An Overview of New Takeover Regulations
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An Overview of New Takeover Regulations

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An Overview of New Takeover Regulations An Overview of New Takeover Regulations Presentation Transcript

  • An Overview ofNew Takeover Regulations SEBI (SAST) Regulations, 2011
  • ON TARGET Agenda Need of SEBI Takeover Regulations Highlights of SEBI Takeover Regulations, 2011 Key Definitions Initial Threshold and Creeping Acquisition Open Offer and its Related Concepts New Exemptions Introduced New Disclosure Limits
  • Need of SEBI Takeover RegulationsAnnouncement of Policy of Globalisation• Opportunity for Overseas Investors Change in India Capital Market Scenario • Need for some regulations to protect the interest of Investors 1994 • Enactment of SEBI (SAST) Regulations, 1994 1997 • Enactment of SEBI (SAST) Regulations, 1997 2011 • Enactment of SEBI (SAST) Regulations, 2011
  • ON TARGET Highlights of New Takeover Regulations Introduction of New Definitions. Increase in Initial Threshold Limit from 15% to 25%. Scope of Creeping Acquisition bracket widened from 15%-55% to 25%-75%: Open Offer Trigger Point based on Individual Holding. Increase in Offer Size from 20% to 26%. Non-compete fees or control premium to be added to the offer price. Detailed provisions for Voluntary Open Offer and Indirect Acquisition. Recommendation on the Open Offer by the Board of Target Company made mandatory. Redecoration of Exemptions Modification in Disclosure Limits
  • KEY DEFINITIONS
  • ON TARGET NEW DEFINITIONS INTRODUCED Acquisition Enterprise Value Volume Weighted Average Price Volume Weighted Average Market Price Weighted Average Number Of Total Shares
  • ON TARGET ACQUISITION means Directly OR Indirectly OR Agreeing to Acquiring Acquire Shares OR Voting Rights OR Control Target Company
  • ON TARGET ENTERPRISE VALUE means value calculated as Market Capitalization of a Company Minority Preferred Debt Interest shares Cash Total Cash Equivalents
  • ON TARGET VOLUME WEIGHTED AVERAGE MARKET PRICE “Volume weighted average market price” means the product of the number of equity shares traded on a stock exchange and the price of each equity share divided by the total number of equity shares traded on the stock exchange; Number of shares traded on the Stock Exchange on a particular day: X Market Price: Y X1*Y1+X2*Y2+X3*Y3……… Volume weighted Average Market Price = X1+X2+X3……………..
  • ON TARGET VOLUME WEIGHTED AVERAGE PRICE “Volume weighted average price” means the product of the number of equity shares bought and price of each such equity share divided by the total number of equity shares bought; Number of shares bought on a particular day: A Market Price: B A1*B1+A2*B2+A3*B3……… Volume weighted Average Price = A1+A2+A3……………..
  • ON TARGET WEIGHTED AVERAGE NUMBER OF TOTAL SHARES “Weighted average number of total shares” means the number of shares at the beginning of a period, adjusted for shares cancelled, bought back or issued during the aforesaid period, multiplied by a time-weighing factor;
  • ON TARGET DEFINITIONS MODIFIED Control Frequently Traded Shares Identified Date Shares
  • ON TARGET CONTROL Director or officer of target company shall not be considered to be in control over target company merely by virtue of holding such position
  • ON TARGET QUERY Meaning of Term Negative Control and the applicability of SEBI Takeover Regulations on the same? Exemption Rejected in the matter of acquisition of shares of Daikaffil Chemicals India Limited (Order dated 14.02.2007) •Acquirer Proposes to acquire 25.10% voting rights through Preferential Allotment. •Increase in shareholding from Nil to 25.10%. •Exemption Rejected as the acquirer will acquire Negative Control over the Company.
  • ON TARGET FREQUENTLY TRADED SHARES 2011 Regulations • Trading Turnover • Trading of 5% Turnover of 10% 1997 Regulations
  • ON TARGET IDENTIFIED DATE SPECIFIED DATE IDENTIFIED DATE Not later than Falling on 30th day 10th working day from PA. prior to the tendering period.
  • ON TARGET SHARES The scope of definition has been Broadened. Inclusion of Depository Receipts within the ambit of term shares. Holder of the depository receipts is treated at par with the one who acquired the Equity Shares carrying voting rights.
  • INITIAL THRESHOLD AND CREEPING ACQUISITION
  • ON TARGET INITIAL THRESHOLD SEBI Takeover SEBI Takeover Regulations, 1997 Regulations, 2011 • 15% • 25%
  • ON TARGET CREEPING ACQUISITION ZONE REDEIFINED SEBI Takeover SEBI Takeover Regulations, 1997 Regulations, 2011 • 15%-55% • 25%-75% Creeping Acquisition 5% in each FY
  • ON TARGET KEY POINTS No Netting off Allowed * Individual shareholding to be considered for Open Offer *This is also provided in SEBI clarification dated August 6, 2009
  • ON TARGET KEY POINTS  Incremental voting rights in case of fresh issue to be considered Suryajyoti Spinning Mills Ltd (Informal Guidance-02.04.2009) Bhumika Trading Pvt. Ltd. (Informal Guidance-28.01.2008) Adhunik Metaliks Ltd. (Informal Guidance-09.04.2008)  Shares acquired during 1/4/2011 to 22/10/2011 will also be taken in to account for the purpose of determining the creeping acquisition limit.
  • ON TARGET KEY POINTS Can the acquisitions, resulting from any agreement attracting the obligation to make an open offer, be completed by way of transactions settled on Stock exchange such as bulk/block deals? No. Since the same would result in completion of the triggering acquisition before the expiry of the offer period and would be against the provisions of regulation 22(1).
  • OPEN OFFER AND ITS RELATED CONCEPTS
  • ON TARGET CHANGE IN CONTROL • Through • Through Shareholder Shareholder Approval Approval SEBI (SAST) SEBI (SAST) Regulations, 201 Regulations, 199 1 7
  • ON TARGET QUERY What is the impact of withdrawal of alternative for the change in control by shareholder approval?
  • ON TARGET MINIMUM OFFER SIZE SEBI (SAST) SEBI (SAST) Regulations, 1997 Regulations, 2011 Mandatory Offer 20% 26% Voluntary Offer 10%
  • ON TARGET OFFER PRICE Separate Criteria’s in case of Direct and Indirect Acquisition Volume-weighted average market price instead of the simple average 60 trading days average instead of 26 weeks or 2 weeks
  • ON TARGET VOLUNTARY OPEN OFFER • Prior holding of atleast 25% or more shares; Eligibility • No acquisition during the preceding 52 weeks without attracting the obligation to make a public announcement. • The aggregate shareholding not exceeds the Condition maximum permissible non-public shareholding. • No further acquisition of shares for a period of six months after completion of the open offer Restriction except by way of another voluntary open offer or competing offer.
  • ON TARGET CAN PERSON HOLDING <25% MAKE VOLUNTARY OFFER Yes. Subject to the minimum offer size of 26%.
  • ON TARGET PUBLIC ANNOUNCEMENT (PA) Public Detailed Public Announcement Statement • On the same day or • Within 5 working as specified under days from PA the Regulation 13
  • ON TARGET TIMING OF PUBLIC ANNOUNCEMENT (PA) Event Time Agreement On the same day Market Purchase of shares Prior to the placement of purchase order with the stock broker. This is against the provisions of regulation 22(1). Preferential Allotment Date of Special Resolution Voluntary Offer On the same day when the Acquirer decides to make Voluntary Offer Increase in voting rights pursuant Not later than 90th day from the date of increase to a buy-back not qualifying for in voting rights. exemption under Regulation 10 .
  • ON TARGET NON COMPETE FEES SEBI (SAST) SEBI (SAST) Regulations, 1997 Regulations, 2011 Upto 25% of the offer Price To be included in the (Not to be included in the Offer Price Offer Price)
  • ON TARGET RECOMMENDATION ON THE OFFER BY BOARD SEBI (SAST) Regulations, 199 • Optional 7 SEBI (SAST) Regulations, 201 • Mandatory 1
  • ON TARGET COMPLETION OF ACQUISITION UNDER THE AGREEMENT SEBI (SAST) Regulations, 1997 • Not Allowed (Until the Completion of Offer formalities) SEBI (SAST) Regulations, 2011 • Allowed • After a period of 21 working days from PA • Deposit of 100% consideration in the Escrow Account
  • ON TARGET INCREASE IN SHAREHOLDING BEYOND MAXIMUM PERMISSIBLE NON PUBLIC SHAREHOLDING AFTER THE OPEN OFFER Ineligibility to make voluntary Obligation to bring down the delisting offer for a period of 12 shareholding months from the completion of Offer Period
  • ON TARGET QUERY In case the Acquirer intends to voluntarily delist the Target Company, then whether he can keep the Target Company in violation of clause 40A for a period of 12 Months?
  • ON TARGET ACQUISITION AFTER THE TENDERING PERIOD Payment of Acquisition during 26 At a price higher difference between weeks after than offer price highest price and Tendering Period offer price To the shareholders whose shares are Within 60 days from accepted in the offer such acquisition
  • ON TARGET KEY POINT Once a shareholder has tendered his shares in the open offer made by the Acquirer, than he/ she cannot withdraw or revise his/her request.
  • NEW EXEMPTIONS INTRODUCED
  • ON TARGET ACQUISITION-CORPORATE DEBT RESTRUCTURING Conditions No change in control Shareholders’ Approval by way of Special Resolution passed by Postal Ballot.
  • ON TARGET ACQUISITION-BUY BACK Pre Holding Pre Holding <25% between 25-75% Exemption Shareholders Resolution/Board Resolution, as the case may be. (Subject to Acquirer Reducing Its Shareholding Below Acquirer not voted in favor of resolution the threshold within a period of Ninety Days from the date of such increase) No change in control.
  • ON TARGET ACQUISITION-PREFERENCE SHARES CARRYING VOTING RIGHTS Preference Acquisition of shares carrying Voting Rights voting rights In terms of Section 87(2) of the Companies Act, 1956
  • ON TARGET NO AMBIGUITY IN REPORTING THE DETAILS OF EXEMPTION {As given in Regulation 3(4) of SEBI (SAST) Regulations, 1997}
  • NEW DISCLOSURES LIMITS
  • ON TARGET DISCLOSURE LIMITS Event Based Disclosure Acquisition of ≥5% Change of ≥ 2% after the 5% Continual Disclosures Persons holding ≥25% Every Promoter Encumbered Shares On the encumbrance, Invocation or release of encumbrance No obligation on the Target Company to give the disclosure to Stock Exchange.
  • ON TARGET KEY POINT Aggregate shareholding of Acquirer and PACs to be considered for making the disclosure. Radheshyam Tulsian V. SEBI (SAT-26.04.2006) Mega Resources Limited v. SEBI (SAT-19.03.2002)
  • ON TARGET KEY POINT Acquisition and Holding of any convertible security shall also be regarded as shares and disclosures of such acquisitions and holdings shall be made accordingly.
  • ON TARGET FOR EXAMPLE Company A 100 50 PCDs 10 GDRs Total Total Disclosure equity Shares: Voting shares 160 Rights: 110 B holding in 8 Equity 7 PCDs 1 GDR 16 Equity 9 Voting Company A Shares Shares Rights (10%) (8%) Scenario I “B” Acquires 2 Equity 2 PCDs - 4 Equity 2 Voting Disclosure Shares Shares Rights under (2.5%) (1.8%) regulation 29(2). Scenario II “B” Acquires - 20 PCDs - 20 Equity - Disclosure Shares under (12.5%) regulation 29(2)
  • ON TARGET KEY POINT Encumbrance” shall include a pledge, lien or any such transaction, by whatever name called.” In other words, those encumbrances which entail a risk of the shares held by promoters being appropriated or sold by a third party, directly or indirectly, are required to be disclosed to the stock exchanges in terms of the Takeover Regulations, 2011.
  • ON TARGET PAVAN KUMAR VIJAY Corporate Professionals Capital Private Limited D-28, South Extension -I, New Delhi-110 049 Ph: +91.11.40622200; Fax: +91.11.40622201 E: pkvijay@indiacp.com