A Monthly Journal on development of Takeover Law
Contents Page No
Recent Updates 3
Latest Open offers 5
Case Study 7
Market Update 9
Regular section 10
Hint of the Month 13
Intermediary Search 14
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contents of this paper.
SEBI Circular on Revised Filing Fees
SEBI (SAST) (Amendment) Regulations, 2007
SEBI has on 29th May 2007 revised the fee charged on the Fee on the draft letter of offer.
Offer size Revised Position - Fee Earlier Position
Less than or equal to One lakh rupees 1,00,000
one crore rupees. (Rs. 1, 00,000/-).
More than one crore Two lakh rupees 2,00,000
rupees, but less than (Rs. 2, 00,000/-).
or equal to five crore
More than five crore Three lakh rupees 3,00,000
rupees, but less than (Rs. 3, 00,000/-).
or equal to ten crore
More than ten crore 0.5% of the offer size. 0.5% of the offer size
rupees, but less than (More than ten crores
or equal to one rupees)
More than one Five crore rupees (Rs. -
thousand crore 5, 00, 00,000/-) plus
rupees, but less than 0.125% of the portion
or equal to five of the offer size in
thousand crore excess of one thousand
rupees. crore rupees
(Rs.1000, 00, 00,000/).
More than five Ten crore rupees -
thousand crore (Rs.10, 00, 00,000/-).
Such fees shall be paid by bankers’ cheque or demand draft drawn in favour of the
‘Securities and Exchange Board of India’, payable at Mumbai.
Shri Shantanu R Kothavale in the matter of
Rajkumar Forge Ltd.
Regulation: Regulations 3(3), 3(4), 3(5), 11(1) and 14(1) of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997
Issue: In The Matter of Adjudication Proceedings against Shri Shantanu R Kothavale in
respect of his shareholding in Rajkumar Forge Ltd.
Name of the Adjudicating Authority: Biju. S
The noticee along with other promoters of RFL acquired 18,62,400 shares of RFL in the
preferential allotment on April 28, 2001 thereby increasing the aggregate shareholding
from 2.05% to 28.86%.In this regard, it is alleged that the noticee failed to submit
necessary report to the Board within the prescribed time thereby violating the provisions
of Regulation 3(3), 3(4) and 3(5) of the Takeover Regulations. Subsequently the noticee
along with the persons acting in concert acquired 28,74,000 equity shares and voting
rights in RFL on November 26, 2001 increasing his shareholding in the target company
from 28.86% to 49.29 % beyond the prescribed limit of 5% enumerated under Regulation
11(1) of the Takeover Regulations. In this regard it is alleged that the noticee failed to
make public announcement to acquire shares of RFL in terms of the provisions of
Regulation 11(1) of the Takeover Regulations.
With regard to the acquisition of shares on November 26, 2001 by the noticee which
resulted in increase in his shareholding in the target company from 28.86% to 49.29 %,
since the shares were acquired on preferential basis and all the disclosures specified in
regulation 3(1) (c)(i) were made in the notice to the shareholders, the said acquisition is
exempt under Regulation 3(1)(c) and therefore violation of regulation 11(1) is not
violated. However, admittedly there has been a delay in filing of Report under
Regulation 3(4) as the same has been filed belatedly on September 22, 2006.
Further in regard to both the acquisitions, notice issued to the shareholders contained
all the requisite disclosures as required in terms of Regulation 3(I)(c)(ii) of Takeovers
Regulation, a Return of allotment, pursuant to sec 75 (1) of the Companies Act was also
filed with the Registrar of companies on November 26, 2001. The requisite formalities in
respect of the said allotment of shares in terms of FEMA Regulations were also complied
with by the noticee. This shows that there was no intention of the notice to acquire
the shares without disclosing the fact of such acquisition to the public.
1. The purpose of acquisition of shares by way of preferential allotment was to
bailout the company from the financial crisis, as opposed to acquiring
substantial shares or control over the company.
2. There is no disproportionate gain to the notice or loss to the investors.
3. There is no change in control over the company pursuant to such acquisition.
On consideration of above facts, SEBI accepted the first contention of the noticee
and held that there is no violation of regulation 11(1). Thus, taking a lenient view,
SEBI imposed a penalty of Rupees One Lakh on Shri Shantanu R Kothavale.
LATEST OPEN OFFERS
Name of the Acquirer Offer details Reason of the Concerned
company offer Parties Details
STI INDIA Eight Capital Offer to acquire Regulation Manager to the
LIMITED Master Fund upto 58,00,000 10 & 12 offer
Limited, equity shares of
Cayman Islands Rs. 10/- each, SPA to acquire YES Bank
Regd. Office & Spinnaker representing 15.84% of the Limited
Madhya Global 20.00% of the equity capital of
Pradesh Opportunity paid-up capital, the Company for
Fund Ltd, at a a purchase
Spinnaker Global Price of Rs. consideration of Registrar to the
Paid up Capital Emerging 25.00 per share 1,50,00,000/- offer
Markets Fund payable in cash. (at the rate of
Rs. Ltd and Rs. 3.26 per Mondkar
29,00,00,000/-. Spinnaker Global share). Computers Pvt.
Fund Ltd & PAC
Motor Industries Robert Bosch Offer to acquire Regulation Manager to the
Company Gmbh upto 6410292 11(2) offer
Limited (20%) fully paid Citigroup Global
equity shares of Voluntary offer Markets India
Regd. Office Rs. 10 each at a Pvt. Ltd.
Banglore price of Rs. 4000 Registrar to the
per share offer
Paid up Capital payable in cash. Intime Spectrum
Rs.320.51 Million Registry Ltd
Sesa Goa Westglobe Offer to acquire Regulation Manager to the
Limited Limited, Mauritius up to 78,72,404 10 and 12 offer
and Richter (20%) fully paid-
Regd. Office Holding along with up equity shares ICICI Securities
Goa Vedanta Resources of the face SPA to acquire Ltd.
Plc. value of Rs. 10 100% of the
each at a price fully paid-up Registrar to the
of Rs. 2,036.30 equity share offer
Paid up Capital per share capital of
payable in cash. Finsider Karvy
Rs. 39.36 crore. International Computershare
Ltd. Whereby Private Limited
control over the
Lumax Stanley Electric Offer to acquire Regulation Manager to the
Industries Co., Ltd. 1,869,547 (20%) 11(1) and 11(2) offer
Limited fully paid-up
equity shares of Preferential Enam Financial
Regd. Office Rs. 10/- each, allotment of Consultants
at a price of Rs. 1,000,000 (Rs. Private
New Delhi 540.03/- per 10) equity Limited
fully paid-up shares for cash
Equity Share at a price of Rs. Registrar to the
Paid up Capital payable in cash 540.03/-, offer
Rs. 93,477,320 shareholding of Karvy
increased from Private Limited
DECCAN AVIATION ACQUISITION BY UB GROUP
Vijay Mallya’s UB Holdings has bought 26% stake in Deccan
Aviation Ltd (DAL), which runs budget carrier ‘Air Deccan’, for Rs 5.5 bn. The group has agreed
to pay Rs 155 per share, valuing DAL at Rs 21.15 bn.
Details of the stake sale
DAL will make preferential allotment of upto 35.22 mn equity shares of Rs 10 each at a price
of Rs 155 which shall be 26% of post issue capital in two tranches to United Breweries Group.
The first tranche comprises of 9.68 mn shares at Rs.155 per share which has been paid on May
31, 2007 and in case of the second tranche 25.54 mn shares at Rs 155 per share will be issued
by June 29, 2007. Post this deal the UB group will make an open offer in order to acquire
additional 20% stake from the market so as to gain complete control of the low cost carrier.
The air charter operations of both companies will be merged and run as a separate entity.
Benefits arising out of this deal
1/3rd market share - With this strategic alliance, the two airlines will have 71 aircraft
mainly dominated by the Airbus, cover around 70 domestic destinations and command a
market share of 33 % (Air Deccan – 21% and Kingfisher – 12%), overtaking the combined share of
Jet – Jetlite (previously Air Sahara) of 31.5%.
Cost synergies - With commonality of fleet and pilots flying these same type of aircrafts,
this alliance will enable the two airlines to exploit the synergies that exist in the areas of
operations and maintenance, ground handling, vastly increased connectivity, feeder services,
distribution penetration etc., thereby resulting in decreased costs, increased efficiencies and
improved profitability of both the airlines.
Route rationalization - The two airlines are likely to rationalize their network to ensure that
they don’t cannabilise each other but the networks support each other. Thus Kingfisher will
continue to focus on the premium/business class on the key metro routes and Air Deccan will
continue to operate as a low cost carrier largely covering lower traffic density tier-II
destinations which are expected to show a good growth in the coming years. In the coming
days this strategy is likely to give a tough competition to Jetlite the value carrier being run by
Impact on the industry – Start of much awaited consolidation
Three bigger entities - This alliance brings into light, three big airline combines (Air
India – Indian, Jet – Sahara and Kingfisher – Deccan) who now control around 80% of the
domestic civil aviation market. As these carriers are able to rationalize routes and
integrate operations, the fares are expected to increase gradually – thus improving the
financial health of most of the existing players.
Industry capacity still higher than demand - In the short term, the fares are expected
to be down for the next 3-6 months as the supply from the existing carriers continues to
be higher than the demand. However due to the losses suffered by the existing players
in the past because of higher fuel prices in H1FY07 and aggressive price competition
which continued for 3 years with the launch of Air Deccan in 2003 – a slowdown is being
seen in the expansion plans of players, thus giving room for improvement in yields over
the medium term.
Impact on Deccan Aviation’s Financials
Ongoing cash crunch - The Company is facing a severe cash crunch, which has
impacted its fleet expansion plans. This deal provides a cash boost for DAL and ensures
that it continues its operations for next 2-3 yrs at least.
Impact on Deccan Aviation’s Financials
With DAL having huge accumulated losses to the tune of Rs 7 bn over the last 3 yrs, it
remains a challenge for the management of Kingfisher Airlines on how effectively it
manages to turnaround the operations of the loss making company. However by having a
decent market share of around 12% within just 2 yrs of operations Kingfisher has
demonstrated high standards of operational efficiency.
Other triggers to watch out for
Relaxation of rules for flying overseas – The Ministry of Civil Aviation has put forward
a proposal of reducing the eligibility criterion for flying on international routes to three
years of continuous domestic operations from the present five. If this is approved then
DAL fits these eligibility criteria. The airline is exploring possibilities of flying to various
destinations in South East Asia and the lucrative gulf routes.
In case of Kingfisher, the airline commenced operations in May 2005. So in absence of
approvals to fly overseas, the airline plans to fly from US to India and has created a
subsidiary in US for the same purpose.
TATA TEA TO ACQUIRE MAJORITY STAKE IN MOUNT
Tata Tea has agreed to buy 24 per cent stake in Mount Everest Mineral Water Limited for Rs
110 crore. It will make an open offer for an additional 20 per cent at Rs 140 per share, for
an estimated Rs 100 crore.
Tata Tea will acquire a 10.74 per cent of the existing equity base from the promoters and
also subscribe to a preferential offer of 15 per cent, making for a 24 per cent stake of the
Ownership in Mount Everest No. of Shares
Preferential Issue to Tata Tea 50,99,396
Acquisitions from Promoter Foresight 22,50,000
Holdings Pvt. Ltd.
From Promoter Vinod Sethi 8,60,440
Total Number of Shares 82,10,836
Expanded Capital Base (Post preferential 3,39,95,973
Tata Tea’s shareholding 24.15%
Tata Tea, which stands to make a bumper profit of Rs 2,000 crore from its investment in
Glaceau, will raise debt of roughly the acquisition amount (Rs 210 crore) to fund the Mount
Everest acquisition, said the Chief Financial Officer, Mr L.K. Krishnakumar.
The company's current debt of Rs 500 crore as well as debentures worth Rs 100 crore will
most likely get extinguished in four to six months' time, making it a debt-free company.The
acquisition will be EPS accretive in three-four years' time.
The promoters, Mr Vinod Sethi and Mr Salim Govani (through Foresight Holdings Pvt Ltd), will
continue to hold a 9 per cent stake in Mount Everest. They will also continue to be on the
management, said Mr Siganporia.
Source: www.blonnet.com – The Hindu Business Line
PENAL PROVISIONS UNDER
In the event of non-compliance of the provisions of SEBI (Substantial Acquisition of Shares
& Takeover) Regulations, 1997, commonly known as Takeover Code, the acquirer is liable
for the penal provisions contained in the code itself. Regulation 45 of SEBI (Substantial
Acquisition of Shares & Takeover) Regulations, 1997 is dealing with the penal provisions
for the non-compliance of the obligations contained in the Regulations.
As per regulation 45 of the Regulations, for failure to carry out obligations under the
regulations, following consequences may follow:
1. The acquirer faces the consequences of the escrow amount being forfeited
2. The Board of Target Company shall be liable for action in terms of regulation and
3. The intermediary would face suspension or cancellation of registration.
The penalties stated above may include:
i. Criminal prosecution under section 24 of the SEBI Act.
In addition to any award of penalty by the Adjudicating Officer under the Act, if
any person contravenes or attempts to contravene or abets the contravention of
the provisions of this Act or of any rules or regulations thereof., he shall be
punishable with imprisonment for a term which may extend to one year, or with
fine or with both. Further, non compliance of the directions of the Adjudicating
Officer shall be punishable with imprisonment for a term which shall not be less
than one month, but which may extend to three years or
with fine which shall not be less than two thousand rupees, but which may
extend to ten thousand rupees or with both.
ii. Monetary penalties under section 15H of the SEBI Act.
If a person fails to disclose the aggregate of his shareholding in the body
corporate before he acquires any shares of that body corporate, or make a public
announcement to acquire shares at a minimum price, he shall be liable to a
penalty of twenty-five crore rupees or three times the amount of profits made
out of such failure, whichever is higher
iii. Directions under section 11B of the SEBI Act.
The Board may, in the interest of securities market, give directions, without
prejudice to its right to prosecute under section 24 of the SEBI Act including:
a.) Directing the person concerned not to further deal in securities.
b.) Prohibiting disposal of securities acquired in violation of these regulations.
c.) Direct sale of securities acquired in violation of these regulations.
iv. Directions under section 11(4) of the Act;
The authority may give the directions to the person in default & the
directions may include the following:
i. Suspend the trading of any security in a recognised stock exchange;
ii. Restrain persons from accessing the securities market and prohibit any
person associated with securities market to buy, sell or deal in securities;
iii. Suspend any office-bearer of any stock exchange or self-regulatory
organisation from holding such position;
iv. Impound and retain the proceeds or securities in respect of any
transaction which is under investigation
v. Attach bank accounts of persons involved in violation for a period not
exceeding one month.
vi. Direct any intermediary or any person associated with the securities
market in any manner not to dispose of or alienate an asset forming part
of any transaction which is under investigation
v. Cease and desist order in proceedings under section 11D of the Act;
A Cease and desist order can also be passed under section 11D of the SEBI Act
from committing or causing any violation of the SEBI (Substantial Acquisition of
Shares & Takeover) Regulations, 1997.
vi. Adjudication proceedings under section 15HB of the Act.
A residual clause has been provided in the Act, wherein it is mentioned that if any
violation act is not specifically covered under the provisions, then the person may
be held liable for a penalty which may extend to one crores rupees.
Further, the acquirer or directors of the acquirer company, directors of the target
company, the merchant banker(s) would be liable for action for any misstatement or
concealment of material information required to be disclosed to the shareholders.
HINT OF THE MONTH
In the Yogi Sungwon (India) Limited, SAT held that for the purpose of
compliance under regulation 3(4) i.e. submission of report to SEBI, and
regulation 7 i.e. disclosure of shareholding, only the individual shareholding and
not the aggregate shareholding of promoter group shall be considered. Further,
it has been decided by the Supreme Court in K. K.Modi that mere because a
person is co-promoter, he shall not be termed as PAC for the purpose of
triggering takeover code unless evidence on record clearly establishes that
promoter shares common objective or purpose of substantial acquisition of
shares or voting rights for gaining control over Target Company with acquirer.
THOUGHT OF THE MONTH
To think is easy. To act is difficult. To act as one thinks is the most