In the age of growing competition in the market and ever changing fast paced technologies, the business houses face different challenges some of which may question their very existence. With changing times and circumstances, the corporates are required to undergo a structural modification in order to continue their working and to save their decaying and old outlook. The old standards need modifications rejuvenating with latest thoughts and new fashionable products. It is seen often, recourses to mergers and acquisitions are taken. Resulting takeovers with restructuring the basic framework to move with new wave.
While mergers unify two or more existing entities into a new one, acquisition allows the financially stronger entity to take control of the weaker one.
Acquisition or takeover, may be hostile or friendly, permits the purchase of controlling stake in one entity by the others. Acquisition may be by acquiring shares or assets/ liabilities of the other entity.
Regulation of Takeovers
- Section 230(11) of the Companies Act, 2013 states that any compromise or arrangement may include takeover offer made in such manner as may be prescribed. In case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
- Section 259(3) of the Companies Act, 2013 states that the Tribunal may direct the company administrator to take over the assets or management of the company and for the purpose of assisting him in the management of the company, the company administrator may, with the approval of the Tribunal, engage the services of suitable expert or experts.
- Section 261 of the Companies Act, 2013 states that the company administrator shall prepare or cause to be prepared a scheme of revival and rehabilitation (including takeover of the sick company by a solvent company) of the sick company after considering the draft scheme filed along with the application under Section 254
- Takeovers also are governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which restricts and regulates both direct and indirect acquisitions of shares or voting rights in, and control over a target company.
In May 2018, Tata Steel acquired Bhushan Steel (BSL) through its wholly-owned subsidiary Bamnipal Steel Ltd (BNPL). Tata Steel stated that it has taken a controlling stake of 72.65% in BSL and paid the admitted corporate insolvency costs and employee dues, as required under the Insolvency and Bankruptcy Code, 2016.
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