Thursday, August 14, 2014

Paper on Squeeze Outs in India

Professor Vikramaditya Khanna and I have co-authored a working paper titled “Regulating Squeeze Outs in India: A Comparative Perspective” that is now available on SSRN. The abstract is as follows:

Squeeze outs are both visible and palpable manifestations of a controlling shareholder’s raw power within the corporate machinery – the ability to openly force minority shareholders to exit the company by accepting a certain price for their shares. Yet, squeeze outs can be value enhancing at times due to the benefits of enabling the controller to acquire the entire company. Perhaps due to this rather conflicted and dramatic background, squeeze out regulation takes on varying hues across multiple jurisdictions. In this article, we analyze the regulation of squeeze outs from a comparative perspective, with India as the primary frame of reference.

In India, the controllers can choose among several available transaction structures to implement a squeeze out. These include the compulsory acquisition mechanism, scheme of arrangement and reduction of capital. Unsurprisingly, the structure most commonly used by controllers is the reduction of capital, which provides the least protection to minority shareholders.

After analyzing the level of minority protection in a squeeze out in India, we explore potential reforms by examining how other jurisdictions such as the United States, European Union, the United Kingdom and Singapore regulate these transactions. The goal is to examine which approach (or combination of approaches) may present attractive options for India.

Drawing from these other jurisdictions, we suggest reforms for regulation of squeeze outs in India. Given the institutional landscape and ground realities in India, we conclude that it is perhaps more effective to reduce reliance on court decisions to protect minorities and rely on regulatory enforcement around greater decision-making powers to independent boards and to the minorities themselves.

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