Shareholders may have exit option in mergers

The revamped Company Law is likely to propose a mechanism that would protect shareholders'' value in cases where a listed entity is merged with an unlisted one and vice-versa. The soon-to-be-introduced Companies Bill, 2008, is expected to stipulate that in such situations, the shareholders should be given an exit option with a safety net, an official said. The Bill is likely to envisage that while the consent of the shareholders to merge a listed company with an unlisted one and vice-versa is required, those investors who want to exit would be allowed to do so at a pre-determined price based on fair valuation. This is to ensure that after the merger, the public shareholders do not lose the value of their investment, he explained. With mergers becoming the common form of inorganic growth process of corporates, particularly in sectors such as information technology, telecommunications and business process outsourcing, a need was felt to have a proper mechanism in place. Currently, the process of mergers is court-driven and long-drawn. The existing Companies Act does not provide for a clear mechanism for such situations. This proposal is based on the J.J. Irani Committee''s recommendation on company law

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