CCI Rule Changes Make Hostile Takeovers Easier in India
The Competition Commission of India (CCI) has relaxed its rules on mergers and acquisitions; acquiring an unwilling company now seems relatively easy. It is a hostile takeover.
New Acquisition Rules for Buying Shares
- The CCI had allowed companies to buy up to 25% of the shares of another company from the stock market without informing the company a few weeks ago.
- This is directly in contrast with the times when the previous companies needed permission for even the smallest purchases.
Companies don’t need to ask CCI before:
– Bonus issues – They are other means for receiving free shares.
– In case of a share split, a company divides its shares into two or more lots and distributes the share.
– When a company issues its shares, it is advisable to issue a single class of shares to avoid complications that may arise from having more than one class of shares.
– If the latter is the case, then it is important to understand that when a company reorganizes its group
However, these actions should not transform the company’s ownership and control.
What Experts Say
1. Rahul Rai (Axiom 5 Law Chambers):
– When acquiring shares to effect a hostile takeover, one is supposed to notify CCI within 30 days.
– That is how these deals remain confidential and it solves a problem that was with the previous rules.
2. Shweta Shroff Chopra (Shardul Amarchand Mangaldas & Co):
– Most of the new rules are only feasible where the buyer does not acquire control of the company.
– The term “control” has a meaning of a possibility to significantly affect the company’s actions.
– The situation may change with the change in control and the new rules may not apply in this case.
