M&A Critique 2020

We are living in unprecedented times and more towards unprecedented actions by all the governments of the world. The pandemic has certainly affected population of most of the world and we all will pay an unimaginable social and economic price for some years to come. The leaders must set priorities between economy and saving life. Indian prime minister has chosen saving life over taking care of economy., No doubt the world economy shall take a hit in the short term. The times have forced not only leaders of our nations but also the leaders of big companies to divert their attention from the path of growth to the path of survival and then revival. Any and all inorganic growth strategies have either been put on hold or called off completely. Start-ups and smaller companies relying on continuous cash-flows would have to think of serious cuts if they want to survive. As far as M&A is concerned, it will lead to huge change in strategies in terms of concentration of supply chain and resize operations in different part of the world .IN fact ,what started with US first and India first ,creating minimum capacities in each core industry just not only in pharma and health care by each country , will lead to de-globalization and multiple source of supply of raw materials to avoid dependence on one country. It may happen that different business model may become prevalent leading to integration of functions by vertical M&A and breaking modern MNCs like Amazon, Infosys, WIPRO, Cognizant and Google etc. In this issue we are shall be looking at companies who were being revived.

In times, when government has already gone ahead with the merger of the 10 banks into 4 which was announced last year has been on track and effective from 1st April, 2020 we also had RBI announced a reconstruction scheme for YES Bank to prevent the collapse of the whole banking and financial system and people faith in it. Our cover article tries to dissect the reason and the effect on the current and the new stakeholders of the bank. RBI has dealt with such rescue plans a couple of times in the past and this one too hopefully should turn out to be a plan which would lead stake holders of YES Bank out of its worries. As banks are not covered under Indian Bankruptcy code, reconstruction plan by Reserve bank of India under Banking regulations act is fair to all stake holders and none of them are expected to sacrifice. Only in next three years, one will be able to assess whether new shareholders particularly SBI has sacrificed to what extent.

Minority Shareholders, especially of unlisted companies, has in many cases found it difficult to get an exit. We covered an article on the provisions in the companies act which allowed more opportunities for minority shareholders to take an exit. Recent amendments in the existing sections give a view of more options the shareholders have for a mandatory exit in situations like acquisitions and hostile takeovers.

Jaypee Infratech was admitted into Insolvency & Bankruptcy in 2017 by IDBI Bank led consortium. It reached a resolution after an order passed by Supreme Court allowing NBCC to acquire Jaypee Infratech. The resolution took some time as the law itself had to be amended in the course of this to allow flat owners to be deemed as creditors and be a part of the resolution process. The amendments done to IBC shall allow for further resolutions in the real estate companies to be quicker. Though as CoC could not get any resolution Applicant who will fully secured rights of flat owners. NBCC is compelled to play a role similarly to role of SBI in YES Bank.

Reliance Industries arm of media and broadcasting has been on a merger spree since last 4-5 years. In the latest scheme it has decided to restructure is media, tv, broadband and cable business held by different acquisitions namely Network18, TV18, DEN Networks and Hathway Cable in 2 steps. Merging all the above companies in one and then hiving off 3 different businesses into 3 wholly owned subsidiaries. The transaction seems complicated, but it aims to make each of the businesses ready to invite strategic and/or financial partner and in the process create huge value for all stakeholders.

Extending the resolution in case of Jaypee Infratech, real estate sector in India has a unique set of problems. Now under the Insolvency and Bankruptcy code, home buyers are considered financial creditors and in course of resolution there is a need to look at it project specific creditors and debtors only. Also there could be an option of completing the project when the specific project is admitted under IBC as there can be no haircut per se for the home buyers as a resolution. This is termed as Reverse Corporate Insolvency Resolution Process (Reverse CIRP) and we look at the instances of this occurred recently.

Alongwith Regular Features.....