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A PROJECT WORK IN CORPORATE LAWS

SEBI TAKEOVER CODE


_______________________________________


A Project Work Submitted as a partial fulfillment under Executive
Development Programme



Submitted By:
Abhishek Jain
Reg. No. 420693991/08/2009


Submitted on: May,12 ,2014

INSTITUE OF COMPANY SECRETARIES
OF INDIA
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 2

Table of Contents

S. No. Particulars Page Nos.
1. Introduction 3
2. Research Methodology 5
3. Meaning and Kinds of Takeover 7
4. Necessity of Takeover Code 9
5. New Takeover Code Comparison and Analysis 12
6. International Application 32
7. Open Offers made under SEBI (SAST) Regulations, 2011 37
8. Case Study 41
9. Conclusion 45
10. List of References 49






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INTRODUCTION
The concept of takeover emerged in late 19th century in some countries like US, UK etc.
when the first wave of mergers and acquisitions started. However, in India it was only in 20th
century that the concept of takeover took birth but even then the concept of hostile takeovers
was not known to anybody. This concept emerged when Swaraj Paul started efforts to
takeover Escorts Ltd. and DCM Ltd. He was the first hostile raider among the raiders of
Indian stock market. Although Paul could not succeed in his efforts because the incumbents
fend him off by using the technicalities of rules governing non-residents but this created a
need for a takeover code.
This need was further accentuated in 1990s when the government initiated the policy of
liberalization and globalization which resulted in growth of Indian economy at an increased
pace, and it created a highly competitive business environment, which motivated many
companies to restructure their corporate strategies by including the tools of mergers and
takeovers.
In the meantime, SEBI was established in 1992 as a body corporate under the SEBI Act, 1992
with the main objectives to,
i) protect the interest of investors in securities market, and
ii) to provide for the orderly development of securities market.
Thus while the possibility of takeover of a company through share acquisition is desirable in
new competitive business environment for achieving strategic corporate objectives, there has
to be well defined regulation so that the interest of all concerned are not jeopardized by
sudden takeover threats.
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In the light of the then present circumstances, the need for some law to regulate takeover was
strongly felt. Moreover to achieve its objectives as stated in SEBI Act, 1992, SEBI enacted
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994 in exercise of
powers conferred under section 30 of the Act which laid down a procedure to be followed by
an acquirer for acquiring majority shares or controlling in another company, so that process
of takeover is carried out in a fair and transparent manner.
Thereafter, these regulations have been amended a number of times to address the changing
circumstances and needs of corporate sector. In 1997 SEBI Takeover Code has been
rechristened by enacting SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1997 substituting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.
In September 2009, the Takeover Regulations Advisory Committee (TRAC) under the
chairmanship of Mr. C Achuthan was constituted by SEBI with the mandate to examine and
review the SEBI (SAST) Regulations, 1997 and to suggest suitable amendments, as deemed
fit. Thereafter in June 2010, the Committee came out with the TRAC Report proposing some
sweeping changes on critical issues, including the open offer triggering event, offer size,
indirect acquisitions, exemptions from open offer obligations, offer price calculations and
competing offers which was then open for public comments. After considering the public
comments and further to discussion, the report has been modified to the present form i.e.
SEBI (SAST) Regulations, 2011 substituting the SEBI (SAST) Regulations, 1997.





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RESEARCH METHODOLOGY
Area: Corporate Laws
Topic: SEBI Takeover Code
Purpose: As partial fulfilment of Executive Development Programme.
Objectives: The following are the underlying objectives of this study:
1. To study about the concept of Takeover.
2. To understand various elements and necessity of Takeover.
3. To analyse the new Takeover Code i.e. SEBI (SAST) Regulations, 2011.
4. To identify the international application of the Takeover mechanism.
5. To Study various Open Offers made under SEBI (SAST) Regulations, 2011
Data- The data was completely secondary in nature due to the analytical nature of the project
and limitations of researcher of conducting a primary study.
Approach: The secondary data has been analysed deductively so as to meet the requirements
of the study.
Research Tools: The research tools for the secondary data included soft as well as hard
materials. The soft material includes various websites, online journals, online books etc.,
whereas the hard material refers to the study of various books, newspapers, journals etc. The
important point to note is that the above mentioned materials have just been referred for a
basic theoretical understanding developed over the time and the study has been made
specifically first hand.
Chapterisation: For facilitating lucidity and for presenting the study in an organized form,
the information has been presented in different chapters as per the requirements.
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1. The first chapter contains a general introduction about the topic including its
evolution through time and its present standing.
2. The second chapter consists of research methodology.
3. The third chapter deals with the meaning and kinds of the takeover.
4. The fourth chapter elaborates the necessity of the Takeover in todays corporate
world.
5. The fifth chapter consists of the comparison and analysis of the New Takeover Code
i.e. SEBI (SAST) Regulations, 2011.
6. The sixth chapter deals with the International Application of the concept of Takeover.
7. The seventh chapter studies various Open Offers made under SEBI (SAST)
Regulations, 2011
8. The eighth chapter deals with the case study of Kamat Hotels (India) limited
9. The ninth chapter examines the practicability of the New Takeover Code.













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MEANING AND KINDS OF TAKEOVER
Meaning of Takeover:
Takeover implies acquisition of control of a company which is already registered through the
purchase or exchange of shares. Takeover takes place usually by acquisition or purchase from
the shareholders of a company their shares at a specified price to the extent of atleast
controlling interest in order to gain control of the company.
Thus, when an acquirer takes over the control of the Target Company, it is termed as
Takeover. When an acquirer acquires substantial quantity of shares or voting rights of the
Target Company, it results into substantial acquisition of shares.
Kinds of Takeover:

I. Legal Context :- From legal perspective, takeover is of two types:
a. Friendly or Negotiated Takeover: Friendly takeover means takeover of one
company by change in its management & control through negotiations between the
existing promoters and prospective investor in a friendly manner. Thus it is also
called Negotiated Takeover. This kind of takeover is resorted to further some
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common objectives of both the parties. Generally, friendly takeover takes place as
per the provisions of Section 395 of the Companies Act, 1956.
b. Hostile Takeover: Hostile takeover is a takeover where one company unilaterally
pursues the acquisition of shares of another company without being into the
knowledge of that other company. The most dominant purpose which has forced
most of the companies to resort to this kind of takeover is increase in market share.
The hostile takeover takes place as per the provisions of SEBI (Substantial
Acquisition of Shares and Takeover) Regulations, 2011.
II. Business Context: In the context of business, takeover is of three types:
a. Horizontal Takeover: Takeover of one company by another company in the same
industry. The main purpose behind this kind of takeover is achieving the
economies of scale or increasing the market share. E.g. takeover of Henkel by
Jyothy Laboratories, Patni Computers by iGate.
b. Vertical takeover: Takeover by one company of its suppliers or customers. The
former is known as backward integration and latter is known as Forward
integration. E.g. takeover of Sona Steerings Ltd. by Maruti Udyog Ltd.
c. Conglomerate takeover: Takeover of one company by another company
operating in totally different industries. The main purpose of this kind of takeover
is diversification.






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NECESSITY OF TAKEOVER CODE
The twentieth century began with the process of transformation of entire business scenario.
The economy of India which was hitherto controlled and regulated by the Government was
set free to seize new opportunities available in the world. With the announcement of the
policy of globalization, the doors of Indian economy were opened for the overseas investors.
But to compete at the world platform, the scale of business was needed to be increased. In
this changed scenario, mergers and acquisitions were the best option available for the
corporates considering the time factor involved in capturing the opportunities made available
by the globalization.
This new weapon in the armoury of corporates though proved to be beneficial but soon the
predators with huge disposable wealth started exploiting this opportunity to the prejudice of
retail investor. This created a need for some regulation to protect the interest of investors so
that the process of takeover and mergers is used to develop the securities market and not to
sabotage it. In the year 1992, with the enactment of SEBI Act, SEBI was established as
regulatory body to promote the development of securities market and protect the interest of
investors in securities market. Further it got the power to make regulations for the above
objectives. Thus SEBI appointed a committee headed by P.N. Bhagwati to study the effect of
takeovers and mergers on securities market and suggest the provisions to regulate takeovers
and mergers.
In its report, the committee stated the necessity of a Takeover Code on the following grounds:
The confidence of retail investors in the capital market is a crucial factor for its
development. Therefore, their interest needs to be protected.
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An exit opportunity shall be given to the investors if they do not want to continue with
the new management.
Full and truthful disclosure shall be made of all material information relating to the
open offer so as to take an informed decision.
The acquirer shall ensure the sufficiency of financial resources for the payment of
acquisition price to the investors.
The process of acquisition and mergers shall be completed in a time bound manner.
Disclosures shall be made of all material transactions at earliest opportunity.
Thereafter, these regulations have been amended a number of times to address the changing
circumstances and needs of corporate sector. In 1994 SEBI came out with SEBI (Substantial
Acquisition of Shares and Takeover) Regulations, 1994. Later SEBI Takeover Code has been
rechristened by enacting SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1997 substituting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.
Thereafter, in September 2009, the Takeover Regulations Advisory Committee (TRAC)
under the chairmanship of Mr. C Achuthan was constituted by SEBI with the mandate to
examine and review the SEBI Takeover Regulations of 1997 and to suggest suitable
amendments, as deemed fit. Later in June 2010, the Committee came out with the TRAC
Report proposing some sweeping changes on critical issues, including the open offer trigger,
offer size, indirect acquisitions, exemptions from open offer obligations, offer price
calculations and competing offers which was then open for public comments.
The fundamental objectives of the Proposed Takeover Regulations were:-
a. To provide a transparent legal framework for facilitating takeover activities;
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b. To protect the interests of investors in securities and the securities market, taking into
account that both the acquirer and the other shareholders or investors and need a fair,
equitable and transparent framework to protect their interests;
c. To balance the conflicting objectives and interests of various stakeholders in the
context of substantial acquisition of shares in, and takeovers of, listed companies.
d. To provide each shareholder an opportunity to exit his investment in the target
company when a substantial acquisition of shares in or takeover of a target company
takes place.
e. To provide acquirers with a transparent legal framework to acquire shares in or
control of the target company and to make an open offer;
f. To ensure that the affairs of the target company are conducted in the ordinary course
when a target company is subject matter of an open offer;
g. To ensure that fair and accurate disclosure of all material information is made by
persons responsible for making them to various stakeholders to enable them to take
informed decisions;
h. To regulate and provide for fair and effective competition among acquirers desirous
of taking over the same target company; and
i. To ensure that only those acquirers who are capable of actually fulfilling their
obligations under the Takeover Regulations make open offers.
After considering the public comments and further to discussion, the report has been
modified to the present form i.e. SEBI (SAST) Regulations, 2011 substituting the SEBI
(SAST) Regulations, 1997.


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NEW TAKEOVER CODE COMPARISION AND ANALYSIS
Vide Notification dated September 23, 2011, Market watchdog SEBI has notified 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.
Comparison of the New Takeover Code with the Old Takeover Code
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. Since SEBI (SAST) Regulations, 2011 will be
applicable from October 22, 2011, thus its a last opportunity for all the Promoters
holding less than 25% but more than 20% to come within bracket of Creeping
Acquisition. Otherwise even the existing Promoters of these Companies have to give
offer to consolidate their holding.
2) Creeping Acquisition Limit raised from 15%-55% to 25%-75%: Now there will a
single and clear creeping acquisition bracket. This will be available to all persons
holding 25% or more but up to 75% i.e. maximum permissible non-public holding
shall be eligible for creeping acquisition of 5% each financial year.
3) Open Offer Trigger Point based on Individual Holding: Now the Individual
Acquirer Shareholding shall also be considered for determining the Open Offer
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Trigger Points apart from consolidated promoter shareholding. (Regulation 3(3) of
SEBI (SAST) Regulations, 2011).
4) Increase in Offer Size from 20% to 26%: The Offer Size is increased only up to
26% instead of TRAC Recommendation of 100%. Its a good move from the point of
view of domestic acquirers on account of lack of proper bank funding options
available in India.
5) New Provisions in case of increase in shareholding beyond the maximum
permissible non-public shareholding due to Open Offer:
Obligation on the acquirer to bring down the non-public shareholding to the level
specified and within the time permitted under Securities Contract (Regulation)
Rules, 1957;
Ineligibility to make a voluntary delisting offer under SEBI (Delisting of Equity
Shares) Regulations, 2009, unless a period of twelve months has elapsed from the
date of the completion of the offer period.
6) Abolition of Non-compete fees: SEBI has accepted the TRAC Recommendation of
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.
7) Definition of Control modified: A new definition of Control has been introduced
in the new Regulation which is similar to recommendation of TRAC Report with an
exception that the word Ability has been removed. The definition is as under:
Control includes the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting
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individually or in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in any other manner:
Provided that a director or officer of a target company shall not be considered to
be in control over such target company, merely by virtue of holding such position
8) Change in Control: Any change in control of the listed company shall be only after
Open Offer. The exemption from Open Offer available in case of change in control
without acquisition of substantial shares, through a special resolution by postal ballot
process, has been withdrawn and now the only route available for change in
management and control is through the Open Offer to the shareholders of the Target
Company. This is in contrast with the Regulation 12 of the SEBI (SAST) Regulations,
1997 which provides for the change in control through the special resolution passed
by way of postal ballot.
9) No Exemption in case of acquisition from other competing acquirer in the New
Takeover Code.
10) Frequently Traded Shares: For determining the frequency of trading in shares, the
trading turnover during the 12 months preceding the month in which the Public
Announcement is made will be considered. Further, the volume of trading for
frequently traded company increase from 5% to 10% to have a more realistic picture.
11) New Definitions Introduced:
Enterprise Value means the value calculated as market capitalization of a
company plus debt, minority interest and preferred shares, minus total cash and cash
equivalents.
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Volume weighted average market price means the product of the number of
equity shares traded on a stock exchange and the price of each equity share divided by
the total number of equity shares traded on the stock exchange.
Volume weighted average price means the product of the number of equity shares
bought and price of each such equity share divided by the total number of equity
shares bought.
Weighted average number of total shares means the number of shares at the
beginning of a period, adjusted for shares cancelled, bought back or issued during the
aforesaid period, multiplied by a time-weighing factor.
12) New Formats Introduced for PA, LOO, and Disclosures, Exemptions,
Recommendation on the Open Offer by the Board of Directors and so on.
13) Detailed provisions for Voluntary Open Offer: The concept of voluntary open offer
has been separately dealt in the SEBI (SAST) Regulations, 2011.

In case of voluntary open offer, the offer size may be of 10% or more of the voting
rights at the will of the Acquirer.
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14) Detailed provisions relating to Indirect Acquisition: The New Regulations
prescribes detailed provisions relating to Indirect Acquisitions which is a welcome
move as there was quite confusion. The New Regulations define the situations which
will be deemed as Indirect Acquisition.
15) Recommendation on the Open Offer by the Board of Target Company:
A recommendation on the offer by the Board of Target Company has been made
mandatory and such recommendations shall be published at least two working days
before the commencement of the tendering period in the same newspapers where the
public announcement of the open offer was published, and simultaneously, a copy of
the same shall be sent to SEBI, Stock Exchange and Manager to the Offer.
16) Revision in SEBI fees to be given while submitting the draft letter of offer.
17) Provisions relating to Exemption from Open Offer have been modified.
18) Other Consequential Amendments: Simultaneously with the amendment in SEBI
(SAST) Regulations, 2011, the format of disclosure of shareholding as provided under
Clause 35 of the Listing Agreement in respect of following has been replaced
Statement showing holding of securities (including shares, warrants, convertible
securities) of persons belonging to the category Promoter and Promoter Group, :
Statement showing holding of securities (including shares, warrants, convertible
securities) of persons belonging to the category Public and holding more than 1% of
the total number of shares;
Statement showing holding of securities (including shares, warrants, convertible
securities) of persons (together with PAC) belonging to the category Public and
holding more than 5% of the total number of shares of the company.

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Analysis of SEBI (SAST) Regulations, 2011
Triggers for making an open offer
1. Any acquisition of shares or voting rights in the target company by the acquirer and
PAC which entitle them to exercise in aggregate 25% or more voting rights.
2. Any acquisition of shares or voting rights exceeding permissible creeping limit (5%)
in a financial year. This situation arises in cases where the acquirer and PAC have
acquired and holds shares or voting rights in the target company which entitles them
to exercise 25% or more but less than maximum permissible non-public shareholding
and further acquires more than 5% shares or voting rights in a financial year.
3. Acquisition of shares by any person such that the individual shareholding of such
person acquiring shares exceeds stipulated thresholds irrespective of whether there is
a change in the aggregate shareholding with the PAC.
4. An indirect acquisition of shares or voting rights requiring an open offer would be
considered as direct acquisition, for pricing, timing of open offer and other
compliances / requirements of open offer, where the proportionate net assets or sales
turnover or market capitalization of the target company as a percentage of the
consolidated net asset or sales turnover or the enterprise value for the entity or
business being acquired is in excess of 80% on the basis of the most recent audited
annual financial statements (Deemed Direct Acquisition).
5. Any revision in voluntary offer size made by the acquirer within 15 working days
from the PA of the competing offer.

Acquisition of control
Any direct or indirect acquisition of control of Target Company by an acquirer irrespective of
acquisition or holding of shares or voting rights. Indirect acquisition of shares or control
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Acquisition of shares or voting rights in, or control over, any company or other entity, that
would enable any person and PAC to exercise or direct the exercise of such percentage of
voting rights in, or control over a target company, the acquisition of which would otherwise
trigger open offer obligation, shall be considered as an indirect acquisition of shares or voting
rights in, or control over the target company necessitating an open offer.

Voluntary offer
An acquirer, who together with PAC, holds shares or voting rights in a target company
entitling them to exercise 25% or more but less than the maximum permissible non-public
shareholding, shall be entitled to voluntarily make a PA of an open offer for acquiring shares.
A voluntary offer is subject to certain conditions which includes the following:
a. Minimum offer size is 10% of the total shares of the target company;
b. The aggregate shareholding of the acquirer and PAC after completion of the open
offer cannot exceed the maximum permissible non-public shareholding;
c. Voluntary offer cannot be made where an acquirer or PAC has acquired shares of the
target company in the preceding 52 weeks without attracting the obligation to make
an open offer;
d. During voluntary offer period such acquirer shall not be entitled to acquire any shares
otherwise than under the open offer;
e. An acquirer and PAC who have made a voluntary offer shall not be entitled to acquire
any shares of the target company for a period of 6 months after completion of the
open offer except pursuant to another voluntary open offer or making a competing
offer upon any other person making an open offer or bonus issue or stock splits.


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Minimum open offer size
Trigger for Open Offer Minimum Open Offer Size Other Conditions/Observations
Direct acquisition of
shares or voting rights or
control over the target
company
Indirect acquisition

26% of the total shares of
the target company as of
10th working day from the
closure of the tendering
period.

Where post open offer
shareholding of acquirer and PAC
is in excess of the maximum
permissible non public
shareholding:
it must be reduced within
1 year;
it shall not be eligible to make a
voluntary delisting offer under
SEBI Delisting Regulations for 12
months from the date of the
completion of the offer period.
Voluntary open offer 10% of the total shares of
the target company. The
post acquisition holding in
such cases shall not exceed
the maximum permissible
non-public shareholding.


Any open offer shall be made to all shareholders of the target company, other than the
acquirer, PAC and the parties to any underlying agreement including persons deemed to be
PAC with such parties, for the sale of shares of the target company.

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Minimum open offer price shall be the highest of the following:
In cases of direct and deemed direct
acquisition of shares or voting rights or
control over the target company
In case of an indirect acquisition of
shares, voting rights or control over the
target company
Highest negotiated price per share of the
target company under the agreement that
attracted the open offer.
Highest negotiated price per share, if any of
the target company, under the agreement
attracting open offer.
Volume-weighted average price paid or
payable for acquisitions by the acquirer or
PAC during 52 weeks preceding the date of
PA.

Volume-weighted average price paid or
payable for any acquisition by the acquirer
or PAC during preceding 52 weeks
immediately preceding the earlier of:
the date on which the primary acquisition
is contracted, and
date on which intention or decision to
make primary acquisition is announced in
public domain.
Highest price paid or payable for any
acquisition by the acquirer or PAC during
26 weeks preceding the date of PA

Highest price paid or payable by the acquirer
or PAC for any acquisition during 26 weeks
preceding the earlier of:
date on which the primary acquisition is
contracted, and
date on which intention or decision to
make primary acquisition is announced in
public domain.
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Where shares are frequently traded - volume
weighted average market price of the target
company during 60 trading days
immediately preceding the date of PA

Where shares are frequently traded - volume
weighted average market price during 60
trading days immediately preceding the
earlier of:
the date on which the primary acquisition
is contracted, and
date on which intention or decision to
make primary acquisition is announced in
public domain.
Where shares are infrequently traded - the
price determined by the acquirer and
manager to open offer taking into account
valuation parameters, including, book value,
comparable trading multiples and such
other parameters as are customary for
valuation of shares of such companies.

Where minimum offer price cannot be
computed as per any of the parameters, it
shall be fair price determined by acquirer
and manager to the open offer taking into
account valuation parameters including,
book value, comparable trading multiples,
and such other parameters as are customary
for valuation of shares of such companies.
In case of Deemed Direct Acquisition where
net assets value or sales turnover or market
capitalization of the target company is more
than 15% of consolidated net asset or sales
turnover or the enterprise value of the entity
or business being acquired as per latest
audited annual financial statements, the per
share value of the target company computed
Where net assets value or sales turnover or
market capitalization of the target company
is more than 15% of consolidated net asset
or sales turnover or the enterprise value of
the entity or business being acquired as per
latest audited annual financial statements,
the per share value of the target company
computed by the acquirer.
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by the acquirer.


Highest price paid or payable for any
acquisition by the acquirer or PAC during
the earlier of:
date on which the primary acquisition is
contracted;
date on which intention or decision to
make primary acquisition is announced in
public domain;
date of PA under SAST 2011.

Other parameters for determining offer price:
1. Where acquirer or PAC has any outstanding convertible instruments convertible into
shares of the target company at a specific price, the price at which such instruments
are to be converted shall be considered.
2. Where acquirer or PAC has acquired any shares of the target company during the
period of 26 weeks after the tendering period at a price higher than the offer price
paid, the acquirer and PAC shall pay the difference between the highest acquisition
price and offer price, to all the shareholders whose shares were accepted in the open
offer, within 60 days from the date of such acquisition except where acquisitions are
pursuant to SEBI Delisting Regulations or open market purchases made in the
ordinary course on the stock exchanges which are not negotiated deals or bulk deals
or block deals or in any other form.
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3. Minimum price shall include any price paid or payable in any form or manner and
includes:
a) control premium, if any;
b) non-compete fees or otherwise
4. Adjustment to minimum open offer price in following cases:
a) If during the offer period acquirer directly or through PAC agrees or acquires any
shares or voting rights in the target company in any manner at a price higher than
the minimum offer price, the minimum offer price shall stand revised to such
higher price.
b) Where the open offer is subject to minimum level of acceptances and the open
offer does not receive the minimum acceptance, the acquirer may indicate lower
price for acquiring all the acceptances.
c) For corporate actions like rights issue / bonus issue/ stock splits / dividend / de-
mergers / reduction of capital etc. where the record date for effecting the same falls
3 business days prior to the commencement of the tendering period.
5. In case of an indirect acquisition, the minimum offer price would stand increased by
10% p.a. for the period earlier of the date on which primary transaction is contracted,
or date on which the intention / decision to make primary acquisition is announced in
public domain, and the date of detailed public statement, provided such period is more
than 5 working days.

General exemptions from making an Open Offer
Illustrative list of acquisition which are exempted from making an open offer requirement
(subject to conditions) are as under:
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1. Acquisition pursuant to inter-se transfer of shares among qualifying persons. Such
transactions are to be intimated to the stock exchange 4 working days in advance. List
of qualifying persons include:
a) Immediate relatives;
b) Persons named as promoters in the shareholding pattern filed by the target
company for not less than 3 years;
c) Persons acting in concert for not less than 3 years and disclosed to stock
exchange;
d) Specified ensemble of persons etc.
2. Acquisition in the ordinary course of business in specified cases like scheduled
commercial bank acting as an escrow agent or invocation of pledge by scheduled
commercial bank or public financial institution as a pledgee etc.
3. Acquisition at subsequent stages by an acquirer pursuant to an agreement of
disinvestment.
4. Acquisition pursuant to a scheme
a) Made under section 18 of SICA;
b) Of arrangement involving target company or reconstruction of the target company
including amalgamation, merger, de-merger pursuant to an order of court or an
authority whether Indian or foreign;
c) Of arrangement not directly involving target company or reconstruction not
involving target companys undertaking including amalgamation, merger, de-
merger pursuant to an order of court or an authority whether Indian or foreign.
This exemption is subject to the following specific conditions viz:
i. Cash and cash equivalent paid is less than 25% of the consideration paid; and
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 25

ii. After the implementation of the scheme, the persons holding minimum 33% of
the voting rights in the combined entity are the same persons who held the entire
voting rights before the implementation of the scheme.
5. Acquisition pursuant to SARFAESI Act.
6. Acquisition pursuant to SEBI Delisting Regulations.
7. Acquisition by way of transmission, succession or inheritance.
8. Acquisition of voting rights or preference shares carrying voting rights arising out of
operation of section 87 (2) of the Companies Act.
9. Acquisition of shares of a target company not involving a change in control pursuant
to scheme of CDR notified by RBI subject to such scheme being authorized by the
shareholders of the target company by postal ballot.
10. An increase in voting rights in a target company pursuant to buy-back of shares which
necessitate making an open offer shall be exempt provided such shareholder reduces
his shareholding so that the voting rights fall below the threshold within 90 days from
the date on which the voting rights so increase.
11. Acquisition of rights shares or voting rights in the target company in excess of
creeping limit (5%):
a) upto ones entitlement;
b) beyond ones entitlement if the following conditions are fulfilled viz;
i. the acquirer has not renounced any of his entitlements in such rights issue; and
ii. the price at which the rights issue is made is not higher than the ex-rights price
of the shares of the target company computed in a specified manner
12. Increase in voting rights in a target company of any shareholder in excess of the
creeping limit (5%) pursuant to buy-back of shares subject to conditions that:
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 26

a) such shareholders have not voted in favour of buy back resolution which is to be
passed through postal ballot mechanism; or
b) such shareholder in capacity as a director or any other interested director has not
voted in favour of buy back at the board meeting of the target company where
buy back is through board approval route; and
c) the increase in voting rights does not result in an acquisition of control by such
shareholder over the target company.
If the above conditions are not met and such shareholders reduce the increase in
shareholding within 90 days to the creeping acquisition limit, open offer obligations
will not be attracted.
13. Acquisition of shares in a target company from a venture capital fund or a foreign
venture capital investor registered with SEBI, by promoters of the target company
pursuant to an agreement between such venture capital fund or foreign venture capital
investor and such promoters.
14. SEBI may grant an exemption from the obligation to make an open offer for acquiring
shares subject to such conditions as it deems fit.

Open Offer Process
The open offer process is broadly divided into following sequential stages:
1. Public Announcement (PA) for an open offer for acquiring shares of the target
company shall be made by the acquirer through the SEBI registered merchant banker
to be appointed as the manager to the open offer in a specified manner. PA is to be
sent to all stock exchanges where shares of the target company are listed for
dissemination to the public.
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 27

2. The Public Announcement shall be sent to all the stock exchanges on which the shares
of the target company are listed. Further, a copy of the same shall also be sent to the
Board and to the target company at its registered office within one working day of the
date of the public announcement. The time within which the Public Announcement is
required to be made to the Stock Exchanges under different circumstances is tabulated
below:
Applicable
Regulations
Particulars Time of making PA
13(1)

Agreement to Acquirer Shares or
Voting Rights or Control Over The
Target Company
On the same day of entering into agreement
to acquire share, voting rights or control
over the Target Company.
13(2)(a)

Market Purchase of shares

Prior to the placement of purchase order
with the stock broker.
13(2)(b)

Acquisition pursuant to conversion
of Convertible Securities without a
fixed date of conversion or upon
conversion of depository receipts
for the underlying shares
On the same day when the option to convert
such securities into shares is exercised.

13(2)(c)

Acquiring shares or voting rights
or control pursuant to conversion
of Convertible Securities with a
fixed date of conversion
On the second working day preceding the
scheduled date of conversion of such
securities into shares.

13(2)(d)

In case of disinvestment

On the date of execution of agreement for
acquisition of shares or voting rights or
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 28

control over the Target Company.
13(2)(e)

In case of Indirect Acquisition
where the parameters mentioned in
Regulation 5(2) are not met

Within four working days of the following
dates, whichever is earlier:
a. When the primary acquisition is
contracted; And
b. Date on which the intention or decision to
make the primary acquisition is announced
in the public domain.
13(2)(f)

In case of Indirect Acquisition
where the parameters mentioned in
Regulation 5(2) are met
On the same day of the following dates,
whichever is earlier:
a. When the primary acquisition is
contracted; And
b. Date on which the intention or decision to
make the primary acquisition is announced
in the public domain.
13(2)(g)

Acquisition of shares, voting rights
or control over the Target
Company pursuant to Preferential
Issue
On the date when the Special Resolution is
passed for allotment of shares under Section
81(1A) of Companies Act 1956.
13(2)(h)

Increase in voting rights pursuant
to a buy-back not qualifying for
exemption under Regulation 10
Not later than 90th day from the date of
increase in voting rights.

13(2)(i)

Acquisition of shares, voting rights
or control over the Target
Not later than two working days from the
date of receipt of such intimation.
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 29

Company where the such
acquisition is beyond the control of
acquirer

13(3)

Voluntary Offer

On the same day when the Acquirer decides
to make Voluntary Offer

3. Detailed Public Statement (DPS) is to be published by the acquirer in the newspaper
within 5 working days from the PA. However in case of Indirect Acquisition where
none of condition specified in Regulation 5(2) are satisfied, the Detailed Public
Statement shall be published not later than five working days of the completion of the
primary acquisition of shares or voting rights in or control over the company or entity
holding shares or voting rights in, or control over the target company.
Regulation 14 of SEBI (SAST) Regulation, 2011 provides the requirements relating to
publication of Public Announcement and Detailed Public Statement which are
tabulated below:
Regulation Particulars Time To whom
14(1)

Public
Announcement

On the same day

All the stock exchanges on which the shares
of the target company are listed.
The stock exchanges shall forthwith
disseminate such information to the public.
14(2)

Public
Announcement

One working
day of the date
of the public
announcement
Board and to the target company at its
registered office

Abhishek Jain, Reg. No. 420693991/08/2009 Page | 30

14(3)

Detailed Public
Statement

5 working days
from the date of
Public
Announcement.

Publication in the following newspaper:
(a) One Hindi national language daily with
wide circulation
(b) One English national language daily
with wide circulation
(c) One regional national language daily
with wide circulation language at a place
where registered office of the company is
situated.
(d) One regional language daily with wide
circulation at the place of the stock
exchange where the maximum volume of
trading in the shares of the target company
is recorded during the sixty trading days
preceding the date of the public
announcement.
14(4)

Detailed Public
Statement

A copy of Detailed Public Statement shall
be sent to followings:
(a) Board
(b) All the stock exchanges in which the
shares of the target company are listed
(c) The target company at its registered
office

Abhishek Jain, Reg. No. 420693991/08/2009 Page | 31

4. Upon completion of the process of PA and DPS, the acquirer is required to file a draft
Letter of Offer (LO) with SEBI and once the same is approved by SEBI, it has to be
given to the shareholders of the target company.
5. Escrow account is to be created not later than 2 working days prior to the date of DPS.
6. Competing offers can be made within 15 working days from the date of the DPS
published by the acquirer who has made the first PA.
7. The acquirer shall not complete the acquisition of shares or voting rights in or control
over the target company until the expiry of offer period except in following cases:
Nos. Event Completion Time
1. An offer under preferential
allotment
Within 15 days from the date of passing special
resolution by shareholders
2. Acquirer depositing in the
escrow account 100% of the
consideration payable under
the open offer assuming full
acceptance of the open offer
The parties to such agreement may after the expiry of
21 working days from the date of DPS, act upon the
agreement and the acquirer may complete the
acquisition of shares or voting rights in, or control over
the target company as contemplated.

Upon receipt of the DPS, board of directors of the target company shall constitute a
committee of independent directors to provide reasoned recommendations on open offer, and
the same shall be published in the newspapers.



Abhishek Jain, Reg. No. 420693991/08/2009 Page | 32

INTERNATIONAL APPLICATION
Comparison between the International Applications of the Concept of Takeover in
various countries
Areas of
comparison
INDIA AUSTRALIA U.K. USA
Are takeovers
regulated
Yes Yes Yes Yes
Who Regulates SEBI SIC FSA Securities and
Exchange
Commission
(SEC)
Threshold limit
(Initial
Acquisition)
25% 20% 30% Offers are only
voluntary
Creeping
Acquisition limit
(subsequent
acquisitions for
consolidation of
holdings)
5% in each Financial
Year for shareholders
holding between 25%
to 75%.
3%
in 6 months
No No
Concept of
Control
No % specified for
acquisition of
control.
20% 30% No
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 33

Public
announcement
To be made. Short
PA Detailed PA
To be made To be made To be made
Letter of offer To be sent Target response
statement to be sent
To be sent To be sent.
Offer size Minimum 26 % of
the voting capital of
the company
All the securities of
a class or a
specified proportion
Conditional on
holding more
than 50% of
voting rights
"As much as
5% called
Tender Offers
Less than
Mini tender
offer
Offer price Parameters specified
under Regulation 8
parameters
specified
parameters
specified
-
Escrow Account 25% of consideration
payable
No escrow. But
disclosure of the
basis of funding is
required.
Confirmation
from a third
party that there
are resources.
-
Form of
consideration
Cash and / or
securities
Cash and /
securities
Cash as well as
cash alternatives
Cash/
securities
Competitive bids
allowed
Yes Yes Yes -
Can offer be
withdrawn
Yes, under certain
conditions:
- Refusal of statutory
approvals.
Yes, only with
permission of ASIC
Yes, If a
competitive bid
is made at a
higher price.

Abhishek Jain, Reg. No. 420693991/08/2009 Page | 34

- Death of sole
acquirer
- Conditions
specified in
agreement not met
- As and when SEBI
deems fit
Can offer price
be revised
Yes Only upward
revision allowed
Yes. Yes
Can shares be
acquired after
PA is made
Yes Yes Yes
Can
shareholders
withdraw the
acceptances
tendered?
No Limited withdrawal
rights
Yes. Under
certain
circumstances.
Yes, up to
seven days of
the copies of
the offer are
sent.
Continuous
disclosures
required
Event Based: On
acquisition of 5% or
more shares. For
shareholders holding
5% or more shares on
acquisition or sale of
2% or more
Disclosure if
shareholder has
interest in voting
shares 5%+. And
every change + or
1% triggers further
disclosure.
Disclosure at
acquisition of
15% or more
When
shareholding is
10% or more,
then reporting
has to be made
to SEC
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 35

shares/voting rights.
Continual
Disclosure: By
persons along with
PAC holding 25% or
more shares or voting
rights.
Timing of
disclosures to be
made
Event Based: Within
2 working days from
the date acquisition
or receipt of
intimation of
allotment or
acquisition of shares,
as the case may be.
Continual
Disclosure: Within 7
working days from
the end of financial
year.
Within 2 working
days. Otherwise,
when the bid is
open, then at 9:30
p.m. next working
day.

Concept of
Indirect
acquisitions
Specified in
Regulation 5
Present Yes, chain rule
is existing
subject to
condition of
-
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 36

significant
shareholding
Defence
Techniques
Competitive bids Competitive bids Competitive
Bids
-
Concept of
persons acting in
concert
Yes, as defined in
Regulation 2(1)(q)
Not defined Yes Yes
Any exemptions
from Open offer
Automatic under
Regulations
The legislation has
a list of exceptions
Panel appears to
have the
discretion
Yes, as
specified by
the SEC
Penalties Civil and Criminal
Liabilities
Criminal & civil
penalties.
Reprimand,
public censure,
etc.
Civil penalties












Abhishek Jain, Reg. No. 420693991/08/2009 Page | 37

OPEN OFFERS MADE UNDER SEBI (SAST) REGULATIONS,
2011
On September 23, 2011, the market watchdog SEBI has notified the New Takeover
Regulations i.e. Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011 (hereinafter called as SEBI (SAST)
Regulations, 2011) applicable w.e.f. October 22, 2011. Some of the Open Offers made under
New Takeover Regulations are given below:

1. Open Offer for Andhra Cements Limited
About Andhra Cements Limited (Target Company)
Andhra Cements Limited was incorporated on December 9, 1936 under the Indian
Companies Act, 1913 with the Registrar of Companies, Vizagapatam. The shares of the
Target Company are presently listed on the Bombay Stock Exchange Limited (BSE) and the
National Stock Exchange of India Limited (NSE).
About the Jaypee Development Corporation Limited
The Acquirer, Jaypee Development Corporation Limited was incorporated on December 5,
2007 and is engaged in the business of providing Industrial Security and Medical Services to
various companies engaged in the infrastructure development. The Acquirer is a part of the
Jaypee Group and is a wholly owned subsidiary of Jaypee Ventures Private Limited. The
shares of the Acquirer are not listed on any Stock Exchange.

Background of the Offer
The Acquirer has entered into a Share Subscription and Share Purchase Agreement dated
November 15, 2011 (SSSPA) with the promoter and promoter group of the Target
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 38

Company and the Target Company, to acquire by way of transfer and subscription
195,619,550 equity shares representing 66.646% of the Expanded Paid up Share Capital of
the Target Company post preferential allotment approved by the meeting of Board of
Directors dated November 15, 2011 comprising of:
i. 48,119,550 Equity Shares being purchased from the Sellers; and
ii. to subscribe to 147,500,000 Equity Shares pursuant to a Preferential Allotment to be
made by the Target Company at a price of Rs. 12/- per equity share.
Details of the offer
Pursuant to the above acquisition, the Acquirer has made a Public Announcement of an Open
Offer to the shareholders of the Target Company to acquire upto 76,315,328 equity shares
representing 26% of the expanded paid up Share Capital of the Target Company at a price of
Rs. 12 per fully equity share payable in cash.

2. Open Offer for Swadeshi Industries and Leasing Limited
About Swadeshi Industries and Leasing Limited (Target Company)
Established in October 31, 1983, the Target Company was originally incorporated in the
name of Swadeshi Leasing Company Limited. The name of the Target Company then
changed to Swadeshi Industries and Leasing Limited. The Equity Shares of the Target
Company are listed on Bombay Stock Exchange Limited ("BSE") and Delhi Stock Exchange
Association Limited ("DSE").
About Chin Info Tech Private Limited (Acquirer)
Located in Mumbai, the Acquirer was incorporated with the main object to carry on the
business to manufacture, alter or deal in electrical and electronic appliances and in the
business of computers. There are no other PACs with the Acquirer.
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 39

Background of the Offer
On November 09, 2011, the Acquirer has entered into a Share Purchase Agreement (SPA)
with the Promoters of Target Company for acquisition of 6,31,300 fully paid up equity shares
representing 16.15% of the total paid-up equity share capital of Target Company at a price of
Rs.15 per fully paid up equity share payable in cash. Further, on the same day the Target
Company has made preferential allotment of 15,00,000 Equity Shares to the Acquirer which
amount to 27.74% of the total paid up equity shares (post allotment of shares) of the Target
Company. Consequent upon acquiring the shares pursuant to the execution of SPA &
proposed allotment of equity shares on preferential basis the post shareholding & voting
rights of the Acquirer will increase to 39.41% of the total paid up equity shares of the Target
Company post preferential allotment. The Acquirer also intends to acquire control over the
Target Company and make changes in the Board of Directors of the Target Company
subsequent to the completion of this Open Offer in accordance hereof. Thus this mandatory
offer is being made by the acquirer in accordance with Regulations 3 and 4 of SEBI (SAST)
Regulations, 2011.

Details of the Offer
The Acquirer has made an offer for acquisition of upto 14,06,067 equity shares representing
26% of the total paid up equity share capital of the Target Company at a price of Rs 15 per
fully equity share payable in cash to the shareholders of the Target Company. If the Target
Company doesn't receive the approvals as required in order to allot 15,00,000 Equity Shares
to the Acquirer on Preferential Basis for which it has passed Special Resolution under Section
81 (1A) of Companies Act, 1956 then the acquirer will withdraw the offer under regulation
23 of SEBI (SAST) Regulations, 2011.

Abhishek Jain, Reg. No. 420693991/08/2009 Page | 40

3. Open Offer for Swaraj Automotives Limited
About the Swaraj Automotives Limited (Target Company)
Incorporated in the year 1974, Swaraj Automotives Limited (Target Company) is engaged in
the business of manufacturing seats & seating systems for tractors, commercial vehicles, cars
and passenger vehicles. The shares of the Target Company are listed at Delhi Stock Exchange
Ltd. (DSE).

About the Mahindra & Mahindra Ltd. (Acquirer)
The Acquirer is a part of the Mahindra Group and is engaged in the business of
manufacturing and marketing of tractors utility vehicles and light commercial vehicles. The
Acquirer belongs to the promoter group of the Target Company and holds 10, 59,543 equity
shares constituting 44.19% of the Voting Share Capital of the Target Company. The Acquirer
is listed on the Bombay Stock Exchange Limited (BSE) and National Stock Exchange of
India Limited (NSE). The Global Depositary Receipts (GDRs) of the Acquirer are listed
on the Luxembourg Stock Exchange and are also admitted for trading on International Order
Book (IOB) of the London Stock Exchange.

Details of the Offer
The Acquirer is already in control of Target Company and the proposed acquisition under the
offer is for the purpose of consolidation of shareholding in the Target Company. Thus this
voluntary offer is made by the Acquirer under Regulation 6 of SEBI (SAST) Regulations,
2011 to acquire upto 6,47,382 fully paid up equity shares representing 27% of the voting
share capital of Target Company at a price of Rs.90 per share.


Abhishek Jain, Reg. No. 420693991/08/2009 Page | 41

CASE STUDY
Analysis of Takeover Open Offer of Kamat Hotels (India) Limited
Kamat Hotels (India) Limited (KHIL/Target Company) was incorporated on 21st March,
1986, Kamat Hotels (India) Limited is engaged in the business of hospitality and allied
businesses, and its activities may be broadly categorized into (i) operation of hotels owned by
the Company, (ii) management of hotels owned by other parties under contract (iii) catering
services and (iv) timeshare. The Company has established four brands viz. Gadh, Orchid,
Vits and Lotus. The shares of the Target Company are listed on Bombay Stock Exchange
Limited (BSE) and National Stock Exchange Limited of India Limited (NSE).

About Clearwater Capital Partners (Cyprus) Limited (Acquirer)
Clearwater Capital Partners (Cyprus) Limited was incorporated in 2004 as a Limited
Liability Company having its registered office in Cyprus for the purpose of investment in
securities particularly in Asia. The Acquirer belongs to Clearwater Capital Partners group.
The Acquirer holds 3,941,803 equity shares representing 23% of the total existing paid-up
and voting capital of the Target Company.

About Clearwater Capital Partners Singapore Fund III Private Limited (PAC)
Incorporated on August 28, 2007 under the companies Act in the Republic of Singapore,
ClearwaterSingapore is a financial investor and belongs to Clearwater Capital Partners
group. The shares of the company are not listed on any stock exchange in India or/and
abroad. At present, the PAC holds 257,431 equity shares aggregating to 1.50% of the total
existing paid-up and voting capital of the Target Company.

Abhishek Jain, Reg. No. 420693991/08/2009 Page | 42

Triggered Event
The Acquirer had subscribed to the bonds offered by the Target Company in terms of the
Offering circular dated March 13, 2007 of which US$ 5,966,000 Bonds are still held by the
acquirer and are mandatorily due for conversion on January 30, 2012. The Acquirer has
exercised its right to convert the remaining US$ 5,966,000 Bonds into equity shares of the
Target Company and to effect the conversion, a written Conversion Notice is served to the
Principal Paying and Conversion Agent after the Board of Directors of ClearwaterCyprus
has passed a resolution to convert the remaining Bonds on January 11, 2012.
Shareholding of the Acquirer and PAC before and after the conversion:
Acquirer PAC Total
Pre Transaction shareholding
Number of equity shares
% of total share capital/voting
rights

3,941,803
23%


257,431
1.50%

4,199,234
24.50%

Proposed shareholding after the
acquisition of equity shares which
triggered the Open Offer
5,895,999
30.88%^

257,431
1.35%

6,153,430
32.23%^
^Calculated on postconversion equity share capital of the Target Company.
Pursuant to conversion of remaining Bonds into equity shares, the Acquirer along with PAC
has triggered Regulation 3(1) of SEBI (SAST) Regulations, 2011; accordingly a Public
Announcement was made to BSE and NSE by the Acquirer and PAC on January 11, 2012.



Abhishek Jain, Reg. No. 420693991/08/2009 Page | 43

Takeover Open Offer
Pursuant to above conversion of bonds into equity shares, the Acquirer along with PAC has
made Open Offer to the shareholders of the Target Company for acquisition of 4,964,283
equity shares representing 26% of the postconversion paidup equity share and voting capital
at Rs.135 per equity share payable in Cash.
If the ongoing Composite Scheme of Arrangement and Amalgamation (the Scheme) of
promoters group entities of the Target Company is completed within 10 working days from
the closure of the Tendering Period, the Acquirer and the PAC will increase the Offer Size to
the extent of 26% of the post-amalgamation equity share capital of the Target Company in
accordance with Regulation 7(1) of the said Regulations.
Compliance with Regulation 22(1) of SEBI (SAST) Regulations, 2011
The Manager to the Offer has opened a Demat Escrow Account wherein the Conversion
Equity Shares will be kept in compliance with Regulation 22(1) of the Regulations which
restrict the completion of acquisition of shares or voting rights in, or control over, the target
company, whether by way of subscription to shares or a purchase of shares attracting the
obligation to make an open offer for acquiring shares, until the expiry of the offer period.
Upon fulfilment of the Offer related formalities, the Conversion Equity Shares will be
transferred to the Acquirers DP account.

The relevant text of regulation 22(1) of SEBI (SAST) Regulations, 2011 is reproduced herein
below:
The acquirer shall not complete the acquisition of shares or voting rights in, or control over,
the target company, whether by way of subscription to shares or a purchase of shares
attracting the obligation to make an open offer for acquiring shares, until the expiry of the
offer period:
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 44

Provided that in case of an offer made under sub-regulation (1) of regulation 20, pursuant to
a preferential allotment, the offer shall be completed within the period as provided under
sub-regulation (1) of regulation 74 of Securities and Exchange Board of India (Issue of
Capital and Disclosure) Regulations, 2009.















Abhishek Jain, Reg. No. 420693991/08/2009 Page | 45

CONCLUSION
The new regulation is indeed a path breaking legislation which is likely to change the
landscape of corporate India in the near future. With the increased threshold limit, the level of
activity in listed companies by PEs/ strategic investors will increase to more material stakes
(up to 24.99%). Also, head room for foreign technical collaborators / minority foreign
partners to increase their shareholding without triggering cumbersome and costly takeover
regulations will increase. Companies would be able to raise expansion capital in a more cost
effective manner (i.e. without triggering open offer till 25% stake);
For the economy, more investment from PE/foreign partners should be expected in the
coming months, which should give a fillip to FDI numbers which have been languishing in
the recent past.
With a 24.99% threshold limit, the acquirers would be able to block special resolutions in
target companies with relative ease. Let us assume a promoter who holds 45% stake in the
target company. If a hostile acquirer were to reach 24.99%, such acquirer can effectively
have ~ 35% voting right (24.99/(24.99+45)) and therefore can easily block special resolutions
(assuming that the participation by minority public shareholders either in physical meeting or
postal ballot is negligible (which is invariably the case)).
Further, with the possibility of acquiring 24.99% without triggering open offer, acquirers
would practically be able to get a Board position in target-company and therefore having a
greater say in the companys operations. The role of minority public shareholders holding
significant stake (say 1-5%) would also increase. Strategic long-term acquirers can easily
acquire up to 24.99% and then negotiate with these significant minority shareholders to
consolidate their shareholding / trigger open offer for takeover of the target companies.
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 46

Expect off-market transactions at higher than market valuations for such strategic buy-outs to
rise.
Even if the promoter has more than 25% stake, they may seek to consolidate their holding by
5% through creeping acquisition route with a view to strengthening their position in the
Company. Similarly, with the market indices/ stock prices pegged low due to the
international market scenario and also local factors, strategic/ long term players may be
inclined to ramp up shareholding in value stocks with an intention of having a material and
influential stake in such companies in the future.
In light of the above, expect some serious action in stocks of such companies in the coming
weeks. This one step of increasing the open offer threshold limit to 25% is a significant
development and changes the landscape for promoters significantly. There is likely to be a
war for retaining/ takeover of good companies (especially with the market multiples currently
being really attractive) and promoters with low shareholding and high public float should be
worried.
The new regulation will facilitate consolidation of promoter shareholding to the maximum
permissible level i.e. 75% which was a challenge in the earlier regulation. This would be
welcome move for the Promoters who will have more flexibility to bump-up their
shareholding. However, the reduction of public float due to this measure and consequential
impact on trading volumes/ reflection of real market price of such scrips on bourses would
need to be watched.
With the increase in the initial threshold to 25% and the increase in open offer size to 26%,
there is a possibility of the acquirer getting simple majority (25% + 26%). This would be
welcome for M&A transactions because there is significant comfort that acquirers get when
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 47

they hold more than 50% stake directly and therefore do not need to depend on other
shareholders for passing simple corporate law resolutions.
With a view to facilitate consolidation of holdings in excess of 5% (creeping acquisition) by
substantial shareholders, the concept of voluntary offer for 10% stake has been introduced.
This will provide flexibility to substantial shareholders (holding 25% or more) to increase
their shareholding (of course by following the process of open offer) without being an
obligation to make the offer for additional 26% stake thereby reducing the overall outflow
from such consolidation.
Of course, at a practical level, the experience in open offers has been that the public does not
fully subscribe to such public offers. Therefore, practically, time will tell in how many cases
the 26% limit (or 10% in case of voluntary offer) would be reached. However, the fact that
the regulatory mechanism has been enabled is commendable.
In case the public offer results in public shareholding falling below 25%, then the acquirer is
obligated to reduce his shareholding so that the minimum 25% public float is maintained.
Thus, the revised norms will change the dynamics of mergers and acquisitions in India.
Although, the revisions are not as dynamic as proposed by Takeover Committee, which
proposed an open offer size of 100 per cent after the trigger was hit. However, even under the
current norms the cost of acquisitions goes up substantially. Because earlier after the 15 per
cent trigger, the acquirer had to seek another 20 per cent and hold a cumulative 35 per cent in
the target company. The cost would now be higher as the acquirer needs to hold 51 per cent
subsequent to the open offer.
It would not be surprising to see promoters allotting convertible warrants to themselves,
especially in companies where promoter holding is thin. There are 24 companies in the BSE
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 48

500 index where promoter holding is below 26 per cent, and the number of companies where
promoter holding is 51 per cent or below is 210.
For smaller investors, removal of non-compete fees which is in line with Takeover
Committee recommendations, is good news. That largely serves the purpose of protecting the
interests of minority shareholders. Going forward, we will not see the non-compete fees
element in the mergers and acquisition deals.












Abhishek Jain, Reg. No. 420693991/08/2009 Page | 49

LIST OF REFRENCES
Books:
1. S. Ramanujam, Mergers et al, 2007, Tata McGraw Hill, New Delhi
2. H. R. Machiraju, Mergers, Acquisitions and Takeovers, 2006, New Age International
Publishers, New Delhi.
3. Ch. Rajeshwar, Mergers and Amalgamation: New Perspective, 2001, ICFAI Press,
Hyderabad.
Articles:
1. Takeovers in India An overview, by Vijay Sambamurthi & Siddharth Shah
2. Corporate Governance Structure, Mergers and Takeovers in India in the Post
Liberalization Regime-Proposals and Policies, by Nandita Das Gupta
Websites:
1. www.sebi.gov.in
2. www.capitalmarket.com
3. www.takeovercode.com
4. www.corporateprofessional.com
5. www.indiainfoonline.com
6. www.deloitte.com
7. www.financialexpress.com
8. www.businesstoday.intoday.in
9. www.rediff.com/money
Newspapers:
1. Economic Times
2. Financial Express
Abhishek Jain, Reg. No. 420693991/08/2009 Page | 50

3. Business Line
Reports:
1. Bhagwati Committee Report
2. Takeover Regulations Advisory Committee (TRAC) Report
Journal:
1. Takeover Panorama