T A K E O V E R CO D E

21st October, 2011

SEBI has notified on September 30, 2011, the much awaited New Takeover Regulations namely SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as SEBI (SAST) Regulations, 2011) which will replace the existing Takeover (SAST) Regulations, 1997. The new Regulations shall come into force on the 30th day from the date of their publication in the Official Gazette i.e. w.e.f. October 22, 2011, any acquisition or sale of shares of Listed Company shall be governed by provisions of SEBI (SAST) Regulations, 2011.

There are three major changes in the takeover code which are different from the earlier takeover code. These changes are as follows: 1) Increase in Initial Threshold Limit from 15% to 25%. The Initial Threshold limit provided for Open Offer obligations is increased from 15% to 25% of the voting rights of the Target Company.

2) Increase in Offer Size from 20% to 26%. The increase in open offer increased from 20% to 26%.

3) Abolition of Non-compete fees. The scrapping the non-compete fee or control premium. Any amount paid to the Promoters/Sellers whether as consideration, non-compete fee or control premium or otherwise, shall be added in Offer Price and hence public shareholders shall be given offer at the highest of such prices.

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IMPACT OF OPEN OFFER TRIGGER THRESHOLD INCREASED TO 25% NEEDS TO BE EXAMINED IN THE HANDS OF EACH SHAREHOLDER VIZ INVESTOR, INVESTEE COMPANY, PROMOTERS AND PUBLIC SHAREHOLDERS.

INVESTORS:-

The increase in the initial threshold limit will provide greater flexibility for financial and strategic investors as they can move close to the striking distance of negative control without making an open offer and with lower cash outflow. The amendment will particularly benefit private equity investors, as they will have more headroom for deals of larger size both in absolute and percentile terms.

INVESTEE COMPANY:- A higher threshold limit for open offer should also ease the
fund-raising process for the investee company.

PROMOTER:- From a promoters perspective, the amendment would open an

opportunity of teaming with the substantial public shareholder in an event of hostile takeover. The ability to dilute higher shareholding without triggering the open offer will increase liquidity for promoters.

PUBLIC SHAREHOLDERS:- Rise in threshold limit for open offer and concentration of shareholding with a substantial non-promoter shareholder would mean a longer waiting period to public shareholder for exit. Further, the concentration of holding in a few hands will reduce public float and liquidity in the market.

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ANALYSIS OF TAKEOVER CODE:After the code become effective, promoters will have to stay alert as Private equity and other strategic investors may increase their stake without making an open offer. Domestic promoters have to raise their stake to avoid the threat of acquisition. Many investors like LIC, Mutual funds wants to increase their stake beyond 15% but were unable to increase because of open offer, now they can increase their stock upto 25% without making an open offer.

PROMOTER AND INSURANCE (LIC) HOLDING IN DERIVATIVE STOCKS Company

ABB Ltd/India Aditya Birla Nuvo Ltd ACC Ltd Ambuja Cements Ltd Ashok Leyland Ltd Allahabad Bank Andhra Bank Axis Bank Ltd BEML Ltd Bharat Forge Ltd Bank of India Cipla Ltd/India

Promoter LIC Holding Holding

75 51.05 50.3 50.36 38.61 58 58 37.21 54.03 42.06 65.86 36.8 9.5 8.17 11.41 9.23 10 8.11 9.07 9.53 9.78 8.69 9.32 11.97

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Hindalco Industries Ltd Hindustan Petroleum Corp Ltd IDBI Bank Ltd Infrastructure Development Finance Co Ltd Indian Hotels Co Ltd 3i Infotech Ltd Indian Overseas Bank ITC Ltd Cummins India Ltd Larsen & Toubro Ltd Mahindra & Mahindra Ltd Maruti Suzuki India Ltd Mahanagar Telephone Nigam Oriental Bank of Commerce PTC India Ltd Reliance Infrastructure Ltd Raymond Ltd Shipping Corp of India Ltd Syndicate Bank Tata Steel Ltd

32.06 51.11 65.13 0 33.58 20.33 65.87 0 51 0 24.86 54.21 56.25 58 16.27 48.09 39.1 63.75 69.47 30.61

9.41 11.43 10.5 9.23 12.55 9.9 9.78 12.66 8.65 19.15 13.2 10.01 18.81 11.45 15.21 9.74 9.59 14.13 10.43 14.41

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Tata Communications Ltd Tech Mahindra Ltd Tata Global Beverages Ltd Tata Power Co Ltd Tata Chemicals Ltd Tata Motors Ltd UCO Bank Voltas Ltd

76.15 70.98 35.24 31.81 31.08 34.84 68.13 30.55

8.75 12.98 15.56 12.97 8.3 8.11 7.93 12.85

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RESEARCH TEAM
CA Kaushal Jaini Kaushal.jaini@danisecurities.com CFA Pinky Chandnani pinky.chandnani@danisecurities.com Devashish Srivastava devashish.shrivastav@danisecurities.com

Disclaimer: This report is distributed for information purpose only. The information in this report does not constitute an offer to sell or solicitation of an offer to buy any of the securities mentioned in the report. The readers may note that neither Dani Shares & Stocks Pvt. Ltd (DSSPL) nor its analysts or employees take any responsibility, financial or otherwise, due to any transaction undertaken or any action based on the information contained herein. DSSPL reserves the right to make modifications and alterations to this statement as may be required from time to time.

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