A takeover generally involves the acquisition of a certain block of equity capital of a company which enables the acquirer to exercise control over capital of a company which enables the acquirer to exercise control over the affairs of the company. In theory the acquirer must buy more than 50 per cent of the paid up equity of the acquired company to enjoy complete control. In practice, however, effective control can be exercised with a smaller holding, usually between 20 and 40 per cent because the remaining shareholders scattered and ill-organized are not likely to challenge the control of the acquirer.

Some examples of takeovers witnessed in the past years in India are: Chhabrias took over Shaw Wallace and Dunlop, Goenkas took over Spencers and Harrsion Malayalam; Hindujas took over Ashok Leyland; India Cements limited took the Raasi Cement limited; Gujarat Ambuja took Modi Cements Limited; Satyam Infoway took over India World. A takeover is friendly if the incumbent management approves it. On the other hand, a takeover is hostile if the incumbent management opposes it.

Pros and cons of takeovers:

Proponents of takeover argue that takeovers improve the quality of management, facilitate forward and backward linkages with the other operations of the acquirer and afford scope for realizing synergistic benefits. T Boone Pickens Jr., a very eloquent votary of takeovers regards takeovers as a device for punishing weak management and protecting the interest of the small shareholders. Companies can be run in the interest of shareholders and the management or, as some executive claims, the society at large. He defends takeovers as a device to protect the interest of shareholders. Pickens view of course has been disputed incisive criticism challenged the premise of Pickens that takeovers help in rescuing poorly managed companies firm the inept managers. According to law, managers do much more of their companies and shareholders than the raiders (or predators) who are primarily motivated by a desire to make a fast buck and see their pictures on magazine covers. Peter Drucker too is strongly opposed to takeovers. He argues forcefully that if managers have a responsibility toward shareholders the latter should also have a reciprocal responsibility toward the firm for the larger good of society. Takeovers tend to shatter employee morale. To support the view that takeovers are not desirable also, he says that in only 3 out of 10 such cases there is an improvement in performance.

While the popular controversy on takeovers continues, scientific research supports takeovers. In brief the evidence seems to indicate that corporate takeovers generate positive gains, that target firm shareholders benefit and that bidding shareholders do not lose. Hence takeovers are regarded as a legitimate device in the market for corporate control provided they are properly regulated. Basically, this means that the framework for regulating takeovers should seek to: (1) impart transparency to the process, (2) protect the interests of small shareholders (3) facilitate the realization of economic gains, (4) prevent concentration of economic power and (5) provide financial support to desirable takeover proposals.

In order to avoid such controversy and to have a proper take over to the advantage of all concerned the securities mad Exchange Board of India has issued related statutory rules for regulating substantial acquisition of shares and takeovers as outlined below:

* The acquirer should intimate the target company and the concerned stock exchange as soon as its holding reaches 5 per cent of the vetoing capital of the target company.
* No sooner the holding of the acquirer reaches 15 per cent of the voting capital of the target company, its should intimate the concerned stock exchange and offer shareholders of the company to buy a minimum of 20 per cent of the voting capital of ht target company through an offer document at a price that is subject to a floor, as determined by certain guidelines .
* The offer document should give financial information of the offerer company (acquirer), disclose the intention of the offerer company about the proposed changes in the business of the target company, and provide long term commercial justification for the proposed offer.

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