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1 – 10 of over 4000Jyoti Dixit, Poonam Singh and Arunima Haldar
Takeovers play a critical role as an external corporate governance mechanism to ensure investor protection. There is a long-standing debate on whether the convergence of corporate…
Abstract
Purpose
Takeovers play a critical role as an external corporate governance mechanism to ensure investor protection. There is a long-standing debate on whether the convergence of corporate governance to global standards can enable emerging economies to ensure investor protection. This paper aims to analyse the evolution of the takeover code, namely, Securities Exchange Board of India’s Substantial Acquisition of Shares and Takeovers (2011) in India from the lens of investor protection. It then compares the takeover provisions in India, the USA, the UK, Singapore and Australia to examine the extent of convergence and its implications for investor protection.
Design/methodology/approach
Using a cross-national comparative analysis of takeover mechanisms in common law countries, the study analyses the extent and relevance of convergence in form. The focus of the comparison is on regulations governing offer size, offer price, creeping acquisition and initial trigger limit for the mandatory open offer.
Findings
The findings suggest that certain provisions such as the initial trigger threshold for the mandatory offer and the offer prices of the Indian takeover code are converging with the standards in common law countries. However, the offer price determination based on market prices may not reflect true market value in an inefficient market like India. Other provisions such as creeping acquisition and offer size are not only diverging from the international standards but are also inconsistent with the key objective of investor protections of the Indian regulator.
Research limitations/implications
Indian takeover regulation needs to converge to higher global standards to ensure adherence to improved investor protection. This needs to be done for the initial trigger limit for mandatory bid and offer prices, after accounting for the differences in institutional structure. The Indian regulators need to revisit provisions on the initial trigger, creeping acquisition to converge to the broader principle of investor protection.
Originality/value
This technical paper provides a comprehensive depiction of takeover mechanisms in an emerging economy context as a means of investor protection. Further using a comparative lens, it analyses the relevance of convergence of takeover laws. Thus, advances the theoretical knowledge of limited extant work on external corporate governance mechanism in an emerging economy context.
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K. Srinivasa Reddy, V.K. Nangia and Rajat Agarawal
The purpose of this paper is to investigate the literature and statistical data on the Indian takeover code cum open offers market and break up the historical changes in takeover…
Abstract
Purpose
The purpose of this paper is to investigate the literature and statistical data on the Indian takeover code cum open offers market and break up the historical changes in takeover code into various phases for better understanding and decision making by mergers and acquisitions advisory, legal advisory, merchant bankers, investment bankers, business houses and academia.
Design/methodology/approach
The present study describes literature summary on takeover code and evaluates the growth phase of open offers through trend analysis with respect to amendments in Indian takeover code.
Findings
Since 14 years of takeover code presence in India, it evidences that there is an empirical support on growth phase in the open offers market.
Research limitations/implications
The study is developed on the basis of Indian takeover regulations and Securities and Exchange Board of India takeover code to wake up the public shareholding and regulatory bodies, by better conveyance of historical review at one place.
Originality/value
This study is the first of its kind, dividing the complete history of Indian takeover code into various phases for review and identifying the gaps for future research. Further, the paper investigates and finds various untouched facts and variables in both literature and statistical data on open offers.
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The purpose of this study is to examine the impact of the transposition of the EU directive that regulates M&As on cross-border deals. Acquirers of targets located in the European…
Abstract
Purpose
The purpose of this study is to examine the impact of the transposition of the EU directive that regulates M&As on cross-border deals. Acquirers of targets located in the European Union (EU) must comply not only with takeover rules set individually by member states but also with European Council Directives. The most significant of these Directives in the context of mergers and acquisitions (M&As) is the Takeover Bids Directive (TBD). The intent of the Directive is to ensure equal treatment for all companies launching takeover bids or that are subject to a change in control, providing minimum harmonization rules in view of creating a transparent environment for cross-border takeovers.
Design/methodology/approach
This study uses the event-study and difference-in-differences approaches.
Findings
Using a sample of 2,129 M&As conducted between 2000 and 2015, this paper finds positive acquisition synergy for acquirers targeting firms from countries with stronger investor protection rules compared to the average of the EU, but no evidence regarding cross-border deals. The results support the prediction that regulation makes countries diverge more depending on their ex ante level of investor protection.
Originality/value
This study examines the impact of the enactment of the TBD on announcement returns of M&As in the EU.
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– The purpose of this paper is to determine whether the Board Neutrality Rule and the primacy afforded to shareholders during takeovers is justified under common law and policy.
Abstract
Purpose
The purpose of this paper is to determine whether the Board Neutrality Rule and the primacy afforded to shareholders during takeovers is justified under common law and policy.
Design/methodology/approach
The paper provides a detailed assessment of the role play by the board neutrality rule and whether this is supported by takeover law and Company law. A review of case law and statutes is provided. The paper is largely analytical.
Findings
The paper finds little justification for the continued imposition of the Board Neutrality Rule.
Originality/value
The paper adds to the growing body of research literature which has analysed the role played by the Board Neutrality Rule during takeovers.
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The case explores information technology (IT) company Mindtree’s journey of 20 years from the time it was founded in 1999 to be different from others, and how it became a target…
Abstract
Learning outcomes
The case explores information technology (IT) company Mindtree’s journey of 20 years from the time it was founded in 1999 to be different from others, and how it became a target for acquisition by an Indian diversified conglomerate in 2019. It offers insights into developing organizational culture and values in an organization, threats faced by a company when promoters dilute their shareholding, and the strategies followed by the acquirer and the target firm. It also deals with the challenges in the acquisition of a knowledge service digital firm. After working through the case and assignment questions, students will be able to: identify the circumstances under which a company can become a target for hostile takeover; describe motivations of the acquirer firm in an acquisition; distinguish between acquisition and hostile takeover, and discuss salient features of Securities and Exchange Board of India (substantial acquisition of shares and takeover) regulations, 2011; list the defenses a target firm can adopt to ward off hostile acquirer; explore strategies followed by acquirer and target firms; analyze important ingredients of organization culture, and importance of cultural congruence in an acquisition; and discuss challenges faced by an acquirer in India, namely, legal, retention of clients and key people in the target firm particularly in hostile environment.
Case overview/synopsis
The case explores how ten IT professionals founded mid-tier IT services company Mindtree in 1999 in Bengaluru, India (home to Infosys and Wipro) to be different from others – by inserting themselves at a higher level in the value chain, being philanthropic as a part of broader business strategy to attract a certain kind of employee and customer. It developed a culture of equality, consideration and respect. Its attrition rate of 12 to 13 per cent was significantly lower than the Industries. Mindtree crossed annual revenue of US$1bn for FY 2019 and was growing at twice the industry’s growth rate. The most attractive part was that its proportion of revenue from digital services was about 50 per cent as compared to 25-35 per cent of other services vendors. With time, the share of promoters/founders declined and increased one investor’s shareholding of V. G. Siddhartha and his related entities. In early March 2019, the promoters’ stake was 13.32 per cent while Siddhartha had 20.32 per cent. Larsen and Toubro (L&T) one of India’s conglomerate entered into a share purchase agreement on March 18, 2019 with Siddhartha to acquire his 20.32 per cent stake. Immediately, L&T asked its broker to purchase up to 15 per cent of share capital of Mindtree at a price not exceeding INR 980 per share (each share of face value INR 10). This would trigger an open offer by L&T to purchase additional 31 per cent shares of Mindtree. The action of hostile takeover bid by L&T evoked emotional criticism from Mindtree founders. Mindtree efforts to defend itself could not materialize. L&T’s stake crossed 26 per cent on May 16, 2019. After Indian regulator SEBI’s approval, L&T’s open offer to buy shares from Mindtree shareholders commenced on June 17, 2019. The case examines motivation of the acquirer firm particularly when it is a conglomerate, and how a well-performing company became a target for hostile takeover. It looks at vulnerabilities of a target firm, and defensive steps a firm can take to fence itself against such takeover. The case also explores how organizational culture is built in a people-oriented business, namely, digital services, and what role it plays in a merger of two firms.
Complexity academic level
The case is suited for postgraduate students of management, as well as those undergoing executive courses in management.
Supplementary materials
Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.
Subject code
CSS 11: Strategy.
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The purpose of this paper is to present various institutional laws that refer to mergers and acquisitions (M & As) in India and recommend a few guidelines for institutions…
Abstract
Purpose
The purpose of this paper is to present various institutional laws that refer to mergers and acquisitions (M & As) in India and recommend a few guidelines for institutions and multinational managers participating in foreign investment and acquisition deals.
Design/methodology/approach
The study is intended to review, summarize and discuss the legal framework that adheres to M & As, takeovers and foreign investment.
Findings
Major observations from the comprehensive review include the fact that higher-valuation inbound deals have been delayed or have failed because of a weak financial infrastructure, erratic nature of government officials and political intervention, and the newly elected government has aimed to attract higher inflow of investments from other developed and emerging markets by easing investment rules and offering tax holidays.
Research limitations/implications
This paper, indeed, reflects unseen empirical observation with regard to the characteristics of the market for acquisitions in the given country, which has been left to further research.
Practical implications
The comprehensive review of acquisition laws in India and recommendations would help prospective stakeholders, namely, policymakers, M & A advisors, legal consultants, investment bankers, multinational managers and private equity firms.
Originality/value
This study presents atypical work, which presents a review of M & A laws in India, and it recommends fruitful guidelines for institutions in general and managers in particular.
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Ali Sheikhbahaei and Syed Shams
This paper investigates the relationship between a firm's susceptibility to a hostile takeover and investors' reactions to a seasoned equity offering (SEO).
Abstract
Purpose
This paper investigates the relationship between a firm's susceptibility to a hostile takeover and investors' reactions to a seasoned equity offering (SEO).
Design/methodology/approach
The study applies ordinary least squares (OLS) with fixed effects regression analyses to a sample of 2,517 observations from US listed companies. Event study methodology was employed to capture market reactions to the announcement of newly issued stocks. To achieve cross-sectional analyses, time variations in takeover laws allowed us to perform the desired tests across two decades of data.
Findings
The results suggest that investors react positively to the announcement of an equity offering when the threat of hostile takeover is higher. The magnitude of positive stock market reactions varies over two decades due to time series variations in takeover laws. Furthermore, the findings show that a higher hostile takeover index (HTI) score reduces investors' concerns about the inefficient usage of proceeds in acquisitions.
Practical implications
The results demonstrate that the corporate takeover legal environment provides an important external governance mechanism through which investors' confidence increases during an SEO event. The study's empirical evidence implies that the extent of external disciplinary mechanism plays a significant role in reducing investors' uncertainty about the misuse of raised capital.
Originality/value
The exogenous fast-evolving legal environment surrounding the takeover market in the United Status allowed our study to bypass the endogeneity concerns in measuring governance strength. From the review of prior literature, this paper appears to be the first to use HTI scores to examine investors' reactions to a corporate announcement.
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K.S. Reddy, En Xie and Yuanyuan Huang
Drawing attention to the significant number of unsuccessful (abandoned) cross-border merger and acquisition (M&A) transactions in recent years, the purpose of this paper is to…
Abstract
Purpose
Drawing attention to the significant number of unsuccessful (abandoned) cross-border merger and acquisition (M&A) transactions in recent years, the purpose of this paper is to analyze three litigated cross-border inbound acquisitions that associated with an emerging economy – India, such as Vodafone-Hutchison and Bharti Airtel-MTN deals in the telecommunications industry, and Vedanta-Cairn India deal in the oil and gas exploration industry. The study intends to explore how do institutional and political environments in the host country affect the completion likelihood of cross-border acquisition negotiations.
Design/methodology/approach
Nested within the interdisciplinary framework, the study adopts a legitimate method in qualitative research, that is, case study method, and performs a unit of analysis and cross-case analysis of sample cases.
Findings
The critical analysis suggests that government officials’ erratic nature and ruling political party intervention have detrimental effects on the success of Indian-hosted cross-border deals with higher bid value, listed target firm, cash payment, and stronger government control in the target industry. The findings emerge from the cross-case analysis of sample cases contribute to the Lucas paradox – why does not capital flow from rich to poor countries and interdisciplinary M&A literature on the completion likelihood of international takeovers.
Practical implications
The findings have several implications for multinational managers who typically involve in cross-border negotiations. The causes and consequences of sample cases would help develop economy firms who intend to invest in emerging economies. The study also offers some implications of M&A for telecommunications and extractive industries.
Originality/value
Although a huge amount of extant research investigates why M&A fail to create value to the shareholders during the public announcement and post-merger stages, there is a significant dearth of research on the causes and consequences of delayed or abandoned national and international deals. The paper fills this knowledge gap by discussing an in-depth cross-case analysis of Indian-hosted cross-border acquisitions.
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The purpose of this paper is to explore the possible use of arbitration in disputes involving claims against directors. It takes as its starting point a recent decision of the…
Abstract
Purpose
The purpose of this paper is to explore the possible use of arbitration in disputes involving claims against directors. It takes as its starting point a recent decision of the English Court of Appeal, Fulham Football Club [1987] Ltd v. Richards, in which the Court confirmed the enforceability of an arbitration agreement in proceedings where one of the defendants was the company chairman, and asks how far this case is representative of a general trend.
Design/methodology/approach
The methodology adopted is comparative, with particular but not exclusive reference to laws in the USA, the UK, France and Germany. The paper examines case law and literature in three intersecting areas. First, it notes the existence of distinctive approaches to corporate governance which broadly correspond to those of common law and civil law (outsider and insider) jurisdictions. Second, it reviews the relative significance in different jurisdictions of public and private law mechanisms for enforcing compliance with the rules designed to ensure good governance. Finally, to the extent that private enforcement is relevant, it explores how far intra‐corporate disputes are considered arbitrable in the selected jurisdictions.
Findings
It is apparent that the function performed by claims against directors in some jurisdictions – notably the USA and to a lesser extent the UK – is performed by other mechanisms elsewhere. In Germany, for example, actions for the annulment of company resolutions are a common form of intra‐corporate dispute. A trend towards the use of arbitration to resolve intra‐corporate disputes can be observed, but this may be limited to cases where there is a desire to preserve the relationship between the parties – which is frequently not the case where claims against directors are involved. Where that relationship is already damaged beyond repair, litigation may offer greater advantages.
Research limitations/implications
There is, nevertheless, a lack of empirical data as to the actual use of arbitration – as compared to litigation – in intra‐corporate disputes in the jurisdictions under consideration.
Originality/value
The main value of this paper is thus to clarify the parameters of a field for further investigation.
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Abandoned acquisitions represent a significant aspect of acquisition activity. Despite this, little analysis of aggregate abandoned acquisition activity has been conducted. This…
Abstract
Purpose
Abandoned acquisitions represent a significant aspect of acquisition activity. Despite this, little analysis of aggregate abandoned acquisition activity has been conducted. This paper aims to address this gap by analysing trends in aggregate abandoned acquisitions.
Design/methodology/approach
This paper represents preliminary research on this topic, using descriptive statistics and correlation to identify trends in the data and propose tentative explanations for the changing patterns in abandoned acquisitions observed.
Findings
There has been a stepped decline in the number and rate of abandonment between the 1970s/1980s and the 2000s. Analysis of the trends suggests several reasons for this. Firstly, target management resistance has a major influence on abandonment. Changes in the Takeover Code relating to Put‐up or Shut‐up (PUSU) provisions have produced a decline in hostile bids since the 1990s, reducing the rate of abandonment. Secondly, the increasing proportion of cross‐border transactions in total UK activity may also contribute to the falling rate of abandonment.
Research limitations/implications
The preliminary methods used to analyse the data are limited. However, the work has identified relationships between regulatory changes which make speculative bidding more costly, the decline in hostile bidding and a decline in the rate of abandonment. These explanations need to be analysed further with more rigorous testing of the proposed relationships.
Originality/value
This paper is the first to analyse aggregate abandoned acquisitions in the UK, proposing explanations for the trends in abandoned acquisitions since 1969.
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