This is crucial as the future of Indian companies will be influenced by garnering shares in the world market. The companies need not only to enhance their competitive edge but also upgrade their global outreach, the CII said in the memorandum, submitted to the department of industrial policy and promotion of the ministry of commerce and industry.
The industry lobby highlighted that the process of mergers and acquisitions under the existing Companies Act is a long court-driven process which does not allow for contractual mergers or merger of an Indian company into a foreign company.
The CII has also made suggestions for creating a more facilitative government for transnational merger and acquisition activity of Indian corporates.
Currently, for investing in the target company in excess of 60 percent of its net worth or 100 percent of its free reserves, a company requires prior shareholders approval. This necessitates disclosure of vital details about the proposed acquisition company to the shareholders, including the price being paid.
As a result, sensitive and confidential information, which could be of critical importance to competing bidders, becomes available in the public domain even prior to submitting a bid to the target company, according to the CII.
India's complex regulatory regime has led to much difficulty for Indian firms that hope to use shares as consideration in an acquisition. Instead, Indian firms are relegated to using cash as consideration, the memorandum said.
While stock-swap deals are more difficult and risky to implement because of the significant role of the government in such deals as opposed to cash deals, in the long term, it is neither desirable nor sustainable for Indian firms to continue to use solely cash in outbound acquisitions, according to the CII.
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