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Legal Issues and Take Over Code
Legal Issues and Take Over Code
Presentation by
Mohit Saraf Partner Luthra & Luthra Law Offices
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Agenda
Overview of Takeover Regulations Salient Definitions Types of Takeovers Required Disclosures Takeover code Trigger Exempted Categories Takeover at a Global Level Takeover and Disinvestment Advantages
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Takeover can be of a listed or an Unlisted company In case of Takeover of an Unlisted and closely held company Companies Act, 1956 to apply. In case of Takeover of a listed company, the following legal framework to apply:
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SEBI Regulations for the first time introduced in 1994, but found inadequate to control hostile takeovers or regulate competitive offers and revision of offers.
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Bombay Dyeing did not follow up with a revised bid as it felt that the revised price of Rs. 132 was too high.
AEC scrip flared up from Rs. 70 to a high of Rs. 170 in just a couple of months.
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Bhagwati Committee appointed under the chairmanship of Justice P N Bhagwati for plugging loopholes. On the basis of recommendations suggested SEBI notified 1997 regulations.
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Salient Definitions
Acquirer has been defined as any person who directly or indirectly acquires or agrees to acquire:
shares or the voting rights in the target company; or control over the target company
either by himself or with any person acting in concert with the acquirer
Target Company means a listed company whose shares or voting rights or control is directly or indirectly acquired.
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Example: Bajoria Bombay Dying Tussle. PAC in case of Bajoria: Mega Resources, Mega Stock, Hooghly Mills, Ms Pooja Bajoria, Ms Mohini Devi Bajoria, Ms Lata Devi Bajoria and Ms Meenakshi Jatia
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Reliance
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Friendly takeover
Management of a company may face serious financial problems or threats of hostile takeover Unable to ward off the takeover attempt. A friendly corporate body or group of companies may come to the rescue by buying shares of the company in the open market and/or by pumping resources to help the management.
Example:
Sterlite Industries Limited (SIL) Indian Aluminum Company Limited (Indal).
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Open offer for acquiring a minimum of 20% of the shares of the Target Company
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Exempted Categories
The public offer provisions of the Takeover Code will not be apply in the following cases:
Allotment in pursuance of an application made to a public issue; Allotment pursuant to an application made by the shareholder for rights issue, subject to such rights issue not resulting in change in control and management of the company; Sick company;
Preferential allotment of shares, subject to the condition that at least 75% of the shareholders of the company shall have approved the preferential allotment and that sufficient disclosures relating to the post-allotment shareholding pattern, offer price etc., have been made to the shareholders;
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Last three years: With respect to transactions taking place outside India (Global Level arrangements), quite a few cases have been decided with regard to global-level developments.
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Examples:
Schenectady International Inc.
Schenectady International Inc. of USA (the "acquirer"), the acquirer filed an application with SEBI seeking exemption from the application of public offer provisions of the Takeover Code for its acquisition of 51% of the equity capital of Dr. Beck & Co. (India) Limited (the "target").
The Takeover Panel rejected the above application and accordingly SEBI ordered the acquirer to make open offer for 20% to the public.
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sunglasses business of Bausch & Lomb (B&L), USA, for $640 million.
Castrol India Limited (CIL) and Foseco (India) Limited (Target Companies) are indirect subsidiaries of B>C
(FIL)
B.C indirectly has a 51% holding of shares in CIL and a 58% holding of shares in FIL. Acquirer made an application to SEBI to seek an exemption from making a public offer of 20% in respect of shares of Target Companies.
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prohibition, during the offer period, on the acquirer or PAC to be appointed on the board of directors of the target company;
Agreement for sale of shares, which entitles the acquirer 15% or more of the share capital or voting rights of a PSU along with his existing shareholding, shall contain a clause to the effect that in case of non-compliance of any provisions of the Takeover Code, the agreement for such sale shall not be acted upon by the seller and the acquirer.
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Advantages
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Advantages (Contd)
The share price automatically climbs. This climb in share prices has already occurred in Bombay Dyeing, GE Shipping, and East India Hotels, for instance.
The rising share price gives minority shareholders an exit option at higher prices as well, as an option of siding with potentially better management in the event of an actual takeover bid.
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