Takeovers: Sebi panel wants 100 per cent open offer

Takeovers: Sebi panel wants 100 per cent open offer

As of now, an open offer for a minimum of 20 per cent in the target company is required to be made by any entity that has purchased 15 per cent equity, either from the promoters or from the open market.

The Securities and Exchange Board of India has set up a Takeover Regulatory Advisory Committee, with former Securities Appellate Tribunal presiding officer C Achuthan as chairman.

The Committee, which prepared the report in consultation with the various stakeholders, is believed to have recommended making suitable changes in the existing takeover regulations. While any changes are expected to take effect from the next fiscal only, the committee is said to have recommended increasing the open offer size from 20 per cent to as high as 100 per cent. Also it might increase the open offer trigger limit from 15 per cent, sources said. While an increase in open offer size could mean larger cash outgo for the acquirers, the step is being considered in larger interest of retail and other public shareholders.

Exit option
As per the current practice, all the public shareholders do not necessarily get an exit option even if the ownership of a company changes hands, as the open offer size need not be more than 20 per cent.

In most of the M&As, the promoters sell off their stake to the acquirer, which later makes a 20 per cent open offer for public shareholders. Accordingly, an acquirer can get away with acquisition of just 35 per cent stake in a listed company —- 15 per cent from promoters or open market and further 20 per cent from public open offer -— thus leaving as much as 65 per cent equity holders without any option to sell their shares.

The acquisition of shares and control of a company are currently governed by the Sebi (Substantial Acquisition of Shares and Takeover) Regulations, 1997, commonly known as the Takeover Code. Experts have been saying some parts of the code needed to be changed and an urgent attention was needed in the open offer trigger and size related provisions.

They have been asserting that an open offer trigger of as low as 15 per cent restricts the companies from making any larger investment in a company. The current rules restrict any investment to below 15 per cent, unless the investor is willing to go for as high as 35 per cent investment.

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