India to revamp M&A rules to protect retail investors, expedite deals

Mumbai: Securities and Exchange Board (SEBI) plans to amend its merger and acquisition rules, including barring acquiring companies from offering higher prices or additional compensation to major shareholders, said two sources with direct knowledge of the matter.

The reforms aim to level the playing field for smaller and retail investors and expedite deals, the sources said, requesting anonymity as they were not authorised to speak to the media.

The proposed changes have not been previously reported.

SEBI Chairman Tuhin Kanta Pandey, speaking to reporters after a board meeting on Wednesday, confirmed efforts to revamp the so-called "takeover code" regulations, stating that proposed changes would be put out for public feedback. He did not disclose specific details.

There was no immediate response to an email to SEBI seeking details on the reforms.

The regulatory revisions come as India sees increased activity in mergers and acquisitions following a Reserve Bank of India decision allowing domestic banks to finance such deals and rising foreign investment in Indian businesses in 2025.

Proposed Reforms

Under the planned changes, acquirers will be barred from negotiating deals with large shareholders for six months after making an open offer to acquire shares from the public, one of the sources said.

Additionally, SEBI intends to cut the permitted time to complete an open offer to 30 days from the current two months, with faster mechanisms for regulatory clearance, the sources said.

Mandatory external valuations will also be introduced when large shareholders sell shares privately to select parties, they added.

The overhaul addresses cases in the past where major shareholders received preferential deals.

In December 2022, the Adani Group acquired a 27.26 per cent stake in New Delhi TV Ltd, buying out founders Radhika and Prannoy Roy at a 17 per cent premium to the open-offer price made to minority shareholders.

The transaction, executed 18 days after the open offer, was structured as a transfer between two large shareholders, public disclosures say.

Although Adani later revised the offer price for minority investors, sources noted regulatory gaps that allowed such deals.

Creeping acquisition rules under review

SEBI is also evaluating potential changes to its "creeping acquisition" norms, which currently allow existing investors in listed companies to raise their stakes by up to 5 per cent annually without triggering a mandatory open offer, sources said without elaborating on what could be the new threshold.

Stricter thresholds in global markets have prompted the regulator's review. Singapore caps creeping acquisitions at 1 per cent every six months, while Hong Kong permits 2 per cent annually.

In addition, an open offer in India is triggered when an acquirer acquires more than 25 per cent of voting rights in a company. In the UK, investors reaching a 30 per cent stake must make a mandatory open offer for further acquisitions.