1. Role of Merchant Banker 18 February 2006 TAKEOVERS

2. Table of Contents Role of Merchant Banker in Takeovers Section 1 Other Players and MB’s Role Section 2 Pre Public Announcement Role Section 3 Role During the Offer Period Section 4 Role Post Closure of the Offer Section 5 Besides Takeover Code

3. Role of Merchant Banker in Takeovers Section 1 Other Players and MB’s Role

4. Role of Merchant Banker in Takeovers Other Players and MB’s Role Its Like A Film 1 THE AUDIENCE THE SHAREHOLDERS OF TARGET COMPANY THE LEAD ACTOR ACQUIRER THE LEAD ACTRESS TARGET COMPANY SUPPORTING ACTORS BANKER REGISTRAR LEGAL COUNSEL VALUER THE DIRECTOR MERCHANT BANKER CENSOR BOARD SEBI

5. Role of Merchant Banker in Takeovers Other Players and MB’s Role Need To Have A Merchant Banker Why do you need a Merchant Banker? 2 What drives the role of Merchant Banker Cardinal principal of Takeover Code, which is based on –Principle of Equality and Opportunity to all the shareholders –Protection of minority interest –Fairness and Protection Broad role laid out includes –Facilitate the entire takeover process –Confirm basis principles of takeover –Transparency and facilitate informed decision making –Protecting the interest of minority shareholders Independent Person with fiduciary responsibility Designated person to ensure that all parties fulfill each of their OBLIGATION within the TIMEFRAME prescribed under the Takeover Code Clause 24 specially lays down the General Obligations of the Merchant Banker under the Takeover Code

6. Other Players and MB’s Role Involvement Throughout The Process Role of Merchant Banker in Takeovers 3 PRE OFFERINVOLVEMENT Understanding the Transaction Structure Due Diligence Appointment of Agencies such as Escrow Banker, Registrar, Valuer etc. Escrow Mechanism Preparation for the public announcement Determining the Pricing and Offer Size Requirement Understanding the approvals required, if any Ensure that continuous listing threshold is not breached Understanding the future plans of Acquirer for the Target Company DURING THE OFFER PERIOD Filing of the Letter of Offer Monitoring the Escrow Requirement including moving the Escrow to India in case of Foreign Acquirer Ensuring timely dispatch of the Offer material to all the shareholders Monitoring the Acquirer’s obligations such as reporting of market purchases, change in Board etc. Reporting the material developments, if any POST OFFER Monitoring the Issue response Overseeing the verification and acceptance process by the Registrar and the Target Company Ensuring appropriate funding the Special Account to make the payment Ensuring that all the approvals e.g. RBI approval etc are in received before making the payment to acquire the shares Ensuring timely payment to all the shareholders after deducting applicable TDS Ensuring appropriate payment of interest in case of delay Need supervision at each and every stage of Offer Period Early involvement by Acquirer necessary to guide the Acquirer in structuring the transaction and to ensure that the Acquirer is in a position to implement the Offer Provide inputs in appointing the other agencies Trigger T-4 Public Announcement T Filing LOF with SEBI T+14 Offer Open T+55 Offer Closes T+75 Making Payments T+90

7. Role of Merchant Banker in Takeovers Section 2 Pre Public Announcement Role

8. Most Key Phase Role of Merchant Banker in Takeovers PA read by investors at large, including the investors who may not be holding shares on the record date requiring Merchant Banker to ensure that the disclosures are prima facie adequate enough for investors to make an informed decision Hence, though the due diligence certificate is required to be filed by the Merchant Banker at the time of filling the draft Letter of Offer, extensive due diligence is required at the pre PA stage 4 Due Diligence to ensure fair and adequate disclosures and compliance –Understanding the transaction structure. This has implications on defining/determining: –Who is the Acquirer –Who is the Person Acting in Concert –Whether the offer is for –Substantial Acquisition of Shares –Consolidation of holdings –Acquiring control, with or without the acquisition of shares –Whether there is indirect trigger on any other listed company, in which the target holds substantial shares or has control –Determining if there are any special clauses conferring certain benefits like non-compete clauses, special controlling powers, business synergy clauses etc. and whether (i) such benefits are extended to minority shareholders as well or (ii) suitable disclosures are made for the benefit of minority shareholders

9. Pre Public Announcement Role Is the Offer Price Computed Correctly? Role of Merchant Banker in Takeovers One of the most important steps is to ensure that the price is correctly computed. MB to justify the correctness One lacuna presently is that even if target company is frequently traded on BSE and NSE, but infrequently traded on any other exchange, the Offer price needs to be justified on other parameters as well! Need for separate valuation, if payment of consideration is proposed to be made in form of shares or any other security of Acquirer Any payment in respect of non compete agreement > 25% of the offer price to be added to the offer price 5 ARE THE SHARES FREQUENLY TRADED Negotiated Price, if any Average of the weekly high and low of the closing prices for the 26 weeks preceding the PA Average of the daily high and low prices for the 2 weeks preceding the PA Any acquisition of shares, including in the public or rights or preferential issue during 26 weeks preceding the PA Negotiated Price, if any Any acquisition of shares, including in the public or rights or preferential issue during 26 weeks preceding the PA Other parameters including RONW, Book Value per share of the TC, EPS, P/Ex vis-a-vis the industry avg Valuation by an independent merchant banker or an independent CA(10 years’ standing) or a PFI Typically done as per the principle laid down by Hon’ SC under HLL-Tomco Merger YES NO

10. Pre Public Announcement Role Is the Offer Size Computed Correctly? Role of Merchant Banker in Takeovers Necessary to determine the correct Offer Size since the Escrow arrangement is based on the product of the Offer Size and the Offer Price 6 The offer to be made for the 20% of the voting capital For the purpose of computing the voting capital, voting rights as at expiration of 15 days after the closure of the Offer to be reckoned Therefore all outstanding warrants, options, ESOPs, convertible instruments, which have the potential of getting converted into equity shares during 15 days after the closure of the Offer to be considered for the purpose of determining the Offer Size

11. Pre Public Announcement Role Is the Escrow and Fund Arrangement in place? Role of Merchant Banker in Takeovers Has to be in place prior to announcing the PA 7 Escrow can be in form of cash or bank guarantee or pledge of securities –In case of foreign Acquirer –Ensure that the Escrow Account is properly funded abroad and appropriate lien is marked in favour of the Merchant Banker –In case of pledge of securities –Determine the margin required to take care of diminution in the value –MB to make good the loss in case of fall in value of the securities –In case of Bank Guarantee –Ensure that the Banker issuing the guarantee is not related to the Acquirer Ensure that firm arrangements for funds and money for payment through verifiable means to fullfil the obligations under the offer are in place

12. Pre Public Announcement Role Public Announcement Role of Merchant Banker in Takeovers Ensure that all the information as is essential for the shareholders to make an informed decision in regard to the offer has been suitably made 8 Once the Acquirer is prepared, ensure that the public announcement is made within 4 working days from the date of Trigger Ensure that the due diligence is substantially complete and all material disclosures have been made to ensure that investors are in a position to take an informed decision: –In case of an agreement triggering the Offer, ensure that the salient features of the same are captured –Ensure that the object and purpose of the offer are well defined to give perspective of the potential synergies for the Acquirer and growth drivers for the target post takeover Ensure filing of the PA with the SEBI and the Stock Exchanges

13. Role of Merchant Banker in Takeovers Section 3 Role During the Offer Period From Public Announcement Upto the Date of Closure of the Offer

14. Role of Merchant Banker in Takeovers Role During the Offer Period Liasoning and Monitoring continues 9 Offer Size may increase if there are convertible instruments, which are not know through public sources at the time of Public Announcement Letter of Offer Seek suitable information from the Target Company Complete the Due Diligence Filing of the draft LOF with SEBI Obtain list of shareholders on the specified date Incorporate SEBI comments and ensure timely dispatch of the LOFs, including to covertible/warrant holders Monitor Escrow Ensure speedy movement of Escrow Account to India as soon as the requisite FIPB and RBI approvals are obtained Monitor the value of pledged securities and top up the pledged shares if required Ensure 100% escrow funding

15. Role of Merchant Banker in Takeovers Role During the Offer Period Liasoning and Monitoring continues 10 Revise the Offer Price incase the Acquirer acquires any shares at price higher than the Offer Price during the Offer Period Monitor Acquirer Monitor market purchase by Acquirer – Ensure no market purchase in made during last 7 working days prior to the closure of the Offer Report market purchases within 24 hours Ensure 100% escrow funding in case of Acquirer intends to appoint nominee on Board of Target during Offer period 21 days after PA Other Responsibilities Handle Shareholder queries Monitor receipt of various pending statutory approvals Issue addendum PA, in case of any material developments, which could be critical for shareholder’s decision making

16. Role of Merchant Banker in Takeovers Section 4 Role Post Closure of the Offer

17. Getting into the Closing Act Role of Merchant Banker in Takeovers 11 Ensure timely opening and funding of the Special Account to make the payments Monitor the processing of the applications, including withdrawals Obtain the RBI approval, if required Complete dispatch of payments to all the shareholders in timely manner In case of delay, ensure that its not on account of wilfull default of the Acquirer and ensure that the interest at appropriate rate (10% p.a.) is paid to the shareholders Issuance of Post Offer Public Announcement Filing of the 45 days report with SEBI

18. Role of Merchant Banker in Takeovers Section 5 Besides Takeover Code

19. Role of Merchant Banker in Takeovers Besides Takeover Code Role in Typical Takeover Assignment Exploring Strategic Alternatives Understand the client’s objectives Identify and screen possible targets Prima facie analysis of strategic and financial implications Valuation and Pricing Review of market valuations of comparable companies Insight into precedent transactions Discounted cash flow analyses, including sensitivity studies Pro forma analyses Judgment, experience and market knowledge Structuring Conventional structures Creative structures Financing Tax issues Assistance in Due Diligence Review Assisting team in investigation, as appropriate Coordination and coaching of various teams (financial, technical, legal, etc.) 12

20. Role of Merchant Banker in Takeovers Besides Takeover Code Role in Typical Takeover Assignment 13 Negotiation Price, structure, contract Coordinate details and tactics Balance price with other terms Capital Market Reaction Equity markets Rating agencies Signing and Announcement Communications strategy Ongoing advice on closing conditions, regulatory review etc. Fairness Opinion Provide comfort to the Board on valuation for the the transaction