The term “Company Takeover Checklist” includes Planning, Screening of Candidates,

and Financial Evaluation.

What does the term Financial Evaluation denote?

The points to be considered for the Financial Evaluation of the company are Cash

Flows, Maximum Price paid for Takeover, and the Method to Finance Takeover.

What is the Procedure for Company Takeover?

The steps included in the process are Passing of Board Resolution, Application to the

Commission, Registration of the Proposed Bid, Takeover Bid, Hold a Board Meeting,

and Filing of the Report of Takeover.

What does consideration mean?

The term ‘consideration’ refers to the amount paid for the acquisition of the target

company.

What are the different types of Consideration?

The different forms of paying consideration are cash, shares, by forming a new

company, and by acquiring minority shares.

What is the meaning of the term Company Takeover?

The term “Company Takeover” denotes a legal act where one company acquires

another company and becomes its new owner.

What are the reasons behind the process of Company Takeover?

The main reasons are to achieve growth by advanced technologies; and market

enhancement, product development.

Does the Process of Company Takeover assists in diversifying the existing product line?

Yes, the process of company takeover assists in diversifying the existing product line of

the bidder company by entering into a new market.

Does the Process of Company Takeover assist in increasing the Productivity of the
Company?

Yes, the process of Company Takeover assists in increasing the Productivity and

Profitability of the Acquirer Company.

Does the Process of Company Takeover assists in increasing the Market Size of the
Company?

Yes, the process of Company Takeover assists in increasing the Market Size of the

Acquirer Company.

What are the Advantages of the process of Company Takeover?

The benefits of company takeover are increase in business size, reduce competition,

and tax benefits.

What does the term Bear Hug denotes?

When the Acquirer Company offers to purchase the shares of a Target Company at a

price higher than the market price, it is known as Bear Hug.

What is the other name for Stock Repurchase?

The other name for the Stock Repurchase strategy is Self Tender Offer.

What does Back Flip Takeover means?

The term “Back Flip Takeover” denotes a situation in which an acquirer company

decides to become the subsidiary of the target company.

What does Bail-out Takeover means?

When a profit-earning company acquires a sick company to bail it out from the process

of liquidation, the same is known as Bail-out Takeover.

What does the term Tender Offer means?

When a bidder makes an offer to the public in the form of an invitation or open letter, or

by publishing in a newspaper or through advertisement to the shareholders of the public

companies to sell their shares at a prescribed time and price, the same is known as

Tender Offer.

What is the meaning of Friendly Takeover?

When the acquirer company takes the consent of the target company before undergoing

the process of Takeover, it is known as the Friendly Takeover.

What is the significance of Screening in the process of Company Takeover Checklist?

The main aim behind the process of screening is that the company needs to search and

short-list the suitable candidates for takeover.

How does an acquirer company reduce competition in the market?

When a bidder company acquires the controlling stake in a target company, it

automatically reduces the competition in the market.

How does an acquirer company get tax benefits in Company Takeover?