To begin with, the panel recommended hiking open offer trigger to 25 per cent – from the existing 15 per cent – and raised the offer size to 100 per cent of the equity in the target company. The Sebi Takeover Regulatory Advisory Committee, headed by former head of Securities Appellate Tribunal (SAT) C Achutan submitted its report to the market regulator here.
Briefing reporters, Sebi Takeover Regulatory Advisory Committee Chairman Achuthan said considering the substantive changes recommended upon review of the existing law governing substantial acquisition of shares and takeovers, the committee has decided to re-write the entire takeover code. “….since the new code has to last for at least 5 to 10 years from now, the Panel felt tweaking the existing takeover code a bit here and amend a bit there would not do justice,” said he.
Companies have been seeking a higher open offer trigger threshold, as such it has been recommended a hike to 25 per cent, said Achuthan adding: “We have expanded the scope of control to trigger an open offer.” Moreover, the panel wants the timeline for the offer to be to 57 working days. If approved, companies will now have to make a public announcement of the open offer on the same day as the shareholder agreement. For a voluntary open offer, the minimum offer size would now be 10 per cent with a maximum being 75 per cent. The panel has recommended an offer for the entire 100 per cent equity holding in case of a statutory open offer. Substantiating he said: “If the statutory offer crosses 90 per cent of the equity, companies will be de-listed automatically.
However, if the offer fails to cross 90 per cent, the public float would have to be maintained at 25 per cent.”
As per the recommendations, an open offer will also get triggered if promoters acquire more than 5 per cent in any fiscal, according to him. However, no changes were recommended in the creeping acquisition norms, except that the, except that the upper limit has been suggested at 75 per cent instead of the present 55 per cent.
Also, the panel has done away with the non-compete fee in an open offer. In this context, when quizzed, Achuthan said, “same fees should be available for one and all.” Usually, in mergers and acquisition deals, a non-compete fee is paid by the acquirer to the promoters of the target company for not entering the same trade, and such payments could be as high as up to 25 per cent of the deal value.
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 purchases 15 per cent equity, either from the promoters or from the open market, while an increase in the 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.
Open for discussion
The panel report would now be put up on the Sebi website for public comments, Sebi Chairman C B Bhave, said.
Cyril Shroff, Managing Partner at Amarchand Mangaldas said the takeover law changes are positive fundamentally which may allow more forms of instruments for acquisition, yet going forward there will be issues of financing a 100 per cent open offer. He expected norms for negative control with lower offer size. “There will be less scope for manipulation with the short time frame,” but he cautioned that 100 per cent open offer may lead to lower M&A activity ahead.
“It looks like Sebi is trying to create a level playing field for minority shareholders, so that they can exercise their options fully in open offers,” said Amitabh Malhotra, partner with advisory firm Rothschild adding that lifting the threshold for a mandatory open offer would make it easier for investors to take a strategic stake. All the same, he said, “there are strategic investors who would like a larger stake in a firm, but do not like to make an open offer.” “Any changes in regulation that reduces discretion, increase transparency and allow for stronger signals of commitment from potential acquirers or from promoters, are welcome, said Ficci Corporate Laws Committee Chairman Sidharth Birla. It may be noted that the Sebi takeover committee was formed in September last with a mandate to look at an overall change in takeover norms. The key members of the committee include Kaushik Chatterjee, CFO, Tata Steel; YM Deosthalee, CFO, L&T; Somasekar Sundareshan, Partner JSA; Advocate Kumar Desai; and A K Narayan President, Tamil Nadu Investors Association.
*Base offer: Base offer price on volume weighted average of 12 weeks (60 trading days), as against 26 weeks earlier.
* Delisting: Automatically delist the target company in case the acquirer’s holding exceeds 90 per cent.
* Exemption: Grant of exemptions from the open offer by Sebi in case of corporate debt restructuring (CDR), rights issue, etc.
* Acquisition: Acquirer can raise the offer price three days prior to the beginning of the open offer.