Regulation of Cross-Border Mergers and Acquisitions in India, UK and USA

This Blog has been written by S. Vishal Varma


The words “mergers” and “acquisitions” refer to the combination of businesses or assets via different kinds of transactions. Mergers and acquisitions are mostly used interchangeably in practice but they have their own set of differences. A merger refers to the consolidation of two or more entities into a single entity where the ownership and control of the previous entities will be transferred to the new entity. The recent consolidation of Vodafone India and Idea Cellular Network into a new company ‘Vi’ is a recent example of merges[1]. On the other hand, acquisitions refer to the takeover of one or more companies by a company and confirm itself as the new owner. The purchase of one by another company is called an acquisition. Unlike mergers, an acquisition does not give rise to a new entity. In acquisition, the transferee is acquired by the transferor company.


Cross-border Mergers and acquisitions are a concept where the companies of different countries will get merged or acquired into one. In essence, these cross-border mergers and acquisitions include agreements between both domestic and foreign companies in the target nation. The trend of Cross- border mergers and acquisitions has raised with the globalization of the world economy.[2]

The concept of cross-border merger has been raised in its numbers as the time passes and currently, Indian companies are more common to cross-border mergers and acquisitions than other countries. TATA Steel acquiring the US based company Corus is an example of cross-border merger.[3]

  1. Inbound Merger: A cross-border merger where the resultant company is an Indian Company and where the foreign company is considered as a branch office of the Indian Company is called an Inbound Merger.
  2. Outbound Merger: A cross-border merger where the foreign company becomes the resultant company as a result of the merger is called an outbound merger.


  1. Foster Entry Growth: When an Indian company is merging with any foreign company then this Indian company is also entering the foreign markets where the merged company resides or operates. Thus, cross-border mergers will smooth entry into other markets.
  2. Increase in Market Share: A merger increases the scale of the company which in turn raises its value in the market. As the proportion of the share of the company in the market will be increased as a result of merger or acquisition, its share price may also increase and also helps the merged companies to reduce their costs and achieve a better position in the competition, thus it increases the market share of the company.
  3. Resource Sharing: A company can use the resources of the merged company based on the proportion of their merger agreement. Also, an acquired company, when it acquires a company it is also deemed to acquire the resources of the target company. Thus, sharing of resources helps the companies to have greater force in their operations.
  4. Increased economies of scale: Cross-border mergers or acquisition leads to mass production thus leading to the operation on a larger scale. The size of the company raises the market share of the company and also has an advantageous position in the market.


  1. Cultural Differences: Every country has its own set of cultures and different behaviour toward different products. It is necessary to cope with such differences and should operate in markets of merged or target companies keeping in view the interest of the customers and workforce. Failure to maintain proper balance on the cultural differences leads to the losses of the company.
  2. Complexities due to bankers, lawyers, regulations etc.: In cross-border mergers and acquisitions there involves a lot of documentation and compliance. Any failure of such regulations leads to hefty penalties. In such mergers and acquisitions, the currency and banks of the countries vary and have their own set of laws and thus it becomes a hindrance to the acquirer company or the merging company.
  3. Legal and Regulatory differences: cross-border M&A transactions involve navigating different legal and regulatory systems, which can be complex and time consuming. Companies must ensure compliance with local laws, regulations and tax policies which can vary significantly across borders.

A merger strategy is a business term that refers to the strategies and tactics that companies or firms use to align their interests in which the ownership or control of two or more entities was not previously under a single ownership. It is a special type of acquisition in which two or more entities join together to form a larger entity. Mergers can take place in different contexts with varying degrees of intensity. The term merger is not defined in the Companies Act, 2013 but in the general sense it is used to define the consolidation of companies into a single entity to carry on business. Mergers can be done in various ways.

  1. Horizontal Mergers: When two or more competing companies or any companies that are in same line of the market, merge into one company to get the benefit over the competition is considered as horizontal merger.
  2. Vertical Mergers: It is a consolidation of two or more companies that are not competing but are involved in the same line of transactions in their respective markets. The entities merging are involved in different levels of the same transaction or market. Such a merger reduces the operations transportation warehouse and other related costs and can also achieve an advantageous position in the market.
  3. Roll-up Mergers: It’s a type of horizontal or vertical merger. Roll-up Merger’s legitimate definition is consolidating or joining different small organizations into an enormous element that is better situated for economies of scale or the upper hand. Rollup strategy involves the process of acquiring small organizations in the market and consolidating them into a single larger organisation.[4]

Acquisition by definition is the acquisition of one company by another company with different owners. The Acquisition means direct investment to purchase an existing company.

There are 2 types of acquisition:

  1. Friendly acquisition: It is a type of acquisition where the acquisition of the company will be done by the consent of its members, shareholders, creditors etc. The transferor company will provide an offer to the target company to acquire it and merge the transferee company in it.
  2. Hostile Acquisition: In this acquisition the transferor company will acquire the ownership or control of the company without the will of the target company.

In order to encourage cross-border mergers and acquisitions, India has put certain rules and regulations into place. Cross-border mergers and acquisitions are primarily regulated under Corporate Laws, Tax Laws, Foreign Exchange laws and any other laws that apply to merger structures:


a) Companies Act, 2013:

Sections 230 to 232 of the Companies Act, 2013 include the requirements for domestic mergers, while Section 234 of the Act, along with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules of 2016, covers cross-border mergers and acquisitions.

Section 234 of the Companies Act states that domestic mergers shall apply mutatis mutandis to cross-border mergers and acquisitions between Indian companies and Foreign Companies as notified by the Central Government. According to this provision, a foreign company can merge with an Indian Company registered under this Act with the prior approval of RBI and the companies are obligated to provide the terms and considerations of the merger or acquisition.[5]

Rule 25A of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 states that an Indian Company may merge with a foreign company subject to compliance under Sections 230 to 232 along with the prior approval of RBI provided that such foreign companies must be incorporated under the jurisdictions specified in Annexure B.

b) SEBI (SAST) Regulations, 2011:

The SEBI (SAST) Regulations on cross-border mergers and acquisitions aim to provide a level playing field for Indian companies and protect the interests of Indian shareholders. The regulations also provide clarity and transparency in the process of cross-border mergers and acquisitions in India.

  • The regulations apply to all acquisitions of shares, control or voting rights in a listed Indian company by a foreign company, including a merger or amalgamation with a foreign company.[6]
  • The regulations prescribe different thresholds for open offers for different categories of companies. The acquirer is required to make an open offer for 26% of the share capital but can increase its shareholding up to 75% without making any further open offers. Additionally, when the acquirer buys more than 5%, compulsory disclosure of the total ownership is required.[7]
  • The regulations require prior approval from SEBI for any acquisition of shares or control in a listed Indian company by a foreign company.
  • The regulations also require the acquirer to make certain disclosures, such as the details of the acquisition, the acquirer’s shareholding, and the purpose of the acquisition, among others.

c) Competition Act, 2002:

The regulatory body responsible for outlawing anti-competitive agreements, abusing dominant positions, and fostering market competition is the Competition Commission of India (CCI). The CCI has the power to regulate combinations and prescribe necessary changes in their proposed combinations.

  • Section 2(a) defines the term acquisition as an agreement to buy shares, voting rights or other assets of the target company.
  • Section 5 empowers the CCI to make an investigation on whether the combination has any appreciable adverse effect on competition and section 20 of the Act deals with the mode of inquiry
  • The restriction on combinations that have or are expected to have a appreciable adverse effect on competition is covered under Section 6(1).
  • Section 6(2) mandates the companies to provide prior notice along with relevant information to the CCI regarding the combination within 30 days
  • Section 31 empowers the CCI to provide necessary orders on combinations either to approve the combinations or reject the proposed combination or may suggest modifications to prevent the combination from the adverse effect on competition in the market.


a) Foreign Exchange Management Act (FEMA), 1999:

Using the powers granted under Section 234(1) of the Companies Act, 2013, the Central Government has issued the FEMA Cross-border Merger Regulation, 2018, to regulate the process of cross-border mergers. The regulations that are involved are as follows:

  • FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017,
  • FEM (Transfer or issue of any foreign security) Regulations, 2004,
  • FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016 etc.

b) RBI Act:

RBI has also proposed cross-border merger transactions under Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 to address the issues that arise from the merger or acquisition between Indian and Foreign Companies.[8]


Income Tax Act, 1961 deals with the concept of amalgamation and demerger. The Income Tax Act’s Section 2(1B) defines amalgamation as the joining of two or more companies to create a single company. Mergers and acquisitions have been provided exemption under the head of Income from Capital Gains under section 47 of the Act, arising under indirect transfer of shares due to the merger or demerger of foreign companies. However, this benefit is applies only to an inbound merger.

Subject to the requirements of Section 72A (4) of the IT Act, cross-border demerger occurs when one or more undertakings of a company are transferred to a different entity overseas as a going concern, either to establish a new business or to merge with the current entity.


The Companies Act of 2006 is one of the primary laws controlling M&A transactions in the UK. This act sets out the legal framework for mergers and acquisitions in the UK and applies to both domestic and cross-border transactions.

a) UK Companies Act, 2006:

Under the Companies Act 2006, cross-border mergers can take place between companies registered in different EU member states, or between UK companies and companies registered in EEA countries. The act outlines the requirements for such mergers, including the need for a cross-border merger plan, approved by the shareholders of both companies and the appointment of an independent expert to prepare a report on the merger.

Chapter 2 Part 27 of the Act deals with the concept of mergers and its requirements. [9]Section 1113 of the Act deals with the Enforcement of the Company’s filing obligations.[10]

After Brexit, UK revoked the Companies (Cross-border mergers) Regulations, 2007 along with its amendments of 2008 and 2015 are revoked.

b) Competition Act, 1998:

Competition Law: Cross-border mergers and acquisitions in the UK are subject to the provisions of the Competition Act 1998, which prohibits anti-competitive practices such as abuse of market dominance, price fixing, and collusion. Section 3 of Part I Chapter I of the act expressly exempts mergers from prohibitions. [11]The UK Competition and Markets Authority (CMA) is responsible for enforcing these laws and may intervene in mergers and acquisitions to prevent anti-competitive behavior.[12]

Schedule 2 of the Competition Act states that when a merger takes place for the purpose of Part V of Fair Trading Act or Part 3 of Enterprises Act, then prohibitions under Chapter I do not apply to such mergers. The word ‘any two enterprises’ under this schedule is wider and thus it applies to cross-border mergers.

c) Takeover Code:

The Code’s main focus is on controlling takeover offers and merger transactions of the relevant corporations, regardless of the way they are carried out, including through statutory mergers or schemes of arrangement (as specified in the Definitions Section). In accordance with Article 2 of the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 (the “Jersey Law”), a Panel has been established to carry out specific regulatory duties relating to takeovers and mergers under Jersey law.[13]

d) National Security and Investment Act:

Chapter 3 states that any acquisition made without the approval of the Secretary of State is considered void. [14]The Secretary of State is empowered with the power to give notice in cases of suspicion that might trigger the national security. [15]Thus, the UK government has increased its scrutiny of mergers and acquisitions involving companies in certain sectors that are deemed to be of strategic importance to the national security. To safeguard national security interests, the government has the authority to prohibit or place restrictions on such transactions.

e) Tax Laws:

Cross-border mergers and acquisitions may also be subject to UK tax regulations, including rules governing the taxation of capital gains, the transfer of intellectual property, and the use of tax havens.


Cross-border mergers and acquisitions (M&A) in the United States are subject to various laws and regulations that govern the process. Cross-border M&A is subject to a number of important rules and regulations in the United States, including:

a) Clayton Act:

The Sherman Act’s basic restrictions are expanded upon by the Clayton Act, 15 U.S.C. 12 et seq., which also targets early-stage anti-competitive issues. Section 7 of the Clayton Act forbids mergers and asset purchases where “the effect of such acquisition may be used to reduce competition or to attempt towards establishing a monopoly, in any line of commerce or anything affecting it in any part of the country.[16]

b) Hart–Scott–Rodino Antitrust Improvements Act (premerger notification):

It is a set of amendments in antitrust laws of the state. For specific mergers and acquisitions, it requires that the corporations notify the Federal Trade Commission and the Justice Department’s Antitrust Division prior to the transaction. The Bureau of Competition is committed to the duty of preventing mergers or acquisitions that affects the competition in the market.[17]

c) Foreign Investment and National Security Act (FINSA):

The Committee on Foreign Investment in the United States (CFIUS) is empowered under the federal statute known as FINSA to assess and approve or disapprove foreign investments in US companies that might endanger national security[18]. The CFIUS may assess cross-border M&A deals involving foreign investors. The US government has passed certain legislations which empower federal agencies in foreign investments that pose risk to national security.[19]

d) Securities Exchange Act of 1934:

This federal law regulates securities transactions and requires companies to make various disclosures related to M&A transactions, such as tender offers, proxy solicitations, and disclosures of material information. Regarding both domestic and international mergers and acquisitions, the Securities and Exchange Commission has established two regulations. “Cross-border Release” facilitates participation in cross-border tenders and exchange offers, mergers and equivalent transactions, and rights offerings for holders of U.S. securities of foreign businesses. The regulation M-A Release governs the tender offer.[20]

Final Rule: The SEC issued exemptive rules on cross-border tender and exchange offers, business combinations, and rights issues involving the stocks of foreign corporations from the Securities Act’s registration requirements. The exemptions’ main goal is to make it easier for American investors to participate in these kinds of transactions.[21]

e) Tax laws:

Cross-border M&A transactions may have significant tax implications, including issues related to the tax treatment of assets, income, and gains, as well as transfer pricing and other international tax considerations. Companies engaged in cross-border M&A transactions in the US need to comply with federal and state tax laws, including the Internal Revenue Code and relevant tax treaties.

f) Foreign Corrupt Practices Act (FCPA):

The FCPA is a federal law that prohibits US companies from engaging in bribery and other corrupt practices when conducting business abroad, including in the context of cross-border M&A transactions. US companies engaged in cross-border M&A transactions need to ensure compliance with the FCPA, which includes anti-bribery and accounting provisions.[22]

g) State laws:

In addition to federal laws, cross-border M&A transactions in the US may also be subject to state laws. Each state has its own laws and regulations governing corporations, limited liability companies, and other business entities, which may impact the process and requirements for M&A transactions.


India’s regulations for cross-border M&A are governed by RBI and the Companies Act. The RBI governs foreign exchange regulations while companies act deals with the process of mergers and acquisitions. Whereas the UK’s regulations on cross-border M&A are enforced by Financial Conduct Authority (FCA) and Takeover Panel. The FCA deals with the conduct of companies and the Takeover panel regulates M&A activities. The USA’s regulations are enforced by the Securities and Exchange Commission (SEC), Department of Justice and the Federal Trade Commission, where the SEC regulates financial disclosures and the DOJ and FTC regulate antitrust and competition issues.

The process of regulatory approval for cross-border mergers and acquisitions also differs across these countries. In India, the approval is granted by the National Company Law Tribunal (NCLT) and RBI. The approval in UK granted by the Financial Conduct Authority and the Competition and Markets Authority. On the other hand, the SEC and the Department of Justice’s Antitrust Division approve transactions in the USA.

The tax implications of cross-border mergers and acquisitions are different in each of these countries. In India, there are specific tax rules that apply to cross-border deals. Her Majesty’s Revenue and Customs (HMRC) takes charge of the tax repercussions in the UK. While in the USA, the Internal Revenue Service (IRS) is in charge of overseeing the tax ramifications.

The practice of doing due diligence is crucial to cross-border mergers and acquisitions. In India, the acquirer usually undertakes the due diligence procedure. In the USA, the due diligence process is more detailed, with the target company required to provide detailed financial and other information. In the UK, the due diligence process is also thorough, with the acquirer required to carry out extensive checks.

The disclosure requirements for cross-border mergers and acquisitions also vary in these three countries. In India, the Companies Act, 2013 mandates companies to disclose all material information related to the merger or acquisition to their shareholders. The Securities Exchange Act of 1934 and the Securities Act of 1933, both of which apply in the USA, impose obligations on businesses to disclose certain significant information to shareholders and to register securities offerings with the Securities and Exchange Commission. In the UK, the Takeover Code sets out rules regarding the disclosure of information to shareholders.

Cross border mergers and acquisitions are complex transactions that require careful consideration of the regulations in each jurisdiction. Companies must be aware of the legal and regulatory requirements in India, UK, and USA to ensure compliance with the relevant laws and regulations. One key consideration is the protection of national security interests, which can lead to restrictions on foreign ownership or control of certain industries or assets. Another important factor is competition law, which aims to prevent anti-competitive behavior and maintain a level playing field in the market. Overall, the regulations surrounding cross-border M&A are multifaceted, but they play an important role in promoting fairness, transparency, and accountability in the global business environment.

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