SEBI TAKEOVER CODE 2011 -

DECODIFIED
GROUP - I
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The Team

• Mr. L.K.Segar
• Ms. M.Muthulakshmi
• Ms. R. Divya Swaroopini
• Ms. Priya Iyer
• Mr. V. Anantha Subramanian
• Mr. M. Ponraj
• Mr. Viswanathan
• Mr. S. Suryanarayanan

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The Need?

• Opportunity for Overseas Investors

Globalization

Indian Capital • Need for some regulations to protect the

interest of Investors
Market

• 1994 - Enactment of SEBI (SAST)

Regulations, 1994
Period • 1997 - Enactment of SEBI (SAST)
Regulations, 1997
• 2011 - Enactment of SEBI (SAST)
Regulations, 2011
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Highlights
Introduction of New Definitions
Increase in Initial Threshold Limit from 15% to 25%
Scope of Creeping Acquisition bracket widened from 15%-55% to
25%-75%
Open Offer Trigger Point based on Individual Holding
Increase in Offer Size from 20% to 26%
Non-compete fees or control premium to be added to the offer
price
Detailed provisions for Voluntary Open Offer and Indirect
Acquisition
Recommendation on the Open Offer by the Board of Target
Company made mandatory
Redecoration of Exemptions
Modification in Disclosure Limits
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 KEY DEFINITIONS
•Acquisition
•Enterprise Value
•Volume Weighted Average Price
•Volume Weighted Average Market Price
•Weighted Average Number Of Total Shares

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VOLUME WEIGHTED AVERAGE PRICE
“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 ;

In Mathematical Expression:
Number of shares bought on a particular day: A Market Price: B

Volume weighted Average Price = (A1*B1)+(A2*B2)+A3*B3……

A1+A2+A3…………..
“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;

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VOLUME WEIGHTED AVERAGE MARKET PRICE

“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;

In Mathematical Expression:
Number of shares traded on the Stock Exchange on a particular
day: X Market Price: Y

Volume weighted Average Market Price = (X1*Y1)+(X2*Y2)+X3*Y3……

X1+X2+X3…………..

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 MODIFIED DEFINITIONS
•Control
•Frequently Traded Shares
•Identified Date
•Shares

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Initial Threshold
Query:
Why there is no
SEBI Takeover SEBI Takeover transitional provision for
Regulations, 1997 Regulations, 2011 the person holding ≥15%
but <25% shares in the
Target Company?
15% 25%
CREEPING ACQUISITION ZONE REDEIFINED
SEBI Takeover SEBI Takeover
Creeping Acquisition
Regulations, 1997 Regulations, 2011 5% in each FY

15% - 25% -
55% 75%
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Key Points

No Netting off Allowed*

Individual shareholding to
be considered for Open
Offer
*This is also provided in SEBI clarification dated August 6, 2009

Incremental voting rights in case of fresh issue to be considered

Suryajyoti Spinning Mills

Ltd (Informal Guidance-
02.04.2009)

Bhumika Trading Pvt. Ltd.

(Informal Guidance-
28.01.2008)

Adhunik Metaliks Ltd.

(Informal Guidance-
09.04.2008)

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Open offer & Allied Concepts – An Insight

Separate Criteria’s in case of Direct and Indirect Acquisition

Offer Price

Volume - weighted avg. market price instead of the simple average

60 trading days average instead of 26 weeks or 2 weeks

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Voluntary Open offer & Public Announcement

• Prior holding of at-least 25% or more shares

• No acquisition during the preceding 52 weeks without attracting the obligation to make a
Eligibility public announcement

• The Aggregate shareholding not to exceed the maximum permissible non-public

shareholding
Condition

• No further acquisition of shares for a period of six months after completion of the open
offer except by way of another voluntary open offer or competing offer
Restriction

Public Announcement

Short PA Detailed PA

• On the same day or • Within 5 working

as specified under days from Short PA
the regulations
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Concepts & Conventions – A Comparison

SEBI (SAST) SEBI (SAST)

Regulations, 1997 Regulations, 2011

Upto 25% of the offer

To be included in the
Price (Not to be included
Offer Price
in the Offer Price)

Recommendation on the Recommendation on the

offer by Board is offer by Board is
Optional Mandatory

Completion of Completion of Acq.is

Acquisition under the Allowed after a period of
Agreement is Not 21 Working days from
Allowed (Until the PA and deposit of 100%
Completion of Offer Consideration of Escrow
formalities) A/c.

Ineligibility to make
voluntary delisting offer
Obligation to bring down for a period of 12
the shareholding months from the
completion of Offer
Period
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Target Acquisition after the tendering period

Within 60 days
from such
To the
acquisition
shareholders
whose shares
Payment of
are accepted in
difference
the offer
between
At a price highest price
higher than and offer price
offer price

Acquisition
during 26
weeks after
Tendering
Period

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Redecoration of Exemptions

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Acquisitions - Scenarios
• No Change in Control
Corporate Debt • Shareholder’s Approval by way of SR passed by Postal Ballot
Restructuring

• Exemption
• (Subject to Acquirer Reducing Its Shareholding Below the threshold within
Buy – Back Pre
Holding <25% a period of Ninety Days from the date of such increase)

• Shareholders Resolution/Board Resolution, as the case may be

Buy – Back Pre
• Acquirer not voted in favor of resolution
Holding between
25-75%
• No change in control

• Acquisition of Voting Rights

Preference
• Preference shares carrying voting rights
Shares carrying
voting rights
• In terms of Section 87(2) of the Companies Act, 1956

NO AMBIGUITY IN REPORTING THE DETAILS OF EXEMPTION

{As given in Regulation 3(4) of SEBI (SAST) Regulations, 1997}
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FAQ’s
Rationale for considering the Individual shareholding of the Acquirer ?

To avoid taking over by any individual apart from Promoters & to avoid Hostile Takeover

Rationale of keeping the prior holding of 25% for Voluntary Open Offer

To avoid Hostile Takeover and keeping in view the Special Resolution necessity

Violation of clause 40A towards de-listing

Takeover code prohibits the intention of Voluntary Delisting.

Significance of the notification related to SAST Regulations, 2011 published on

September 23, 2011

Vide the said notification dated September 23, 2011, the SAST Regulations, 2011 were notified to
replace SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, since repealed
SAST Regulations, 2011 come into force with effect from October 22, 2011. SAST Regulations, 2011
are available on SEBI’s website under the section legal framework

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FAQ’s
Takeovers & Substantial acquisition of shares ?

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

open offer under the SAST Regulations, 2011

An open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their
shares in the target company at a particular price. The primary purpose of an open offer is to provide an exit option to
the shareholders of the target company on account of the change in control or substantial acquisition of shares,
occurring in the target company

maximum permissible non-public shareholding in a listed company defined

Maximum permissible non-public shareholding is derived based on the minimum public shareholding requirement under
the Securities Contracts (Regulations) Rules 1957 (“SCRR”). Rule 19A of SCRR requires all listed companies (other than
public sector companies) to maintain public shareholding of at least 25% of share capital of the company. Thus by
deduction, the maximum number of shares which can be held by promoters i.e. Maximum permissible non-public
shareholding) in a listed companies (other than public sector companies) is 75% of the share capital

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