Mergers, Amalgamations and the Acquisition of Minority Shares

In one line

Small companies and a holding company with its wholly owned subsidiary may merge by a fast track route needing no Tribunal order; a company may merge with a foreign company in a notified jurisdiction with the Reserve Bank's approval; a transferee whose offer has been accepted by nine-tenths in value may compulsorily buy out the dissentients; a person who comes to hold ninety per cent of the equity must offer to buy the rest at a registered valuer's price; and the Central Government may order an amalgamation in the public interest.

In exam wording: section 233 is the fast track merger, section 234 the cross-border merger, section 235 the acquisition of dissenting shareholders' shares, section 236 the purchase of minority shareholding, and section 237 the amalgamation in the public interest.

Why the law has this at all

Section 232 is a good procedure and an expensive one. Meetings of every class, notice to eight regulators, a valuation report and a Tribunal hearing are proportionate when a listed company absorbs another, and absurd when a holding company absorbs a wholly owned subsidiary whose only shareholder is the holding company itself. Section 233 is the Act's answer: the same result, with the Central Government and the Registrar in place of the Tribunal, for companies where nobody outside can be hurt.

Sections 235 and 236 answer the opposite problem, the holdout. After a takeover in which nine-tenths of the shareholders have accepted, the last few per cent can refuse to sell and leave the acquirer with a company it cannot integrate. Section 235 lets it buy them out on the same terms. And where an acquirer already holds ninety per cent, the remaining holders are locked into a company with no market for their shares; section 236 makes the acquirer offer to buy them out at a valuer's price, and lets the minority require the purchase.

Section 237 is different in kind. It is not a bargain at all but a public interest power, exercised by order in the Official Gazette, with compensation for any member or creditor left worse off.

Some words this chapter uses

A small company is defined in section 2(85). A wholly owned subsidiary is one all of whose shares are held by the holding company. A declaration of solvency is a statement that the company can pay its debts. A dissenting shareholder is defined in the Explanation to section 235. An acquirer and a person acting in concert take their meanings, by the Explanation to section 236, from the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Depository Receipts are instruments representing shares, issued outside the country of the issuer.