Deal
Talk
March 19, 2025
Easy Trips, Without Cash: Exploring Easemytrip’s Cashless
Foreign and Domestic Share Swaps
1. INTRODUCTION
A recent trend coming up in the
market is utilizing non-cash share-swaps for the purpose
of acquisitions and investments. This structure can
be utilized for the purposes of acquiring an Indian
entity or an overseas entity. In case of a share swap,
an acquirer acquires the shares of another company (either
through a primary or secondary acquisition) and as consideration
for the acquisition, the acquirer issues its own shares
to the other company / selling shareholders of such
other company (“Share Swap”).
Easy Trip Planners Limited (“EaseMyTrip”)
is currently using this strategy for acquiring stakes
in three companies – Pflege Home Health Care Centre
LLC (“Pflege”), Jeewani
Hospitality Private Limited (“Jeewani”)
and Planet Education Australia Pty Ltd (“Planet”).
Everything was going smoothly, until recently when Stakeholders
Empowerment Services (“SES”)
released a report advising shareholders to vote against
the resolution of EaseMyTrip to issue shares on preferential
basis for the acquisition of Pflege, Jeewani and Planet.
The baffling question is –
why did SES oppose this move?
In this edition of Deal Talk, we
discuss the complex Share Swap structures adopted by
EaseMyTrip for the aforesaid acquisitions and along
with considerations to keep in mind while structuring
such share-swap acquisitions and why did SES oppose
the resolutions.
2. EASEMYTRIP’s ACQUISITIONS
As per publicly reported information,
EaseMyTrip is planning the following acquisitions in
2025:
-
Pflege: Pflege is a limited
liability company registered in Emirate of Dubai
in accordance with the provisions of U.A.E Commercial
Companies Law No (2) of 2015 and Law No. (13) of
2011 and operating under licenses issued by Department
of Economy and Tourism with Home Health Care Center
and Dubai Health Authority. Pflege is a pioneering
company engaged in medical tourism and actively
assists patients in Indian subcontinent, Turkey,
Thailand, Singapore and Malaysia.
-
Jeewani: Jeewani is a private
limited company incorporated in India and engaged
in the business of construction, development and
operation of hotels.
-
Planet: Planet is an Australian
company engaged in the business of international
student recruitment, international student placement,
coaching of various entrance tests like IELTS, TOEFL,
GMT, GRE, SAT, etc. for international education.
Planet is also engaged in opening of educational
institutions for coaching of the aforementioned
tests, student accommodation services, overseas
student health insurance, education loan assistance,
student travel services and forex assistance services.
Interestingly, EaseMyTrip’s
primary motivation to undertake each of the above acquisitions
stems from a desire to further diversify and inorganically
expand their existing business operations globally.
S. No
|
Target
|
Documentation
|
Deal Structure
|
i
|
Pflege
|
Share Purchase Agreement
and Investment Cum Shareholders’ Agreement
dated December 6, 2024
|
EaseMyTrip is acquiring
49.03% shareholding of Pflege (i.e. 176 shares)
through a mix of secondary acquisition and primary
investment for a total of INR 29,83,05,000 (Indian
Rupees Twenty-Nine Crores Eighty-Three Lakhs
and Five Thousand).
A total of INR 19,83,05,000
(Indian Rupees Nineteen Crores Eighty-Three
Lakhs and Five Thousand) will be paid through
preferential allotment of its own shares to
the shareholder, Mr. Bhisham Sheoran, who would
in turn sell shares corresponding to 39% shareholding
of Pflege to EaseMyTrip.
The remaining INR 10,00,00,000
(Indian Rupees Ten Crores) would be invested
(through preferential allotment of EaseMyTrip
shares) into Pflege as a primary investment,
which would correspond to 10.03% shareholding
of Pflege on a fully diluted basis.1
(such acquisition by EaseMyTrip,
the “Pflege Acquisition”).
|
ii
|
Jeewani
|
Share Subscription Agreement
and Shareholders’ Agreement dated December
6, 2024
|
EaseMyTrip is acquiring
50% of Jeewani for a total consideration of
INR 100,00,00,000 (Indian Rupees One Hundred
Crores) which shall be paid through preferential
allotment of its own shares of EaseMyTrip.
The entire investment by
EaseMyTrip in Jeewani will be in the form of
primary investment into Jeewani. EaseMyTrip
will be acquiring 90,00,00 (Ninety Lakh) fully
paid-up equity shares of face value of INR 10
each of Jeewani.2
(such acquisition by EaseMyTrip,
the “Jeewani Acquisition”).
|
iii
|
Planet
|
Share Purchase Agreement
and Shareholders’ Agreement dated October
11, 2024
|
EaseMyTrip is acquiring
49.03% of Planet for a total consideration of
INR 39,20,00,000 (Indian Rupees Thirty-Nine
Crores and Twenty Lakhs), which shall be paid
through preferential allotment of shares of
EaseMyTrip.
The entire consideration
will be provided to two selling shareholders
of Planet: Sanket Champaklal Shah and Gagandeep
Singh.3
(such acquisition by EaseMyTrip,
the “Planet Acquisition”).
|
A structural representation of the
Share Swaps are as follows –
i
Pflege Acquisition
ii
Jeewani Acquisition
iii
Planet Acquisition
3. IDENTIFYING THE UNDERLYING SHARE
SWAPS
Before we delve into the legal considerations
that may have been relevant to each of these acquisitions,
let us identify the underlying Share Swaps in each of
these deals –
i. Pflege Acquisition
The Pflege Acquisition can be broken
down into the following three legs:
-
Acquisition of 39% shareholding
of Pflege by EaseMyTrip, which is an overseas entity,
from Mr. Bhisham Sheoran (“ODI Secondary”),
-
Primary investment by EaseMyTrip
into Pflege for 10.03% shareholding of Pflege (“ODI
Primary”), and
-
Payment of consideration by
EaseMyTrip to Mr. Bhisham Sheoran4 and
Pflege in the form of allotment of its own shares
(“FDI Primary”).
Based on the above, the Pflege Acquisition
has two forms of Share Swaps: an
ii. Jeewani Acquisition
The Jeewani Acquisition can be broken
down into the following two legs:
-
Acquisition of 50% shareholding
of Jeewani, an Indian company, by EaseMyTrip,
-
Payment of consideration to
Jeewani in the form of allotment of its own shares.
Based on the above, the Jeewani
Acquisition has one form of Share Swap:
iii. Planet Acquisition
The Planet Acquisition can be broken
down into the following two legs:
-
Acquisition of 49.03% shareholding
of Planet by EaseMyTrip, which is an overseas entity,
from Mr. Gagandeep Singh and Mr. Sanket Champaklal
Shah (“Planet ODI
Secondary”),
-
Payment of consideration by
EaseMyTrip Mr. Gagandeep Singh and Mr. Sanket Champaklal
Shah5 in the form of allotment of its
own shares (“Planet
FDI Primary”).
Therefore, the Planet Acquisition
has one form of Share Swap: an
4. LEGAL CONSIDERATIONS APPLICABLE
TO SHARE SWAPS
Each of EaseMyTrip’s acquisitions
constitute differing forms of Share Swaps. Share Swaps
must meet a variety of requirements under major Indian
legislations such as merger control laws, tax laws,
foreign exchange control laws, company law, etc.
Further, given that each of these
Share Swaps include EaseMyTrip, which is a listed company,
laws governing listed securities enacted by the Securities
and Exchange Board of India (“SEBI”)
also get triggered.
Let us now delve into an assessment
of the laws typically applicable to Share Swaps, and
how each of them is being specifically triggered in
EaseMyTrip’s acquisitions.
i. Foreign exchange
control considerations:
Share Swaps involving non-resident
shareholders and / or companies will have to be undertaken
in compliance with the Foreign Exchange Management Act,
1999 (“FEMA”) and the allied
regime enacted thereunder.
-
Compliance with
the NDI Rules:
As mentioned above, each of
the Pflege Acquisition and Planet Acquisition have
FDI Primary as a step in their swaps. The Jeewani
Acquisition is a domestic share swap; therefore,
the NDI Rules will not be applicable to the same.
The NDI Rules, as per Rule 6(a) read with Schedule
I allows an Indian company to issue equity instruments
to a person resident outside India against swap
of equity instruments. As per the NDI Rules, foreign
direct investment (“FDI”)
into Indian companies can occur without prior approval
of the Indian government so long as the Indian company
falls in the “automatic route” under
Schedule I of the NDI Rules. Therefore, if the Indian
company falls under the automatic route, then a
share swap would not require government approval.
The Pflege Acquisition consisted
of an FDI Primary wherein EaseMyTrip allotted its
own shares to non-residents. Similarly, the Planet
Acquisition also consisted of the Planet FDI Primary
involving allotment to non-resident individual shareholders
of Planet.
However, since investments into
the tourism sector fall under the 100% automatic
route, these transactions did not need to factor
in a potential requirement for the prior approval
of the Indian government under the NDI Rules.
-
Prior approval under
the Press Note No. 3 (2020 Series) (“PN3”):
In addition to the NDI Rules,
the parties may have also had to evaluate whether
any prior approval of the Indian government is required
under the PN3. As per the PN3, prior government
approval is required in case of any FDI from entities
of countries that share land-borders with India,
or where the beneficial owner of an investment into
India is situated in or is a citizen of such land-bordering
countries. PN3 was enacted in 2020 to curb opportunistic
investments from China and other land bordering
countries.6
The PN3 consideration is relevant
for the Pflege Acquisition and Planet Acquisition,
since both of them involve FDI into EaseMyTrip (in
lieu of the Share Swap). Accordingly, in case any
of the proposed allottees of EaseMyTrip’s
shares in these transactions (i.e. Pflege, Jeewani,
Planet, Mr. Bhisham Sheoran, Mr. Gagandeep Singh
and Mr. Sanket Champaklal Shah) are resident in
/ have beneficial owners that are situated in land-bordering
countries, such allotment would be subject to government
approval under the PN3. Basis the publicly available
information, neither of the acquirers of the shares
of EaseMyTrip are resident of/have beneficial owners
that are situated in land-bordering countries.
ii. Overseas
investment law considerations:
The Pflege Acquisition and Planet
Acquisition involves issuance / transfer of shares of
an unlisted foreign company (amounting to more than
10% shareholding) to an Indian company. Considering
that Pflege and Planet are unlisted foreign companies,
the acquisition of shares by EaseMyTrip constitutes
an “overseas direct investment” (“ODI”)
under the Foreign Exchange Management (Overseas Investment)
Rules, 2022 (“OI Rules”).7
Rule 11 read with Schedule I of
the OI Rules clarifies the mechanisms through which
ODI can be undertaken by Indian entities, which under
Para 2 (v) of Schedule I, permits ODI by way of a ‘swap
of securities’. Accordingly, the Pflege Acquisition
and Planet Acquisition constitute permissible modes
of undertaking ODI under the OI Rules.
However, ODI is subject to certain
additional factors that also need to be met, namely –
-
Net worth
criteria
Thetotal financial commitment
made by an Indian entity in all the foreign entities,
taken together at the time of undertaking such commitment,
shall not exceed 400 percent of its net worth as
on the date of the last audited balance sheet.8
The total consideration for
the Pflege Acquisition and Planet Acquisition is
INR 69,03,05,000. As per the audited financial statements
of EaseMyTrip for FY 23-24, the net worth of EaseMyTrip
is INR 637,90,90,000.9 Further, while
the exact amount of financial commitment by EaseMyTrip
in foreign entities is not available as on the proposed
date of consummation of the Pflege Acquisition and
Planet Acquisition, we note from the audited financial
statements for FY 23-24 that EaseMyTrip has no foreign
investments.10 Accordingly, since the
proposed investment does not exceed 400 percent
of EaseMyTrip’s net worth as on the date of
the audited financial statements for FY 23-24, the
first requirement under the OI Rules is met.
-
Financial
services criteria
AnIndian entity that is engaged
in “financial services” activities in
India can make ODI into a foreign entity engaged
directly or indirectly in financial services only
if –
-
the Indian entity has posted
net profits during the preceding three financial
years;
-
the Indian entity is registered
with or regulated by a financial services regulator
in India;
-
the Indian entity has obtained
approval as may be required from the regulators
of such financial services activity, both in
India and the host country or host jurisdiction,
as the case may be, for engaging in such financial
services:
However, if the Indian entity
is not engaged in “financial services”
and seeks to invest in a foreign entity which is
directly or indirectly engaged in “financial
services”11 activities, the Indian
entity should have posted net profits during the
preceding three financial years.
In respect of the above, the
following two-fold determination is to be made to
determine whether the Pflege Acquisition and Planet
Acquisition must meet the aforementioned criteria –
-
Is EaseMyTrip (being the
Indian entity) engaged in “financial services”
activities?
-
Are the foreign companies
in which EaseMyTrip is undertaking ODI (namely,
Pflege and Planet) engaged directly or indirectly
in “financial services” activities?
With respect to (i) above, it
is to be noted that as per the Business Responsibility &
Sustainability Report of EaseMyTrip for FY 23-24,
the NIC Code for activities contributing to 100%
of the turnover of EaseMyTrip is 7911 (Tour and
Travel related services). Accordingly, it can be
stated that EaseMyTrip is not engaged in financial
services activities in India.
On the other hand, based on
the disclosures made by EaseMyTrip to stock exchanges
and publicly available information, Pflege is a
home health care provider based in Dubai, which
offers medical tourism services through licensed
doctors around the globe, along with supporting
services such as visa assistance and airport drop
and pickups.12 Separately, Planet provides
students with guidance through their admission processes
to universities in Australia, with a range of services
such as counseling, course selection, coaching,
visa applications, etc.13 Therefore,
it is safe to assume that each of the foreign target
companies are also not involved directly or indirectly
in “financial services” activities.
iii. SEBI considerations:
The issuance and allotment of specified
securities14 by listed companies is governed
by the Securities and Exchange Board of India (Issue
of Capital and Disclosure Requirements) Regulations
2018 (“ICDR”). ICDR is
applicable to the present scenario since EaseMyTrip
is a listed company.
The preferential allotment of such
securities, for consideration other than cash, must
comply with the following requirements:
-
Approval through special
resolution:
Any issuance of specified securities
must be approved by the shareholders of the listed
company by way of a special resolution.15
Accordingly, prior to effectuating
the Pflege Acquisition / Jeewani Acquisition / Planet
Acquisition, EaseMyTrip must receive the consent
of 75% of its shareholders through a special resolution.
-
Valuation requirements:
Another equally important consideration
is the valuation requirement that is prescribed
under the ICDR. Consideration other than cash, discharged
by way of a swap of shares, should be backed by
a valuation report issued by an independent registered
valuer and submitted to the stock exchanges where
the issuer is listed. However, the stock exchanges
have the ability to get the valuation done by another
valuer in case they are not satisfied with the appropriateness
of the valuation.16
Therefore, the Share Swaps occurring
pursuant to each of the aforementioned acquisitions
are required to be justified through a valuation
report issued in respect of these transactions.
-
Pricing guidelines:
The pricing guidelines under
Regulation 164 of the ICDR are to be followed for
a preferential issue in case the shares of the issuer
company are “frequently traded”. The
shares of an issuer company are considered to be “frequently
traded” in case the equity shares of the issuer
have been listed on a recognized stock exchange
for a period of 90 trading days or more as on the “relevant
date” (which, for the purposes of these acquisitions
would be the date thirty days prior to the date
on which the meeting of shareholders is held to
consider the proposed preferential issue17).
Considering that EaseMyTrip’s
shares are “frequently traded”, the
price of the equity shares to be allotted must not
be the higher of:
-
90 days’ volume weighted
average price of related equity shares quoted
on the recognized stock exchange preceding the
relevant date, or
-
10 trading days’ volume
weighted average prices of related equity shares
quoted on a recognized stock exchange, preceding
the relevant date,18
unless the method of determination
specified in the articles of association provide
a higher floor price than the one that may be arrived
at using the aforementioned methods of calculation.
-
Other requirements for
conducting preferential issue:
Regulation 160 of the ICDR specified
certain other requirements that are also to be met
prior to conducting a preferential issuance, such
as –
-
The securities being issued
must be fully paid-up;
-
Equity shares held by proposed
allottees in the issuer, if any, are in dematerialized
form;
-
An in-principle application
has been made to the stock exchange on the day
that a notice for the shareholders’ meeting
has been sent to the shareholders.
Pursuant to the valuation requirements
set out above, EaseMyTrip procured a valuation report
from Samarth Valuation Advisory LLP, a registered
valuer, for issuing a pricing certificate under
the ICDR (“Pricing Certificate”).
The Pricing Certificate: (i) assessed the fair value
of the equity shares as per internationally accepted
valuation standards of the Institute of Chartered
Accountants of India as on September 30, 2024; and
(ii) determined the floor price of shares as per
Chapter V of the ICDR on December 6, 2024. The Pricing
Certificate computed the fair value of shares to
be INR 16.66 and the floor price (as per the ICDR)
to be INR 18.22 per equity share.
Relying on the above, EaseMyTrip’s
proposed issue price towards the allottees pursuant
to the Pflege Acquisition, Jeewani Acquisition and
Planet Acquisition was INR 18.22 per share.
iv. Merger control
considerations:
Under the regime set out pursuant
to the Competition Act, 2002 (“Competition
Act”), transactions amounting to “combinations”
are notifiable (i.e. subject to the prior approval of
the Competition Commission of India (“CCI”))
if they cross the thresholds set out in Section 5 of
the Competition Act.
That being said, under the Competition
(Minimum Value of Assets and Turnover) Rules, 2024,
combinations are exempt from mandatory prior notification
to the CCI if the target entity’s consolidated
assets or turnover, as per its latest audited financial
statements, fall below either of the following thresholds:
(i) assets of less than INR 450 crore (Indian Rupees
Four Hundred and Fifty Crores) in India; or (ii) turnover
of less than INR 1,250 crore (Indian Rupees One Thousand
Two Hundred and Fifty Crores) in India (the “De
Minimis Exemption”).
Interestingly, from September 10,
2024, the merger control regime was overhauled and in
addition to the thresholds set out in Section 5 of the
Competition Act, the Competition Commission of India
(Combination) Regulations, 2024 (“Combination
Regulations”) were introduced, which
brought in deal value threshold (“DVT”).
DVT is an additional mechanism against which transactions
are required to assess the requirement of mandatory
notification to the CCI (over and above the Section
5 thresholds). As per the DVT, the following transactions
are notifiable (irrespective of the availability of
the De Minimis Exemption): (i) the value of the transaction
is INR 2,000 crores (i.e. approximately USD 231 million)
or more (“Value Test”);
and (ii) the target has “substantial business
operations” in India, each as per the manner set
out in the Combination Regulations.
A transaction would be exempt from
notification under the DVT only if it is able to avail
any of the exemptions set out under the Competition
(Criteria for Exemptions of Combinations) Rules 2024
(“General Exemptions”).
Accordingly, any combination which
either breaches the thresholds under Section 5 or triggers
the DVT would be required to be mandatorily notified
to the CCI, unless such combination can either avail
the De Minimis Exemption (only in case the notifiability
is due to breach of thresholds under Section 5) or the
General Exemptions (in case the notifiability is due
to breach of thresholds under Section 5 or trigger of
DVT).
The proposed issuance of shares
to the allottees pursuant to each of the Pflege Acquisition,
Jeewani Acquisition and Planet Acquisition cumulatively
amounts to approximately INR 234,00,00,000 (Indian Rupees
Two Hundred Thirty Four Crores). Accordingly, neither
of these transactions (either individually or when interconnected)
cross the Value Test and trigger the DVT.
Further, as per the audited financial
statements of EaseMyTrip for FY 23-24, the consolidated
assets amount to INR 893,61,30,000 (Indian Rupees Eight
Hundred Ninety Three Crore Sixty One Lakh Thirty Thousand)
and the consolidated turnover is INR 609,08,10,000 (Indian
Rupees Six Hundred Nine Crore Eight Lakh Ten Thousand).19
Accordingly, EaseMyTrip will be able to avail the De
Minimis Exemption for each of the Pflege Acquisition,
Jeewani Acquisition and Planet Acquisition.
V. Tax considerations:
-
Pflege Acquisition:
For
the purposes of the ODI Secondary as part of the Pflege
Acquisition, the shareholder Mr. Brishram Sheoran will
be taxable as per the tax laws of his jurisdiction of
residence for the gains derived by him as part of the
Acquisition.
-
Jeewani Acquisition: Given
that the entire Jeewani Acquisition is structure as
a primary swap, there shall be no taxable event at the
time of Share Swap of Jeewani Acquisition.
-
Planet Acquisition: For
the purposes of Planet ODI Secondary as part of the
Planet Acquisition, the gains derived by Mr. Gagandeep
Singh and Mr. Sanket Champaklal Shah as part of the
sale of the shares held by them in Planet will be taxable
as per the tax laws of his jurisdiction of residence.
vi. Company law
considerations:
Under the Companies Act, 2013 (“Companies
Act”) read with ancillary regulations,
the power of further issuance of share capital stems
from Section 42 read with Section 62. Section 62 (1)
(c) specifically deals with the issuance of securities
for consideration other than cash. The critical requirements
to be met for non-cash share swaps under the Companies
Act are as follows –
-
Approval through special
resolution:
Similar to the ICDR, the issuance
must be approved by the shareholders through a special
resolution.
-
Valuation requirements:
The price of the shares must
be determined by a valuation report issued by an
independent valuer,20 as evidenced by
the Pricing Certificate.
5. Are Pflege,
Planet and Jeewani a “subsidiary company”
of EaseMyTrip under the Companies Act?
As set out above, pursuant to
the Share Swaps, EaseMyTrip intends to acquire nearly
half of the total shareholding in Pflege, Planet
and Jeewani. An interesting consideration that therefore
emerges is as to whether these companies are its
subsidiaries under the Companies Act, and if not,
whether there is any reason why?
Under Section 2(87) of the Companies
Act, a company becomes a “subsidiary company”
if either of the following conditions are met: (i)
the holding company controls the composition of
the board of directors; or (ii) the holding company
exercises / controls more than half of the total
voting power, either by itself or through one or
more subsidiary companies.
As per the disclosure made by
EaseMyTrip on the stock exchanges on December 7,
2024, it appears that there is no board seat that
is being acquired on the board of any of the three
companies. Thus, part (i) of the definition of “subsidiary
company” does not apply. Further, EaseMyTrip
is not acquiring more than 50% shareholding in any
of the companies. Since this leads to a situation
where it cannot exercise “more than half
of the total voting power” in these companies,
part (ii) of the definition is also not met. Accordingly,
Pflege, Planet and Jeewani are not subsidiary companies
of EaseMyTrip.
However, the question still
remains – would this have been a deliberate
move?
Looks like at-least for Jeewani
it would be. According to Section 19 of the Companies
Act, a subsidiary company
cannot
hold any shares in its holding company except
in the case where such subsidiary company holds
the shares of its holding company (a) as the legal
representative of a deceased member of the holding
company or (b) as a trustee or (c) even before it
became a subsidiary company of the holding company.
Further, holding companies are restricted from allotting
or transferring their shares to any of its subsidiary
companies.
If EaseMyTrip would have acquired
more than half of the total voting power in Jeewani,
this company would have become a “subsidiary
company” of EaseMyTrip under the Companies
Act and the share swap would not be possible because
of the restriction set out in Section 19 of the
Companies Act. Thus, it is possible that the total
shareholding acquired in Jeewani pursuant to the
Share Swap was decided keeping this consideration
in mind.
6. SES’ RECOMMENDATIONS AGAINST
THE SHARE SWAPS
As mentioned above, under Regulation
160 of the ICDR, preferential issuances by listed companies
are required to be approved by a special resolution
of the shareholders. Institutional and retail shareholders
alike often place reliance on the reports and recommendations
of proxy advisors to understand the implications of
such corporate actions.
In this regard, on January 07, 2025,
SES released a report with its recommendations to shareholders
in respect of the proposed preferential allotment of
shares of EaseMyTrip (which included the issuances pursuant
to the Pflege Acquisition, Jeewani Acquisition and Planet
Acquisition).
The agenda being proposed by EaseMyTrip
was seeking shareholders’ approval towards primary
issuances of equity shares of EaseMyTrip to each of
Pflege, Jeewani, Planet, Mr. Bhisham Sheoran, Mr. Gagandeep
Singh, and Mr. Sanket Champaklal Shah, on a non-cash
basis (collectively, the “Non-Cash Allotment”).
Along with these issuances, they had also sought shareholders’
approval for allotment of equity shares to Ms. Jacqueline
Genevieve Fernandes on a cash basis (the “Cash
Allotment”). Each of these are non-promoter
individuals.
The total size of issue was 12,84,47,034
(Twelve Crore Eighty Four Lakh Forty Seven Thousand
Thirty Four) fully paid-up equity shares having a face
value of INR 1 each, at an issue price of INR 18.22
per share that collectively took the issue size to approximately
INR 234,00,00,000 (Indian Rupees Two Hundred Thirty
Four Crores).
Broadly, the proxy advisor had two
major observations whilst analyzing the aforesaid transaction:
-
The potential dilution in EaseMyTrip
would cumulatively amount to 3.49% (with the Cash
Allotment constituting a mere 0.07% dilution of
the existing shareholders’ shareholding);
and
-
Although the valuation report
obtained for the Non-Cash Allotment and Cash Allotment
refers to the consideration of a “fair
equity share swap ratio” it only provides
a price determination for EaseMyTrip’s shares
and does not separately account for the valuation
/ information of Pflege, Jeewani, or Planet.
7. Non-Cash Allotment
SES referred to Rule 13(2)(d) of
the Companies (Share Capital and Debentures) Rules,
2014 and Rule 163(3) of the ICDR to note that in case
of the allotment of securities for consideration other
than cash, a justification of the valuation must be
provided pursuant to a “valuation report”
from a registered valuer.
The proxy advisor had the following
specific observations in relation to the valuation report –
-
They referred to the language
set out in the aforesaid regulations and noted that
considering that the Non-Cash Allotment involves
an underlying transaction of a share swap, the valuation
report of the target companies should also be provided
to the shareholders.
-
Further, since the valuation
report of Pflege, Jeewani and Planet were not provided,
SES referred to the last year revenue information
of these companies to note that the stakes being
acquired were significantly lesser than the consideration
being paid to the shareholders of Planet, Jeewani
and Pflege through the share swap.
Accordingly, SES was of the view
that the valuation was not providing shareholders with
a clear picture to gauge the value of the consolidated
proposed acquisitions, making the valuation unfair and
non-transparent. Further, they noted that the proposed
dilution of shareholding in EaseMyTrip was also not
adequately justified due to the above factors.
Thus, they recommended voting against
the Non-Cash Allotment on account of a “compliance
concern”.
8. Cash Allotment
With respect to the Cash Allotment,
SES noted that since the shares were being issued in
lieu of cash, the aforementioned concerns with respect
to valuation would not arise (as there is no involvement
of the target companies in this transaction). Additionally,
the cumulative dilution as a result of the Cash Allotment
was noted to be insignificant.
Therefore, no concerns were raised
with respect to the Cash Allotment.
9. CONCLUSION
The EaseMyTrip Share Swaps highlight
the growing role of non-cash structures in corporate
expansion. While the deals align with EaseMyTrip’s
vision for diversification and inorganic growth, the
complex regulatory landscape surrounding foreign exchange
laws, SEBI regulations, tax implications, and merger
control adds layers of compliance, which will have to
be borne in mind by dealmakers across the industry at
the time of structuring similar Share Swaps.
In addition to a complex array of
laws that need to be navigated whilst structuring Share
Swaps, specifically in the case of listed companies,
dealmakers will also have to be wary of other stakeholders
such as proxy advisory firms and ensure that factors
such as valuation transparency and shareholder dilution
concerns are adequately resolved to ensure greater disclosure
and justification in share swap transactions.
Authors
-
Anurag Shah,
Parina Muchhala and
Nishchal Joshipura
You can direct your queries or comments
to the relevant member.
1https://www.bseindia.com/xml-data/corpfiling/AttachHis/9bd571cc-1908-4f1d-bc84-b6f14a658f24.pdf
2Ibid.
3Ibid.
4Based on the assumption
that Mr. Bhisham Sheoran will be a non-resident under
the Foreign Exchange Management Act, 1999.
5Based on the assumption
that Mr. Gagandeep Singh and Mr. Sanket Champaklal Shah
will be non-residents under the Foreign Exchange Management
Act, 1999. It appears that they are both based currently
in Australia, as available at:
https://www.planeteducation.info/our-team.
6Available at:
https://dpiit.gov.in/sites/default/files/pn3_2020.pdf.
7As per the OI Rules, “Overseas
Direct Investment” or “ODI”
means
investment by way of acquisition of unlisted equity
capital of a foreign entity, or subscription
as a part of the memorandum of association of a foreign
entity, or investment in ten per cent, or more of the
paid-up equity capital of a listed foreign entity or
investment with control where investment is less than
ten per cent. of the paid-up equity capital of a listed
foreign entity.
8Para 3 (1), Schedule
I of the OI Rules.
9https://www.bseindia.com/xml-data/corpfiling/AttachHis/021a2e21-36c8-4236-b44d-b60647883660.pdf.
10Please refer to “Note
No. 10” of the “Notes to Accounts”
of the Consolidated Financial Statements of EaseMyTrip
for FY 23-24.
11As per Schedule I,
a foreign entity shall be considered to be engaged in
the business of financial services activity if it undertakes
an activity, which if carried out by an entity in India,
requires registration with or is regulated by a financial
sector regulator in India.
12https://pflegehealthcare.com/about-us.
13https://www.planeteducation.info/international-education.
14Under the ICDR, “specified
securities” means equity shares and convertible
securities.
15Regulation 160 (b),
ICDR.
16Regulation 163 (3),
ICDR.
17Regulation 161 a),
ICDR.
18Regulation 164 (1),
ICDR.
19https://www.bseindia.com/xml-data/corpfiling/AttachHis/021a2e21-36c8-4236-b44d-b60647883660.pdf.
20Section 62 (1) (c),
Companies Act.
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