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Comparative Analysis Of Regulations Of Cross-Border Mergers And Acquisition In India And United Kingdom

Article by Tanushri Sharma

INTRODUCTION

The terms “merger” and “acquisitions” pertain to the combination of two or more business entities or assets through various types of transactions. In practical usage, mergers and acquisitions are frequently used interchangeably: nonetheless they use distinct characteristics that define them apart. A merger entails the consolidation of two or more entities into a single entity, resulting in the transfer of ownership and control from the preexisting entities into a  single entity. On the contrary, acquisitions pertain to the process by which company takeovers one or more companies and establishes itself a single entity. In contrast to a merger, acquisition does not result in the formation of a new entity. In acquisition, the transferee refers to the entity that is being acquired by the transferor business.

CROSS BORDER MERGERS AND ACQUISITIONS:

Cross-border mergers and acquisitions means where the companies from various countries combine or are bought to form a single entity. Essentially, cross-border mergers and acquisitions encompass agreements involving domestic and foreign entities operating within the target company. The phenomenon of cross-border mergers and acquisitions has witnessed a significant rise in the global economy. The prevalence of cross border mergers has increased over time, with Indian companies currently exhibiting a higher frequency of engaging in such mergers and acquisitions compared to other countries.

POSITIVE ASPECTS OF CROSS-BORDER MERGERS AND ACQUISITIONS

Encouraging market expansion: In the event of an Indian company merging with a foreign company merging with a foreign company, the Indian entity also gains entry into the international market where the merged company is established or conducts its operations. Therefore, it facilitates the smooth process of entering into other markets.

Boost of market share: It is an inevitable outcome of a merger, as it multiplies the company’s scale, hence enhancing its market value. It leads to an increase in the proportion of market shares. Which in turn may result in an increase of share price. Additionally, such mergers or acquisitions can assist the merged companies in reducing costs and attaining a more advantageous competitive position.

Resource sharing: Company has the ability to utilize the resources of the merged entity in accordance with the agreed upon proportion outlined in their merger agreement. Moreover, in context of acquisitions, the acquiring company is deemed to obtain the assets and resources of the target company. Consequently, the act of resource sharing enables companies to enhance their operational capabilities.

Growth of economies scale: It can be observed in the context of cross-border mergers or acquisitions, since it facilitates mass production and enables operation on a larger scale. The company size increases market share and confers favorable market position.

CHALLENGES:

Diversity: Each country has its own culture and product preferences. It must adapt to such variations and operate .in merged or target company marketplaces  while considering consumers and employees. Failure of balance cultural differences causes company losses.

Issues due to bankers, lawyers, regulations etc.: Documentation and compliance are common in cross-border mergers and acquisitions. Penalties for violating such regulations are severe. In such situations the currency and have different legislations which affects and slows down the process of mergers and acquisitions. Different law regulations complicate the deal and make them time consuming.

COMPARATIVE ANALYSIS:

The utilization of mergers and acquisitions has emerged as a prevalent approach to integrating commercial operations. The primary objective is to minimize expenses, capitalize on economies of scale, and concurrently enhance market presence. For a significant number of individuals, mergers are primarily perceived as a strategic approach aimed at enhancing financial performance through consolidation of resources and the reduction of expenses.

 

  INDIA UNITED KINGDOM
Cross border regulations governing body: India is overseen by the “Reserve Bank of India (RBI) and are guided by the provisions outlined in the Companies Act, 2013”.

RBI is also responsible for regulating foreign exchange rules, whilst the Companies Act, 2013 applies to the deals of mergers and acquisitions.

The enforcement of legislation dealing with cross border mergers and acquisitions in the United Kingdom is carried out by two regulatory bodies, namely the Financial Conduct Authority (FCA)[1] and the Takeover Panel[2]. “The financial conduct authority” is responsible for governing and regulating the companies and the Takeover code regulates activities related to mergers and acquisitions.

 

Regulatory In India, the approval is conferred by the “National Company Law Tribunal(NCLT) and RBI”. In United Kingdom, the approval is granted by “Financial Conduct Authority (FCA) and Competition and Markets Authority”.

 

Tax laws India has established particular tax rules which applies to cross border deals. The responsibility for managing tax implications in the United Kingdom lies with “Her Majesty’s Revenue and Customs (HMRC)”.
The disclosure regulations “In India, the Companies Act, 2013” requires companies to provide all information related to merger or acquisitions to their shareholders. In the UK, the Takeover Code establishes rules related to information disclosure to shareholders.

 

 

CONCLUSION

It can be inferred that the information provided supports the notion that takeovers are a fundamental element within the realm of capital markets, constituting an integral aspect of a country’s capital market system. The economic expansion of a nation encompasses the advancement of its capital markets. Therefore, it is imperative to implement regulations on the takeover code in order to facilitate the optimal economic development of the nation. Moreover, it is evident that the regulations align with the policy and ideological framework of the nation. While the United Kingdom tends to prioritize the shareholder- oriented approach in its takeover legislation, the Indian approach appears to strike a compromise between the state control to ensure fairness and maximization of value for stakeholders. However, the United Kingdom exhibits a significantly higher level of variation and frequency in the utilization of takeover defenses compared to India. In India emphasize on safeguarding the labor force, promoting welfare whereas in United Kingdom it prioritizes capital markets. “Cross-border mergers and acquisitions are complex and require careful consideration of the regulations for specific jurisdiction”. Companies have to understand the rules and regulations of India and United Kingdom to comply. Protection of national security interests may require limits on foreign ownership or control of particular industries or assets. Another essential aspect is competition law protects against anti-competitive behavior. In the end it states that Cross Border Merger and Acquisitions are complicated, but they promote accountability, responsibility in global business.

 

[1] https://www.fca.org.uk/
[2] https://www.thetakeoverpanel.org.uk/the-code
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