ABSRACT
Mergers and acquisitions across the border also referred to as CBM&A is becoming more popular in the global business environment as a way of expansion. However, these transactions are normally complex and sometimes lack transparency and disclosure which poses a big question. This research paper then reviews and analyses the level of transparency and disclosure adopted in CBM&AS, the existing issues and challenges with the regulatory requirements.
In empirical component of the research, this study employs a cross-sectional method in assessing and comparing selected CBM&A transactions, using data of various companies from different jurisdictions. The results reveal that the current deals have notable variations in the disclosure process, where some deals may not have sufficient levels of disclosure, which may cause information gap with negative repercussion to the stakeholders.
Hence, this research develops a framework of the strategies that can be used in CBM&AS to increase transparency and disclosure. The framework also highlights the importance of the consistent rules of disclosure, functioning regulation and efficient controls of operations as well as sound corporate governance practices.
The recommendations provided at the end of the study are meant to enhance transparency, accountability and fairness in the existing CBM&AS with a view of arriving at informed decisions that will foster sustainable economic development. The discoveries and organisational model present critical consequences for plan makers, controllers, supervisors, chiefs, and different players engaged with cross-country operations.
Introduction
The words “mergers” and “acquisitions “mean absorption of businesses or assets via the various forms of transactions. Significance of the study Mergers and acquisitions are two terms which are mostly used as synonyms in practice, but they have certain differences. This type of business combination can be described as the joining of two or more organizations in one and this implies that there will be transfer of ownership and control of the preexisting organizations to the new organization. The recent joinery of Vodafone India and Idea Cellular Network to form a new company ‘Vi’ is also an example of merges. While on the other hand, acquisitions refer to the process whereby one or many companies are taken over by another company and that company secures the legal ownership for itself. The acquisition takes place if one company buys another company or some of its assets. Comparatively however, let it be noted that through acquisitions there is no formation of a new legal entity. In acquisition the buyer forms known as transferor company acquires the seller known as transferee company.
2) Mergers
A merger strategy is a business term that refer to plan and action regarding the manner in which companies or firms can co-ordinate their interest in which the control of two or more entities were not previously under one ownership. It is a unique form of takeover, which occurs when several companies merge, and become one big entity. Merging can occur in diverse situations depending with the level of integration. The Companies Act, 2013 does not have a definition for the term merger however in its general sense it can be defined as the amalgamation of companies for the purpose of doing business. There are of course many ways through which mergers can be performed.
Horizontal Mergers: This is a merger that occurs when two or more existent companies or any companies that are in the same line of a similar market combine to form one company in an effort to achieve competitive edge over other players in the market is referred to as horizontal merger.
Vertical Mergers: It is a kind of merger in which two or more companies that are not rivals undertake to merge because they operate in the same field of transactions in their relevant markets. The merging entities are, in one way or the other, engaged in various levels of the same transaction or market. This type of a merger lowers the operating transportation warehouse and other similar expenses and can also attain a favorable position in the market.
Roll-up Mergers: It is a form of the horizontal or vertical merger. The genuine meaning of Roll-up Merger is the procedure of integrating or combining various small organizations to shape a vast component which better develops economies of positions or power. Roll up strategy means the methodology of buying small firms at the market and uniting them into one large firm.
3) Congeneric Mergers
These are mergers between companies operating in the same line of production and are to some extent related but in different business line or with differentiated products. A firm employs this kind of merger so as to acquire a greater market share or offer more products.
One vivid example can be looked at Citicorp’s merging with the Travelers Group in 1998 that offered financial services. Ten years earlier, in a $70 billion merger, the two firms combined to form Citigroup Inc.; of course, while both the firms fell under the financial services industry, their product offerings were distinctly different. Citicorp gave consumers conventional banking and credit products leastwise credit cards. Travelers, on the other hand, was involved insurance and brokerage service. Through the congeneric merger between the two it enabled Citigroup to transform into one of the global largest financial service companies.
4) Conglomerate Mergers
A conglomerate merger is a kind of merger which takes place between two companies /firms belonging to different fields. The primary motivation for a conglomerate merger is direct utilisation of financial resources, an ability to expand the company’s debt capacity and the value of shares with an increased rate of earnings per share through higher leverage and by reducing the overall cost of capital.
For instance, Company A manufacturers TVs to merge with Company B that manufacturers remotes to become Company C this means that Company C has a large customer base to market to (ie Company A’s product to Company B’s customers and vice versa).
5) Cash Merger
In a ‘cash merger’, also known as a ‘cash-out merger’, the shareholders of one entity receives cash, instead of shares in the merged entity. This is effectively an exit for the cashed out shareholders.
For example, Company X buys all of Company Y’s assets for cash, which means that Company Y will have only cash and debt, if any (In this case, Company Y becomes merely a shell and will eventually, liquidate or enter other areas of business.)
6) Triangular Merger
As the name suggests, it is a tripartite arrangement, in which the target company merges with a subsidiary of the acquirer company. On basis of the entity which is the survivor after such merger, a triangular merger may be forward (when the target company merges into the subsidiary company and such subsidiary company survives), or reverse (when the subsidiary company merges into the target company and such target company survives).
II. FORMS OF ACQUISITION
ACQUISITIONS
Acquisition by definition is the acquisition of one company by another company with different owners. The Acquisition means direct investment to purchase an existing company.
1. Horizontal Acquisition
This takes place when one company takes over another company in the same business, or industry or works at the same production stage, that is, a competitor.
A real-life example of the same would be Facebook acquiring WhatsApp. WhatsApp still exists with its brand name; however, it is now owned by Facebook. In the interest of classification of acquisitions, we can further elaborate on this transaction. Facebook and WhatsApp are both in the same business, i.e. social media, however, the acquisition has led to both benefitting from each other’s expertise and helped in expanding each other’s active users.
2. Vertical Acquisition
This takes place when a company acquires either, a supplier of inputs or a distributor of its products. It helps them by allowing them to have more control over the process and in cutting costs and hence, increases their overall efficiencies.
For example, a garment company acquiring the source of cotton such as, a farm or when a food chain acquires the primary source of its products. This helps in having higher control over the supply chain and therefore, impacting the quality of the raw material and delivery of products and in turn, impacting the turn-around time of the delivery of the final product to the end-user.
3. Conglomerate Acquisition
This takes place when a company acquires a company in a completely different kind of business, industry or sector. This is mostly done for diversification. An example of this would be a food industry company acquiring a company in the clothing industry.
For instance, Reliance Industries recently took over Hamley’s, a toy products company. Reliance is a giant conglomerate, which wanted to diversify into the toy industry and therefore, undertook the acquisition by getting the 100% ownership transferred to itself.6
4. Congeneric Acquisition
This takes place when companies sharing a similarity, come together. The similarity can range to anything, either similar production technology or similar distribution channel and so on, but the production activity of the two companies is not related.
For example, let’s say, company A sells printers for home offices. It makes complete sense for them to then merger with a company that produces ink or paper. The customer that buys printer will definitely buy ink or paper, because without these two, the printer serves no purpose. So, if the bigger printer company owns the paper company and the ink company, all of the companies involved should benefit from coming together.
5. Friendly acquisition
It is a type of acquisition where the acquisition of the company will be done by the consent of its members, shareholders, creditors etc. The transferor company will provide an offer to the target company to acquire it and merge the transferee company in it.
Hostile Acquisition: In this acquisition the transferor company will acquire the ownership or control of the company without the will of the target company.
CROSS-BORDER MERGERS AND ACQUISITIONS:
Cross border M&As are a concept wherein the companies of two or more countries will amalgamate or one company acquires the other. Thus, these cross-border mergers and acquisitions encompass; deals between both domestic and foreign firms in the target country. Cross border merger and acquisition activity has increased with the globalization of the World economy.
With global connected economies becoming the norm and cross-border mergers and acquisition (CBMAs) driving forces within the international business systems more specifically. CBMAs imply the merger or acquisition of firms which are located in different countries still provide a business with a clear-sky road map to increase its international exposure, and hence its competitiveness, on the one hand, and a way to diversify a business, on the other hand. Therefore, I shall henceforth deliberate on the major factors contributing to the occurrence of CBMAs, explain their rationale and culminate the analysis by underpinning some remarkable cross border M&A deals as well as the legal and regulatory issues to which they are subjected to.
As the time pass the frequency of cross-border merger has been discussed in its numbers and at present Indian companies are more familiar with cross-border merger and acquisition than other companies. On this context, cross-border merger is an example of TATA Steel buying the US based company Corus.
Inbound Merger: This type of merger is cross-border merger where the emerged company is an Indian Company and the foreign company is deemed to be branch of the Indian Company.
Outbound Merger: Outbound merger is a cross border merger in which the foreign firm becomes the merged company as a result of the process.
TRENDS SHAPING CROSS-BORDER MERGERS AND ACQUISITIONS:
The following set of converging factors are pushing up the CBMAs:
Globalization and Market Expansion:
The relentless push for globalization has whetted the appetite of companies to break down barriers of geography and attain true multinationality. CBMAs are quicker, perhaps cheaper, ways to get into new markets compared to organic building. Thus, companies can ride on existing infrastructure, customer bases, and local expertise when they acquire or merge with established businesses in target markets.
Technology and Innovation: CBMAs have been driven by fast technology development in certain innovating industries. Firms seek advanced technologies, promising start-ups, and valuable intellectual property beyond their borders. This will enable them to acquire fast-building R&D capabilities, improve product portfolios, and enhance their competitive edge.
Access to Resources and Talent: CBMAs allow companies access to essential resources-such as natural resources, raw materials, and skilled labor-that are, or may be, in short supply or more expensive in their own countries. In this way, expansion into emerging markets or demographically friendly regions can favorably impact access to a larger pool of talent, thus driving growth and competitiveness.
Strategic Repositioning and Synergies: Firms adopt CBMAs to achieve an optimal global footprint, economies of scale, and efficiency in supply chains. Many cross-border combinations are designed to avoid duplication, thereby rationalizing operations, consolidating assets, and leveraging any potential synergy between the combining entities. The growing momentum of acquirers coming from emerging markets is a trend that seems to be gaining momentum-particularly those originating from China, India, and Brazil. These acquirers sought actively for opportunities for global footprint expansion, access to new markets, and technologies via cross-border.
ADVANTAGES OF CROSS-BORDER MERGERS AND ACQUISITIONS:
Entry Growth: When an Indian company is merging with any foreign company, then this Indian company is also entering the foreign markets where the merged company resides or operates. Thus, cross-border mergers will smoothen entry into other markets.
Market Share Increase: A merger increases the scale of the company which in return raises its value in the market. As the share of the company in the market will be increased as a result of merger or acquisition, its share price may also increase and also helps the merged companies to reduce their costs and achieve a better position in the competition, thus it increases the market share of the company.
Resource Sharing: A company can use the resources of the merged company based on the proportion of their merger agreement. Also, an acquired company when it acquires a company it is also deemed to acquire the resources of the target company. Thus, sharing of resources helps the companies to have greater force in their operations.
Increased economies of scale: Cross-border merger or acquisition leads to mass production, thus leading to operation on a larger scale. The size of the company raises the market share of the company and also has an advantageous position in the market.
FAMOUS CROSS-BORDER MERGER AND ACQUISITION DEALS
The history of CBMAs is replete with transformative deals that have reshaped industries and influenced economic landscapes. Some notable examples include:
Vodafone-Mannesmann (2000): The $180 billion deal at the time was one of the largest mergers that had created one of the biggest telecommunication giants in the world. Vodafone, a British company, acquired the German conglomerate Mannesmann, showing the scale and ambition of early cross-border mega-mergers.
Mittal Steel and Arcelor (2006): In 2006, Mittal Steel-a company owned by the Indian steel magnate Lakshmi Mittal-successfully acquired its European rival, Arcelor, for €26 billion. This CBMA also created ArcelorMittal as the largest producer of steel in the world, reinforcing the trend of consolidation across the board in traditional industries.
Anheuser-Busch InBev (2008): This was the marriage of the Belgian-Brazilian brewer InBev with the iconic American Anheuser-Busch, making AB InBev a global powerhouse in beverages. The deal became the trademark of emerging market corporations’ appetite for acquiring long-established giants from developed markets.
Kraft Foods and Cadbury (2010): US food conglomerate Kraft Foods took over British candy maker Cadbury for £11.5 billion. The deal had marked that CBMAs are other routes available for firms to fulfill their objectives of diversification into related product lines and hence to get to more and better markets
Jaguar Land Rover – TATA Motors: This is one of the most significant cross-border transactions that have ever taken place in the automobile sector, whereby Tata Motors took over Jaguar and Land Rover. This venture has helped Tata Motors reach a sophisticated knowledge base regarding automotive technologies and a portfolio of premium brands, thus facilitating the company’s decisions for further expansion into international borders.
WhatsApp and Facebook: The acquisition of WhatsApp by Facebook in 2014 is one such example. At $19 billion, this cross-border deal marked strategic moves for Facebook in the global messaging and social media landscape to consolidate its leading position.
MOTIVES FOR CROSS-BORDER DEALS
CBMAs are the result of a number of strategic motives, such as the following.
Market Penetration: It could be the acquisition or merger with an already established company in the target market, and thereby entry to customers, a distribution network, and brand identity. This can drastically cut down on the time, means, and risks that a company may face when trying to enter a new market from scratch.
Efficiency and Cost Reduction: CBMAs generally focus on cost savings through streamlined operations, a consolidated supply chain, and, when relevant, leveraging lower labor costs in some jurisdictions. These can be subject to operational efficiencies through consolidation that might provide improvements in margins and competitiveness.
Brand and Portfolio Enhancement: Adding renowned brands in new geographies or complementary sets of products and services to the portfolio strengthens a company’s competitive standing. CBMAs allow companies to expand offerings, reduce risks, and access new revenue streams.
Strengthening Market Power: Sometimes, the motivation of CBMAs is the strong urge to diminish competition and earn higher market shares globally. Consolidation of market power via the mergers of key players might affect the pricing strategy and the level of consumer choice.
KEY LEGAL AND REGULATORY CHALLENGES – OVERVIEW:
Regulatory Approaches and Compliances: Most CBMAs require approvals from different regulatory bodies, such as anti-trust authorities, foreign investment committees, and sectoral regulators of both the countries concerned. It is pretty cumbersome and costly to handle diverse and sometimes conflicting regulations that may delay or even rule out the deal. Companies have to be extremely careful with regard to compliances so that legal roadblocks may be avoided.
Diversity of Corporate Laws and Governance: Most variations in corporate laws between nations can have a huge effect on the structure, negotiation, and execution of the CBMA. This would involve shareholder rights, composition of the board, procedures for approval, disclosure, and accounting standards. Merging these legal frameworks into a generally accepted standard can be very challenging and involves in-depth legal knowledge within both jurisdictions.
Taxation Complexities: Cross-border transactions lead to complex tax implications both in the home and the host country, even involving potential double taxation. Withholding taxes, transfer pricing regulations, indirect taxes on VAT and GST, and tax implications on repatriation of profits add agility. Thorough tax planning and structuring become quite essential with a view to reducing financial risks and sustaining optimal outcomes.
Foreign Exchange Regulations: CBMAs often involve multiple currencies, exchange rates, and the potential for currency fluctuations. Companies must comply with foreign exchange regulations in both countries, including obtaining necessary approvals and managing currency conversion risks. Regulations in areas like capital controls and repatriation of funds can further complicate transactions.
Labor and Employment Laws: Integrating workforces from different countries requires addressing variations in employment laws, labor contracts, social security, benefits, termination procedures, and the potential for cross-border employee transfers. Ensuring compliance with both legal frameworks while maintaining smooth post- merger integration is essential.
Intellectual Property (IP) Protection: Safeguarding IP rights (patents, trademarks, copyrights, trade secrets) across borders is critical. Businesses must conduct thorough IP due diligence, ensure proper assignment or licensing of IP rights, and adapt IP protection strategies to the legal landscape in the target country.
Data Privacy and Cybersecurity: CBMAs involve the transfer and potential consolidation of large amounts of personal and business data. Understanding and adhering to differing data privacy and cybersecurity regulations, including cross-border data transfer restrictions, is paramount to avoid legal violations and protect sensitive information.
Anti-Corruption and Anti-Bribery Laws: CBMAs increase exposure to potential violations of anti-corruption laws, such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Companies must implement rigorous due diligence and compliance programs to identify and mitigate corruption risks, especially when operating in jurisdictions with higher perceived corruption levels.
Political and Economic Risks: CBMAs are sensitive to the political and economic climates of the involved countries. Changes in government policies, trade disputes, sanctions, or economic instability can negatively impact the viability of deals or disrupt ongoing operations. Careful assessment of these risks and potential mitigation strategies are necessary.
Environmental Regulations: Cross-border transactions necessitate compliance with environmental regulations in both jurisdictions. Potential environmental liabilities, differing regulatory standards, and disclosure requirements must be identified and managed to avoid costly remediation or unexpected fines.
Cultural and Linguistic Differences: Cultural differences, language barriers, and varying business practices can create misunderstandings, delays, and potential friction during CBMA negotiations and post-merger integration. Sensitivity to cultural nuances and effective communication are crucial for building trust and ensuring successful collaboration
NAVIGATING THE LABYRINTH: CROSS-BORDER REGULATORY COMPLIANCE IN A GLOBALIZED WORLD
Business enterprise crosses borders to take advantage of the benefit packaging provided by a globalized economy, so the web of regulations through which they must travel becomes more and more complex. In other words, cross-border regulatory compliance sets parameters within which businesses can operate responsibly, with transparency, and within the rule of law across diverse jurisdictions. It is a complicated playing field where oversight of regulations results in the imposition of expensive fines, reputational damage, and sometimes even legal jeopardy. Many aspects heighten the challenges of cross-border compliance: First, the regulations have dynamic natures and change often; this requires constant vigilance and adaptation in compliance programs. Second, sometimes the regulations contradict each other in different countries, meaning companies have to take careful risk assessments and often have to make impossible choices. Thirdly, the absence of harmonization amongst jurisdictions causes complexity and promotes the chances of unintended non-compliance.
Cross-border legal and regulatory compliance goes well beyond a simple check-off list for laws and rules. It covers a broad range of fields that are very relevant to businesses internationally:
Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF): Financial institutions are bound to be subject to strict AML/CTF legislation, which restricts one from engaging in the flow of illicit funds or financing terrorism. Also, most of such regulations vary country by country; therefore, businesses try to adapt their compliance policies based on different operating areas.
Anti-Corruption and Anti-Bribery
Strict Legislation: the companies should be aware of legislation like the FCPA of the US and the UK Bribery Act. The due diligence becomes very relevant as liability for corrupt practices in the past can be inherited in an acquisition.
Divergent Enforcement: when countries have less effective enforcement, corruption risks become higher. The companies must have stringent compliance programs and improved due diligence for jurisdictions which are at high risk.
Data Protection and Privacy: Sensitive customer and business data protection have made data privacy a growing concern around the world, and changes in regulations like the General Data Protection Regulation in Europe have turned this into an important fact. Organizations should be aware of the limitation on data transfer across boundaries and the variation in privacy laws for certain countries where they are operating business with due diligence to protect information and meet local requirements.Trade Regulations and Customs: International trade is inevitably subject to necessary compliance with import and export regulations, tariffs, sanctions, and trade embargoes. The abilities to deal with such trade policies between nations require dedicated knowledge of classification processes, licensing, and possibly navigating political barriers.
Environmental Regulations: Environmental concern knows no borders, and businesses operate under different environmental regulations for every country. It falls in the area responsible for waste disposal, which also includes controls on pollution and sustainability mandates that may need major operational shifts to make it within set standards.
Labour Laws and Employment: Most of the businesses have to reconcile differing labour laws while hiring and managing employees across more than one country. These normally include hiring practices, pay structures, social security contributions, benefits, working conditions, and termination rights.
Harmonizing Contracts and Benefits: Labor contracts, social security, pension, annual leave, and notice/termination differ from nation to nation. Merging workforces requires careful reconciliation of these differing labor laws.
Redundancies and Restructuring: CBMAs are often designed to drive efficiencies, some of which come from workforce reductions. Labor legislation around restructuring and laying off workforces is strictly controlled in some jurisdictions, increasing the cost and complexity of post-merger integration.
Cross-border employee transfers: The transfer of key employees across borders also faces visa implications and possibly different tax treatment for the employee in the new jurisdiction.
Antitrust and Competition Laws: Large antitrust issues also occur in cross-border M&A, especially when the combining parties have substantial market power. The pertinent regulatory bodies scrutinize such transactions closely to make sure they do not result in anti-competitive practice or injury to consumer welfare. Besides that, national security has increasingly become a factor in cross-border M&As in recent times, where any transaction involving critical infrastructure, technology, and sensitive industries undergoes critical scrutiny in detail. Fair open market competition is a cause of concern for different regulators across various countries. They might closely scrutinize any cross-border M&A deal that has the potential to lessen competition or lead to a monopoly. Companies must be ready to face long reviews and, most likely, will be asked to divest certain assets or operations to get approval.
Foreign Investment Regulations: Many countries regulate or restrict foreign ownership in strategic industries, such as defense, natural resources, or infrastructure. Special approvals for companies might be required, or the structuring of a deal to satisfy local ownership criteria may be necessary.
National Security Reviews: The trend now involves the scrutiny of government agencies, quite often with committees like the Committee on Foreign Investment in the United States-often referred to as CFIUS-end cross-border deals for potential national security implications. In particular, this applies to technology-driven industries or when the acquiring company is related to foreign governments.
Different Corporate Laws and Governance:
Shareholder Rights and Approval: There is variation among countries with respect to rights granted to shareholders, the degree of shareholder approval required for a merger, as well as how that shareholder approval is to be obtained. Sorting this out can delay deals.
Structures of the Board and Fiduciary Duties: In many countries, the makeup of the board and statutory liabilities of the director are unique. How decisions are made on both sides of the board can prevent misunderstandings and possible legal problems.
Principles of Accounting and Disclosure: The system of accounting and extent of financial disclosure vary across national borders. This might make valuations tricky and disclosure hard to come by.
Taxes: The other critical issues in cross-border M&A transactions deal with taxation. Business needs proactive strategies in minimizing tax liabilities and compliance with both domestic and international tax laws. Multinational corporations must go through multiple tax jurisdictions and sometimes doubleWith international taxation issues and ever-changing international fiscal policies, all these tax optimization strategies have to strike a balance between burden reduction stringently with the various tax laws that differ in the multiple locations where their business has set up shop. Some areas of prime importance are:
Transfer Pricing: Transfers of assets or intellectual property between organizations in different countries at prices that can be considered fair market value become important in avoiding controversies with the tax authorities.
Tax Treaties: There are bilateral tax treaties between countries that try to avoid double taxation. Understanding the provisions of applicable treaties provides opportunities for companies to optimize structures.
Tax Structuring: Many times, the choice of most efficient tax legal structure for the combined entity after the M&A transaction can vastly change future tax liabilities.
Double Taxation: The profit or asset may be taxed for more than one country in the case of cross-border transactions. The presence of a tax treaty may be able to help but is usually complicated to interpret and then implement as different countries want to retain as large a tax base as possible.
Repatriation of Profits: There are approvals, taxes, and restrictions applicable on outward profit repatriation with the purpose of restricting fund outflow.
Intellectual Property (IP)
Protection and Transportation: Patents, trademarks, copyrights, and trade secrets are hugely vulnerable while crossing boundaries. The legal framework on protection and coverage ranges from country to country, often requiring serious due diligence and, if necessary, reregistration or adaptation of license agreements.
IP Asset Valorization: Valuation of intangible assets, such as IP assets, is already quite complex. Various legal systems further complicate this task in a CBMA.
DUE DILIGENCE: INCREASED COMPLEXITY:
Due diligence is the most important part of an M&A transaction, and in cross-border deals, it becomes even more critical. Different legal systems, problems due to the language barrier, and other cultural problems may make it hard to carry out detailed due diligence on a target company. The areas of consideration in cross-border M&A due diligence will involve:
Financial Health: Evaluate the target’s financial statement, account practices, and examine tax liabilities critically, with special consideration for any differences in accounting standards between the acquirer and target country.
Legal and regulatory compliance: Conduct due diligence concerning the target company’s conformance with relevant laws and regulations, which regard the environment, labor, and anti-corruption legislation
Intellectual Property: The status of patents, trademarks and other intellectual properties needs to be determined as well as ownership since in some jurisdictions, their respective IP legislation could be harshly different.
Political and Economic Risks: Target country’s political stability, economic policies, and risk of currency fluctuation or restriction on capital repatriation.
Cultural and Linguistic Barriers: Proper due diligence entails bridging gaps in communication and culture. The use of local consultants familiar with the target company’s market jurisdiction proves to be of great help.
Availability and Reliability of Data: It is difficult to obtain authentic financial and operational data in some countries. Companies may have to rely on methods for further verification
DRAFTER REQUIREMENTS
M&A deals require a lot of documentation, such as Letter of Intent, Non-Disclosure Agreements (NDA), term sheets, contracts, opinions, letters, registrations, etc. The drafting of these key documents falls within the purview of the M&A lawyer. In general, there will not just be one, but an entire team of lawyers involved in the transaction/drafting, sometimes from one firm and sometimes from several firms who will work together.
PRE-M&A STEPS
A proven process for evaluating and executing mergers and acquisitions includes five essential activities in most cases and that occurs as sequential steps. A description of each step is as follows:
1. Determine Growth Markets/Services:
First, leaders develop a rough idea for the type of firm they want to acquire or merge with, which will be compatible with their own goals and visions and which in turn, will help them generate huge profits in the long run. They do so, by gathering and reviewing as much relevant information as they can on the markets, companies, products and services.
To determine growth markets and services, leaders must collect and analyze extensive data, including the following: client origin; demographics (population, age, employment/unemployment rates, income); employers; other competitors; business, program, and service mix (performance and profitability by service line); field staff; employees; utilization/case mix (demand projections); competitive cost/charge position; and consumer preferences/ opinions.26
2. Identify Merger and Acquisition Candidates:
The second step of the acquisition process involves the proactive identification of the potential merger or acquisition candidates, that could meet strategic financial growth objectives in identified markets or service lines. The search and screen process is a systematic approach to compiling a list of good acquisition prospects. The search focuses on how and where to look for candidates.
The most effective way to find a target is usually through using a professional adviser in that particular sector. They should be experienced in handling deals similar to the size of both the acquirer’s business and the target company’s business. One should look for such candidates which will improve the chances of converting their business into a value-enhancing, strategically relevant business.27
3. Assess Strategic Financial Position and Fit:
26 7 Steps to Successful Merger & Acquisition (M&A) http://huconsultancy.com/7-steps-to-successful-merger-acquisition/
27 https://www.nibusinessinfo.co.uk/content/identify-targets-merger-or-acquisition
At this stage, following questions shall be answered:-
- What are the likely benefits of a transaction with this acquisition target?
- What is the maximum price that should be paid for the target company?
- What are the risks?
- How does this target compare to other targeted opportunities?
- What is the best way of financing the acquisition?
Financial Position:
The financial evaluation process involves both a self-evaluation by the acquiring company and the evaluation of the candidate for acquisition.
A comprehensive evaluation of the financial and credit position of the target company and the combined entities is based on solid utilization and financial forecasts. The assessment focuses on volume, revenue, cost, and balance sheet considerations.
4. Conduct Valuation:
The fourth step in the acquisition process involves assessing the value of the target company, identifying alternatives for structuring the merger or acquisition transactions, evaluating these, and selecting the structure that would best enable the organization to achieve its objectives, and developing an offer. In this step, the purchase price of a proposed acquisition is compared to the present value of the expected future cash inflows from the merger candidate. If the present value of the cash inflows exceeds the purchase price, the merger project has a positive net present value and is acceptable.28
There are three key valuation methods: discounted cash flow analysis, comparable transaction analysis, and comparable publicly traded company analysis. To identify a realistic valuation range, corporate leadership should select best suitable method.
Perform Due Diligence, Negotiate a Definitive Agreement, and Execute Transaction:
Once an offer on the table is accepted, leaders of the acquiring organization must ensure a complete and comprehensive due diligence review of the target entity, in order to fully understand the issues, opportunities, and risks associated with the transaction.
Among other things, due diligence involves verifying that claims made by a target company are correct. Whether done by one’s own legal or financial staff, certain fact checking can be done by a third party. For example, they can:
- confirm that the target business owns key assets such as property, equipment, intellectual property, copyright and patents;
- determine the status of any past, current or pending legal cases;
- check the background and profiles of key executives;
- perform analysis of financial statements; and
- validate sales projections.
After due diligence is completed, the parties negotiate definitive agreements. Any regulatory approvals necessary for consummation of the transaction are obtained and then the transaction is closed.
CULTURAL INTEGRATION: THE HUMAN ELEMENT
Even with the legal and regulatory approvals in place, cross-border M&A success hinges on successful cultural integration. Merging companies from different national backgrounds must bridge cultural differences that can impact communication, decision-making, and work ethics. Here’s what to keep in mind:
Communication Barriers: Language differences and varying communication styles can lead to misunderstandings and frustrations.
Conflicting Management Styles: Hierarchical vs. consensus-based decision-making, and different approaches to leadership can clash and create internal divisions.
Employee Resistance: Employees might be apprehensive about changes in job security, benefits, and work culture.
Building Trust: Developing trust and strong working relationships across cultures takes time and intentional effort.
DESPITE THESE HURDLES, ROBUST CROSS-BORDER REGULATORY COMPLIANCE IS ESSENTIAL. ITS BENEFITS INCLUDE:
Risk Mitigation: Proactive compliance minimizes the risk of fines, penalties, and damage to a business’s reputation that stem from breaching various regulations in foreign markets.
Competitive Advantage: Companies with strong compliance frameworks gain a trusted reputation among regulators, business partners, and clients. This level of trust can be a significant advantage in navigating global markets.
Enhanced Decision-Making: Thorough understanding of diverse regulatory environments aids in strategic decision-making when choosing where to expand, how to structure investments, and where to source goods and materials.
STRATEGIES FOR NAVIGATING LEGAL AND REGULATORY CHALLENGES
Meticulous Due Diligence: Robust due diligence processes are essential to uncover potential legal, regulatory, financial, and operational risks in the target company. This includes thorough legal, financial, tax, IP, environmental, and cultural due diligence, involving advisors with expertise in both jurisdictions.
Early Engagement with Regulatory Authorities: Proactively consulting with relevant regulatory bodies in both countries throughout the CBMA process can help obtain clearances, address concerns, and avoid unanticipated obstacles.
Invest in Expertise: Build in-house legal and compliance teams with knowledge of the regulatory landscape of the countries where they operate, or utilize specialized external consultants.
Create a Culture of Compliance: Foster an organizational culture where compliance is not seen as an obstacle but as integral to responsible and sustainable business practices.
Leverage Technology: Implement compliance software solutions that streamline processes, flag potential risks, and track regulatory updates across multiple jurisdictions.
CONCLUSION
INDIAN LAWS GOVERNING CROSS-BORDER MERGERS AND ACQUISITIONS
In order to encourage cross-border mergers and acquisitions, India has put certain rules and regulations into place. Cross-border mergers and acquisitions are primarily regulated under Corporate Laws, Tax Laws, Foreign Exchange laws and any other laws that apply to merger structures:
CORPORATE LAWS:
a) Companies Act, 2013:
Sections 230 to 232 of the Companies Act, 2013 include the requirements for domestic mergers, while Section 234 of the Act, along with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules of 2016, covers cross-border mergers and acquisitions.
Section 234 of the Companies Act states that domestic mergers shall apply mutatis mutandis to cross-border mergers and acquisitions between Indian companies and Foreign Companies as notified by the Central Government. According to this provision, a foreign company can merge with an Indian Company registered under this Act with the prior approval of RBI and the companies are obligated to provide the terms and considerations of the merger or acquisition.
Rule 25A of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 states that an Indian Company may merge with a foreign company subject to compliance under Sections 230 to 232 along with the prior approval of RBI provided that such foreign companies must be incorporated under the jurisdictions specified in Annexure B.
b) SEBI (SAST) Regulations, 2011:
The SEBI (SAST) Regulations on cross-border mergers and acquisitions aim to provide a level playing field for Indian companies and protect the interests of Indian shareholders. The regulations also provide clarity and transparency in the process of cross-border mergers and acquisitions in India.
The regulations apply to all acquisitions of shares, control or voting rights in a listed Indian company by a foreign company, including a merger or amalgamation with a foreign company.
The regulations prescribe different thresholds for open offers for different categories of companies. The acquirer is required to make an open offer for 26% of the share capital but can increase its shareholding up to 75% without making any further open offers. Additionally, when the acquirer buys more than 5%, compulsory disclosure of the total ownership is required.[7]
The regulations require prior approval from SEBI for any acquisition of shares or control in a listed Indian company by a foreign company.
The regulations also require the acquirer to make certain disclosures, such as the details of the acquisition, the acquirer’s shareholding, and the purpose of the acquisition, among others.
c) Competition Act, 2002:
The regulatory body responsible for outlawing anti-competitive agreements, abusing dominant positions, and fostering market competition is the Competition Commission of India (CCI). The CCI has the power to regulate combinations and prescribe necessary changes in their proposed combinations.
Section 2(a) defines the term acquisition as an agreement to buy shares, voting rights or other assets of the target company.
Section 5 empowers the CCI to make an investigation on whether the combination has any appreciable adverse effect on competition and section 20 of the Act deals with the mode of inquiry The restriction on combinations that have or are expected to have a appreciable adverse effect on competition is covered under Section 6(1).
Section 6(2) mandates the companies to provide prior notice along with relevant information to the CCI regarding the combination within 30 days
Section 31 empowers the CCI to provide necessary orders on combinations either to approve the combinations or reject the proposed combination or may suggest modifications to prevent the combination from the adverse effect on competition in the market.
FOREIGN EXCHANGE LAWS
a) Foreign Exchange Management Act (FEMA), 1999:
Using the powers granted under Section 234(1) of the Companies Act, 2013, the Central Government has issued the FEMA Cross-border Merger Regulation, 2018, to regulate the process of cross-border mergers. The regulations that are involved are as follows:
FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017,
FEM (Transfer or issue of any foreign security) Regulations, 2004,
FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016 etc.
b) RBI Act:
RBI has also proposed cross-border merger transactions under Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 to address the issues that arise from the merger or acquisition between Indian and Foreign Companies.
TAX LAWS
Income Tax Act, 1961 deals with the concept of amalgamation and demerger. The Income Tax Act’s Section 2(1B) defines amalgamation as the joining of two or more companies to create a single company. Mergers and acquisitions have been provided exemption under the head of Income from Capital Gains under section 47 of the Act, arising under indirect transfer of shares due to the merger or demerger of foreign companies. However, this benefit is applies only to an inbound merger.
Subject to the requirements of Section 72A (4) of the IT Act, cross-border demerger occurs when one or more undertakings of a company are transferred to a different entity overseas as a going concern, either to establish a new business or to merge with the current entity.
REGULATION OF CROSS-BORDER MERGERS AND ACQUISITIONS IN UK
The Companies Act of 2006 is one of the primary laws controlling M&A transactions in the UK. This act sets out the legal framework for mergers and acquisitions in the UK and applies to both domestic and cross-border transactions.
a) UK Companies Act, 2006:
Under the Companies Act 2006, cross-border mergers can take place between companies registered in different EU member states, or between UK companies and companies registered in EEA countries. The act outlines the requirements for such mergers, including the need for a cross-border merger plan, approved by the shareholders of both companies and the appointment of an independent expert to prepare a report on the merger.
Chapter 2 Part 27 of the Act deals with the concept of mergers and its requirements.Section 1113 of the Act deals with the Enforcement of the Company’s filing obligations.
After Brexit, UK revoked the Companies (Cross-border mergers) Regulations, 2007 along with its amendments of 2008 and 2015 are revoked.
b) Competition Act, 1998:
Competition Law: Cross-border mergers and acquisitions in the UK are subject to the provisions of the Competition Act 1998, which prohibits anti-competitive practices such as abuse of market dominance, price fixing, and collusion. Section 3 of Part I Chapter I of the act expressly exempts mergers from prohibitions.The UK Competition and Markets Authority (CMA) is responsible for enforcing these laws and may intervene in mergers and acquisitions to prevent anti-competitive behaviour.
Schedule 2 of the Competition Act states that when a merger takes place for the purpose of Part V of Fair Trading Act or Part 3 of Enterprises Act, then prohibitions under Chapter I do not apply to such mergers. The word ‘any two enterprises’ under this schedule is wider and thus it applies to cross-border mergers.
c) Takeover Code:
The Code’s main focus is on controlling takeover offers and merger transactions of the relevant corporations, regardless of the way they are carried out, including through statutory mergers or schemes of arrangement (as specified in the Definitions Section). In accordance with Article 2 of the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 (the “Jersey Law”), a Panel has been established to carry out specific regulatory duties relating to takeovers and mergers under Jersey law.
d) National Security and Investment Act:
Chapter 3 states that any acquisition made without the approval of the Secretary of State is considered void. The Secretary of State is empowered with the power to give notice in cases of suspicion that might trigger the national security. Thus, the UK government has increased its scrutiny of mergers and acquisitions involving companies in certain sectors that are deemed to be of strategic importance to the national security. To safeguard national security interests, the government has the authority to prohibit or place restrictions on such transactions.
e) Tax Laws:
Cross-border mergers and acquisitions may also be subject to UK tax regulations, including rules governing the taxation of capital gains, the transfer of intellectual property, and the use of tax havens.
REGULATION OF CROSS-BORDER MERGERS AND ACQUISITIONS IN USA
Cross-border mergers and acquisitions (M&A) in the United States are subject to various laws and regulations that govern the process. Cross-border M&A is subject to a number of important rules and regulations in the United States, including:
a) Clayton Act:
The Sherman Act’s basic restrictions are expanded upon by the Clayton Act, 15 U.S.C. 12 et seq., which also targets early-stage anti-competitive issues. Section 7 of the Clayton Act forbids mergers and asset purchases where “the effect of such acquisition may be used to reduce competition or to attempt towards establishing a monopoly, in any line of commerce or anything affecting it in any part of the country.
b) Hart–Scott–Rodino Antitrust Improvements Act (premerger notification):
It is a set of amendments in antitrust laws of the state. For specific mergers and acquisitions, it requires that the corporations notify the Federal Trade Commission and the Justice Department’s Antitrust Division prior to the transaction. The Bureau of Competition is committed to the duty of preventing mergers or acquisitions that affects the competition in the market.[17]
c) Foreign Investment and National Security Act (FINSA):
The Committee on Foreign Investment in the United States (CFIUS) is empowered under the federal statute known as FINSA to assess and approve or disapprove foreign investments in US companies that might endanger national security[18]. The CFIUS may assess cross-border M&A deals involving foreign investors. The US government has passed certain legislations which empower federal agencies in foreign investments that pose risk to national security.[19]
d) Securities Exchange Act of 1934:
This federal law regulates securities transactions and requires companies to make various disclosures related to M&A transactions, such as tender offers, proxy solicitations, and disclosures of material information. Regarding both domestic and international mergers and acquisitions, the Securities and Exchange Commission has established two regulations. “Cross-border Release” facilitates participation in cross-border tenders and exchange offers, mergers and equivalent transactions, and rights offerings for holders of U.S. securities of foreign businesses. The regulation M-A Release governs the tender offer.[20]
Final Rule: The SEC issued exemptive rules on cross-border tender and exchange offers, business combinations, and rights issues involving the stocks of foreign corporations from the Securities Act’s registration requirements. The exemptions’ main goal is to make it easier for American investors to participate in these kinds of transactions.[21]
e) Tax laws:
Cross-border M&A transactions may have significant tax implications, including issues related to the tax treatment of assets, income, and gains, as well as transfer pricing and other international tax considerations. Companies engaged in cross-border M&A transactions in the US need to comply with federal and state tax laws, including the Internal Revenue Code and relevant tax treaties.
f) Foreign Corrupt Practices Act (FCPA):
The FCPA is a federal law that prohibits US companies from engaging in bribery and other corrupt practices when conducting business abroad, including in the context of cross-border M&A transactions. US companies engaged in cross-border M&A transactions need to ensure compliance with the FCPA, which includes anti-bribery and accounting provisions.[22]
g) State laws:
In addition to federal laws, cross-border M&A transactions in the US may also be subject to state laws. Each state has its own laws and regulations governing corporations, limited liability companies, and other business entities, which may impact the process and requirements for M&A transactions.
COMPARATIVE ANALYSIS
India’s regulations for cross-border M&A are governed by RBI and the Companies Act. The RBI governs foreign exchange regulations while companies act deals with the process of mergers and acquisitions. Whereas the UK’s regulations on cross-border M&A are enforced by Financial Conduct Authority (FCA) and Takeover Panel. The FCA deals with the conduct of companies and the Takeover panel regulates M&A activities. The USA’s regulations are enforced by the Securities and Exchange Commission (SEC), Department of Justice and the Federal Trade Commission, where the SEC regulates financial disclosures and the DOJ and FTC regulate antitrust and competition issues.
The process of regulatory approval for cross-border mergers and acquisitions also differs across these countries. In India, the approval is granted by the National Company Law Tribunal (NCLT) and RBI. The approval in UK granted by the Financial Conduct Authority and the Competition and Markets Authority. On the other hand, the SEC and the Department of Justice’s Antitrust Division approve transactions in the USA.
The tax implications of cross-border mergers and acquisitions are different in each of these countries. In India, there are specific tax rules that apply to cross-border deals. Her Majesty’s Revenue and Customs (HMRC) takes charge of the tax repercussions in the UK. While in the USA, the Internal Revenue Service (IRS) is in charge of overseeing the tax ramifications.
The practice of doing due diligence is crucial to cross-border mergers and acquisitions. In India, the acquirer usually undertakes the due diligence procedure. In the USA, the due diligence process is more detailed, with the target company required to provide detailed financial and other information. In the UK, the due diligence process is also thorough, with the acquirer required to carry out extensive checks.
The disclosure requirements for cross-border mergers and acquisitions also vary in these three countries. In India, the Companies Act, 2013 mandates companies to disclose all material information related to the merger or acquisition to their shareholders. The Securities Exchange Act of 1934 and the Securities Act of 1933, both of which apply in the USA, impose obligations on businesses to disclose certain significant information to shareholders and to register securities offerings with the Securities and Exchange Commission. In the UK, the Takeover Code sets out rules regarding the disclosure of information to shareholders.
Cross border mergers and acquisitions are complex transactions that require careful consideration of the regulations in each jurisdiction. Companies must be aware of the legal and regulatory requirements in India, UK, and USA to ensure compliance with the relevant laws and regulations. One key consideration is the protection of national security interests, which can lead to restrictions on foreign ownership or control of certain industries or assets. Another important factor is competition law, which aims to prevent anti-competitive behavior and maintain a level playing field in the market. Overall, the regulations surrounding cross-border M&A are multifaceted, but they play an important role in promoting fairness, transparency, and accountability in the global business environment.
2. TYPES OF MERGERS & ACQUISITIONS IN PUBLIC AND PRIVATE M&A
I. PUBLIC M&A
The general forms of business combinations that are available to private companies are also available to publicly listed companies. The two principal mechanisms of acquiring control of a public company in India (i.e. the right to appoint majority of the directors or control the management or policy decisions) are as follows:
- Acquisition of shares: This involves acquiring substantial shares or voting control (through negotiated secondary or primary transactions). A bidder that acquires shares that reach certain thresholds of voting rights or control in a public company (directly or indirectly) is mandatorily required to make an open offer for at least 26% of the total shares of the target company.7
- Statutory scheme of arrangement: This is a statutory mechanism that requires both, the shareholders and creditors of the bidder and the National Company Law Tribunal (NCLT) to consent to acquiring substantial shares in the target company ‘s share capital. However, before the NCLT can approve a scheme of arrangement, the scheme must be approved by a majority in number, representing 75% in value of each class of shareholders and creditors of the bidder company and the target company. The advantages of a scheme of arrangement is that, once the scheme is approved, it is binding on all the shareholders of the bidder company and the target company (even those who did not vote in favour of the scheme). If the scheme of arrangement relates to a listed company, approval from the Indian securities market regulator, i.e. the Securities and Exchange Board of India (SEBI) and the applicable stock exchanges is also required.
- Schemes involving publicly listed companies need to be pre-cleared by the relevant stock exchanges and reviewed by the Securities and Exchange Board of India (SEBI), before being submitted to the National Company Law Tribunal (NCLT) for approval, and additional conditions regarding disclosures and shareholder voting need to be complied with.
Merger control is governed by the Competition Commission of India (CCI) through the Competition Act, 2002 (Competition Act), the CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 (Combination Regulations) and certain other notifications.
Transactions that exceed prescribed asset and turnover thresholds must be notified to, and approved by the CCI, before the transactions can be given effect to. The CCI can approve a combination within 30 working days (subject to any ‘clock stops’). However, where the CCI is of the prima facie view that the combination may cause an appreciable adverse effect on competition, it may approve the combination within the statutory outer limit of 210 calendar days from the date of filing (this is also subject to any ‘clock stops’).
II. PRIVATE M&A
The most common ways to acquire a private company are as follows:
1) Mergers and demergers
Mergers and demergers used to be court-driven processes but, upon the constitution and notification (in December 2016) of the National Company Law Tribunal (NCLT), they are now NCLT-driven processes.
2) Assets and business transfers
Both, acquisitions of certain key assets of a business undertaking (i.e., asset transfers) and entire business undertakings as a going concern (i.e., business transfers) are common in India. Business transfers are referred to as a ‘slump sale’ under the Income Tax Act, 1961 (ITA), and involve the transfer of all assets and liabilities of a business undertaking on a going concern basis. Further, business transfers also benefit from a favorable tax treatment in comparison to asset transfers since in a business transfer, a lump-sum value is assigned to the entire undertaking as a whole, instead of, values being assigned to individual assets and liabilities, as is the case with an asset transfer.9
3) Share acquisitions
In India, share acquisitions still remain the most prevalent and preferred mode of acquisition, because they are relatively simpler and time efficient in comparison to the other three modes discussed in this chapter. Further, a share acquisition can be in the form of a secondary purchase, i.e. a purchase by an acquirer of securities of the target company held by existing shareholders, and a primary investment, i.e. a subscription by the acquirer company to a fresh issuance of securities by the target company, or a combination. A purchase of, or subscription to, securities are both relatively straightforward. A purchase or subscription can involve acquisition of equity shares or instruments convertible into equity shares and may vary, depending on the nature of the investment and the commercial intent. As a general rule, foreign direct investment (FDI) in Indian companies is permitted only through a purchase of, or subscription to, equity shares and instruments convertible into equity shares.10
Other ways to acquire share capital (such as minority squeeze-out and capital reduction) remain extremely regulated and are subject to principles set out by the courts from time to time. Therefore, a negotiated share purchase transaction remains the best way to acquire the share capital of the target company.
4) Joint ventures
A joint venture is another popular structure where two parties (especially, where one party is a non-resident or a foreign party) can come together to benefit from each other’s synergies and expertise. For example, the resident or domestic party can contribute its distribution network to the joint venture entity, and the non-resident or foreign party can license its intellectual property (IP) to the joint venture entity, such that both joint venture parties can benefit from
EXAMPLES AND CASES OF M&A- GLOBAL AND INDIA CENTRIC GLOBAL EXAMPLES
1) GOOGLE AND ANDROID ACQUISITION
In 2005, Google acquired Android for an estimated $50 million. At the time of the deal, Android was an unknown mobile startup company. The move made it possible for Google to compete in a market owned by Microsoft with Windows Mobile and Apple’s iPhone. This deal is a successful acquisition example, 54.5 percent of U.S. smartphone subscribers use a Google Android device as of May 2018.
2) PFIZER AND WARNER-LAMBERT ACQUISITION
In 2000, Pfizer acquired Warner-Lambert for $90 billion, both companies in the pharmaceutical drug industry. It is known as one of the most hostile acquisitions in history, due to the fact that Warner-Lambert was originally going to be acquired by American Home Products, a consumer goods company. American Home Products walked away from the deal, resulting in large break- up fees, and Pfizer swooped in.
Pfizer had their eye on Warner-Lambert because of a highly demanded cholesterol medication Lipitor. “Pfizer had commercial rights to Lipitor, but Pfizer was splitting profits on it with Warner-Lambert, and in 1999, Warner-Lambert sued Pfizer to end their licensing pact.” The acquisition created the second largest drug company, took three months, and Pfizer obtained control of Lipitor’s profits, which amounted to over $13 billion.
3) AMERICA ONLINE AND TIME WARNER MERGER
The year, 2000 saw one of the biggest mergers in history when, America Online (AOL) joined hands with Time Warner Inc. AOL, an internet provider, merged with Time Warner, the entertainment conglomerate, to create AOL Time Warner. The deal was worth $165 billion and is considered to be a landmark in the M&A world. During the time of the acquisition, the most common way to access the internet was through their landline phone service provided by AOL. Due to the change in the way Americans accessed the internet and various company cultural
II. INDIA CENTRIC EXAMPLES
1) ULTRATECH-JP CEMENT DEAL
Jaiprakash Group’s ‘Jaypee Cements’ accumulated a lot of debt for itself. It even had to let go of its holding in the IPL team ‘Deccan Chargers’. Circumstances were forcing Jaypee to go to the NCLT under the insolvency process. Jaypee was concerned that they would not get a reasonable price in NCLT because everyone would know that they are desperate to be sold, hence, the deals coming towards them won’t be that attractive.
They chose a win-win formula. They went to the Aditya Birla Group, that owned successful ‘UltraTech Cement’ (acquired from the L&T group). The deal would not only give a geographical expansion to UltraTech Cement; it would get access to high-end contracts like Expressways that were under Jaypee Associates. The deal was worth ₹16189 crores and added 21 million tonnes capacity to the UltraTech cement.
2) TATA MOTORS AND JAGUAR LAND ROVER
In 2008, Ford Motors was running its luxury subsidiary ‘Jaguar-Land Rover’ (JLR) in a loss of $520 million. Nobody was ready to buy such an indebted car company that was consistently losing its market. Thereafter, Tata arrived at its rescue. It not only bought the JLR for $2.3 billion, but it also reported a $3400 million profit in the year 2019.
There was a time when, once Tata wanted to sell off Tata Motors to Ford Motor Company around 1998. Ford humiliated the Asian giant. Tata backed off. Ten years later, when Tata Motors was capable enough of the deal, Ford expressed its gratitude to Tata that they were buying it.
3) ZOMATO AND UBER EATS
Zomato recently acquired Uber Eats India for ₹2492 crores. Such mergers are quite common in start-ups. The reason is that most of the Indian start-ups are backed by deep pockets and
depend a lot on investors. If the funding stops, start-ups end in the lurch. Some other deep pockets would go ahead and buy them. Zomato, hence, acquired its competition Uber Eats India, contesting another competitor ‘Swiggy’ in the bid.
For Zomato, buying the distant third player helps it establish dominance over the market and puts it ahead of its arch-rival, Swiggy. It is one less competition for the company to deal with.
Conclusion
Cross-border mergers and acquisitions have emerged as a significant driver of global business expansion, strategic realignment, and value creation. The trends in cross-border M&A reflect the evolving dynamics of the global economy, with emerging market acquirers, mega-deals, and technology-driven transactions shaping the landscape. Famous cross-border M&A deals illustrate the transformative impact of such transactions on companies and industries, while legal and regulatory challenges underscore the complexities involved in navigating diverse legal frameworks, antitrust regulations, and national security considerations. Despite these challenges, cross- border M&A continues to play a pivotal role in shaping the global business environment, driving innovation, and fostering international collaboration.
Cross-border mergers and acquisitions offer both great potential and unique complexities. Businesses venturing into these transactions must meticulously plan for and address the diverse legal and regulatory challenges. Companies that invest in thorough due diligence, engage experienced cross-border advisors, and develop proactive strategies to address regulatory compliance will be better positioned to achieve their cross-border M&A goals.
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