TAKEOVERS

Meaning Of Acqusition: 
When an ³acquirer´ takes over the control of the ³target company´, it is termed as takeover. 

When an acquirer acquires ³substantial quantity of shares or voting rights´ of the Target Company, it results into substantial acquisition of shares.

Meaning of Takeover 
Takeover may be defined as ³ a transaction or series of transactions whereby an individual or group of individuals or company acquires control over the management of the company by acquiring equity shares carrying majority voting power´.  Takeover is a business strategy of acquiring control over the management of target company ± either directly or indirectly.  The motive of acquirer is to gain control over the Board of Directors of the target company for synergy in decision-making.  The takeovers are subject to the regulations contained in SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 1997.

Types of Takeover .

 The acquirer will then purchase the controlling shares after thorough negotiations and agreements with the seller  Friendly takeover is for mutual advantage of acquirer and acquired companies .Friendly Takeovers  It is also known as µconsent takeover¶  In a friendly takeover the acquirer first approaches the promoters/management of the target company for negotiating and acquiring shares.

 The purchaser purchases the required no. . of shares from noncontrolling shareholders in the open market over a period of time at various places.Hostile Takeovers  These takeovers are also referred to as µviolent takeovers¶  The hostile takeover is against the wishes to the target company¶s management  As a strategy the purchaser keeps his identity a secret till the time he has acquired controlling interest the target company.

the management of the acquirer company starts accumulating shares of a target company. the management of the acquirer company has to disclose to the statutory authorities his acquisition of shares and its move comes into limelight in the stock market. the management of the acquirer enters into a bidding war and the shareholders decide whether the existing management stays or the new owner would control the company.  Second Stage ± In the second stage.  Third Stage ± In the third stage. .Stages of Hostile Takeover  First Stage .In the first stage.

.Bailout Takeovers  This form of takeover is resorted to bailout the sick companies. to allow the company for rehabilitation as per the schemes approved by the financial institutions.

Defensive measures in Hostile Takeovers  Preventive Measures  Shark Repellants  Poison Pills  Golden Parachutes  Crown Jewels Lock-up  Active Measures          White Knight White Squire Defence Greenmail Asset Restructuring Standstill Agreement Capital Structure Changes Litigation Pac-man Defence Overgearing .

.

.within 3 months of the date of notification. This is also applicable on the Promoters of the Company. where the Companies shares are listed .Regulation 6  It states that any person holding at the time of commencement 5% or more of the Shareholding must intimate to the Company and the Company must intimate such holding to stock exchange.

Regulation 7  Any Acquirer who acquires shares or the Voting rights which would entitle him to More than 5% or 10% or 15% or 54% or 74% must disclose within four days to the Company and Stock Exchange where shares are listed. The four days will be from 1) Date of receipt of Intimation 2) The acquisition of shares as the case may be.  The stock exchange must display information received on trading screen .  Where the Acquirer has acquired the Shares together with persons acting in concert shall disclose purchase or sale aggregating to 2% or more of the share capital shall within four days disclose to Company and stock exchange. the notice board and at website with 7 days of receipt of Information  The Company whose share have been acquired in manner stated above must intimate such information to Stock exchange within 7days of Receipt of information. .

The promoter is required to disclose not only at the end of financial year but also the record date for purpose of declaration of Dividend. .Regulation 8 For continual disclosure  Every person who holds more than 15% shares or voting rights in any company shall within 21days from the end of Year (31st March.) must disclose to the Company about such holding.  Every Company whose shares are listed on the stock exchange shall with in 30 days from the end of financial year or from the Record date for dividend must intimate such holding of shares to stock exchange.

7 and 8 to SEBI as and when required by the Board .Regulation 9: Power to call for information  The stock exchange and the Company shall submit information relating to Regulation 6.

entitle such acquirer to exercise 10% or more of the Voting rights in a company unless acquirer makes a public announcement.Regulation10:Acquisition of 10% or more shares by the Acquirer  No acquirer Shall acquire in single or in persons acting in concert with him . This is not required where such acquisition is on a right share basis and such acquisition does not result in holding more than 55% of the voting rights .

 Where the case involved is of disinvestment of a public sector undertaking an acquirer who together with persons acting in concert with him has made a public announcement shall not be required to make further announcement for further acquisition of shares .Regulation 11 Consolidation of Shares  No acquirer shall acquire additional shares entitling him to exercise more than 10% voting rights along with the voting rights he already has in any financial year unless public announcement is made for such acquisition  No acquirer who holds 55% or more but less than 75% shall acquire either by himself or through the persons acting in concert unless public announcement for same has been made.

Regulation 12: Acquisition of Control over the Company  Control on target company cannot be acquired unless public announcement for same has been made. .

11 and 12 an acquirer must appoint Merchant Banker holding a certificate of registration granted by Board and merchant banker must not be associated with acquirer or group of acquirer .Regulation 13 : Appointment of Merchant Banker  Before making public announcement for acquiring shares under regulation 10.

Regulation 14: Timing of Public Announcement of Offer  The Public announcement shall be made by the merchant banker within four working days of entering into agreement for acquisition of shares exceeding the prescribed limits. .

Regulation 15: Public announcement of offer  The public announcement under reg 10.  The copy of same must be submitted to Board through the merchant banker  Sent to all stock exchange where the shares of the companies are listed  Sent to target company at its registered office .11 and 12 must be made in all editions one English national daily. one Hindi national daily and regional language where the registered office of the target company is located and at the place where the shares are frequently traded.

number of fully paid up and partly paid up shares  Percentage of shares proposed to be acquired  Minimum offer price for each share  Identity of persons having control over such company  Existing shareholding of acquirer  Existing shareholding of merchant banker in target company  Highest and average price paid by acquirer or persons acting in concert during 12 months preceding to date of public announcement  Object and purpose of acquisition  Specified date as mentioned in Regulation 19  Date by which the individual letters of offer would be posted to each of the shareholder  Date of opening and closure of offer  Date by which the payment of consideration would be made for share .Regulation 16:Contents of public announcement of offer  Paid up share capital of the target company.

Regulation 17: Brochures. advertising material  The public announcement must not contain any misleading information .

Regulation 18: Submission of letter of offer to the Board  Within 14 days from the date of public announcement acquirer shall through the merchant banker file with the Board draft of letter of offer which must be submitted to shareholders within 21days from the date of its submission to Board  Fees to be paid along with submission to Board depending on the issue size .

Regulation 19: Specified date  The public announcement shall specify the date for determining the names of shareholders to whom the letter of offer should be sent. The specified date cannot be later than 30th day from the date of public announcement .

Earning per share .Regulation 20: Offer Price  Where the shares of the Company are frequently traded: The minimum offer price will be the highest of the following:  The negotiated price as per the agreement  The highest of the price paid by the acquirer or persons acting in concert with him for any acquisition including by way of allotment or right issue during the 26 weeks period prior to date of public announcement  The price paid by the acquirer under the preferential allotment to him or the person acting in concert at any time during the 12 months period up to the date of closure of offer  The average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange during the 26 weeks preceding to the date of public announcement.  The fourth point will be : price determined taking into consideration the factors like: Net profit of the Company. ‡ When the shares of the company are not frequently traded: : The minimum offer price will be highest of the following:  The first three points will be same as if the shares are frequently traded. book value of .

Regulation 21: Minimum number of shares acquired  The public offer made by the acquirer to the shareholders of the target company shall be for minimum 20% of the voting capital of the Company .

23 and 24  These three regulations deals with:  Obligation of Acquirer (22)  Obligation of Board of Directors of the target company.Regulation 22.(23)  Obligation of Merchant Banker(24) .

.  Any competitive offer shall be for such number of shares which when taken together with the shares held by him along with person acting in concert shall be at least equal to or more than holding of first bidder.Regulation 25: Competitive Bid  Any person. other than the acquirer who has made the first public announcement . can make a public announcement within 21 days from the date of first public announcement. .

Regulation 26: Revision of offer  The acquirer can at any time up to 7 working days prior to date of closure of offer. The revisions can be in respect of following:  Changes in original public announcement in all newspapers where the original public announcement was made  Increasing the value of Escrow account .

Regulation 27: Withdrawal of offer  No public offer can be withdrawn except under the following circumstances:  The statutory approval(s) required have been refused  The sole acquirer being a natural person has died ‡ Withdrawal must be subject to:  Publish about the withdrawal in the newspapers in which the offer for public announcement was made  Intimate to stock exchange. Board and the target company about such withdrawal .

.Regulation 28: Provision of Escrow account:  The acquirer must deposit in escrow account such amount as security for performance of his obligation. Amount of Escrow:  Not subject to minimum level of acceptance: Up to 100 Crores: 25 % Up to 100 crores : 25% and 10% thereafter  Subject to Minimum level of acceptance of 20% than 50% of the consideration will be deposited.

Regulation 29:Payment of consideration  Amount of such sum payable must be deposited within 7 days from the closure of offer with a Banker to an issue registered with the Board together with 90% of the amount lying in escrow account .

Sign up to vote on this title
UsefulNot useful