FOR PRIVATE CIRCULATION ONLY

Takeover Code – A Perspective

Presented by
Kirti Shah

August 2010
CONTENTS

Trigger for Open Offer

Competing & Voluntary Open Offers

Open Offer – Others

Open Offer Pricing

Indirect Acquisition – Definition & Pricing

Minimum Public Shareholding

Open Offer - Option for Withdrawal

Exemptions to Make Open Offer

Disclaimer

Takeover Code – A Broad Perspective

Page 2
TRIGGER FOR OPEN OFFER

0%

Takeover Code – A Broad Perspective

Page 3
TRIGGER FOR OPEN OFFER

Initial Acquisition
Proposed Regulations: Existing Regulations: Our View:
•Acquiring an aggregate •Acquiring or agreeing •Financial investors/PE
of 25 % or more voting to acquire shares or can invest upto 24.9%
rights voting rights exceeding
15% •Increase in PIPE
transactions

•Promoters to beef up
their current stakes

Takeover Code – A Broad Perspective

Page 4
TRIGGER FOR OPEN OFFER

Creeping Acquisition
Proposed Regulations: Existing Regulations: Our View:
• Acquirer holding 25% or • Acquirer holding 15% > • Consolidation of
more voting rights 55%, acquiring additional shareholding by
acquiring additional voting rights in excess of promoters / controlling
voting rights in excess of 5% within FY entities - simplified
5% within FY
• One-time allowance made • Distinction between
for acquirer holding 55% > different promoter
75% holding levels - done
away with

Takeover Code – A Broad Perspective

Page 5
TRIGGER FOR OPEN OFFER

Control Acquisition
Proposed Regulations: Existing Regulations: Our View:
• For acquisition of control, • Definition includes only • Control - take into
definition includes “Right” to appoint account due facts of the
“Ability" in addition to majority of directors / case, not merely on the
“Right" to appoint control the management basis of principle
majority of directors / or policy decisions
control the management
or policy decisions

• Director / officer of
target company not to be
regarded as being in
control merely by virtue
of holding such position

Takeover Code – A Broad Perspective

Page 6
COMPETING & VOLUNTARY OPEN OFFER

Competing Offer Voluntary Open Offer

Proposed Regulation: Proposed Regulation:

• Within 15 business days from original detailed
public statement date
• In case of competing offer – acquirer can shift
to normal full sized offer
• Competing acquirer can acquire shares tendered
to original acquirer at the price offered by him
to public within 21 business days from expiry of
offer period
• For acquisition representing at least 10 %
• If shares acquired in preceding 52 weeks - not
eligible to make voluntary open offer; also
barred from acquisition for six months after
open offer
• In case of competing offer, increase offer size
to full-sized open offer within 15 business days

Existing Regulation: Existing Regulation:

• Competing offer - within 21 calendar days from • Acquirer can consolidate shareholding through
original public announcement date voluntary open offers upto 20% or max
• Shares of competitive acquirer (including permissible acquisition; lower of the two
existing holding) not less than holding of first
bidder (including present offer)
Our View:
Our View: • Consolidation of promoter holdings simplified;
Extending the timeline for competing offer will give • Creeping acquisition & voluntary open offer cant
opportunity to additional potential bidders be combined by promoters for consolidation
Takeover Code – A Broad Perspective
Page 7
OPEN OFFER - OTHERS

Proposed Regulation Existing Regulation

• Size: Open offer to be for 100% of other shareholders • Mandatorily required to make
• Timeline: minimum open offer for 20% of the
voting capital
• Process expected to be completed within 57 Business Days
from date of Public Announcement • Public announcement for open offer
• Agreement triggering open offer - to be completed within 26 - within 4 working days of acquiring
weeks after offer period / agreeing to acquire shares.
Presently it takes around 95
• Acquirer and persons acting in concert prohibited from acquiring calendar days to complete the open
shares of target during 26 weeks following open offer completion offer
• Agreement attracting open offer - may be acted upon during
pendency if 100% of consideration payable is placed in escrow

Our Views
• Large support required from FDI & banking circles for acquisition funding
• Acquirers – seriousness to increase
• Option to exit for all shareholders, especially the minority shareholders
• Timeliness for completing open offer- streamlined for speedy closure
• Timelines put in place for completion of transaction triggering open offer

Takeover Code – A Broad Perspective

Page 8
 OPEN OFFER PRICING – MINIMUM PRICE PAYABLE

Key Point Proposed Regulation Existing Regulation Observations

Minimum Price The minimum offer price Frequently Traded Shares: • A level playing field will
Payable payable continues to be • Min price payable includes the be created for all
regulated; & to be highest of: price under agreement for shareholders as majority
• Negotiated price as per acquisition attracting the open of them will be offered
agreement triggering open offer, any price paid by same exit price
offer; acquirer or persons acting in
• Volume-weighted average concert during preceding 26 • Look-back period has
price paid by acquirer & weeks (look back period); & been expanded in a bid
persons acting in concert in historical market average to increase the 'fairness'
preceding 52 weeks; price of the shares for a of the offer price made
proximate past period (2 weeks) to shareholders
• Highest price paid by acquirer
or persons acting in concert Infrequently Traded Shares:
• M&A deals – expensive
during preceding 26 weeks; • Offer price based on financial due to proposed changes
• 60 trading day volume parameters viz. return on net in offer price calculation
weighted average market worth, industry P/E multiples,
price (for frequently traded etc; apart from any price • Price of infrequently
shares) actually paid by acquirer or traded shares needs
(Period would start a day before persons acting in concert during further special
date of Public Announcement) preceding 26 weeks, or in consideration
agreement triggering open offer

Takeover Code – A Broad Perspective

Page 9
OPEN OFFER PRICING – OTHERS
Key Point Proposed Regulation
Frequently Traded Shares which have a trading
Shares - volume of 10 % or more of the
Definition total number of shares for 12
calendar months preceding the
month in which public
announcement is made
Non-compete fee Provision has been done away
with; & all payments made vide
such ancillary / collateral
agreements to be taken into
consideration while calculating
negotiated price above
Takeover Code – A Broad Perspective
Page 10
Existing Regulation Observations
Shares which have More stringent norms
annualized trading volume for segregating
of 5% or more of the listed infrequently traded
share capital during 6 companies
calendar months preceding
the month in which public
announcement is made
If the non-compete fees This will bring about
paid are in excess of 25% parity in compensation
of the open offer price, to all classes of
then the open offer price shareholders; will also
will have to be increased reduce abuse of non-
to that extent compete clause
INDIRECT ACQUISITION

Proposed Regulation Existing Regulation

• If the indirectly acquired target company is predominant
part of business of parent company being acquired or
accounts for more than 80 % of its NAV, sales turnover or
the deal value – to be treated as direct acquisition
• In this case, acquirer to specify value of stake in the Indian
company and the basis of valuation
• In all other cases, the public announcement can be made
within 4 business days of such date, and a detailed public
statement to be issued within 5 business days of
consummation of the primary acquisition
• Presently, indirect acquisitions are not
treated separately on the basis of size
of the businesses indirectly bought and
their relative importance to the overall
acquisition
• However, open offer is still required to
be made when there is direct or
indirect change of control of the target
company irrespective of any direct
acquisition of shares of the target
company

Our Views
• This becomes especially important in terms of acquiring holding companies / shell companies, wherein the
acquirer is more interested in the acquisition of the underlying associate/ subsidiary

Takeover Code – A Broad Perspective

Page 11
 OPEN OFFER PRICING – INDIRECT ACQUISITIONS

Key Point Proposed Regulation Existing Regulation Observations

Minimum Price • To compute offer price for • Currently no differentiation • Clearer guidelines in
Payable indirect acquisitions, in between direct and indirect terms of identifying and
addition to above parameters, acquisitions; the same offer pricing of indirect
any higher price paid during pricing formula is used acquisitions would lead
the period between to greater transparency
contracting of the primary • In practice, offer price is in terms of offer to be
transaction and public computed as of the date of made to indirect target’s
announcement - also to be announcement of primary shareholders
considered acquisition and as of the date
of public announcement for
• Offer price - to increase at 10% target company, whichever is
p.a., calculated on a pro-rata higher
basis for the period from the
date of the primary
transaction being announced in
public domain until date of
detailed public statement.
Such revised offer price to be
payable to all shareholders
tendering their shares in the
open offer

Takeover Code – A Broad Perspective

Page 12
MINIMUM PUBLIC SHAREHOLDING
Proposed Regulation
• Intention to delist the target company can
be declared by acquirer at the time of open
offer itself
• In this case, shareholders not participating in
the open offer and holders of equity-linked
instruments can tender their shares at same
price subsequently
• Acquirer who has not stated his intention to
delist or having post-offer shareholding
between 75% and 90% - to bring shareholding
to 75% so as to comply with minimum public
shareholding requirement by either: (i)
proportionately reducing the number of
shares acquired in the open offer and under
the triggering agreement; or (ii) increasing
public shareholding to 25% within 12 months
Takeover Code – A Broad Perspective
Page 13
Existing Regulation
• Pursuant to the open offer, if public
shareholding level falls below the
minimum level as per Listing
Agreement, acquirer to sell-down their
holding or make another offer under
the Delisting regulations, within the
specified time period
Our View:
• As acquirer can declare upfront intent to
delist target post open offer, entire
procedure is streamlined, saving time
• Proportionate reduction of shareholding
through original acquisition and in the
open offer would also be in the acquirer’s
interest vis-à-vis selling down his holding
subsequently
OPEN OFFER– OPTION FOR WITHDRAWAL

Proposed Regulation Existing Regulation

• In addition to existing grounds, an open offer • No open offer once made shall be
may be withdrawn, if conditions stipulated in the withdrawn except under following
agreement triggering open offer - not met for circumstances:
reasons outside control of acquirer, thereby • Statutory approvals - refused
rescinding the agreement; and reasonable
disclosures made for the same • On death of the sole acquirer
• Circumstances where SEBI
opines withdrawal

Our Views
• Circumstances under which open offer can be withdrawn have been broadened, thus protecting the
acquirer under genuine adverse circumstances

Takeover Code – A Broad Perspective

Page 14
EXEMPTION TO MAKE AN OPEN OFFER

Proposed Regulation Existing Regulation

• CDR schemes prescribed by RBI – exempted, if authorised • Currently 14 categories of transactions
by special resolution & no change in control over target exempted from making open offer
• Definition of ‘people acquiring shares in commercial course • In other cases, special approval seeking
of business’ includes underwriters and excludes Public exemption from SEBI
Financial Institutions
• Acquisition of pledged shares by a banker in case of default
by the company - now exempt
• Increase in shareholding beyond trigger limit, by way of
buyback by the company - now exempt
• Voting rights arising out of non-payment of dividend on
preference shares - to not attract open offer obligation

Our Views:
• Acquisition of shares by parties in commercial course of business - clarified in a more explicit manner
• Certain areas where SEBI’s approval was always required e.g. CDR schemes, banker acquiring pledged
shares, etc have now been explicitly exempted

Takeover Code – A Broad Perspective

Page 15
DISCLAIMER

This document has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This publication
cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without
obtaining specific professional advice. Please contact BDO Consulting Pvt. Ltd. to discuss these matters in the context of your particular
circumstances. BDO Consulting Pvt. Ltd., its partners, employees and agents do not accept or assume any liability or duty of care for any loss
arising from any action taken or not taken by anyone in reliance on the information in this document or for any decision based on it.

BDO Consulting Private Limited, a private limited company incorporated in India, is a member of BDO International Limited, a UK company limited
by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Takeover Code – A Broad Perspective

Page 16