Introduction ei -VIAHT Gxteucien of Bucniess valuation In developed economies, corporate mergers and amalgamations ("MBA") are a regular feature, The merger Began porn of conpeinsho erned cbr recor Inindia also, a number of mega ‘mergers and hostile taheovers could be witnessed. Til recently acquisition of one company by another was ‘Viewed, in india as a sign of failure of the former and violent aggression of the latter. But trend towards Globalization of all national and regional economies has increased the Intensity of mergers, in a bid to create ‘more focused, competitive, viable, larger players, in each industry. Increasing trends towards globalization thas compelled to corporate world to workin an “Exce/ or Exit environment”. 4.1 Terminology 41.1 Mener When two or more companies decide to pool the resources under a common entity itis called as ‘merger. If as a result of merger, a new company comes into existence, it is called as “Complete consolidation”. if as a result of a merger, one company survives and others lose their independent entity, itis called as “Absorption’ 4.1.2 Acquisition or Take over {refers to acquiring effective control over assets or management of another company without any combination of companies. in acquisition there is a change of control even though two or more. companies remain independent. Figure 4.0 Consolidation Figure 4.1 Absorption 052| Strategic Financial Management aata Nec Coemeut a yo fe biel Be e ( pack Se pees, of OM Lorre natyen 4 Crmtedy port! CAMs al, Combe ig cd tech toile alt = * eu + oa =n ah. When a perton seeking control over » company, purchase the required number of shares trom nar controlling shareholders in the open market beeping his identity a secret. In other words when an acquistion isa “forced” o “unwilling” iis called as hostile take over. a types Ah Lebaents © Fiedly Csasirteetsty) ek @ Heie C foveanebay) Public Wonte ater Shareholders Promoter 414 $merny ‘A situation where the combined firm ls more valuable [Higher FPS for the merned entities) than the ‘um ofthe individual combining firms. It is defined ws “(242.25)” phenomenon Operating econormes are one form of synergy benefits, But apart from operating economies, synergy may also arive from enhanced managerial capabilities, creativity, Innovativeness, RED and market canverage Capacity due to the complementarities of resources and skills and a widened horizon of opportunities. The concept of synergy canbe explained symbolically as follows, ~ Tne vidual, uate, oda; a or Cnatsiug varue > dividual vis 41S Assets Stripping When the market value of the shares is quoted below the true net worth of a company, it motivates hers for acquisition of its shares. This concept |s called as axxets stripping This concept is particularly applicable to thove companies which are elther real estate companies or awn valuable fealestate aviets, ue & Murer 416 Revere Merger When small becornes the acquirer whereas the large bacomes the target. A unique type of merger, which can be sean rarely, However such mergers occur only in an environment where the MEA decision become o strategic decision which is more necessary and acceptable, Generally a merger Is termed tobe a reverse merger iit satisfies the following conditions; p Strategic Financial Management |053oe 1 Pe vito Meron ret ae! fe | aston vd orien num " the tansleree compan MquisnlOn erteedy Saunas Ox FO 0a © Ghaneectzoquoyn thane comonny Forerample, HCN) Merge of CCl with CK Bank mayb ermad 99088 NCICB, Stary manga of KO wih VL was ao nh” ey, ot veverva merger, (CIC 798 tha gy thy ure chteversa merge, 41.7 Leveroued Buy Outs ("100") ] LO Is an seqison of» company in whch the acquit is svetatiay financed throug gy Generally looks for » whichis ina high growth market with » high marke, Hpi tenand cpa erg pe 9 taurine adn ahng fa few investors, Such companies generate higher £95, Abuyer would tyPialy 6 pute fer 4g years, and make substantial capital gains. ‘Onthe other hand sometimes proves very thy nd egg | Survival becomes very difficult. Forexample; ; } Tata Steels ¥ leveraged buy out by an Indian company wherein thy | total hui oe ee manele from Tata Steel, along with » 4 ‘Underwritten non-recourse debt package and revolving credit faclity 4.1.8 Management Buyout M00") ‘When the managers buy their company from ts ownersit scaled as management buy outs (MBO), y | rwolves sale of the exlsting enterprise to the management, Generally, when the potential acquireg ‘management team does not have sufficient resources to finance the acquisition, the managemen, resorts to external sources of finance to fund the acquisition. A special type of situation arises when the acquisition by management is substantially financed by debt, such acquisition is a combinational both MBO and BO, | 4.1.9 Tender Offer tender offer Is formal offer to purchase a given number of a company’s shares at a specific price, The price s generally quoted at «premium in order to Induce the shareholder/s to tender their shares, Inthe beginning, Disinvestment of various PSU's were executed by this method. 4.1.10 Dhvestmant It involves the sale of a company’s assets, oF product lines, oF division or brand to the outsiders. tis “Teverve of acquisition. In divestment, the selling company Intends to create more value for the shareholders. It sells the part of business for a higher price than its current worth. The remaining business might alsofind its true value, Thus, divestment creates reverse synergy. } There are two types of divestment; third party, itis called sell-off, Wher nd spin-off. When a company sells part ofits business tow new company trom the existing single entity, _/]—_— ‘Go wong ha compte MAA analy othe delat For ow wld sein of chapter 054| Strategic Financial Management@- 9 r Merger & Acquisition its called as De Merger or spin-off. The spn-of com, eit Hence ther sno change in ownership. Aer spn “aenholin akg ni Oe companies’ viz, Lead when the announcement of a ape ae, 4.2 Motives for mergers 4.2.1 Synergistic operating economies Achieving economies of scaleis the natural goal of horizontal mergers. Large ones that can provide the missing ingredients necessary for the small firms success acquire many small firms. The small firm may have a unique product but lack the engineering and sales organization required to produce and market it on a large scale. The firm could develop engineering and sales talent’ from scratch, | but it may be quicker and cheaper to merge with a firm that already Rasjample ti talent] The two firms have “complementary resources, each has what the other needs and so it may make sense for them to merge. Vv For example Mount Everest Mineral Water (MEMW) became a parto of Tata Tea in 2007. The company bottles and selis natural mineral water-under-the brand name Himalayan, which is the only internationally accepted natural mineral water from india. 4.2.2 Diversification of Risk Just like a rational investor, diversifies his investments into numerous securities each having a unique characteristic risk, a firm may also diversify via acquisition into a number of segments to reduce its ‘vulnerabilityto a particular risk inherent with the industry in which it operates. However, Shareholder to diversity and reduce risk as compared to the entity doing the sa t @: ait. Ditters Ete: paper SS RIESE a ee V1 Strategic Financial Management | 05SONS TESS 25. eee ae eee Pea Ports Merger & Acquisition Mee Na Ker snare. a Pricing Power? th 4.2.3 Totlondenefits form of cash, the acquisition ‘An acquisition may be either taxable or tax-free. if free. if payment is in the regerded 6 wat Inthis case the selling stockholders are treated as having sold thele shares, ang they must pay taxon any capital gains. f payment islargely inthe form of shares the acquisitian stax, free and the shareholders are viewed as exchanging thel old shares for similar new ones: no capital Balns oF losses are recognized, ‘Also, as por the Income-tax Act, 1961 i » merger fulfils certain prescribed conditions then a fresh lease of 8 years become avalable to the merged entity to carry forward the losses of the acquired entity, which tbe setoft. process by expanding back toward the outpu, ‘One way to achieve this Is to merge with » itates coordination and administration. However lowing out. Since, companies are finding it more Some companies try to gain control over the production ‘of the raw material or forward to the ultimate consumer. supplier or a customer. Such Integration facil nowadays this concept of merger seems to be fl efficient to out-source the provision of many services and various types of production. For example: Backin 1950s and 1960s, General Motors(“GM") was deemed to have 2 cost advantage cover its main competitors, Ford and Chrysler, because a greater fraction of the parts used in GMis automobiles were produced in house, By he 1990s, ord and Chrysler had the advantage; they could buy the parts cheaper from outside suppliers. This was partly because the outside suppliers used non- union labor atlower wages, Consequently, in 1998 GM decided to spinoff Delphi, its automotive parts division, sa separate company. After the spin off,GM can continue to buy parts from Delphi in large volumes, but it negotiates the purchases at arm's length, 425 Othen | There are numerous other motives which may promote an organization to resort to merger and amalgamations. The prominent amongst them are growth, Intention of developing an image of aggressiveness and strategic opportunism, orto limit Competition. A combination of these motives arise a firms interest into mergers and amalgamations. 4.3 Forms of Merger 4.3.1 Horlzontal Merger distribution or area of ‘This is @ combination of two or more firms in similar type of production, business. For example: the merger of HP & COMPAQ or ICICI Bank & Bank Of Madura 4.3.2 Vertical Merger Combination of two or more firms involved in different stages of production ‘or distribution. It may take the form of forward or backward merger. For’ ‘example: Automobile companies & Auto ancillary units, Merger of Blow Plast Ltd. with VIP Industries Ltd, 4.3.3 Conglomerate Merger ye main motive behind ‘Combination of firms engaged in unrelated lines of business ‘activity. Th Conglomerate Mergers to diversity the risk. For example, Merger of ITC Hotels, ITC Agrotech and ITC Paper with ITC Ltd. 056| Strategic Financial Managementbord 4A paclysis of Mergers & Acqutstiong pf 7. sanyo beghhe 1 aaa A} ‘The acquiring fir shonAd mata » re a Mier, Waakras, Alora wan & tequiresthe anal ch nutes ec aida loe cae a fOr eat 4A2 Search kScreening Search focuses on harm and where to lock bor wultable candidates tox scraseion. Wreereg ese shorttists afew candidates trom many wralatle. <—— y the merger. & quetion wines, what is the berets f merge to acquiring firm? A merger will make econommc venae ta the sccasting tam ts sharetclders benefit |e. a merger adds value only if the two companied are worth more together than apart Wie making financial evaluation following calcidations are connsthered: 4433.1 Calauation of Value created by merger Merger will create an economic advantage ("EA") when the comtared prevent wabue of the merged firms is greater than the sum of them inceicual present wakes 25 separate eraties. if EA exceeds the cost of merger itis called as Net Economic Advartage (WEA). in practice, the ~~aequiring firm and the acquired firm may share the EA between themaehees. 2) Economic Advantage EAs [VIABHVIA}+V(2)}} ‘Also called as total Gain from merger NEA= (EA-Cost of Merger) ‘socalled as gain from merger to acquiring firm Cost of Merger = P.C. - Value of acquired Firm, ~Hiso called as gain from merger to acquired firm b) Value per share for the purpose of satisfaction of PC or Value per share after Merger Combined Value of Merged entity after merger ~ P.C. payable other than in the form of Equity Shares ‘Combined equity of merged entity after merger ig. No. of Equity Shares of a pneel eafiar eae ee Cheting Shores + Sncremsedel | 4 oes g o, \Value of acquiring firm before merger + NEA Pinot ee 'No. of Equity Shares of acquiring firm before merger Strategic Financial Manegement | 057058| Strategic Financial Management meme ag ratio fortarget firm's shareholders Wy Maximum tolerable share exchange (282° ong merger ig NiL__ 4) Maximum tolerable share: IsNIL, Example 1: Alta inginformation isavalabl: 1: Attdintendsto acquire B td Follow! Particulars aud Burd 6 MPS (In) 150 7 Ic 7 i 3 No.of Shares (in Lacks) 2 he EAT(In® Lacks) 200 ee Purchase Consideration s®4.5 Crores, Combined Value ate 80m Calculate 1.) Gain from the Merger & how it will be shared between acquiring company ang Ting ‘Company. Iders of Target Company and swap ratio, li) No.of Shares to be issued to the sharehol il) EPSater Merger, P/E Ratio after Merger. 'v) Tolerable share exchange ratio Solution:- (i) Gain from the Merger (EA) = Combined Value [V(AB)] -{V(A) + V(8)) = 25-{18+3]=4 Crores. PC-V[B} Gain tothe Target Company . 45 Crore-3Crore=1.5 Crore [Costof Merger] EA-Cost of Merger 4Crore-1.5Crore=2.5Crore GaintotheAcquiringCompany = NEA] (il) No. of Shares tobe Issued = PC Value per Share after Merger Or = 4.5Crore Value per Share after merger OrValuepershareaftermerger = VIA] +NEA No, of Shares of acquiring company before merger Or Value per share after merger = 18 Crore + 2.50 Crore Rhks s 170.83 Per Share Hence number of shares to be issued will be . 4.5 Crore/170.83 J(li) EPS atter Merger P/E Ratlo after Merger» . (W) Tolerable share exchange ratio; For the shareholders of A itd, Tolerable share exchange ratio Or Cost of Merger Or Cost of Merger Or Cost of Merger ‘We also know that Cost of Merger Or® 4 Crores Or Pc Orec . Value per share after merger & 18 Crores + NIL 12 Lakhs Or 8 7 Crore . Or No. of shares to be issued Tolerable Swap Ratio For the shareholders of 8 Ltd Tolerable share exchange ratio Or Cost of Merger Or NIL Or NEA We also know that Cost of Merger . = NIL Or PC . Or PC or Merger & Acquisition . 2,63,415 Shares 200.Lakhs +65 Laths Combined Equity 12 lakhs + 2.63415 Lakhs 18.11 Per Share MPS after Merger 170.83 EPS after Merger 18.11 9.43 times © Where NEA is NIL a: NEA 4 Crore: NIL 4 Crores, PC = Value of acquired firm PC -3Crores @ 7 Crores No of shares tobe issued x Value per share after merger VIA] + NEA No.of Shares of acquiring company befor @ 150 per share No. of Shares to be issued x ® 150 per share - 4,66,667 Shares . 4,66,667 : 5,00,000 . ‘Where Cost of Merger is NIL. vA - NEA 4 Crore - NEA @ 4 Crores PC Value of acquired Firm Pc 3Crores @ 3Crores No.of shares to be issued x Value per share after merger Strategic Financial Management |059Ee after merger = VIA] + NEA Soren ‘of shares of acquiring company before —— : © 18Crores +B ACrores = % 183,33 per share —_—___ Or eel" 2 No. of shares to be issued x € 183.33 per share Or No of shares to be issued = 1,63,639 Shares Tolerable Swap Ratio = 1,63,639: 5,00,000 2: eal Possibility of acquiring S Ltd. The following are data of the two, companies : Picial sta Particulars Number of shares oustanding 5,00,000 4,00,000 Earning after taxes 30,00,000 20,00,000 Dividend paid per share 3 2 Market Capitalization 7300 lakhs 100 lakhs EPs ws zs ps 60 225 Sttd's arnings and dividends are ‘expected to grow at 7 * without merger. a fee with ‘mereer Calculate Gain rom merger (EA), ee EAa OT Solution ; Simergy beneftisatributable to ita only Market price after merger Ro 0 w—G Ke isnot available, it will be ‘alculaed on the bass of market price before merger and existing growth rate ety Re Di$ Geowh ata © EE oes , B Market price after merger > 220 = 236.07: 0.161~0.19 Gain from merger to combined entity = (836.97 25.00) x 4,00,000 = 8 44,28,000 $ PY 4.2 Impact on EPS & maps Practice, investors attach alot of importance tothe EPS andthe P/E ratoas the product Of EBS PIE ratios the MPS. EPS & MPS before ana ‘after merger are calculated and itis acertaineg 60| Strategic Financial Managementyt ae Se SS Port! Merger & Acquisition pier rll alia wean maiaate7i acquired company. While comparing these, post merger EPS & MPS of acquire convertedlntoequivlent PS &esuverntnite ‘When exchange ratlo Is decided In terms of EPS of both the companies, there will be no Alutionintermsot EPS tor shareholder attamg ‘When the exchange ratio Is decided in terms of the MPS, It will keep the position of the shareholders In market value terms unchanged If post merger P/E ratlo Is merely # weighted average of pre-merger P/E ratio of the Individual fms. While calculating Post Merger weighted P/E ratio; weights will be based on pre-merger earnings. Example 3: Particulars: Altd. (acquirer) Bltd, No of shares 100laes * olacs” eat 1,0001aes 450lacs P/E Ratio 2 9 Onthe basis of the data given above, calculate impact on EPS & MPS; if: Swap ratiols based upon EPS li, Swap ratiois based upon MPS Solution: Particulars Altd. (acquirer) Bitd. Noofshares 100 lacs, 6Olacs €PS 10 78 P/ERatio & 2 9 MPS 0.x 01 gene 120 675 (i) When swap rationis based on EPS the ratio would be7.5:10 No. of shares tobe issued, 75 x 60 lacs = 45lacs Post merger EPS = (1,000 + 450}/(100+ 45) =10 Impact on EPS; Creed us ce Cae ae ey id 10 10 10 dua | | i When swap ration is based on MPS the ratio would be 67.5:120 No. of shares to be issued, (67.5 x60 acs) /120 =33.75lacs Post merger EPS = (1,000 + 450)/(100+ 33.75) = 10.84 "Since, for each shar B Lid, the shareholders ofB td. get 075 share of A Lid Strategic Financial Management |061MeGET 8 Accu, impact on EPS; Pidad Ue a a a a Pes loss in terms of £49 evident, ised on EPS there is no gain or the cian ina oct However, when swap ratio is based upon Mps i, esulty Into gain to sharcholders of one company and loss to other. Likewise, Impact On MPS could by ascertained by adopting following methodology Impact on MPs Situation (i)- Assuming P/€ ratiois 12 (same as pre merger P/E ratio) (a) Swap Ratio based on EPS Post merger EPS . PostmergerMPs = coy Sr 10 ®120 Lee (b) SwapRatobasedonmps Post merger Eps . PostmergerMps eo Cae cen ad ees 67.50 5.67 Situation i} Assuring pow MeveerF/E ati stheweightedaverage clove merger P/E ratios Weighted P/E Ratio : 121000 +3450 =11.069 1450 {a) Swap Ratio based on Eps Post, ‘Merger EPS = 10 Post merger MPs = 211069 Company MPS pre merger MPS postmerger ony ee (0) Swap Ratiobasedon ps Post merger EPS Zoe Post merger MPs 120.00 062| Strategic Financial Management ea3 Bootstrippingétfect, ( Short niot Q) ‘An acquiring company would al acquires a company with a P/E r ratio s decided in terms of the iscalledas “Boot stripping Example 4: Given below is the informati Iways be able to improve its EPS after the merger whenever it atio lower than its own P/E ratio. In such cases, Ifthe exchange ‘Market value, acquiring company will able to increase Its EPS. It effect”. Itcreates an illusion of benefits from the merger. lon ot n J. Prime Ltd. merges with Super Ltd wo companies, Super Ltd. and Prime Ltd. Co ted Pate) Pera) Cara) ‘Assuming, the proposed merger produces no economic benefits, and thus the firms should be, worth exactly together as they are apart. The market value of Super Ltd. after the merger should be equal to the sum of the separate values of the tworfirms. Since, the share of Super Ld. is selling for double the price of Prime Ltd. Super Ltd. can acquire the 100,000 shares in Prime Ltd. for 50,000 of its own shares. Thus Super Ltd. will have 150,000 shares outstanding. after the merger. Total earnings double and become ® 4,00,000 as a result of the merger, but the number of shares increases by only SO percent. EPS rises from & 2.00 to 2.67. This is referred to as the bootstrap effect because there is no real gain created by the merger and no increase in the two firms’ value combined together. Suppose that investors are fooled by the aforementioned strategy, they could easily mistake the 33 percent post merger increase in EPS for real growth. If they do, the price of Super Ltd. stock rises and the shareholders of both companies receive something for nothing. 4.5 Financing a Merger Cash or exchange of shares or a combination of cash, shares and debt can finance a merger. The means of ig may change the debt-equity mix of the combined or the acquiring firm after the merger. Hence, tthe choice of the means of financing a merger may be influenced by its impact on the acquiring firm’s capital structure, 4.5.1 Cash Offer Astraight forward means of financing a merger. No dilution in the EPS and the ownership of the existing shareholders. Shareholder gets cash for selling their shares to the acquiring company, which may involve tax liability forthem. Strategic Financial Management | 063Combined net earning will be e Cash holding of acquiring company will decrease, omy ‘etumattributableto decline ncashholdng. 5 432 foutustars : ket reaction * Value of shares receved is not certain but will depend upon ma thy Combination, Share exchange doesnotatfecttheir liquidity. Mesut into the sharing ofthe ownership and dition of PS. ’ Nolmmediatetaxabity for receiving shareholders | aaa 453 | . For acquiring company, tmaybe an advantage with the evel of gearing Increased, Interest onthe loan stock willbe deductblefotax purpose. T Port fotio - Dea Sestak ig Frente 46.1.1 Shark Repellents prove ME fm nls tt Ri ak po Fr eunpe, ier mjny Provisions like 80% Perel required for merger, ual aptligton cap on voting rights Irrespective of holding ete. Didtenaatt ale voting Oia pu, | ot ae 46.1.2 Polson Pills ORY. Tate y C “Shectrawind’) The target company issues ‘ights to existing shareholders or convertible debentures to acquire large number of ‘equity. This dilutes the percentage of the target owned by the bidder, and BHO wakes it more expensive to acquire controlofthe target. 4.6.1.3 GoldenParachutes A golden parachute is an agreement between a ‘company and an employee (usually upper management) specifying that the employee will receive certain significant benefits if the employment is terminated, Sometimes, certain conditions, ‘Yoically a change in company ‘ownership causes termination, These benefits may include severance pay cash bonuses, stock options etc, 4.6.1.4 Crown Jewels Lock-up Whenacompanyis threatened with takeover the crownjewel defense sastrateyin which a target company sls off hs most attractive asets to a fend thed pry o py othe valuable assetsin a separate entity. Consequently the unfiendly bidders es a company’s assets. In UK such tactics nat allowed once the deal becomes ia za . unavoidable. noun 4.6.1.5 Divestiture of ts businesses inthe form of an get company divests or spins off some a ia company, which reduces the attractiveness ofthe existing business coment a at le, L&T demerged its Cement division in a separate ann Carat gene ntcostoaacon eg =I —_—_ CC Merger & Acquisition 4.6.2 Active Measures 4.6.2.1 White knight ‘A company that comes to, 1, The white bnight may Nila ter ve ‘the rescue of a firm targeted for a taheover, The bbuy all or part of the target firm on more favorable terms than the et fa cabana bags nsnorg be wre ‘example, ina takeover bid . to rescue by pote ‘against VST Ld, ITC itd. came offering bidder in VST rnin an bidder to buy the stake that was acquired by the hostile 46.2.2 White Squire Defense ‘White squire Is similar to white knight, except that it only exercises a significant minority stake, 48 opposed to a majority stake, Target fm and white squire seek to implement a strategy tO reserve the target firm's independence. Thisis done by placing assets or shares in the hands of ' friendly firm or investor who Is nat interested in acquiring control ofthe target firm and will ot sell out to hostile bidder. For example, inthe hostile takeover bid against GE Shipping Lid., M&M played the role of White Squire, a 4.6.2.3 Greenmail Greenmail is the practice of purchasing enough shares in a firm to threaten a takeover and ‘thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover. Acquirer, once having secured a large share of a target company, instead of Completing the hostile takeover, offers to end the threat to the victim company by selling his share back tot, but at a substantial premium to the fair market stock price for an agreement not ‘to initiate a bid for control of the firm. 4.6.2.4 Standstill Agreement ‘When the target firm reaches a contractual agreement with the potential bidder that he will not increase his holding in the target firm for a particular period, These agreements are frequently accompanied by greenmail. 4.6.2.5 Capital Structure Change The firm may issue new stock through preferential allotment in the hand of a friendly shareholder (white squire). It may buy back shares so as to ensure that the hostile bidder does not purchase them, 4.6.2.6 Litigation Most common anti takeover measure and is often used as a delaying tactic. 4.6.2.7 Pac-mandetense Eating other before other eat you. The firm under attack from a hostile bidder turns the table by bidding for the aggressor. The name refers to the star of a video game Pac-Man, in which the heros at first chased around amaze by ghosts. However, after eating a “Power Pellet” he is able tochase and devour said ghosts} 41 SEBY's Guidelines forToke over cs (Revised) : Any person, who acquires 5% or 10% of 14% or 54% or 74% shares or voting rights of the target company, should disclose of his holdings at every stage to the target company and the stock ‘exchanges within 2 days of acquisition or receipt of intimation of allotment of shares. Any person who holds more than 15% but less than 75% shares or voting rights of target Strategic Financial Management | 065Merger & Acquisition aggregating to 2% of more shall within 2 day, Company, and who purchases or sells shares ‘aggregate of his shareholding to the target disclose such purchase or sale along with the Company and the stock exchanges. + _-Anyperson who holds more than 15% shares or voting rights of target company and # Promoter ‘and person having control over the target company, shal within 21 days from the financial year fending march 31 as well as the record date fixed for the purpose of dividend declaration, isclose every year his aggregate shareholding to the target company. «Ifthe holding ofthe acquiring company exceeds 15%, a public offer to purchase at least addition of 20% of the voting capital shall be made to the remaining shareholder through 2 public announcement. After making a public announcement, acquirer can acquire such additional shares as would entitle him to exercise more than S% ofthe voting rights In any financial year ‘ending March 31. ‘© An acquirer holding fifty five per cent (55%) of more but less than seventy five per cent (75 %) of the shares or voting rights in a target company, may acquire (either by himself or through or with persons acting in concert with him) additional shares or voting rights entitling him up to five per cent (5 %) voting rights in the target company without making 2 public announcement. ‘¢_Anacquirer who holds 75% shares or voting rights of a target company, can acquire further ‘shares or voting rights only after making a public announcement to acquire at least additional 20% shares of Target Company from the shareholders through an open offer. While deciding Offer price the acquirer s required to ensure that al the relevant parameters are taken into consideration. The relevant parametersin this regard are reinstated as below > Thenegotiated price under the agreement which triggered the open offer Price paid by the acquirer for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the 26 weeks period prior to the date of public ‘announcement, ‘Average of the weekly high and low of the closing prices during the last 26 Weeks or 2 weeks ‘preceding the date of announcement whichever is more. The offer should disclose the detailed terms of the offer, identity of the offerer, details of the offerer’s existing holdings in the offered company etc. The offer document should contain the offer’s financial information, its intention to continue the offered company’s major change and long term commercial justification for the offer. « Pledgeof shares » Any promoter (including a person of the promoter group) who creates a pledge on the shares of the company, shall within 7 working days of creation / invocation of pledge; inform the company about such pledge / invocation. » The company shall within 7 working days of receipt of intimation, inform the Stock Exchange(s) about the fresh pledge ifthe following condition is satisfied ; (@) Aggregate number of shares pledged by the promoter/ promoter group during a calender quarter collectively exceeds 25,000; or (il) The total aggregate shares pledged by the promoter / promoter group exceeds 1% of the total share capital (voting power). which ever is lower. 066| Strategic Financial Management