Concept of Takeover

A Takeover (acquisitions) is a process wherein an acquirer takes over control of the target
company. The acquirer may do so with or without the consent of the shareholders. An
acquirer may also acquire a substantial quantity of shares or voting rights of the target
company. This is termed as substantial acquisition of interest.
R.P Goenka. Man known for Takeovers
The RPG Group led by takeover wizardR.P. Goenka made a series of acquisitions, kicked
off by the Duncan buy in 1959 to the offshore holdings of tyre-maker Dunlop India in 1980,
Ceat Tyres in 1982, the Gramophone Co.of India (nowSaregama) in 1986, and Noida Power
Company (NPCL) in 1992 among many others. Starting in the 1950s, the group patriarch and
R.P.Goenkas father, K.P.Goenka, along with his three sons, made over 30 acquisitions in 25
years.
Examples:
RIL- Network 18 Media and Investments: Reliance Industries Limited (RIL) took
over 78% shares in Network 18 in May 2104 for Rs 4,000 crores. Network 18 was
founded by Raghav Behl and includes moneycontrol.com, In.com, IBNLive.com,
Firstpost.com, Cricketnext.in, Homeshop18.com, Bookmyshow.com while TV18
group includes CNBC-TV18, CNN-IBN, Colors, IBN7 and CNBC Awaaz.
Ranbaxy- Sun Pharmaceuticals: Sun Pharma has bought Ranbaxy for $ 4 billion.
Sterling India Resorts- Thomas Cook India: Billionaire Prem Watsa owned Thomas
Cook India bought the Sterling Resorts India for Rs 870 crores in , marking Thomas
Cooks entry into the hospitality sector. Thomas Cook had earlier acquired Ikya
Human Solutions in 2013.
A takeover takes place usually by acquisition through the purchase of shares held by
shareholders at a specified price. The numbers of shares purchased enable the acquirer to gain
control over the target company. The acquirer may be an individual, a company, any other
legal entity or persons acting in concert (PAC) with the acquirer.
Persons acting in concerts are individuals or companies who act on behalf of or in
coordination with the acquirer to acquire a substantial number of shares in a target company.
The acquirer and persons acting in concert may have a formal or informal agreement in this
regard. For example in the Arun Bajoria- Bombay Dyeig tussle, Bajoria appointed the
following to act as PAC to help him acquire stake in Bombay Dyeing: Mega resources, Mega
stock, Hoogly Mills, Pooja Bajoria, Mohini Devi Bajoria and Meenakshi Jati.

Forms of Takeover
A takeover can be of different types. It can be classified from the legal perspective or the
business perspective
Forms of takeover from Legal perspective
Friendly takeover
Hostile takeover
Bailout takeover
Forms of takeover from business perspective
Horizontal takeover
Vertical takeover
Conglomerate takeover
Reverse takeover
Friendly takeover
In a friendly takeover, the acquirer acquires the shares of the target by informing the Board of
Directors about his intention to purchase the shares of the target company. When the Board
feels that the offer is worth accepting, it recommends to the shareholders that the offer be
accepted.
Example: On 5th October 2006 the board of directors of Anglo-Dutch steelmaker Corus
accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company, at 455 pence
per share of Corus. The following months saw a lot of negotiations from both sides of the
deal. Tata Steel's bid to acquire Corus Group was challenged by CSN, the Brazilian steel
maker. Finally, on 30 January 2007, Tata Steel purchased a 100% stake in the Corus Group at
608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion. The deal
is the largest Indian takeover of a foreign company and made Tata Steel the world's fifthlargest steel group.
Hostile takeover
A hostile takeover is one where the Board of Directors of the target firm refuses the offer of
the acquirer to purchase the shares, but the acquirer continues to purchase the target or makes
an offer bypassing the target companys management. Such a deal also includes an offer
made by the acquirer without informing the target companys management about the
intention of acquiring a stake in the company.
Examples
Harish Bhasin vs DCM Shriram Industries: In 2007, stock broker Harish Bhasin
bought 25% in DCM Shriram Industries through a combination of open market

purchases and an open offer. But the promoters countered the move by issuing
warrants to themselves and increasing their stake.
Abhishek Dalmia vs GESCO: In 2000, Abhishek Dalmia cornered 10.5% in the
Sheths-controlled GESCO Corp and made an open offer for another 20%. But rather
than dislodging the existing promoters, Dalmia sold his stake to them for a profit of
Rs 9 crore.
Arun Bajoria vs Bombay Dyeing: In 2000, Kolkatta-based Arun Bajoria bought 15%
in Bombay Dyeing, and threatened to make an open offer to public shareholders. He
finally sold out his stake to the Wadias-- the promoters of Bombay Dyeing--at a profit.
Forms of hostile takeover:
Hostile acquisition can take place through three forms
i)
Tender offer
ii)
Proxy fight
iii)
Creeping tender offer
Tender offer
A tender offer is one made by the acquirer to buy the stock of the target firm either directly
from the firms shareholders or through the secondary market. This strategy is expensive as
the acquirer has to pay a price higher than the prevailing market price. In addition, the stock
price tends to rise in anticipation of a takeover.
Proxy fight
In proxy fight, the acquirer approaches the shareholders of the target firm with an objective of
obtaining the right to vote for their shares. The acquirer hopes to secure enough proxies that
would help them gain control over the board of directors and replace the incumbent
management. Proxy fights are a very expensive and difficult mode of takeover, for the
incumbent management team can use the target firms funds to pay the cost of presenting its
case and obtaining votes.
Example
In February of 2008, Microsoft Corporation made an unsolicited offer to buy Yahoo for $31
per share. At that time, this offer represented a 62% premium to Yahoo's stock price. With
the potential to realize a large capital gain on their investment, many shareholders would have
liked to see the merger with Microsoft become a reality.
Unfortunately, the board of directors at Yahoo felt the offer by Microsoft under-valued the
company. Negotiations between the executives at Microsoft and Yahoo eventually stalled,
and Microsoft withdrew their offer on May 3, 2008.
Less than two weeks later, billionaire Carl Icahn launched an effort aimed at replacing the
board of directors at Yahoo via a proxy contest.

Steps Involved in a Proxy Contest

Generally, there are four steps involved in a proxy contest, including:
1. The acquiring company and / or a group of major stakeholders, such as large
institutional investors, decide to join forces and launch a proxy contest against the
target company.
2. These investors threaten to use their proxy votes, which are commonly used in large
corporations for voting by shareholders, to make the target company comply with
their wishes. Proxy voting allows shareholders who have confidence in the judgment
of others to "stand-in" and vote for them on corporate governance matters such as the
election of board members.
3. If successful in gathering enough proxy votes, the acquiring company can then elect
new board of directors using proxy ballots.
4. These newly-installed board members will be much more agreeable to the takeover or
merger, and eventually the deal is finalized.
Creeping tender offer
A creeping tender offer is the gradual accumulation of a target company's shares, with the
intent of acquiring control over the company or obtaining a significant voting block
within it. A creeping tender offer is conducted through the purchase of shares on the open
market, rather than through a formal tender offer. This approach can mean that the failure
of an acquisition bid will leave the acquirer with a large block of stock that it will
presumably have to liquidate at some point in the future, possibly at a loss. However, it
may still be possible to apply pressure on the target company to force the repurchase of
the shares at a sufficiently high price to avoid a loss, or even generate a profit.
The creeping tender offer approach can be used to avoid the formal tender offer reporting
requirements imposed by the SEC under the Williams Act (Applicable only in US).
Tender offer reporting is required when an acquirer is soliciting for the shares of a
business at a premium, with the offer being contingent upon the tendering of a certain
number of shares.
Bailout takeover
This involves the takeover of a financially sick company by a financial sound company as
per the provisions of the Sick Industrial Companies Act (1985). The objective of this
takeover is to bail out the sick unit from losses.

In a bailout takeover, the government or strong company takes over the weak company by
purchasing its shares, exchanging shares or both. The acquiring entity develops a
rehabilitation plan for the weak company, describing how it will be managed and by
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whom, how shareholders will be protected and how its financial position will be turned
around.
Horizontal takeover
When a company takes over another company from the same industry, the takeover is
referred to as a horizontal takeover. The basic objective behind this type of takeover is to
attain economies of scale and increase market share by entering into the segments of the
company taken over
Vertical takeover
When a company is taken over by any of its vendors or customers, it is referred to as a
vertical takeover. The main purpose of vertical takeover is to achieve economies of scale.
Conglomerate takeover
When a company takes over another firm from a totally different industry, it is termed as
conglomerate takeover
Reverse takeover
This is a takeover strategy where a private company acA conventional initial public
offering (IPO) is more complicated and expensive, as private companies hire an
investment bank to underwrite and issue shares of the soon-to-be public company.
While conventional IPOs can take months (even over a calendar year) to materialize,
reverse takeover can take only a few weeks to complete (in some cases, in as little as 30
days). This saves management a lot of time and energy, ensuring that there is sufficient
time devoted to running the company.
SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER) SAST
REUGULATIONS 2011
The SEBI Takeover code lays down the procedures to be followed by an acquirer for
acquiring the majority of shares or controlling in another company, so that the process of
takeover is carried out in a fair and transparent manner.
Concept: Takeover is a process whereby an acquirer takes control of the target company.
However when an acquirer acquires substantial quantity of shares or voting rights of the
target company, it is termed as substantial acquisition of shares.
The Takeover Code is designed principally to ensure that shareholders in an offeree
company are treated fairly and are not denied an opportunity to decide on the merits of a
takeover and that shareholders in the offeree company of the same class are afforded
equivalent treatment by an offeror. The Code also provides an orderly framework within
which takeovers are conducted. In addition, it is designed to promote, in conjunction with
other regulatory regimes, the integrity of the financial markets
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Definitions
Control
Control shall include the right to appoint majority of the Directors or to control the
management or policy decisions exercisable by a person(s) or persons acting in concert,
directly or indirectly, including by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any other manner.
Meaning of Control
The right to control management and policy decisions.
The right to appoint (and remove) majority of the directors of a company.
Various means of acquiring control
One company can acquire control of another company through
1. Purchasing a substantial percentage of the voting capital of the target company.
2. By acquiring voting rights of the target company through power of attorney or
through a proxy voting arrangement.
3. By acquiring control over an investment or holding company, whether listed or
unlisted, that in turn holds controlling interest in the target company.
4. By simply acquiring management control through a formal or informal
understanding or agreement with the existing person (s) in control of the target
company.
Acquirer
Acquirer means 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.
When a company will be vulnerable to Takeover?
1. Low stock price with relation to the replacement cost of assets or their potential
earning power;
2. A highly liquid balance sheet with large amounts of excess cash, a valuable
securities portfolio, and
3. Significantly unused debt capacity;
4. Good cash flow in relation to current stock prices;
5. Subsidiaries and properties which could be sold off without significantly impairing
cash flow; and
6. Relatively small stockholdings under the control of an incumbent management.
SEBI Takeover Code 2011: Substantial Acquisition of Shares
No acquirer shall acquire shares or voting rights in a target company which taken
together with shares or voting rights, if any, held by him and by persons acting in concert
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with him in such target company, entitle them to exercise twenty-five per cent or more of
the voting rights in such target company unless the acquirer makes a public
announcement of an open offer for acquiring shares of such target company in accordance
with these regulations.
What is the Initial threshold limit under SAST 2011?
Any person or PACs (together referred to as acquirer), can acquire up to 24.99% shares or
voting rights in a listed company in India. If the acquisition results into entitlement of
25% or more voting rights in the target company, the acquirer is required to make an open
offer to acquire at least 26% shares from the existing public shareholders of the target
company.
What is the limit for creeping acquisition?
The acquirer holding 25% or more voting rights in the target company can acquire
additional shares or voting rights to the extent of 5% of the total voting rights in
any financial year, up to the maximum permissible non-public shareholding limit
(generally 75%).
What is the trigger for mandatory open offer?
A mandatory open offer gets triggered on any of the following cases :
Acquisition of substantial shares or voting rights entitling the acquirer to 25% or
more voting rights in the target company
Creeping acquisition of more than 5% voting rights in a financial year by the
acquirer who already holds 25% or more voting rights in the target company
Acquisition of control over the target company, irrespective of shares or voting
rights held by the acquirer.
What is Voluntary open offer?
The acquirer holding 25% or more voting rights in the target company can make a
voluntary offer for at least 10% of the total shares of the target company. This is
subject to fulfilment of the following conditions:
Total shareholding of the acquirer post open offer should not exceed maximum
permissible non-public shareholding (generally 75%).
The acquirer should not have acquired shares of the target company in the
preceding 52 weeks without attracting open offer obligation.
How the offer price is determined?
The minimum offer price should be highest of the following (Direct acquisition)
a) Highest negotiated price
b) Volume weighted average price paid or payable by the acquirer during the preceding 52
weeks
c) The highest price paid or payable by the acquirer during the preceding 26 weeks
d) 60 trading day volume weighted average market price, for frequently traded shares. For
infrequently traded shares, the price determined by the acquirer and the manager to the open
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offer taking into account valuation parameters

e) The per share value of the target company, if computed (in case of indirect acquisition
where value of the target company exceeds 80% of overall transaction.)
Procedure and Time Frame of Open Offer

1.Agreement to purchase
shares or decision to acquire
shares in stock market or
decision about change of
control
2. Public Announcement

3. Submission of PA to SEBI,
Stock exchanges and target
company
4.Specified date
5.Despatch of letter of offer to
shareholders including
custodians of GDRs/ADRs,
warrant holders etc, but
excluding the shareholders
from whom the acquirer is
buying shares through
negotiated deal
6.Receipt of offer letter by
shareholders
7.Date of opening of offer
8.Offer closing date

From
Previous/
Specified date

From
Zero
date
0

The date on which it first

appears in a newspaper as
required by the regulation is
considered as date of PA
Simultaneously with
publication of announcement

Within zero
days of PA

Cannot be later than thirty days

from PA
Not before twenty one days
from filling with SEBI. In case
SEBI requires filing revised
Draft Letter of Offer, the same
has to be filed ad thereafter
SEBI would give its comments
within seven days after which
it can be despatched.
Before opening of offer

Within thirty
days of PA
Within 24 days
of filing with
SEBI

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Within 45 days
of PA
Within 55 days
of PA

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Offer to be open for twenty

days
Up to three days prior to
closing of offer
Within seven days of the
completion of verification

9.Shareholders right to
withdraw tendered acceptance
10.Completion of all
Within fifteen
formalities and payment to
days of closure
Shareholders who have
of offer
tendered their acceptances
Contents of public announcement and brochures and advertising material
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The public announcement made by the acquirer must contain the following details
1. Details of the share capital of the target company
2. Identity of the acquirer, the promoters of the acquirer, in case the acquirer is a
company
3. Details of the open offer such as the number and percentage of shares proposed to be
acquired, minimum offer price and mode of payment
4. In case of any open offer that has been triggered by a negotiated deal, the details of
such agreement
5. Objective and purpose of the acquirer behind the acquisition
6. Various dates such as specified date, date of opening and closing of the offer etc
7. Details of financial arrangement made for the open offer
8. Details of statutory and other approvals required
9. Whether offer is conditional to the minimum acceptance level.
Refer the Copy of Public Announcement of Sunshield in Appendix 1
Types of Disclosures
Event based disclosure
Continuous disclosure
Event based disclosure
Any person, who along with PACs crosses the threshold limit of 5% of shares or voting
rights, has to disclose his aggregate shareholding and voting rights to the Target Company at
its registered office and to every Stock Exchange where the shares of the Target Company are
listed within 2 working days of acquisition as per the format specified by SEBI.
Continuous disclosure
Any person who holds 5% or more of shares or Voting rights of the target company and who
acquires or sells shares representing 2% or more of the voting rights, shall disclose details of
such acquisitions/sales to the Target company at its registered office and to every Stock
Exchanges where the shares of the Target Company are listed within 2 working days of such
transaction, as per the format specified by SEBI.

General obligations of the Acquirer

1. During the offer period, the acquirer or a person acting in concert with him is not
entitled to get appointed on the Board of the target company
2. The acquirer shall create an escrow account on or before the date of public
announcement
3. Within 15 days of the closure of the open offer, the acquirer shall complete all
procedures relating to the offer including the payment of consideration to the
shareholders.
4. In the event of withdrawal of the open offer as permitted under the regulations, the
acquirer shall not be entitled to make an open offer for 6 months from the public
announcement of withdrawal of the open offer
5. In the event of non-fulfilment of obligations under Takeover regulations, the acquirer
shall not be entitled to make an open offer for any listed company for twelve months
from the date of closure of the offer.
6. If the acquirer does not disclosure in the public announcement or in letter of offer, his
intention to dispose of or encumber any assets of the target company except in the
ordinary course of business, he shall be debarred from doing so for a period of two
years after his acquiring control of the target company
General obligations of the Board of the Target Company
After the public announcement by the acquirer and during the offer period, the Board of the
target company is prevented from doing certain things.
1. Not to sell, transfer, dispose off or encumber any of the assets of the company
2. Not to enter into any material contracts
3. Not to issue any authorised but unissued securities carrying voting rights
4. It is the obligation of the Board of the target company to provide, within seven days
of the specified date or within seven days of the request from the acquirer, list with
details of shareholders, convertible debentures or warrant holders eligible to
participate in the offer along with the details of pending transfers

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