RESPONSE PAPER: Public M&A framework in India today

This paper is written in the response to the video available on YouTube platform namely,
Public M&A framework in India today.
Introduction
Corporate restructuring is very necessary step to achieve growth and stay relevant in the
market against competitors and with advanced technology. This method provides long-term
sustainability in the modern business world. Among the many ways Merger and acquisition is
one of the way through which companies can expand and grow. After watching the video, I
am clearly able to understand the procedure of Public M&A, the importance of the role of
SEBI in authorizing the whole procedure to ensure fairness amongst shareholder and to
protect rights of investors.
Public M&A
Public M&A is a process in which a company mergers or acquire with another company
which is listed publically. Which means the company have listed their stocks on sticks
exchange. This M&A are highly regulated by Securities and Exchange Board of India
(SEBI). This regulatory bodies set regulations and rules which are highly scrutinize.
This video explain briefly about the step by step process of Public M&A, from announcement
date to the final transaction, which must be publically shared to protect the rights of investors.
After acquiring about 25% shares in the company which is publically listed, one must make
open offer to all shareholder of the target company. This open offer ensure transparency and
fairness to all shareholder and investors and also provide opportunity to exit if they do wish
to remain part of the merged company.
Another thing which is included is Tender offer process, where the acquiring company can
make direct offer to shareholder of Target Company to buy their shares at higher prices.
However, these procedur3es are highly controlled by SEBI’ takeover code which imply that
how tightly M&A are regulated in India with rules and regulations, which ensures the offer is
made fairly and with adequate disclosures. Also tells us about how important is it to protect
rights of investor’s interest during M&A process.
Private v. Public M&A: The Difference
The Public M&A are regulated with such high level of rules and regulations because Public
M&A deals with public shareholder and investors. These Public M&A concerns with public
at large. That’s why Pubic M&A are structured and very formal. Whereas when it comes to
Private M&A, the M&A is often between companies that are not listed on stock exchange,
which does not concern with neither public not SEBI. The Private companies often merger
for their personal growth, and are between small startup companies, family members, or
private equity investors. Because of this, the process is less formal and faster, with less
regulatory requirements.
In public M&A, the details of the deal such as price of shares, number of shares being
acquired, and purpose of acquisition must be disclosed publically. Whereas in private M&A,
all the details are confidential and negotiated privately between the two parties involved.
Public deals may have many shareholder, including regulators, stock exchanges, and
stakeholders. Private deals usually have only very small amount of people so negotiation are
simpler and more flexible.
A stand tat which my attention was attracted to is the valuation of M&A in the public M&A
can be easily influenced by the market price of the company, but in M&A between the
private companies the valuation is negotiated based on business projection and due diligence
reports.
In practice, it implies that public M&A provides greater security to minor shareholders, but it
may be time-consuming and lengthy because of the paperwork. Privately arranged M&A
presents more control as well as flexibility between the two parties, although it presents
outsiders with less legal protection. This comparison goes a long way in understanding why
institutions tend to choose public merger and acquisition transactions most of the time, since
they prefer the transparency and the rules that make them confident. Meanwhile, small and
medium enterprises as well as startups could be more oriented towards non-public M&A
since it allows them to either expand or leave the market without attracting so much attention.
Interveners play very important roles when a company listed in the stock market is acquired.
In India all M&A deals are to be governed by the Securities exchange board of India (SEBI).
SEBI ensures that takeovers are fair and prevents the harm to investors through the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011. In the event that a
single individual acquires over 25%% in shares of a publicly traded company; then the
individual should bid at a minimum of 26%% as an offer to the existing shareholders. This
ensures that acts of hostile takeovers do not take place and minority shareholders are taken
care of. The buyer needs to make disclosures to the public and obtain the board of directors
approval, prior to the issue of an offer. The offer period comes to an end the buyer might in
that case require a clearance by Competition Commission of India (CCI) in case the merger
harms competition in the market. These are numerous steps but they create the required
system of checks that makes the capital markets sustainable in their trust. The interviewee
observed that such regulations make the transaction slower, but they are essential. Otherwise
you either get companies seized unknowingly and shareholders left with no reaction time or
opportunity to enjoy the customary premium that transactions involving acquisitions always
follow.
Insider Trade: A Grave Issue
One of the gravest legal and ethical risk of mergers and acquisition, particularly in the
situation of public markets, is insider trading. This was mentioned briefly in the video and
made me reflect deep on what it entailed. Insider trading- Insider trading is an illegal practice
dealing with some particular non-public information about a business which is exploited to
purchase or sell stocks by an insider prior to the same and the information are known to the
rest of the world. This, in the case of M&A, may result in exchanging shares of an
organization on the basis of information relating to a future takeover or a fusion. Suppose the
chief of a company is aware that its company will be acquired soon by a big firm. They are
also aware that such a deal will push up the share price by a huge margin. In case they
purchase shares when others are not aware they will earn enormous dividends. This is not fair
and it is a crime since regular investors do not have the same opportunity. The one thing that
I have learnt after watching the video is that insider trading does not just affect the confidence
of the investors but goes ahead to destroy the integrity of the whole financial system. To
check it, there are stringent laws by SEBI. It checks abnormal trade practices, say, there is
sharp rise in the stock prices just before a M&A transaction is publicized. In this kind of a
case, it is empowered to perform investigation and impose penalties to those involved. Cases
of insider trading are likely to be difficult to establish, though regulating bodies are learning
advanced techniques of establishing the same through data and technology. This taught me
the importance of ethical conduct in corporate dealings- particularly, when such huge amount
of wealth and trust are involved.
Viewing this video has informed me more regarding public M&A and what it entails in terms
of the financial system in India. I used to believe that it is simply the matter of large
companies acquiring other large companies, yet it is a complex legal and regulated process,
and it has severe implications on the shareowners and market. The video further gives a
reason as to why SEBI and other organizations strive to develop an equal ground to investors.
It explains the reasons why firms opt either for a public or a private transaction the size of the
business, its objectives as well as its ownership concern. I could observe that business and
ethics are inseparable. The tough insider trading law is not merely a form of payment but a
safeguard of the integrity of financial system in India and a fairness to all investors, both big
and small. Conclusion The clip about the M&A framework in India is quite an informative
summary on how corporate merging goes in the stock market. Controversy between public
and private M&A leads to more profound realities pertaining to risk, a degree of regulation,
and accountability. This knowledge about concepts is not only significant to those who study
law or business but also to every individual involved in the financial markets. The question of
insider trading reminded me of the necessity of good ethics and openness. With the
continuous growth of the Indian businesses into world players, the role of the highly
regulated M&A will be even more significant. I will be able to play my part as a future
practitioner, either as a lawyer, analyst, or policymaker, to ensure that these transactions
become fair, ethical, and legal.