Takeover norms in play

Market makeover: Open offer trigger fixed at 25%

The new regulations, titled as ‘The Sebi (Substantial Acquisition of Shares & Takeovers) Regulations, 2011,” will come into effect from the next month, it said.

Also, the new guidelines mark an increase in the open offer size for public shareholders from 20 per cent at present. Also the trigger for making such an offer has been raised from 15 per cent under the existing regulations.

In a notification issued, Sebi said: “No acquirer shall acquire shares in a target company which taken together with shares or voting rights held by him... entitle them to exercise 25 per cent or more of the voting rights..., unless the acquirer makes a public announcement of an open offer.”

Under the new rules, there would be no separate provision for non-compete fees, which allows promoters to higher price than the public shareholders, and all shareholders should be given the exit option at the same price. Partly accepting the recommendations of a Sebi-appointed panel on the matter, the regulator also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

As part of the new code, Sebi allowed voluntary offers subject to certain conditions. Regarding control and offer size, Sebi said that the existing definition of control would be retained and the minimum offer size shall be increased to 26 per cent of the target company.

The notification follows the decision taken at Sebi's board meeting in July.  A Sebi panel on new takeover regulation had recommended last year an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent.

While the recommendation on trigger was accepted, the suggestion for offer size has been kept lower due to intense opposition from industry and other market participants. The panel had opined against non-compete fees for promoters which often worked out as high as 25 per cent of deal value.

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