SEBI TAKEOVER CODE

AN OVERVIEW & RECENT

CHANGES

VNS Legal, Advocates

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 BACKGROUND
 The SEBI Takeover Code aims to regulate
acquisition of shares of a listed Company /
acquiring control over a listed Company
 Effective October 22, 2011
 Earlier Takeover Code revamped post
recommendations of advisory committee
 Constantly evolving code in line with
international practices.

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 APPLICABILITY OF THE CODE
 Applies in case of “substantial acquisition” of
 Shares; or;
 voting rights; or;
 control,

 By an acquirer by itself or together with

Persons Acting in Concert.

 Applies to direct and indirect acquisitions

(global acquisitions also covered)
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 IMPORTANT DEFINITIONS
 Acquirer
 Any Person acquiring , directly or indirectly
 Shares or Voting Rights or Control
 In the Target Company
 By himself or Persons Acting in Concert
 Control
 Right to appoint majority of Directors or control
the policy decisions of the company
 By means of their share holding, or management
rights or share holders agreements or any other
manner

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 IMPORTANT DEFINITIONS
 Person Acting in Concert
 Persons who for a common objective
 Directly or indirectly cooperate
 To acquire shares or voting rights or control over
the Target Company
 By means of an agreement or understanding
 Certain cases of deemed PAC

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EARLIER PROVISION
 Upto 5% - no disclosures
 5% to 14.9% - disclosures
 15% & above – Open Offer for 20%
 Above 15% holders – permitted upto 5% p.a upto
54.9%
 To hold 55% - Open Offer (subject to min pub
shldg)
 Above 55% holders – Open offer (subject to min
pub shldg)

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NEW PROVISIONS

 Upto 5% - no disclosures
 5% upto 25% - disclosure to S.Exch
 To cross 25% - open offer of min 26%
 Above 25% - upto 5% p.a upto 75%
 Shareholding is Acq + PAC in aggregate
 Increase in threshold & offer size

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TRIGGER OF OPEN OFFER
 Reg 3 (1) – If holding >= 25%
 Reg 3 (2) – for a person already holding above
25%, - if acq is more than 5% p.a
 Between 25% to 75% - upto 5% p.a allowed.
 Cannot acq more than permitted holding
 Only Gross Acqn considered
 Diff between post & pre allot – computation
 Individual plus aggregate holding considered now.
 Promoter treated on par with any other acquirer

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ACQN OF CONTROL

 Reg 4 – separate regulation for acqn of

control
 Applicable irrespective of whether there is
acqn of shares or not
 Earlier exemption of postal ballot
resolution, is now removed.

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INDIRECT ACQUISITION
 Reg 5 (1) – defining indirect acqn
 Acq of shares, voting rts, control
 Over any company or other entity
 That would enable the person + PAC to
 Exercise voting right or control over target co
 Such that it would attract open offer
 Direct (vs) percentage rule
 Reg 5 (2) - Indirect is construed as Direct if
proportionate value of target is - > 80% of
acquired entity’s value
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VOLUNTARY OFFERS
 Min eligibility – 25%
 Offer size – minimum of 10%
 Last 52 week voluntary acqn by self & PAC – -
cannot make a volunt offer
 Cannot acq shares from open market during offer
period
 Cannot acquire for 6 months post offer period
except thro another volun offer
 Volun acq by Promoters – whether hit by the bar
on earlier acqn rule ?
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OFFER SIZE

 Reg 7 - Offer Size –

 At least 26% of total shares as of 10th day of
PA (including shares to be acq through PA)
 If shareholding would exceed the max limit,
undertaking to bring it down within time
given under SCR Act.
 Such person who has exceeded the max limit,
cannot make a voluntary delisting offer for a
period of 12 months post offer period

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OFFER PRICE

 In case of direct acqns – as per Reg 8(2)

 In case of indirect acqns – as per Reg 8 (3)
 If acq has any outstanding convertible
instrument, conversion price of those also to
be computed
 Non-compete fee to be added
 Higher price paid during offer period – offer
price will stand revised
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PRICING

 Indirect acq – if delay in PA more than 5 days,

int @ 10% p.a
 Payment of diff in price if acq / PAC acquire post
offer for a period of 26 weeks at a price higher
than the offer price except for another open
offer, delisting, market purchases other than
thro negotiated deal. If Promoter subsc to Pref
Offer @ higher price – impact ?

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EXEMPTIONS

 Under Reg 10 (1) – for exemption u/ 3 & 4

 Interse transfer of shs amongst qualifying persons –
between relatives, PAC, Promoters etc
 Acqn in the ord course of business by broker, Merch
Banker, Bank / FI as pledgee
 Pursuant to scheme of merger / BIFR etc
 SARFAESI
 Delisting
 Transmission

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EXEMPTIONS

 Under Reg 10 (2) – acqn of shares

without change in control pursuant to
CDR Scheme
 Under Reg 10 (3) - Increase in voting
right beyond 25% pursuant to a buyback
if the shareholding is not reduced < 90
days of buyback.

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EXEMPTIONS

 Reg 10 (4) – Exemption under Creeping

Acqn of 3(2)
 Rights issue
 Buy back – as long as not participated
 Acqn by promoter from State Fin Corp
pursuant to agmt
 Acqn by promoter from VC Fund / FVCI
pursuant to agmt

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RECENT CHANGES –
PROCESS & PROCEDURE

 Public Announcement – on the date of acqn

/ agreeing to acquire. In case of market
purchases – prior to order placing.
 In case of Indirect acqn – within 4 days.
 within 4 days of intent / acqn – notify to
S.Exch
 Detailed Public Statement – within 5 days of
PA
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PROCESS & PROCEDURE
 Detailed PA to be sent to all S.Exch, SEBI & to
Company plus publication in papers.
 File Draft Letter of Offer to SEBI within 5 days of
Detailed PS.
 Create escrow a/c within 2 days of Detailed PA
 First 500 crs – 25%
 Excess – 10% of the balance
 Send LOO to shareholders < 7 days of SEBI
observations

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PROCESS

 Acq + PAC to disclose their acq during the

offer period < 24 hrs of acqn
 Acq + PAC cannot acquire during the period 3
days prior to open of offer & till close of offer
 Offer period – 10 days open
 Once tendered cannot withdraw
 Acq to complete formalities < 10 days of
closure of offer

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OTHER ISSUES
 Completion of acquisition
 Can be made only after completion of offer
process
 Exemption for pref allotment
 In case of 100% Escrow, can be completed after
21 days of Detailed PA
 What happens to Open Offers triggered by
Market purchases ?
 Board appt – only after offer closes or 100%
escrow after 15 days of Det PA
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OBLIGATIONS OF TARGET
COMPANY

 No matl changes during offer period

unless spl resln thro postal ballot
 Constitute committee of Indp Dirs to
recommend on open offer & publish in
papers + send to SEBI / S.Exch
 Make available all info to acquirer

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DISCLOSURES
 Disclosure to S.Exch & Company < 2 days of
 Acqn exceeding 5% aggregate
 Once above 5%, every acqn or disposal > 2%
aggregate
 Acqn includes pledge. Except for Bk/FI
 Persons holdg > 25% and Promoters shd
disclose their aggregate holdg to S.Ex & Co
within 7 days of 31 Mar
Promoter to disclose creation / invocation /
disposal of pledge < 7 days by Promoter / PAC
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IMPACT OF THE NEW CODE

 Cost of open offers increases

 Hostile takeover – quite remote
 Exemptions – rationalised & clarified
 Process & procedures – rationalised
 Foreign acquirer – require FIPB clearances
 Role of SEBI in processing offer docs –
needs rationalisation & clarity

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ROLE OF PRACTICSING
COMPANY SECRETARIES

 Role of CS – crucial / critical in listed

entities
 Apart from ensuring compliance, can also
assist in structuring transactions
 Role as advisor to Open Offers
 SEBI to consider empanelling CS to certify
smaller offers.

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 CONCLUSION

 Objective of SEBI regulations - increasing

transparency and protecting interest of
the investors in the Capital Markets
 Need to distinguish between large / small
companies & role of intermediaries
 Flexibility to be given to Promoters to
increase holding
 International practices to be adapted to
Indian context.
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