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SEBI - Takeover


Presented By:
•Harkesh Bansal(05)
•Deep Shikha(08)
•Siddharth Iyer(10)
•Jaimin Patwa(19)
•Jharna Tinani(26)

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Evolution of TOC

October 14, 2008 2


Post - 1994 SEBI amended Code

Oct - 2002
Few amendments
as per Bhagwati
Committee’s reco.

Feb - 1997
New Takeover Code

Nov - 1994
SEBI Takeover

Nov 1990
Clause 40(A) & 40(B)
of Listing Agreement

Pre - 1990
Pre - 1990
Clause 40 of Listing

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Modes of Restructuring – Where does TOC fit in

Indian M&A

Amalgamations Acquisitions

Asset Stock
Merger De-merger
Purchase Purchase

Slump Itemized
Sale Sale The Takeover
Code, 1997

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 Shareholders:
– Equality of treatment
– Adequate opportunity
– Protection of interests
 Acquirers:
– Adequate disclosure
– Disclosure to all
– Disclosure within stipulated time limits
 Managements:
– Ensure flow of information
– No unnecessary action during the offer period


Ensure full play to the predatory instincts of the corporate and business class
(i.e. facilitate legitimate takeovers)

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Securities and Exchange
Board of India
(Substantial Acquisition of
Shares and Takeovers)
Regulations, 1997

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Framework of the Code…

Chapter 1 Preliminary, Definitions, exemptions and the takeover panel

Chapter 2 Disclosures of shareholding and control in a listed company

Chapter 3 Substantial Acquisition of shares and control

Chapter 4 Bail out takeovers

Chapter 5 Investigation and action by the Board

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Key Definitions...
 Any person who, directly or indirectly, acquires or agrees to acquire
shares or voting rights in the target company, or acquires or agrees to
acquire control over the target company, either by himself or with any
person acting in concert with the acquirer

 Means shares in the share capital of a company carrying voting rights and
includes any security which would entitle the holder to receive shares with
voting rights [but shall not include preference shares]

 Right to appoint majority of directors or Right to control management
decisions or Right to take policy decisions exercisable by PAC, directly or
indirectly, by virtue of their shareholding or management rights or SHA or
voting agreements or in any other manner

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Key Definitions...
Persons Acting in Concert (‘PAC’)
 PACs - persons who for a common objective of substantial acquisition of shares
or voting rights or gaining control over the target company, directly or indirectly
co-operate by acquiring or agreeing to acquire shares or voting rights in or
control over the target company.

 Persons deemed to be PACs with other persons in the same category

– a company, its holding or subsidiary company or a company under the same management and their
directors or persons responsible for management of funds
– Mutual fund with sponsor or trustee or AMC
– FIIs with sub account (s)
– Merchant bankers with their clients as acquirers
– VCFs with sponsors
– Banks with financial advisors, stock brokers of acquirer, a company which is a holding / subsidiary or
relative of the acquirer

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Key Definitions...
 Promoter shall include
in control of the company
Named as promoters in any document of offer of securities

 Deemed to be a promoter
 Individual – spouse, parents, brothers, sisters or children
 Corporate:
a subsidiary or holding company
any company in which it holds 26% or more of the equity capital
any other body corporate under the same management

 A financial institution, scheduled commercial bank, FII or VCF shall not be deemed to
be a promoter by virtue of shareholding

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Key Definitions...
Offer period
 Period between the date of entering into MOU or the PA, as the case may
be and the date of completion of offer formalities relating to the offer made
under these regulations

Public shareholding
 Means shareholding held by persons other than promoters as defined

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Periodical disclosures
 Disclosures by acquirer to the company / stock exchange within 2 working
– If holding crosses 5%, 10%, 14%, 54% or 74% limits
– In case of acquisition under Regulation 11 (1) / (1A) – on Purchase or sale
of 2% or more of the share capital
 Company in turn to disclose to all stock exchanges within 7 days
Continual - “Yearly Disclosures”
 Disclosure to be made within 21 days to the company by –

– Persons holding more than 15%

– Promoter or every person having control over company
 Company in turn to disclose to all stock exchanges within 30 days
SEBI has the power to call for this information as and when it requires

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Open Offers

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Trigger points….

 Substantial acquisition
– Acquisition upto 15% of shares or voting rights or control - No open offer
– Beyond 15% - Open offer triggered
 Consolidation of Holdings
– 15% to 55% - Open offer triggered for acquisition beyond 5% per year
– 55% to 75% - Open offer triggered on every acquisition
– Beyond 75% - Delisting triggered

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Trigger Provisions Regarding Open Offers
Regulation 10 Regulation 11 Regulation 12
Substantial Acquisition Consolidation of Acquisition of Control
of Shares Holdings
 Open tender offer needs to
 Open tender offer  Open tender offer
be made if acquirer along
needs to be made if needs to be made if:
with PAC wants to acquire
the Acquirer (along – Acquirer and PAC control over Target
with PAC) decides to hold >15% but < 55%
acquire, directly or of the Voting Capital  Offer needs to be made
indirectly, more than of Target irrespective of:
15% of shares – Want to exceed – Whether or not any shares
outstanding in Target creeping limit of 5% have been acquired
 Once 15% stake has within a financial year – Whether control is
been acquired in the  Offer needs to be acquired directly or
target, an open offer made if acquirer indirectly
for a minimum of 20% wants to exceed 55%  This regulation is not
of shares outstanding shareholding in applicable if change of
must be made Target control is pursuant to a
special resolution

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Exemptions from Open Offer…
Reg. 3 Provides Exemptions from Reg. 10, Reg. 11 and Reg. 12…
 allotment to underwriter pursuant to any underwriting agreement;

 acquisition of shares in ordinary course of business by;

 Regd. Stock brokers on behalf of clients;
 Regd. Market makers
 Public financial institutions on their own account;
 Banks & FIs as pledges;

 Acquisition of shares by way of transmission on succession or by


 Acquisition of shares in companies whose shares are not listed;

 Acquisition pursuant to a scheme framed under section 18 of Sick

Industrial Companies Act (SICA) 1985
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Public Announcement
 to disclose intention to acquire a minimum of 20% of the voting
capital of the target company

 an Acquirer may also make an offer for less than 20% of shares of
target company in case the acquirer is already holding 75%

 Acquirer is required to appoint a Merchant Banker registered with

SEBI before making a PA and is also required to make the PA within
four working days of the entering into an agreement to acquire

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Public Announcement
The other disclosures in this announcement would inter alia include:

 the offer price,

 the number of shares to be acquired from the public,
 the identity of the acquirer,
 the purposes of acquisition,
 the future plans of the acquirer, if any, regarding the target
 the change in control over the target company, if any
 the procedure to be followed by acquirer in accepting the shares
tendered by the shareholders and the period within which all the
formalities pertaining to the offer would be completed.

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Other key provisions

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Minimum Size of Offer

 Minimum of 20% of the voting capital of the target company

 Less than 20% where an acquirer has shareholding between 55% to


 Acquisition through MOU should ensure to maintain the minimum

specified public shareholding post open offer

 An acquirer may make a conditional offer which may be less than 20%
of minimum offer size – (S&P / Crisil)
– Acquirer to deposit in the escrow account in cash a sum of 50% of the
consideration payable under the public offer
– Cancel the MOU in case minimum acceptance condition is not met
– Disclosure in the Public Announcement

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Minimum Public shareholding

 Breach of minimum public shareholding limit specified in the Listing

 Acquirer to make an offer to buy the remaining shares in accordance with
the Delisting guidelines
 Acquire only such number of shares under the agreement or MOU to
maintain the minimum public shareholding

 Acceptance on proportionate basis if number of shares offered by

the shareholders are more

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Timing of Open Offer

 Direct acquisition or change in control - Within 4 working days of –

 Agreeing or deciding to acquire the shares/voting rights/change in
 Execution of Shareholders agreement
 Upon conversion or exercise of option – Convertibles
 Indirect acquisition or change in control - Within 3 months of -
 Consummation of acquisition or change in control or restructuring of the
parent or holding company
 Submission of Letter of Offer to SEBI / Shareholders

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Minimum Offer Price
 Frequently traded shares, highest of the following:
– Negotiated price
– Highest of average of weekly highs and low of the last 26 weeks or daily
highs and low of last 2 weeks
– Highest price paid by the acquirer during the last 26 weeks
 Infrequently traded shares – in consultation with Merchant Banker ,
highest of the following:
– Negotiated price
– Highest price paid by the acquirer during the last 26 weeks
– Return on net worth, BV of shares, EPS, PE multiple vis-à-vis industry

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Payment of Offer Price
Modes of payment –
 Offer price payable in -
– Cash; or
– Shares (other than preference shares) of acquirer listed company; or
– Secured instruments of acquirer company with a minimum A Grade
from a credit rating agency; or
– Combination of the above
 Discharge of consideration -
 Transfer of cash consideration to a special account within 7 days from
closure of the offer
 Issue of shares / secured instruments

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Within 4
14 days
Filing of
Letter of
Offer with
the SEBI
45 days
15 days of
55 days Within
Offer to reach Offer
7 days
the Closure
shareholders SEBI may permit
extension on
payment of
interest for delay
Offer to
open Dispatch
Open a
Offer to consideration to
Special A/c
close shareholders
for Payment
Within 20 days

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Example… Group

• Acquisition of more than 15% stake in

F co1 Public,FIs etc a listed company
• Exemption under Regulation 3(1)(e) –
100% 51% Inter se transfer amongst the ‘Group’
– Group as per the MRTP Act
F co2 listed co – Disclosure as Group in the last published
annual report
• F co2, wholly owned subsidiary of F
co1, hence should constitute as Group

Transfer of 51%
stake in Indian listed
co to F co2

Would the transfer trigger open offer ??

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Example…Non Compete Fee
 X Ltd proposes to acquire a 35% stake in Y Ltd.
 15% stake is proposed to be acquired from Mr. A, the promoter
 X Ltd will also pay a non compete fee as under:
– Rs. 150 per share to Mr. A
– Rs. 50 per share to Y Ltd. (target company)
 Minimum offer price as per the Takeover Code is determined at Rs. 500 per share
 What consideration per share would flow from X Ltd to:
– Mr. A, the promoter
– Mr. B, an ordinary shareholder who tenders his shares
Non compete fees paid to person(s) other than the Target Company Rs.150
25% of the minimum offer price (25% of 500) Rs.125
Amount to be added to the offer price (150 – 125) Rs. 25
Revised Offer Price (500 + 25) Rs.525

Consideration per share that would flow to Mr. A (500 + 150) Rs.650
Consideration per share that would flow to Mr. B Rs.525

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Example… Acquisition of convertibles
Domestic currency convertibles
ADRs / GDRs / FCCBs (debentures, warrants etc.)
A co X Ltd. Mr. B

Outside India India

What should A co and B do to ensure compliance with the Takeover Code? When
should these steps be taken?
 Both A co and Mr. B will be required to make relevant disclosures.

 Calculation to be based on the expanded capital presuming full conversion into shares.

Such disclosure shall be made at the time of conversion of such instruments into
shares carrying voting rights

Regulations 10, 11 & 12 applicable only at the time of conversion

into shares carrying voting rights

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Thank you

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