02-May-2020 Cross Border Merger
Cross Border Merger is a combination of businesses of two or more companies incorporated in two or more countries. Companies of different jurisdiction basically go through this process in order to enhance their growth and elevate their standard to compete in International market.
‘Cross Border Merger’ means any merger, amalgamation or
arrangement between an Indian company and foreign company in accordance with
Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 notified
under the Companies Act, 2013.
For the purpose of cross border merger, a ‘Foreign Company’ means any
company or body corporate incorporated outside India whether having a place of
business in India or not.
There are 2 types of Cross Border Mergers:
‘Inbound merger’ -A cross border merger where the resultant
company is an Indian company. i. e. Foreign Company merges with an Indian
Company.
‘Outbound merger’ -A cross border merger where the resultant
company is a foreign company. i .e. Indian company merge with a Foreign
Company.
|
INBOUND MERGER |
OUTBOUND MERGER |
|
Resultant
Company is an Indian Company. |
Resultant
Company is a Foreign Company. |
|
Resultant
company may issue/transfer securities to (person resident outside India) PROI. |
PRII (person
resident in India) may hold/acquire securities of resultant foreign company
in accordance with FEM (Transfer or issue of any Foreign Security)
Regulations, 2004. |
|
Need to
comply with pricing guidelines, entry routes, sectoral caps as per applicable
regulations. |
Resident
individual may acquire securities outside India at FMP within limits
prescribed under Liberalised Remittance Scheme (LRS). |
|
Office of
foreign company situated outside India = Branch/office of resultant Indian
company situated outside India. |
Office of
Indian company situated in India = Branch/office of resultant Foreign company
situated in India. |
SOME RECENT EXAMPLES OF CROSS
BORDER M & A:
· The Jet-Etihad deal and the Air Asia deal in the aviation sector in India are good examples of how cross border M&A deals need to be evaluated . For instance, there is both support and resistance to the Jet-Etihad deal as well as for the Air Asia deal. This has made other foreign companies weary of entering India .On the other hand, if we consider the cross border M&A deals in the reverse direction i.e. from emerging markets to the developed world, the Chinese oil major had to encounter stiff resistance from the US Senate because of security concerns and potential issues with ownership patterns.
· Unilever's takeover of its subsidiaries around the world is the great example. The clear implications of these successes as well as failures is that there must be a process that is structured and standardized in each country and by each firm on how to approach the M&A deal. Otherwise, there are chances of hostility creeping into the process and affecting the economic atmosphere for all stakeholders. The Due diligence must be carried out before any such deals are considered.
PROCESS
OF MERGER
Post-Merger Compliance Inbound Merger
1.
Borrowings/
guarantees of the foreign co. becomes the borrowing of the RC (Resultant
Company).
2.
Assets of
the Foreign Co to be acquired by RC as per RBI directions
3.
RC to comply
with all the ECB norms post such merger
4.
Assets to be
sold off which are not permitted to be acquired/held.
5.
Repayment
cannot be made for a period of 2 years
6.
Within 2
years of sanction of the scheme
Post-Merger Compliance Outbound
Merger
* Firstly,
person resident in India may acquire shares of the resultant company
* Fair Market
value (FMV) of the shares shall be determined as per ODI regulations
* Under the
Liberalised Remittance Scheme (LRS), Authorised Dealers may freely allow
remittances by resident individuals up to USD 250,000 per Financial Year
(April-March)
* The Indian
Office of the resultant company shall be treated as Branch Office and shall be
governed by FEMA Liaison office Regulations
* NCLT sanctions
the scheme of outstanding borrowings of the Indian company
* Should be in confirmation with FEMA Act and Regulations, obtain the NOC from the lender as well
· RC can hold
and transfer assets in India in accordance with the FEM (Acquisition and
transfer of immovable property in India) Regulations, 2018.
· Assets not
permitted to be sold off within 2 years of the sanction of the scheme.
· Proceeds to
repatriated outside India immediately, repayment of Indian liabilities within 2
years.
Approval
Earlier, As per Rules 25A, a prior approval
of RBI was necessary in order to enter into such merger
Post the notification under FEMA, it shall
now be considered as a deemed approval given by RBI, provided that the cos. are
complying with all the provision, and a certificate undertaking such compliance
is furnished in this regard before NCLT.
However, if the transaction does not comply
with the regulations, it shall be necessary for the companies to obtain such
prior approval from RBI.
Conclusion
Cross border M & A's leads to economies
of scale and scope which helps in gaining efficiency. Apart from this, it also
benefits the economy such as increased productivity of the host country,
increase in economic growth and development particularly if the policies used
by the government are favourable.
Please feel free to write to us on amita@apmh.in / info@apmh.in for any further queries on the above blog.