Competing Offers

Current Provisions:

The Takeover Regulations currently provide the opportunity to any person other than
the acquirer to make a competing offer within 21 days of the public announcement of
The first offer. The Takeover Regulations also provide that any competitive offer by an
Acquirer shall be for such number of shares which, when taken together with shares
Held by him shall be at least equal to the holding of the first bidder including the
Number of shares for which the present offer by the first bidder has been made.

Committee Recommendation:

With a view to rationalize the time lines for making a competing offer, the Committee
recommended that a competing offer may be made within 15 business days from the
date of the original detailed public statement instead of 21 calendar days from the date
of the original public announcement. No further offer should be allowed to be made after
the expiry of the said period of 15 business days until the completion of all the
competing offers.

Obligations of the Target Company

This part deals with the material actions dealt by the company.

Current Provisions:

The Takeover Regulations currently provide that the target company shall not, during
the offer period sell, transfer, encumber or otherwise dispose of assets of the company
or its subsidiaries or enter into any material contracts.

The Committee desired to achieve a balance between the conflicting requirements of

curbing a target company from carrying out material transaction without the consent
of shareholders to make the company unattractive for an acquirer even while ensuring
that the target company‘s freedom to carry out its day-to-day affairs is not curtailed.

Committee Recommendation:

The Committee, therefore, recommends retaining restrictions on the target company

during the offer period from carrying out material transactions outside the ordinary
course of business except with the consent of the shareholders through a special
resolution. The Committee recommends that such restrictions would also cover the
subsidiaries of the target company, and such actions in respect of subsidiaries would
also require approval of the shareholders of the target company.
Composition of the Board

The committee recommended that the acquirer or persons acting in concert with him
may be represented on the board only after the expiry of a period of 15 business days
from the date of the detailed public statement and provided the entire consideration
payable under the open offer is deposited in cash in the escrow account.

The Committee also recommends that if a competing offer is made, there ought to be
no appointments of directors during the offer period, and only casual vacancies arising
out of death or incapacitation may be filled with prior approval of shareholders.

Timelines for the Open Offer process

With a view to shorten the timelines of the entire open offer process from the public
announcement to the payment of consideration the committee proposed that the
process could be done within fifty seven business days.

Mode of Payment

Currently offer consideration shall be payable either (a) by way of cash; (b) by issue,
exchange and, or transfer of shares (other than preference shares) of acquirer
company, if the person seeking to acquire the shares is a listed body corporate; or (c)
by issue, exchange and, or transfer of secured instruments of acquirer company with a
minimum A‘ grade rating from a credit rating agency registered with the Board; or (d) a
combination of clause (a), (b) or (c).

The committee proposed that apart from the above payment could be made by issue,
exchange or transfer of convertible debt securities entitling the holder to acquire listed
shares of the acquirer or of the person acting in concert with him.

Exemptions from open offer obligations

The Takeover Regulations currently provide for fourteen categories of transactions

which are exempted from the requirement to make an open offer subject to satisfying
the conditions specified therein, if any, without the need to seek SEBI‘s approval for
the same. Further, for the transactions that are not covered in the aforesaid fourteen
categories, an application can be made for seeking exemption from SEBI. Such
applications are referred to a takeover panel for its recommendations. SEBI considers
the recommendations received and passes an appropriate order.

The Committee classified the exemptions on the basis of the specific charging
provisions which deal with the obligation to make an open offer, and has sought to
distinguish between acquisitions involving change in control and those involving only
consolidation of shareholding.
Recommendation by the independent directors of the Target Company

The committee recommended that the independent directors on the board of directors
of the target company ought to make a reasoned recommendation on the open offer.
Which is not compulsory in the current provisions and for this the company needs to
appoint an committee of independent directors.

Obligations of the Acquirer

The Committee recommends that unless acquirer has declared an intention in the
detailed public statement and the letter of offer, the acquirer shall be debarred from
alienating any material assets of the target company (including its subsidiaries) for a
period of two years after the offer period. However, where such alienation is necessary
despite no such intention having been expressed by the acquirer, the target company
shall require a special resolution passed by the shareholders by way of a postal ballot.

Obligations of the Merchant Banker

The Committee recommends that the merchant banker would be expected to

demonstrate the application of due skill, care and diligence in the discharge of
professional duties cast on him and the obligations of the merchant banker ought to be
construed accordingly, as compared to only ensure of the compliance in the current
regulations.

Disclosure Obligations

The Committee recommends that the acquirer promoter / shareholders shall be asked
to disclose their acquisition on periodic as well as transaction specific basis upon
crossing the limits specified therein to the Stock Exchange. Further, such disclosures
shall be of the aggregated shareholding and voting rights of the acquirer and every
person acting in concert with him. Moreover, the acquisition and holding of any
security or instrument that would entitle the acquirer to receive shares in the target
company, including warrants and convertible debentures, shall also be required to be
disclosed.

Present Tax regime

The Committee recommends that there is a need to bring parity in the tax treatment
given to the shareholders who tender their shares in an open offer and those who are
selling the same in the open market. SEBI may like to suitably take up this issue with
the concerned authorities in the
Government.