SEBI MERGERS &

ACQUISITIONS
EIRA KOCHHAR
SEBI - INTRO
The Securities and Exchange Board of India (the “SEBI”) is the nodal authority regulating entities
that are listed and to be listed on stock exchanges in India.
•The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (the “Takeover Code”) restricts and regulates the acquisition of shares, voting
rights and control in listed companies.
•The Listing Regulations provide for a comprehensive framework governing various types of
listed securities.
 SEBI APPROVAL - LISTING
AGREEMENT
SEBI has dramatically changed the way a merger, demerger or corporate restructuring is effected. These circulars require approval of SEBI
(which is gives to SE), consent of majority of public shareholders and much more disclosure.
Aimed at investors protection and drives towards shareholders’ democracy
Scheme which involves any of the following would require approval of majority public shareholders through e-voting and postal ballot:
• -any additional shares have been allotted to promoter/ promoter group, related parties, associates, subsidiaries of such promoter/ promoter
group of the listed company
• -scheme involves listed company and other entity involving promoter/ promoter group, related parties, associates, subsidiaries of such
promoter/ promoter group
• -Where the parent listed company, has acquired the equity shares of the subsidiary, by paying consideration in cash or in kind in the past to
any of the shareholders of such subsidiary who may be promoter / promoter group, related parties, associates, subsidiaries of promoter /
promoter group of the parent listed company, and if that subsidiary is being merged with the parent listed company under the Scheme
Regulation 30 of Listing Regulations deals with disclosure of material events by the listed entity whose equity and convertibles securities are
listed. The Listing Regulations divide the events that need to be disclosed broadly in two categories. The events that have to be necessarily
disclosed without applying any test of materiality and the events that should be disclosed by the listed entity, if considered material.
SEBI: ISSUE OF CAPITAL AND DISCLOSURE
REQUIREMENTS REGULATIONS, 2009
If the acquisition of an Indian listed company involves the issue of new equity shares or securities
convertible into equity shares (“Specified Securities”) by the target to the acquirer, then:
The Preferential Allotment Regulations set a floor price for an issuance. The floor price of shares is
linked to the average of the weekly high and low closing price of the stock of the company over a 26
week period or a 2 week period preceding the relevant date
Securities issued to the acquirer (who is not a promoter of the target) are locked-in for a period of
1 year from the date of trading approval. The date of trading approval is the latest date when
trading approval is granted by all stock exchanges on which the securities of the company are listed.
Further, if the acquirer holds any equity shares of the target prior to such preferential allotment,
then such prior holding will be locked in for a period of 6 months from the date of the trading
approval.
 SEBI TAKEOVER
REGULATIONS, 2011
The key objectives of the Takeover Code are to provide the shareholders of a listed company with adequate information
about an impending change in control of the company or substantial acquisition by an acquirer, and provide them with
an exit option (albeit a limited one) in case they do not wish to retain their shareholding in the company
Acquisition of shares by acquirer pursuant to scheme of amalgamation, merger or demerger will be exempt in terms of
Regulation 10(1)(d) in following cases:
- the component of cash and cash equivalents in the consideration paid is less than 25% of the consideration paid
under the scheme; and
- after implementation of the scheme of arrangement, persons directly or indirectly holding at least 33% of the
voting rights in the combined entity are the same as the persons who held the entire voting rights before the
implementation of the scheme.

 Necessary disclosure under Listing Agreement, SEBI Takeover Regulations and SEBI (Prohibition of Insider Trading)
Regulations 2015 will have to be made
 MANDATORY OFFER -1
Under the Takeover Code, an acquirer is mandatorily required to make an offer to acquire
shares from the other shareholders in order to provide an exit opportunity to them prior to
consummating the acquisition.
The open offer for acquiring shares must be for at least 26% of the shares of the target
company
Under the Takeover Code, the obligation to make a mandatory open offer by the acquirer is
triggered in the following events:
a. Initial Trigger
If the acquisition of shares or voting rights in a target company entitles the acquirer along with
the persons acting in concert (“PAC”) to exercise 25% or more of the voting rights in the target
company.
MANDATORY OFFER -2
b. Creeping Acquisition
If the acquirer already holds 25% or more and less than 75% of the shares or voting rights in the
target, then any acquisition of additional shares or voting rights that entitles the acquirer along with
PAC to exercise more than 5% of the voting rights in the target in any financial year.
It is important to note that the five per cent (5%) limit is calculated on a gross basis i.e. aggregating
all purchases and without factoring in any reduction in shareholding or voting rights during that year
or dilutions of holding on account of fresh issuances by the target company. If an acquirer acquires
shares along with other subscribers in a new issuance by the company, then the acquisition by the
acquirer will be the difference between its shareholding pre and post such new issuance.
It should be noted that an acquirer (along with PAC) is not permitted to make a creeping acquisition
beyond the statutory limit of non- public shareholding in a listed company i.e. seventy five per cent
(75%).
MANDATORY OFFER -3
C. Acquisition of ‘Control’
If the acquirer acquires control over the target.
‘control’ has been defined to include:
Right to appoint majority of the directors;
Right to control the management or policy decisions exercisable by a person directly or
indirectly, including by virtue of their shareholding or management rights or shareholders
agreements or voting agreements or in any other manner.
 INDIRECT ACQUISITION OF
SHARES OR VOTING RIGHTS
For an indirect acquisition obligation to be triggered under the Takeover Code, the acquirer must, pursuant to such indirect
acquisition be able to direct the exercise of such percentage of voting rights or control over the target company, as would
otherwise attract the mandatory open offer obligations under control-the Takeover Code.
This provision was included to prevent situations where transactions could be structured in a manner that would side-step
the obligations under Takeover Code. Further, if:
• the proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or
business being acquired; or
• the proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or
business being acquired; or
• the proportionate market capitalisation of the target company as a percentage of the enterprise value for the entity or
business being acquired;
is in excess of eighty per cent, on the basis of the most recent audited annual financial statements, then an indirect
acquisition would be regarded as a direct acquisition under the Takeover Code for the purposes of the timing of the offer,
pricing of the offer etc.
INDIRECT ACQUISITION
The thresholds for the requirement of making an open offer in case of an indirect acquisition are
computed on the basis of the voting rights and/or control acquired in the target company. Further,
the quantum of acquisition of the target company in case of an indirect acquisition cannot be
computed on a pro rata basis. This is illustrated as below:
If X acquires 40% shares of Y along with majority control of Y which, in turn, holds 70% shares of
Z, a listed company along with majority control of Z, then X, in effect, acquires control on 70%
shares of Z held by Y. Therefore, X will be required to make an open offer for the shareholders of Z.
Now; If X, which already holds 40% shares of Y and majority control of Y, further acquires
additional 10% shares of Y, then X, in effect, does not acquire control on any shares additional to
70% shares of Z held by Y. Therefore, X will not be required to make an open offer for the
shareholders of Z. It may be noted that the computation of quantum of additional shares acquired
by X in Z as 10% of 70%, i.e., 7% on pro rata basis is not correct. Here, X does not acquire any
additional shares of Z either directly or indirectly by acquiring additional 10% shares of Y.
 CHANGES IN SEBI GUIDELINES
2011
Increase in Initial Threshold Limit from 15% to 25%: The Initial Threshold limit provided for Open Offer
obligations is increased from 15% to 25% of the voting rights of the Target Company.
Open Offer Trigger Point based on Individual Holding:Now the Individual Acquirer Shareholding shall
also be considered for determining the Open Offer Trigger Points apart from consolidated promoter
shareholding.
Abolition of Non-compete fees: SEBI has accepted the TRAC Recommendation of scrapping the non-
compete fee or control premium. Any amount paid to the Promoters/Sellers whether as consideration,
non-compete fee or control premium or otherwise, shall be added in Offer Price and hence public
shareholders shall be given offer at the highest of such prices.
Change in Control: Any change in control of the listed company shall be only after Open Offer.
There is no such term as hostile bid in the regulations. The hostile bid is generally understood to be an
unsolicited bid by a person, without any arrangement or MOU with persons currently in control.
VOLUNTARY OPEN OFFER : IN
DETAIL
An acquirer who holds between 25% and 75% of the shareholding/ voting rights in a company
is permitted to voluntarily make a public announcement of an open offer for acquiring additional
shares of the company subject to their aggregate shareholding after completion of the open
offer not exceeding 75%.
In the case of a voluntary offer, the offer must be for at least 10% of the shares of the target
company, but the acquisition should not result in a breach of the maximum non-public
shareholding limit of 75%.
As per SEBI’s Takeover Code any person holding less than 25% shareholding/voting rights can
also make a voluntary open offer for acquiring additional shares by the minimum offer size is
26% of the total shares of the company.
WHEN OPEN OFFER IS MADE?
If an acquirer has agreed to acquire or acquired control over a target company or shares or voting
rights in a target company which would be in excess of the threshold limits, then the acquirer is
required to make an open offer to shareholders of the target company
Regulation 22(1) of Takeover Regulations 2011 specifically provides that the acquirer shall not
complete the acquisition of shares and voting rights in, or control over, the target company, whether by
way of subscription of shares or a purchase of shares attracting the obligation to make an open offer
for acquiring shares, until the expiry of the offer period.
In cases where acquisitions, resulting from any agreement triggering open offer are sought to be
completed through transactions such as bulk/ block deals, settled on a recognized stock exchange, the
same would get completed/ settled on T+2 basis i.e. within 2 days after the date of such transaction.
Therefore such acquisitions, if done, will not be in line with the provisions of Regulation 22(1) since the
same would result in completion of the triggering acquisition before the expiry of the offer period.
Hence the acquisition resulting from any agreement attracting the obligation to make an open offer
cannot be executed through transactions such as block/ bulk deal.
RESTRICTIONS ON OPEN OFFER
A voluntary open offer under Regulation 6, is an offer made by a person who himself or
through Persons acting in concert ,if any, holds 25% or more shares or voting rights in the target
company but less than the maximum permissible non-public shareholding limit.
PACs are individual(s)/company (ies) or any other legal entity (ies) who, with a common
objective or purpose of acquisition of shares or voting rights in, or exercise of control over the
target company, pursuant to an agreement or understanding, formal or informal, directly or
indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the
target company.
A voluntary offer cannot be made if the acquirer or PACs with him has acquired any shares of
the target company in the 52 weeks prior to the voluntary offer. The acquirer is prohibited from
acquiring any shares during the offer period other than those acquired in the open offer. The
acquirer is also not entitled to acquire any shares for a period of 6 months, after completion of
open offer except pursuant to another voluntary open offer.
 OPEN OFFER
The offer size percentage is
calculated on the fully diluted
share capital of the target
company taking in to account
potential increase in the
number of outstanding shares
as on 10th working day from
the closure of the open offer
 • The acquirer makes a Public Announcement(PA) to the stock exchanges where shares of Target Company are listed and to SEBI
On triggering

OPEN
day

OFFER • The acquirer is required to publish a Detailed Public Statement (DPS) in newspapers and also submit a copy to SEBI, after

PROCESS In T+5 Day

creation of an escrow account.

• The acquirer through the manager to the offer is required to file a draft letter of offer with SEBI for its observations.
• The letter of offer is dispatched to the shareholders of the target company, as on the identified date, after duly incorporating the
In T+10 days changes indicated by SEBI, if there are any.

• The offer shall open not later than 12 working days from the date of receipt of SEBI’s observations.
In T+ • The acquirer is required to issue an advertisement announcing the final schedule of the open offer, one working day before
10+15+12 opening of the offer.
days

In T+ • The offer shall remain open for 10 working days from the date of opening of the offer.
10+15+22
days

• Within 10 working days after the closure of the offer, the acquirer shall make payments to the shareholders whose shares have
In T+
10+15+32
been accepted.
days

• A post offer advertisement, giving details of the acquisitions, is required to be published by the acquirer within 5 workings days
In T+ of the completion of payments under the open offer.
10+15+37
days
 OFFER PRICE
Offer price is the price at which the acquirer announces to acquire shares from the public shareholders under the open offer.

The shares of the target company will be deemed to be frequently traded if the traded turnover on any stock exchange during the 12 calendar months preceding the
calendar month, in which the PA is made, is at least 10% of the total number of shares of the target company. If the said turnover is less than 10%, it will be deemed to
be infrequently traded.

The offer price shall not be less than the price as calculated under:

1. If the target company’s shares are frequently traded then the open offer price for acquisition of shares under the minimum open offer shall be highest of the
following:

Highest negotiated price per share under the share purchase agreement (“SPA”) triggering the offer;

Volume weighted average price of shares acquired by the acquirer during 52 weeks preceding the public announcement (“PA”);

Highest price paid for any acquisition by the acquirer during 26 weeks immediately preceding the PA;

Volume weighted average market price for sixty trading days preceding the PA.

2. If the target company’s shares are infrequently traded then the open offer price for acquisition of shares under the minimum open offer shall be highest of the
following:

Three above and

The price determined by the acquirer and the manager to the open offer after taking into account valuation parameters including book value, comparable trading
multiples, and such other parameters that are customary for valuation of shares of such companies.

Acquirer can make an upward revision to the offer price at any time up to 3 working days prior to the opening of the offer
DATES
Identified date means the date 10 working days prior to the commencement of the tendering
period, for the purposes of determining the shareholders of the target company to whom the
letter of offer along with the form of acceptance shall be sent.
The term ‘offer period’ pertains to the period starting from the date of the event triggering
open offer till completion of payment of consideration to shareholders by the acquirer or
withdrawal of the offer by the acquirer as the case may be.
The term ‘tendering period’ refers to the 10 working days period falling within the offer period,
during which the eligible shareholders who wish to accept the open offer can tender their
shares in the open offer.
DETAILS OF PROCESS
Public Announcement contains minimum details about the offer, the transaction that triggered
the open offer obligations, acquirer, selling shareholders (if any), offer price and mode of
payment. SEBI has prescribed format of Public Announcement, which is available in the SEBI
website.
Detailed Public Statement contains disclosure in more detail about the acquirer/PACs, target
company, financials of the acquirers/PACs/target company, the offer, terms & conditions of the
offer, procedure for acceptance and settlement of the offer, escrow account etc
The acquirer is required to deposit some percentage of the offer price, in an escrow account
before issuing a Detailed Public Statement. This serves as a security for performance of
acquirer’s obligations under the open offer.
 LETTER OF OFFER
The letter of offer is a document which is dispatched to all shareholders of the target company as on
identified date. This is also made available on the website of SEBI.
Letter of offer contains details about the offer, background of Acquirers/PACS, financial statements of
Acquirer/ PACs, escrow arrangement, background of the target company, financial statements of the
target company, justification for offer price, financial arrangements, terms and conditions of the offer,
procedure for acceptance and settlement of the offer.
Prior to dispatch of letter of offer to shareholders, a draft letter of offer is submitted to SEBI for
observations. SEBI may give its comments on the draft letter of offer as expeditiously as possible, but not
later than 15 working days of the receipt of the draft letter of offer. SEBI may also seek clarifications and
additional information from the manager to the offer and in such a case the period for issuance of
comments shall be extended to the fifth working day from the date of receipt of satisfactory reply to the
clarifications or additional information sought.
DETAILS
The Acquirer is required to appoint a Merchant Banker, registered with SEBI, as manager to the
open offer before making the PA.
The manager to the open offer has to exercise due diligence and ensure compliance with SAST
Regulations, 2011. The manager to the open offer has to ensure that the contents of the PA,
DPS, letter of offer and the post offer advertisement are true, fair and adequate in all material
aspects and are in compliance with the requirements of SAST Regulations, 2011.
COMPETITIVE BID
This bid must be made within 15 working days from the date of the detailed public
announcement of the first bidder.
The competitive bid must be for at least the number of shares held or agreed to be acquired by
the first bidder (along with PAC), plus the number of shares that the first bidder has bid for.
Each bidder (whether a competitive bid is made or not) is permitted to revise his bid, provided
such revised terms are more favourable to the shareholders of the target company.
The revision can be made up to three working days prior to the commencement of the
tendering period.
 • Once a PA is made, the board of directors of the Target Company is expected to ensure that the business of the target
company is conducted in the ordinary course.
On • Alienation of material assets, material borrowings, issue of any authorized securities, announcement of a buy- back
triggering offer etc. is not permitted, unless authorized by shareholders by way of a special resolution by postal ballot.
date

ROLE OF Identified • The target company shall furnish to the acquirer within two working days from the identified date, a list of
shareholders and a list of persons whose applications, if any, for registration of transfer of shares, in case of physical

TARGET date
shares, are pending with the target company
+
2day
COMPANY
IN OPEN • Upon receipt of the detailed public statement, the board of directors of the target company shall constitute a
committee of independent directors to provide reasoned recommendations on such open offer, and the target

OFFER Receipt of
company shall publish such recommendations and such committee shall be entitled to seek external professional
advice at the expense of the target company.
• The recommendations of the Independent Directors are published in the same newspaper where the Detailed Public
DPS Statement is published by the acquirer and are published at least 2 working days before opening of the offer.
• The recommendation will also be sent to SEBI, Stock Exchanges and the Manager to the offer.

• The target company is required to provide assistance to the acquirer in verification of the shares tendered for
acceptance under the open offer, in case of physical shares.
Closure of
open offer
MODE OF PAYMENT
Payment considerations by the acquirer under the open offer can be made by cash and / or by
issue of equity shares and / or secured debt instruments (investment grade) and / or
convertible debt instruments (convertible to equity shares) of acquirer (or PACs, if any) if such
equity shares and secured debt instruments are listed.
The chosen mode of payment is required to be disclosed in the open offer document meant
for shareholders of the target company.
WITHDRAWL OF OPEN OFFER
An open offer once made cannot be withdrawn except in the following circumstances:
Statutory approvals required for the open offer or for effecting the acquisitions attracting the
obligation to make an open offer have been refused subject to such requirement for approvals
having been specifically disclosed in the DPS and the letter of offer;
Any condition stipulated in the SPA attracting the obligation to make the open offer is not met
for reasons outside the reasonable control of the acquirer, subject to such conditions having
been specifically disclosed in the DPS and the letter of offer;
Sole acquirer being a natural person has died;
Such circumstances which in the opinion of SEBI merit withdrawal of open offer.
DELISTING
The SEBI regulations on delisting prescribe the method and conditions for delisting a company,
which earlier could only be undertaken by the promoter of the company. Recently, the SEBI
notified the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2015 (“Amended
Delisting Regulations”).
The Amended Delisting Regulations now allow an acquirer to initiate delisting of the target.
An acquirer may delist the company pursuant to an open offer in accordance with the Delisting
Regulations provided that the acquirer declares upfront his intention to delist.
The Takeover Code provided for a one year cooling off period between the completion of an
open offer under the Takeover Regulations and a delisting offer in situations where on account
of the open offer the shareholding of the promoters exceeded the maximum permissible non-
public shareholding of 75% as provided under the Securities Contract Regulation Rules