ITC Indian Colomongate is reportedly in talks to acquire MTR Foods and Eastern for \$1.4 billion as Norway’s Orkla looks to exit or raise capital.
As reported in The Economic Times, Orkla, which acquired MTR in 2007 and Eastern in 2020, has been navigating India’s complex and competitive food market. While similar to some European markets, India’s food industry has significant regional variations and intense competition, especially with the shift toward branded spices.
Orkla had previously considered an IPO for its Indian subsidiaries but now favors a private sale if it ensures a higher valuation. If the sale falls short of expectations, an IPO remains an option. India’s spices market, valued at over ₹90,000 crore (as of 2024), is still largely unbranded, with Everest leading the organized sector, followed by MDH. Regional players like MTR, DS Foods, Ramdev, and Eastern dominate in specific areas, while FMCG giants expand into spices and ready-to-cook segments.
Recent industry deals include Dabur’s 51% stake acquisition in Badshah Masala for ₹588 crore (2022) and ITC’s ₹2,150 crore purchase of Sunrise Foods (2020). Meanwhile, ITC’s FMCG revenue rose 6.35% to ₹14,372.53 crore, with cigarette sales growing 7.83% to ₹8,944.83 crore.
An Oslo-based Orkla spokesperson, responding to Mint, stated, “We do not comment on unfounded market rumours or speculation.”
As this is still a half-baked news story, I don’t want to commit to it just yet. However, I’d like to share how mergers and acquisitions work. It’s primarily a compliance-driven process that involves extensive legal procedures. I’ll give a brief overview of that.
These legal statutes form the backbone of mergers and acquisitions in India, ensuring compliance, transparency, and market stability. Any M&A transaction must align with multiple regulations to safeguard stakeholders and maintain fair competition.
Legal Framework for Mergers and Acquisitions in India
| Law | Key Provisions |
|---|---|
| The Companies Act, 2013 | Governs corporate restructuring, mergers, demergers, and amalgamations, ensuring that entities follow due process, gain shareholder approval, and comply with regulatory filings. |
| The Foreign Exchange Management Act, 1999 (FEMA) | Regulates cross-border investments, including foreign direct investments (FDI) and indirect foreign investments, ensuring compliance with India’s exchange control regulations. |
| The Competition Act, 2002 | Requires Competition Commission of India (CCI) approval for transactions exceeding specific asset and turnover thresholds to prevent monopolistic practices. |
| SEBI (Securities and Exchange Board of India) Regulations | Oversee M&As involving publicly listed companies, ensuring compliance with disclosure norms, investor protections, and takeover guidelines. |
| Insider Trading Regulations (2015) | Restrict trading on unpublished price-sensitive information to prevent market manipulation and protect retail investors. |
| Takeover Regulations (2011) | Regulate substantial acquisitions of shares and changes in control in publicly listed companies, including mandatory open offers and disclosure requirements. |
| The Income Tax Act, 1961 | Defines tax implications, exemptions, and capital gains treatment for M&As, ensuring that transactions are tax-compliant. |
| The Stamp Act, 1899 | Governs stamp duty payments on asset and share transfers, which vary by state and transaction structure. |
Public vs. Private Mergers & Acquisitions
M&As in public companies are highly regulated, requiring compliance with SEBI regulations, public disclosures, and shareholder protections. Minority stakeholders often face risks, as seen in the Religare case, which I discussed in my previous post. It highlighted how regulatory gaps and ownership disputes can impact smaller investors in public M&As.
Private company M&As allow more flexibility, with negotiations shaping exit strategies, valuation, and governance structures. However, taxation, regulatory approvals, and competition laws still apply. Unlike public company M&As, private deals often include shareholder agreements outlining control rights, lock-in periods, and dispute resolution mechanisms.
Competition Commission of India (CCI) Approval Thresholds
| Criteria | Assets in India | Turnover in India | Global Assets | Global Turnover |
|---|---|---|---|---|
| Buyer & Target/Resultant Entity | ₹20 billion | ₹60 billion | \$1 billion (incl. ₹10 billion in India) | \$3 billion (incl. ₹30 billion in India) |
| Group (Post-Merger Entity) | ₹80 billion | ₹240 billion | \$4 billion (incl. ₹10 billion in India) | \$12 billion (incl. ₹30 billion in India) |
Exemption: Transactions below ₹3.5 billion in assets or ₹10 billion in turnover in India qualify under the “small target” rule and do not require CCI approval.
Foreign Investment Restrictions
Entities from neighboring countries (China, Afghanistan, Bangladesh, Pakistan, Bhutan, Myanmar, Nepal) need prior government approval for direct or indirect investments. Changes in beneficial ownership also require approval, and since June 2022, security clearance is mandatory for directors from these nations in Indian companies.
Due Diligence & Stake Transfers
Acquirers conduct due diligence covering corporate structure, financials, tax, contracts, IP, data protection, employment, real estate, and litigation risks. Due diligence helps identify potential red flags, ensuring informed decision-making before an acquisition is finalized.
Stake Transfer Pricing Rules:
- Resident to Non-Resident: Transfer price ≥ fair market value, determined by an Indian chartered accountant using internationally accepted pricing methodology.
- Non-Resident to Resident: Transfer price ≤ fair market value, following the same conditions to prevent capital flight and ensure compliance with FEMA guidelines.
While we don’t know what will happen with the MTR and ITC acquisition, one thing is certain: every acquisition is subject to rigorous legal and regulatory scrutiny. Businesses that fail to proactively strengthen their legal and compliance frameworks often face delays, rejections, or financial penalties. For startups, ensuring compliance isn’t an afterthought—it’s a necessity. Opportunities in M&A arise unexpectedly, and without a well-structured legal and regulatory foundation, companies may find themselves unable to act in time. The key takeaway? Be legally prepared today to seize opportunities tomorrow.