The central bank has favoured an institutional mechanism to fund takeovers and mergers in the country.
In its Report on Currency and Finance, the apex bank says that though a transparent and well regulated market for corporate control exists, there are some crucial issues which still need to be addressed.
Considering that mergers and acquisitions involve large amount of financial resources, there is a need to identify the methods and instruments for raising such massive funds, it said.
It states that mergers and acquisitions are not unmixed blessings. They may lead to industry concentration and enhance market power of a few large companies.
They may create problems for surplus labour force, identified after the merger process. They may also result in a great deal of speculation and insider trading in the absence of a well regulated market. Hostile takeover bids will threaten the existence of small firms without the existence of a strong defence mechanism.
RBI clarifies that managements of well run corporates should not be destabilised by frequent predatory threats and therefore, a proper defence mechanism should be developed to thwart hostile takeover bids while making such companies truly competitive.
Regulatory authorities on their part should curb insider trading and excessive speculative activities relating to mergers and acquisitions, it concludes.
