Indirect Acquisition Under The Takeover Code: The Fairness-Efficiency Spectrum and Lessons for Regulation

One of the main features of the Indian takeover regulation regime is the protection of minority shareholders, which may deter merger and acquisition activity. In particular, this is true for "indirect acquisitions," which are purchases of upstream companies that ultimately change the person or individuals running a downstream company. Indian law mandates that a takeover bid be made for all such indirect purchases, regardless of whether the purchase had any influence on the initial agreement that resulted in it. This essay provides a critical evaluation of this position in light of the limitations it places on the Indian securities market and the impact it has on global merger and acquisition transactions. It analyzes Indian law in light of the strategies adopted by different foreign jurisdictions by employing the conceptual framework of a "fairness-efficiency spectrum," which classifies the relative weight that a jurisdiction gives to the concerns of minority shareholder protection (fairness) and the promotion of merger and acquisition activity (efficiency). It offers suggestions for modifying India's indirect acquisition strategy in order to better balance the many challenges based on these procedures.