The committee under the chairmanship of C Achuthan has finalised the draft regulations, recommending sweeping changes to the takeover code

After lengthy deliberation, the Committee constituted by the government to look into the regulations governing takeovers and acquisitions, has finalised and submitted the draft report to the Securities and Exchange Board of India (SEBI). Undertaking a comprehensive review of the existing law governing substantial acquisition of shares and takeovers, the Committee has rewritten the regulations for the same.

The trigger point for mandatory open offer has been raised from 15% to 25% of the voting capital of a listed company. While no change has been recommended in the annual creeping acquisition limit of 5%, the committee has recommended that creeping acquisitions be permitted only to acquirers who already hold more than 25% of the voting capital, provided the aggregate post-acquisition shareholding does not exceed the maximum permissible non-public shareholding.

In another substantial move, in case of voluntary open offers, the committee has recommended hiking the open offer size to 100% of the equity, i.e., for all the shares held by all the other shareholders of the target company. This would ensure equality of opportunity and fair treatment of all shareholders, big and small. The current regulations mandate a minimum offer size of only 20%.

However, as an exception to the 100% offer rule, the committee has stated that a voluntary open offer can be made for the acquisition of shares representing at least 10% but shall not exceed such number of shares which will take the holding of the acquirer beyond the maximum permissible non-public shareholding under the listing agreement.
As regards the pricing of the open offer, the committee has recommended that the price should be the highest of the following four parameters:

•    The negotiated price under the agreement that attracted the open offer;
•    Volume-weighted average price paid by the acquirer in the preceding 52 weeks;
•    Highest price paid by the acquirer during the preceding 26 weeks;
•    Sixty trading day volume weighted average market price.

The Committee has also proposed that the timeline for completion of open offers be brought down from the current 95 days to 57 days. The committee has also brought in clarity on the valuation in case offer price is being paid through shares. To ensure that the shares given in consideration for the open offer are indeed liquid and an acceptable replacement for cash, eligibility conditions have been stipulated. Also, while SEBI would continue to have the power to grant exemption from making an open offer, the requirement of making a reference to the takeover panel has now been left to the discretion of SEBI.

As regards competing offers, the committee has recommended certain changes such as increasing the period for making the competing bid, prohibiting acquirers from being represented in the board of the target company, and permitting any competing acquirer to negotiate and acquire the shares tendered to the other competing acquirer, at the same price that was offered by him to the public.

Commenting on the panel’s objectives while framing the revised guidelines, Mr Achuthan said, “We have tried to ensure that everybody’s interest is taken care of — from the acquirer to the target and the minority shareholders. We also aim to bring in more transparency in the process.”

The panel report would now be put up on the website of the market regulator for public comments, SEBI Chairman CB Bhave said. — Moneylife Digital Team