Role of banks as independant adviser in takeovers and mergers in Pakistan

Abstract

Takeovers and mergers are the strategies persuasive to change the competitive structure of a market radically. In Pakistan, takeover and merger activity is still in its primitive stage, due to the various regulatory and transactional constraints. Comprehensive amendments are required in Pakistan’s corporate laws, especially the laws governing takeovers and mergers, to bring them on par with laws of developed countries. The research suggests to include provisions in Pakistan’s corporate laws to ensure that the shareholders shall be given sufficient information and expert advice to enable them to reach an informed decision regarding a takeover or merger offer. This research analyses the role of independent advisers to the companies involved in takeovers and mergers, to provide their shareholders with expert advice on the merits of the offer. Unlike developed countries, in Pakistan, the role of the independent adviser is entirely neglected. Companies involved in takeovers and mergers are not under any regulatory duty to appoint an adviser to give independent expert advice to its shareholders. In this study, Malaysia’s laws governing takeovers and mergers are selected as a benchmark to compare with the corporate laws of Pakistan due to the various similarities between the two jurisdictions, namely: market structure, concentrated shareholding pattern etc. Malaysia’s corporate laws offer provisions to endorse the role of investment banks as independent advisers in corporate restructuring, including takeovers and mergers. Whereas, in Pakistan, the corporate laws are silent as to the role of the investment banks as an adviser in takeover and merger transactions; neither restricting nor encouraging their participation. It is high time that Pakistan’s corporate laws introduce the role of the independent advisers on takeovers and mergers, with an emphasis on the investment banks. The research suggests that in takeovers and mergers, the Islamic banks having adequate expertise of scholars can play an instrumental role as independent adviser to ensure that the transaction shall remain Shariah-compliant and shall serve to further Maqasid al-Shariah. Results of this study contribute to understanding the current mechanism of takeovers and mergers in Pakistan, laws and regulations governing takeovers and mergers activity, the prospective role of independent advisers in such transactions with an emphasis on investment banks, and reforms required in corporate laws for more conducive takeovers and mergers. It is the very first study on the role of independent advisers in takeovers and mergers in Pakistan.