Hostile Takeovers in India: Are We Entering a New Era?

Hostile Takeovers in India: Are We Entering a New Era?

India’s corporate world is undergoing a significant transformation. Traditionally dominated by closely held promoter-driven companies, Indian boardrooms have largely been insulated from the aggressive tactics of hostile takeovers—until now. A hostile takeover, wherein an acquiring company attempts to gain control of a target company without the consent of its board or management, was once viewed as a Western corporate maneuver. However, with growing shareholder activism, the entry of foreign investors, and dilution of promoter shareholding, India seems poised to enter a new era where hostile takeovers may no longer be the exception, but a strategic reality.

Historically, several structural and cultural factors prevented hostile takeovers from taking root in India. High promoter holdings, cross-holdings within group companies, and conservative business practices created a fortress around Indian companies. Moreover, the regulatory environment, though robust, discouraged unsolicited bids through complex procedural requirements and compliance hurdles. But the landscape is changing. Indian promoters are increasingly diluting stakes for capital infusion, institutional investors are gaining influence, and companies are listing globally, exposing them to takeover threats and opportunities alike.

Perhaps the most defining example of a hostile takeover in India is Larsen & Toubro’s acquisition of Mindtree in 2019. This move marked a paradigm shift as L&T, an engineering giant, acquired a significant stake in the IT company from a major shareholder and subsequently launched an open offer to the public. Despite resistance from Mindtree’s founding team, L&T succeeded, becoming the first major entity to execute a hostile takeover in India's modern corporate history. This deal shattered long-standing taboos and signaled that the Indian market was no longer immune to such bold corporate strategies.

Legally, hostile takeovers in India are governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011—commonly referred to as the SEBI Takeover Code. This regulation mandates an open offer to public shareholders if an acquirer’s shareholding crosses certain thresholds, typically 25%. Additional frameworks under the Companies Act, 2013, and oversight by the Competition Commission of India ensure fair practices and market integrity. However, despite this legal scaffolding, the actual frequency of hostile takeovers remains low due to entrenched promoter control and cautious investor sentiment.

The slow but visible rise in hostile takeovers can be attributed to several factors. One of the key drivers is the decline in promoter ownership across various sectors, making companies more vulnerable to external bids. Additionally, the rise of domestic and foreign institutional investors, who are more focused on returns than personal relationships, adds fuel to the fire. With greater voting rights and corporate governance awareness, these investors may support takeover bids that promise improved performance or better valuations. Furthermore, Indian capital markets are maturing, and with increased globalization, companies are more exposed to international acquisition strategies.

While the opportunities for hostile takeovers increase, so do the defensive tactics employed by target companies. These include increasing promoter stakes through preferential allotments, seeking friendly investors (white knights) to counter hostile bids, and issuing employee stock options to dilute the acquirer’s control. Some companies also resort to legal strategies, challenging takeover bids in court on procedural or ethical grounds. However, Indian regulations restrict certain aggressive defences commonly used in the West, such as poison pills or staggered boards, in the interest of shareholder rights and transparency.

Despite the risks, hostile takeovers are not inherently negative. When executed with strategic clarity, they can bring about better corporate governance, unlock hidden value, and increase market efficiency. For instance, takeovers often compel underperforming boards to become more accountable and responsive to shareholders. On the other hand, they also carry risks of organizational disruption, loss of institutional memory, employee unrest, and hostile media scrutiny. Therefore, companies must strike a balance between maintaining control and remaining competitive in the open market.

Are we truly entering a new era of hostile takeovers in India? The answer seems to be a cautious yes. The groundwork is being laid: declining promoter dominance, greater investor activism, and an evolving legal framework. As India continues to integrate with global capital markets, its corporate ecosystem will have to adapt to more aggressive M&A strategies, including hostile bids. The future may well see more boardroom battles, contested ownerships, and strategic realignments—making it imperative for Indian businesses to be proactive, not just reactive.

In conclusion, hostile takeovers in India are slowly transitioning from theoretical possibilities to boardroom realities. While the frequency may still be low compared to global markets, the momentum is undeniable. Indian companies, especially those with scattered shareholding and weak governance, must prepare themselves for a future where unsolicited offers could become the norm. The legal system, too, must evolve to balance the rights of acquirers, target boards, and minority shareholders. As India steps into this new era of corporate strategy, vigilance, transparency, and strategic foresight will determine who leads and who falls behind in this high-stakes game of corporate chess.