tag:blogger.com,1999:blog-3202774368551476669.post7726807587556468044..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: Management Buyouts (MBOs): Possibilities and ChallengesUmakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3202774368551476669.post-81076135321125994892009-04-01T15:44:00.000+05:302009-04-01T15:44:00.000+05:30Thanks for the clarification. The restriction clea...Thanks for the clarification. The restriction clearly applies to shares itself but since I didn't fully grasp the difference between share acquisition and business acquisition, the confusion prevailed. <BR/><BR/>On another note, since there is no limitation on granting financial assistance when it comes to business acquisitions, a company could go for that. But then the costs would be prohibitory when compared to costs involved in a share purchase.<BR/><BR/>Thanks once againAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-51947979443459891462009-04-01T07:47:00.000+05:302009-04-01T07:47:00.000+05:30Thanks for your comments:1. In a share acquisition...Thanks for your comments:<BR/><BR/>1. In a share acquisition, the acquirer buys shares of a company from an existing shareholder. For example, M (or even a special purpose company, M Co, which is set up by M) can buy shares of the target company T. In such a case, M becomes the shareholder of T Co and hence gets to participate in the business of T Co. The business in T Co continues as before; there has only been a change in the ownership of T Co. On the other hand, in a business acquisition, the business itself (along with all assets, liabilities, employees, licences, goodwill, etc.) are transferred from T Co to M Co. So, the business then becomes vested and housed in M Co, which is another entity altogether. Here, there is no change in shareholding of T Co, but that company no longer holds the business after the transaction. Share acquisitions are beneficial when a buyer wants to buy all businesses of a company, while business acquisitions are beneficial when a buyer wants to buy only specific business or business, but not others (which are then left behind in T Co.).<BR/><BR/>2. In a typical leveraged transaction, the funding by the bank, the purchase of the assets, and creation of securities would be structured to occur simultaneously. So, in that sense, the bank would not be funding before receiving security. The reason this works in a business acquisition, but not a share acquisition, is because the prohibition in the Companies Act against grant of financial assistance applies only to acquisition and sale of “shares”, and not to businesses.Umakanth Varottilhttps://www.blogger.com/profile/12438677982004444359noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-48958478706119839202009-03-31T08:58:00.000+05:302009-03-31T08:58:00.000+05:30Thanks for the good post. But I was confused in so...Thanks for the good post. But I was confused in some places.<BR/><BR/>"Although share acquisitions would fall within the purview of the prohibition on ‘financial assistance’, leveraged structures can be utilised for purpose of business acquisitions. This would involve an acquisition by a manager, not of shares in a company, but of the business of the company."<BR/><BR/><BR/>Could you explain the difference between the "acquisition of shares" and the 'acquisition of business activities" since I was wondering why the financial assistance prohibition clause does not touch 'business acquisitions'. <BR/><BR/>I am an amateur regarding these issues, but in the example you give under the business acitivites section, why would the bank agree to and in fact provide funding prior to obtaining any security on the assets of T Co.? Because couldn't M do the same thing when it comes to buying shares of T Co. by forming an SPV, M Co. and then obtain funding from Bank B prior to providing security on the assets?Anonymousnoreply@blogger.com