M&As: How the game is played in India

Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

Shah would like to adopt the US way of doing such things, where swapping of shares is generally tax exempt, provided certain criteria is met.

Doshi says, 'If there is no merger, they are taxable. But if there is a merger, they are not. You need a court order. It'll take time but once you get a court order, you are effectively getting an exception on a share swap.'

Despite all these niggling issues, corporate India has been powering ahead. Indian businesses have done more M&As with European companies than American ones. This might be attributable to knowing their business culture better or just that there are more businesses available to be bought in Europe. But are European countries far more M&A friendly than other countries?

Doshi says, 'Yes I think almost all those jurisdictions, most of the developed ones understand M&As much better than we understand them. I would not necessarily say they are more friendly. Perhaps we also give certain relief over here, which you may not get over there.'

'For eg, in the US, you would not able to carry forward your losses except to the extent of a reasonable return on the equity value, and only that much would be limited. Whereas in India, you can virtually carry forward the entire loss. One can take the advantage of this.'

'But on the other hand, all the other regulatory hurdles, which we spoke of, which in terms of time and hassles come in your way would not come in your way. If you achieve something by giving a three-step process of first merging and then demerging, the US will recognize anything, which you do as that three-step processing and therefore act accordingly.'

But from a taxation point of view, the US may be a little more difficult because the tax laws are little more complicated there as compared to Europe.

Even Diwanji advocates that the European Union is culturally much better in terms of business practices. It is much better in terms of regulation, is easier and is more transparent because it's that diverse, so, there is much more debate which goes on and that much more fair play that comes in.

He adds, 'In the US economy, there may be one view - one biased view -which kind of sticks, but the US is the largest market and if you really want to do a large M&A, you need to be in that country. But it's a difficult environment to deal with because the viewpoint is pretty much the same or homogenous across the whole country. Whereas in Europe, you can stimulate far more debate and are better able to represent to the Competition Commission (of the EU), than you could do in the US.'

The US also has a more litigatious environment than Europe, so in that sense it is better for Indian companies - culturally as well as in terms of ease of doing deals - to do them in Europe, than in the US.