India: Foreign Mergers: Exemption From Open Offer Under The Takeover Code


The Securities and Exchange Board of India ("SEBI"), in its recently published informal guidance in the matter of M/s Linde India Limited ("Target Company") seems to have adopted a rather strict and literal rule of interpretation to deny the exemption from making an open offer applicable to indirect acquisitions pursuant to schemes of arrangement ("Open Offer Exemption"). SEBI was of the view that the Open Offer Exemption was not available for the indirect acquisition of the Target Company, as a result of a reverse triangular merger of the ultimate parent company of the Target Company, ie Linde AG, a German company ("Linde"), with Praxair Inc, an American company ("Praxair").

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 ("Takeover Code") regulate the direct and indirect acquisition of shares or voting rights in, or control over Indian listed companies. While the Takeover Code mandates the trigger of an open offer, in case of a direct or indirect acquisition of Indian listed companies, it also provides for exemptions available to such triggers in certain specified situations.

One such exemption, as set out under Regulation 10(1)(d)(iii) of the Takeover Code is any acquisition pursuant to a scheme of arrangement not directly involving the target company as a transferor company or as a transferee company, or reconstruction not involving the target company's undertaking, including amalgamation, merger or demerger, pursuant to an order of a court or a competent authority, under any law or regulation, Indian or foreign, subject to certain conditions mentioned thereunder.

Factual Matrix

In the instant matter, Linde was to enter into a merger of equals with Praxair, effected by way of a reverse triangular merger, pursuant to which a new company ("New Hold Co"), would become the parent company of both, Linde and Praxair ("Proposed Transaction"). The group structure of the Target Company, before and after the Proposed Transaction, is illustrated in Figure 1.

Linde in its letter to SEBI had represented that the Proposed Transaction is sought to be undertaken vide a two-pronged approach, as follows:

  1. the New Hold Co will acquire the shares of Linde by means of a voluntary exchange offer ("Exchange Offer") to the shareholders of Linde pursuant to the German Securities Acquisition and Takeover Act. As consideration for accepting the Exchange Offer, the shareholders of Linde to receive shares in the New Hold Co. Accordingly, Linde will become a wholly owned subsidiary of the New Hold Co; and
  2. by way of a reverse triangular merger, undertaken in accordance with the law of the state of Delaware, where a wholly owned subsidiary of the New Hold Co ("WOS") shall be merged with and into Praxair. Accordingly, Praxair will become a wholly owned indirect subsidiary of the New Hold Co.

Given that the applicable legal process in the respective jurisdictions of Linde, New Hold Co and Praxair with respect to the Proposed Transaction do not require any approval or order of a court, tribunal or competent authority, Linde had sought an informal guidance from SEBI to ascertain the availability of the Open Offer Exemption for the indirect acquisition of the Target Company by the New Hold Co pursuant to the Proposed Transaction.

Linde, in its letter to SEBI had also represented that the Exchange Offer will be extensively reviewed and approved in Germany by the Federal Financial Supervisory Authority ("German Authority") and the German Authority's Securities Supervision Directorate will undertake a formal scrutiny of completeness of the Exchange Offer documents and will assess whether the offer documents contain any infringements of applicable German laws. Additionally, Praxair will also need to make appropriate disclosures under applicable Delaware law and U.S. federal securities laws with the U.S. Securities and Exchange Commission ("SEC") for the proposed reverse triangular merger. The SEC will then review the disclosures and may issue one or more rounds of comments, to which the parties will be required to respond and only after completion of such review will the SEC declare the registration statement effective. Further, in order to effectuate the Proposed Transaction, under Delaware Law, the parties will also need to file a certificate of merger with the Secretary of State of the State of Delaware.

In consideration of the foregoing, Linde had requested SEBI to exempt the Proposed Transaction from the open offer requirement in terms of Regulation 10(1)(d)(iii) of the Takeover Code on the premise that although the Proposed Transaction will not require any specific approval from any court or tribunal, it will be subject to an extensive review process by the SEC and the German Authority and can only be undertaken on compliance with all the applicable laws.

SEBI's View

While SEBI took note of all the above averments made by Linde, it adopted a rather narrow and literal interpretation of Regulation 10(1)(d)(iii) of the Takeover Code to disallow the Proposed Transaction from availing the Open Offer Exemption. SEBI was of the view that in the absence of the Proposed Transaction being approved 'by a court or competent authority', the Proposed Transaction was disqualified from availing Open Offer Exemption.


While, the securities appellate tribunal ("SAT") in previous cases has deemed approvals issued by government officials such as the Secretary of the State in a foreign jurisdiction as an approval of a 'competent authority', thereby warranting the Open Offer Exemption, SEBI seems to have distinguished this in its informal guidance to Linde. In the case of Luxottica Group SpA, Ray Ban Holdings Inc and Bausch and Lomb Indian Holding Inc vs SEBI, while the SAT mandated the trigger of open offer due to the peculiarity of the factual background in the case, it is pertinent to note that the SAT in its order implicitly agreed with the argument that the certificates issued by officials of the State of Delaware establish that the merger has taken place in compliance with the Delaware law and the indirect acquisition of an Indian listed company arising as a direct consequence of a foreign merger should entitle such acquisition to the benefit of an automatic Open Offer Exemption. 

In our view, SEBI's informal guidance in the matter of indirect acquisition of the Target Company is regressive and appears to have stemmed from the apprehension that the Proposed Transaction was structured in a manner to elude approval of court / competent authorities. SEBI, while issuing the interpretative letter in this case appears to have disregarded the existence of a robust legal regime of other jurisdictions merely due to the lack of intervention of a court / competent authority.

Such a constricted interpretation of the letter of law by SEBI was not warranted in this case and considering that both steps of the Proposed Transaction would have been extensively reviewed under the laws of Germany and Delaware.

Khaitan Comment

Our analysis of this informal guidance issued by SEBI draws strength from the Indian government's concerted promises and efforts to ensure 'ease of doing business' in India.

To keep up with evolving times, Indian regulatory authorities must transition from a literal approach to a more nuanced approach.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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