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India: M&A Landscape

India: M&A Landscape. Featuring Vineet Aneja Partner Fox Mandal Little GLG Institute Seminar 24th April 2007, Hong Kong. Council Member Biography Vineet Aneja

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India: M&A Landscape

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  1. India: M&A Landscape Featuring Vineet AnejaPartnerFox Mandal LittleGLG Institute Seminar24th April 2007, Hong Kong

  2. Council Member Biography • Vineet Aneja • Vineet Aneja is the head of the corporate practice at Fox Mandal Little, one of India's oldest and largest full service legal Organization. He specializes in joint ventures, mergers and acquisitions, project finance, corporate, corporate consultancy, SEBI related laws and foreign exchange laws. Mr. Aneja’s scope of advice includes structuring corporate transactions in a tax efficient manner, advice on general corporate issues, due diligence and legal audits, entry and exit strategies to foreign investors, seeking approvals and registrations with various government and other bodies, and advice on Foreign Exchange Management Act issues. He has advised various Indian and foreign companies on general corporate matters including regulation, companies Act etc. This includes Gas Authority of India Limited, Nuclear Power Corporation of India Limited, Alcatel, Fidelity Group, Colt Telecom, ExxonMobil Corporation, JP Morgan Fleming, Goldman Sachs, Alchemy Partners LLP and Ashmore Investments (UK). IMPORTANT DISCLAIMER – Information provided and material produced in connection with this event is for your own use and may not be redistributed or displayed in any form. Gerson Lehrman Group does not screen and is not responsible for the content of materials produced by Council Members. You agree to keep the material provided by Councils Members for this event and the business information of Gerson Lehrman Group, including information about Council Members, confidential.

  3. Mergers and Acquisitions 2007 Source: Assocham Eco Pulse Analysis Outward FDI flow Expected to be more than USD 15 billion Destinations for Corporate India China, Brazil, USA and Africa. Increasing number of inbound deals 532 deals in 2006 [ Sectors Pharmaceuticals, automotives, software, financial Services, real estate, hospitality, construction services etc.

  4. Mergers and Acquisitions 2007 • Increasing number of outbound deals as compared to inbound investments. • High value Merger and Acquisition (“M&A”) deals in commodities (especially metals) and telecom. • Growth of M& A activity in the commodities sector due to factors such as economic growth, international commodity prices, exports, growth of infrastructure, cheap labor etc. • Rationale for major inbound deals such as Holcim’s investment in Gujarat Ambuja and Ambuja Cements mostly to expand capacity in India. • In January and February 2007 alone, 102 M&A deals have taken place with a total value of almost USD 36.8 billion. Tata - Corus Holcim - Gujarat Ambuja Hindalco - Novelis Hutch – Vodafone

  5. Top Deals In Commodities Sector 2006 2007 Source: Dealtracker, Grant Thornton 2007

  6. Deal size and stake Fourth largest deal of the year 2007 (to date) at $13.3 bn ($11.1 bn plus $2 bn debt). Hutchison Essar valued at $18.8 bn. Regulatory Approvals Foreign Investment Promotion Board Foreign Direct Investment Policy Department of Telecom The Department of Telecommunication has given its nod All licensing conditions to be met by Vodafone. Vodafone - Hutch Vodafone acquisition is subject to a number of approvals including from the Department of Telecommunications and the Government (FIPB). Vodafone filed for an approval from the FIPB . Application still not been approved due to issues relating to the total direct and indirect foreign holding in Hutchison Essar. Press Note 5 of 2005 provides that direct and indirect foreign shareholding in a telecom company cannot exceed 74%.

  7. Sector wise Break-Up- PE deals by value Jan 2007 Feb 2007 Source: Dealtracker, Grant Thornton 2007Jan 2007

  8. 108A-108I Companies Act , 1956 390-394 Companies Act , 1956 Section 390 to 394 of the Companies Act –Governs schemes of Arrangement between companies and their respective shareholders and creditors under supervision of the Company Court. Restrictions on transfer / acquisition of shares where acquirer’s shareholding : • results in a dominant undertaking (“DU”) • in case of existing DU, increase substantially the production, supply • of goods and services. • Central Government approval required if in excess of threshold prescribed. Regulation of Mergers in India Mergers are primarily governed by the Company Court and the Ministry of Company Affairs…

  9. Section 390 – 396A of the Companies Act, 1956 Merger or Amalgamation under a scheme of arrangement Most convenient and common method of obtaining a complete merger or amalgamation between companies. • Active involvement of Court • Court sanction under Section 394 (2) required • Court order to be filed with the Registrar of Companies • Various approvals required in respect of scheme of amalgamation: • Approval of the Board of Directors • Approval of Stock Exchanges • Approval of Shareholders/ Creditors (secured and unsecured) • Approval of Land Holders and under other contracts • Approval of the High Court • Approval of the Reserve Bank of India

  10. Acquisitions Acquisition of shares in an Indian company by Non Residents governed by the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000. No approval required for purchase of shares ( including existing shares from Residents to Non-Residents or vice versa, subject to pricing and reporting requirements. Press Note 1 of 2005 read with Press Note 3 of 2005 to be complied with in case of existing joint ventures. Proposals in the Information Technology sector, investments by multinational financial institutions and in the mining sector for same area/mineral exempted. Acquisition of shares in an Indian listed company, have to be in compliance with the provisions under the Substantial Acquisition of Shares and Takeovers Regulations 1997 (Takeover Code).

  11. Sectoral Caps Circular No. 16 FIPB Approval • Under the current FDI policy, most sectors under the automatic route for investment up to 100% including manufacturing and services sector. • Approval required for proposals outside sectoral policy. • General permission, in respect of transfers from R to NR & NR to R. • Conditions under Circular 16 to be met & reporting requirements to be complied with. Prior approval from the Government required for manufacture of cigars/ cigarettes of tobacco, electronic aerospace & defense equipments, items reserved for small scale sector and FDI in Single Brand retail. Acquisitions Issues under FEMA

  12. Acquisitions Issues under the Takeover Code Open Offer Disclosures Making of an open offer on holding crossing15% (Reg. 10) Upon acquisition of 5% or more Disclosure at 5% or 10% or 14% or 54% or 74% (shares or voting rights) Open offer on holding crossing 5 % in a financial year (for 15% holding to 55% holding) Purchase and sale of every 2% (for 15% holding to 55% holding) Any shares beyond 55%, less than 75% Open offer on change of control (regardless of acquisition of shares) Yearly disclosures by persons holding more than 15%, by persons in control / promoters

  13. Joint Ventures Gaining effective control of Joint Venture Companies Differential Voting Rights Shareholding 51: 49 Joint Venture Casting Vote Control Reserved Matters Nominees on Board Right to appoint Top Management

  14. Key Shareholding Thresholds 26% - Special Resolutions can be blocked 51% - Ordinary Resolutions can be passed 75% - Approval of at least 75% (shareholders present and voting) required to pass a Special Resolution

  15. Exit Mechanisms Repatriation of profits from made by Indian companies to foreign investors as dividends is freely permitted. Exit route in the form of a transfer of the shares of the Indian company. Exit route in the form of a transfer of the assets of the Indian company. Gains derived from transfer of shares in Indian companies are subject to tax in India, subject to tax treaties, if any.

  16. Taxation *Please note the below rates have been proposed in the recent finance bill. Effective rate of corporate tax for non-resident companies and their branches is 42.23%. Effective rate of corporate tax for domestic companies is 33.99%. Dividend distribution tax of 16.995 % is payable by the company. Capital Gains tax payable on long term and short term gains (varying rates depending upon whether listed or unlisted company) Service tax of 12% (12.36% including the education cess) applies to many services.

  17. Government of India, under Section 90 of the Income Tax Act, • has entered into double tax avoidance agreements with other • countries. • Tax Treaties provide protection to taxpayers against double • taxation and prevent discouragement, which the double taxation • may otherwise promote in the free flow of international trade, • international investment and international transfer of technology. • India has entered into DTAA with 65 countries including • USA. In case of countries with which India has DTAAs, the tax rates • are determined by such agreements. Credit on foreign tax paid • domestic corporations is granted. Double Tax Avoidance Agreements Taxation Tax havens include Mauritius, Singapore, Caymon Islands, Netherlands etc.

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