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Securities Law
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TAKEOVER

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INTRODUCTION

asasasasasasasasas

Takeoverasisastheastermasassignedastoasaassituationaswhichasresultsasinastheastransferasofascont
rolasofasaascorporationasfromastheashandsasofasoneasgroupasofasshareholdersasintoastheashands
asofastheasotherasgroupasofasshareholders.asTheaspartyastakingascontrolasofastheascompanyasisa
sknownasasastheasacquirer asandastheascompanyasbeingastakenasoverasisasreferredastoastheast

argetascompany.asTheasinitiationasofasaastakeoverasprocessashappensaswhenasatastheasstageas
whenastheasacquirerasmakesasaasbidasforastheastargetascompany.asUponastheascompletionasofas
theastakeoverasprocess,astheasacquirerasbecomesasresponsibleasforasallasholdings,asoperationsas
andasdebtsasofastheastargetascompany.1
Itashasasbeenasobservedasthatascorporationsasengageasinastheasprocessasofastakeoversaswithasaa
smultipleasnumberasofaspurposesasandasobjectivesasinasmind.asTakeoverasisasseenasasasaasproc

essaswhichasresultsasinasquickasgrowthasofastheasacquirerasinastheasmarketasasascomparedastoa
sgrowthasviaastheasinternalasmechanismsasofasaascorporation.asasTakeoverasisasaasprocessaswit

hasaccruesaslargeasprofitsastoastheasacquirersasespeciallyasinastheascasesasofaseconomiesasofass
cale.asUponastheascompletionasofasaastakeover,astheasacquirersaspositionasinastheasdomesticasa
ndasinternationalasmarketasincreasesassubstantiallyasandasmayasevenasresultasinasattainmentasof
asaasdominantaspositionasbyastheasacquirer.asInascertainascasesastheasacquirerasmakesasunderta

keastheasprocessasofastakeoverasinasorderastoascomplementasitsasexistingasbusinessasbyasacquir
ingastheasskillsasandasstrengthsasofastheastarget.asAnotherasreasonaswhyasacquirersasundertakea
stheastakeoverasprocessasisastoasprotectastheasacquirerasfromasdownturnsasinastheasmarketasand
astoasdiversifyasitsasrangeasofasproducts.

asInastheaslegalascontextastakeoversascanasbeasclassifiedasintoasthreeasbroadascategoriesashostileastakeovers,asfriendlyastakeoversasandasbailasoutastakeovers.asHostileastakeoversashap

1asLegalasServices,asTakeoversas(legalservicesindia.com, asFebas2008)as<ashttp://www.legalservicein
dia.com/article/l183-Takeovers.html>asaccessedasonas14thasMarchas2015.
2asSlideshare,asTakeoversas(Slideshare.net)as<ashttp://www.slideshare.net/PrashantSharma37/takeover
-of-companies>asaccessedasonas14thasMarchas2015.
2

penaswhenasanasacquirerascompanyaspursuesasaastargetascompany,aswithoutastheasknowledgeas
ofastheastargetascompany.asTheseastakeoversasareasresortedastoasbyascorporationsastoasassertasa
ndasincreaseastheirasdominanceasinastheasmarket.asFriendlyastakeoversasareasalsoasknownasasas
negotiatedastakeoversasandastheseastakeasplaceasuponasnegotiationasbetweenasexistingasinvesto
rsasandaspromotersasofastheasacquirerasandastheasinvestorsasandaspromotersasofastheastarget.as
Theseaskindsasofastakeoversasareasundertakenastoasfurtherasaascommonasobjectiveasofastheasac
quirerasandastheastarget.asBailsasoutastakeoversasareasundertakenasbyasaasfinanciallyassecureasc
ompanyasofasaasfinancialassickascompanyastoasbailasitasoutasofasitsassituation.3
Inasfinancialasterms,astakeoversasareasdividedasintoasthreeasbroadascategoriesasverticalastakeovers,ashorizontalastakeoversasandasconglomerateastakeovers.asHorizontalastake

oversasreferastoastheasprocessasbyaswhichasaascompanyasacquirersasanotherascompanyasinasthe
assameasfieldasofasoperation.asWhenasaascompanyastakesasoverasitsassuppliersasorasdistributors

,astheasprocessasisascalledasaasverticalastakeover.asConglomerateastakeoversasareastheastermasu
sedastoasdefineasaassituationasinaswhichasaascompanyasoperatingasinasoneasfieldastakesasoveras
anotherascompanyasoperatingasinasaastotallyasdifferentasfield.4
Throughastheascourseasofasthisaspaperastheasauthorasshallasfirstashighlightastheasprocedureasinv
olvedasinastheasprocessasofastakeover.asasNextastheasdevelopmentasofastheastakeoverascodeasin
asIndiaasshallasbeasanalysedasandasfinallyasaasdetailedasdiscussionasaboutastheastakeoverascode
asofas2011asshallasbeascarriedasoutasandasconclusionasregardingastheassameasshallasbeasdrawn

.5
PROCEDUREasFORasTAKEOVER
Aastakeoverascanastakeasplaceasthroughasmanyasdifferentasmethods.asAascompanyasmayasacqu
ireassharesasofasanasunlistedascompanyasthroughasacquisitionasunderasSectionas395asofastheasC
3asIbid.
4asLegalasServices,asTakeoversas(legalservicesindia.com, asFebas2008)as<ashttp://www.legalservicein
dia.com/article/l183-Takeovers.html>asaccessedasonas14thasMarchas2015.
5asSlideshare,asTakeoversas(Slideshare.net)as<ashttp://www.slideshare.net/PrashantSharma37/takeover
-of-companies>asaccessedasonas14thasMarchas2015.
3

ompaniesasAct,as1956.asHowever,asinascasesaswhereastheassharesasofastheascompanyasareashel
dasbyastheaspublic,astheasprocedureasforastakeoverasisaslistedasoutasinastheasSEBIas(Substantial
asAcquisitionasofasSharesasandasTakeovers)asRegulations,as1997aswhichaswasasamendedasinas2

002,as2004asandas2006.asInasthisasprojectastheasauthorasshallasrestrictashisasanalysisastoaslisted
ascompanies.

Thereasisasnoasfixedasdefinitionasofastheastermastakeover.asItasbasicallyasmeansastheasprocess
asbyaswhichasanasacquirerastakesasoverastheascontrolasorasmanagementasofastheastargetascomp

any.asTheasimplicationsasarisingasfromasaastakeoverasareasmany,asforastheaspurposesasofasunde
rstandingassuchasimplications,asweasdiscussasasastoaswhatasisastheasactualasmeaningasofas1)as
Acquirer,as2)asTargetasCompany,as3)asControl,as4)asPromoter,as5)asPersonsasactingasinasconcer
tasandas6)asSubstantialasquantityasofassharesasorasvotingasrights.7

decidingassayasinasdecisionsasaffectingastheastargetascompany.asInascasesaswhereastwoasorasmo
reaspeopleasareasinascontrolasoverasaastargetascompany,astheasimplicationasofasanyasoneasofast
hemasgivingasupastheiraspowersaswillasnotasbeasaaschangeasinascontrolasofasmanagement.asIfas
also,assubsequentastoasaaschangeasinascontrolasofastheastargetascompanyasinasaccordanceaswith
asregulationas3as(1)

6asLegalasServices,asTakeoversas(legalservicesindia.com, asFebas2008)as<ashttp://www.legalservicein
dia.com/article/l183-Takeovers.html>asaccessedasonas14thasMarchas2015.
7asIbid.
4

(e),astheascontrolasacquiredasisaslesserasthanaswhichaswasasenjoyedasearlier,asitasshallasnotasbe
asdeemedastoasbeasaaschangeasinascontrol.

Theasdefinitionasofaspromoterashasasbeenasnarrowedasdownasbyastheas2006asamendmentasanda
sitaswillasonlyasincludeasanyaspersonasinascontrolasofastheastargetascompanyasorasnamedasasas

promoterasinastheasshareholdingaspatternasorastheasofferasdocumentasfiledasbyastheastargetasco
mpanyasasaswell.asTheasdefinitionashasasbeenasmadeasexhaustiveasbyasremovingastheasearlier
asclausesaswhichasincludedasevenaspersonsasindirectlyasinvolvedasinastheascontrolasofastheasco

mpany.9
Theastakeoverascodeashasasalsoasamendedastheasdefinitionasofasindividualasandasitasnowasinclu
desastheasrelativeasi.e.,asspouse,assister,asbrother,asparentsasandaschildrenasofastheaspromoterasa
ndasalsoasanyaspersonaseitherastheaspromoterasorashisasimmediateasrelativeaswhoasisasholdinga
10

sanasaggregateasshareascapitalasofas10%asorasmoreasinasaascompany.

DEVELOPMENTasOFasTAKEOVERasCODE

8asIbid.
9asIbid.
10asIbid
5

swasassetasup,astheasreportasofaswhichasresultedasinasaascompleteasmodernizationasofastheasTa

keoverasRegulations.asThisasledastoaspassageasofasnewasTakeoverasCodeasinastheasyearas1997a
11

sandasrepealasofastheasearlierasone.

sforaspromotingasaashealthyassecuritiesasmarketastoasbenefitastheasinterestsasofasbothasinvestors
asandaspromoters.asTherefore,asSEBIasconstitutedasaasnewascommitteeasunderastheasChairmans

hipasofasCasAchuthan,asformerasPresidingasOfficerasofastheasSecuritiesasAppellateasTribunalast
oassuggestastheasskeletonasforastheasnewasTakeoverasCode.asBasedasonassuggestionsasofasthea
sAchuthanasCommittee,asaasnewasTakeoverasCodeaswasasformulatedasbyasSEBIasandaswasasn

otifiedasonas23rdasSeptemberas2011.12
TAKEasOVERasCODEas2011
TakeoverasCodeasisasprimarilyasresponsibleastoasmakeassureasthatasthereasisasbalanceasandassy
mmetryasbetweenasallastheasstakeholdersaswhoasworkasonassecurityasmarketastransactions.asTh
11KPMG,asNewasTakeoverasRegulations,as(Moneycontrol.com,as2011)as<ashttp://www.moneycontro
l.com/news_html_files/news_attachment/2011/SEBI%20Takeover%20Regulations%20-%202011%20%20Draft%20(12%20Oct%202011).pdf>asaccessedasonas14thasMarchas2015
12SEBI,asReportasofastheasTakeoverasRegulationsasAdvisoryasCommitteeas(Sebi.gov.in)as<http://www.sebi.g
ov.in/commreport/tracreport.pdf>asaccessedasonas14thasMarchas2015.

eashighlightsasofastheaslatestasTakeoverasCodeasareastheasfourasmajorasregulationsasfromas2831.13
Regulationasnumberas28asgivesastheasguidelinesasonastheaspublicasannouncementasofasaastakeo
verasandasgoesasonastoassayasthatasforastheaspurposeasofasthisascode,astheasdisclosureasisastoas
beasmadeasbyastheasacquirerasandastheaspersonasisastoasrevealasanyasvotingasrightsasthatasanya
spersonashasasacquiredasactingasforastheaspurposeasorascumulativeasshareholdingasthatashasasc

omeasintoasbeing.14as

agementasandasownershipasofastheascompany.asThisashasasbeenasintroducedasonassimilaraslines
asasasthatasofasjurisdictionsasofasUK,asPortugal,asBrazil,asBelgiumasetc,aswhichasallowasowner

shipasofasuptoasthirtyaspercentassharesasinasanyascompany.15

13asTakeoverasCodeas2011,asReferenceasonasSEBIasSubstantialasAcquisitionasofasShareasandasTake
oversas(pwc.in,as2011)as<ashttps://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-finallowres.pdf>asaccessedasonas14thasMarchas2015.
14asIbid.
15asIbid
7

asTheasnextasprovisionasthatasisasRegulationas3(2)assetsasaaslimitasforascreepingasacquisition.as

Thisasregulationasstatesasthatasaaspersonaswhoasownsasbetweenastwenty-fiveastoasseventyfiveaspercentasvotingasrightsasandasplansasonasacquiringasfiveaspercentasorasmoreasinasoneasfin
ancialasyear,ashasastoasgiveastoasitsasshareholdersasanasopenasoffer.asRegulationas4asofastheasT
akeoverasCodeasonasaasstrongasandasstrictasfootassaysasthatasfailureasinasgivingasanasopenasoff
erasbyastheaspersonasmentionedasofasinastheaspreviousasregulation,asprovisionsasofasRegulation
asnumberas32aswillasbeasattracted,aswhichasgivesasSEBIastheaspowersastoasactassternlyasandase

mpowersasitastoasissueasordersasofasdivestureasofasshares,asmandateasmakingasofasopenasoffer,
asdirectasceaseasandasdesistasordersasorasgiveasordersaspreventingasaccessastoascapitalasmarkets
asbyasthemasforasaasspecificasperiod.asItasalsoasenablesasSEBIastoasimposeasmoneyaspenaltiesa
swhichascomeasunderassectionas15HasofastheasSEBIasAct.

16

Aaspertinentaspointastoaskeepasinasmindasisasthatasonceastheasrequirementsasofasanasopenasoffe
rasareastriggered,astheasofferassizeasmustasbeastwentyassixaspercentasofastheasshareassizeasofast
heascompanyasasasonastheascloseasofastheastenthasworkingasdayasofastheastenderingasperiod.as
Aasvoluntaryasopenasofferasforasanyasacquirerasandaspersonasactingasinasconcertasholdingasmo
reasthanastwentyasfiveaspercentasvotingasrightsasinasaascompanyasisasmadeassubjectastoascertai
nasconditionsasunderasRegulationas6asofastheasTakeoverasCode.

16asIbid
8

AnotherasvitalaspointasisasthatasaaschangeasofascontrolasaccordingastoasRegulationsas4asandas2
(1)
(e)ascanastriggerastheasrequirementsasofasaasmandatoryasopenasoffer.asTheasSupremeasCourtasi
nasSecuritiesasandasExchangeasBoardasofasIndiaasvasSubhkamasVenturesasLtd17asmeticulouslyas
explainedastheasmeaningasandasambitasofastheastermas'control.'
Regulationas8asisasanasimportantasprovisionastoasdetermineasofferasprice.asDeterminingastheaso
fferaspriceasforasasanasopenasofferasinvolvesascomplexities.asButastheasgeneralasguidelinesassta
teasthatastheasopenasofferaspriceasshouldasbeastheashighestasofastheasweightedasaverageaspricea
sofastheastargetascompanyastradedasorastheashighestaspriceasthatastheasacquirerashasasnegotiate

d.asTheasinterestasofastheasshareholdersasisastoasbeaskeptasinasmindaswhileasdecidingastheasoff
erasprice.asInterasseastransferasofassharesasamongstasrelativesasoraspromotersasofasaasholdingas
orassubsidiaryascompanyasisasexemptedasasfromasopenasofferasunderasRegulationas10.18

CONCLUSION

TheasTakeoverasCodeaswhileasincentivizingasinvestmentasalsoasensuresastheasinterestasofaspro
motersasasaswellasasbyasensuringasthatastheasregulationasworksasinasbestasinterestasofassecurity
asmarketasandasbyaskeepingastheaseconomicasgrowthasthroughascorporateasrestructuringasunco

mpromised.asTheasauthorasbelievesasthatastheasTakeoverasCodeaswillascertaininlyasbeasinstrum

17as[2010]as99asSCLas159.
18asTakeoverasCodeas2011,asReferenceasonasSEBIasSubstantialasAcquisitionasofasShareasandasTake
oversas(pwc.in,as2011)as<ashttps://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-finallowres.pdf>asaccessedasonas14thasMarchas2015.
9

entalasinascheckingaspotentialasandaspersistingasundesirableaspracticesasaffectingastheascapitala
smarketasandaswillasprovideasprotectionastoastheassmallasinvestorsasasaswell.

10