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Overseas acquisitions by IT firms made easier - Views on News from Equitymaster
 
 
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  • Dec 28, 1999

    Overseas acquisitions by IT firms made easier

    The automatic approval route has been opened for ADRs/GDRs by software companies to fund acquisitions abroad.

    However, there are riders attached.

    • 100% of the issue proceeds will have to be used for acquisitions
    • the facility is available only for those companies which have already floated ADRs/GDRs
    • Companies which have not floated such issues will have to obtain one time blanket approvals from the special composite committee
    • Annual acquisition limit set at $100 m for each company

    So far, the companies which wanted to acquire companies abroad had to seek permission from the Special Committee for Overseas Investment (via the Reserve Bank of India) or the government of India. This could hit the confidentiality of the deal. Now, the details of the acquisition would have to be reported to the Reserve Bank of India or the finance ministry within 30 days of the transaction being completed.

    The benefit of this relaxation would only apply to three companies viz. Infosys, Satyam Infoway and Pentafour. The limit of $ 100 m would limit the size of acquisition that these companies can undertake. The step is typical of the way reforms are done in India: on a piecemeal basis. Companies have to convince the various government of the irrationality of the existing rules. The laws are then relaxed taking into view only the specific problem on hand. And for that specific industry. The mindset that the new regulation should serve the interests of the industry well into the future is still not prevalent.

     

     

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