An Analysis of SEBI Takeover Code

18,985 views
18,537 views

Published on

Published in: Business, Economy & Finance
0 Comments
10 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
18,985
On SlideShare
0
From Embeds
0
Number of Embeds
7
Actions
Shares
0
Downloads
878
Comments
0
Likes
10
Embeds 0
No embeds

No notes for slide

An Analysis of SEBI Takeover Code

  1. 1. An Analysis of SEBI Takeover Code
  2. 3. Regulation 3(3) Regulation 3(4) Regulation 3(5) Regulation 6 Regulation 7 Regulation 8 Regulation 10, 11 & 12 Regulation 20(4) & 20(5) Clause 40A of Listing Agreement Disclosures & Compliances Open Offer Provisions Pricing Provisions Minimum Public Shareholding Regulation 3 (1) Exemptions under Takeover Code Regulation 4 Takeover Panel Exemptions Key Regulations Definitions Regulation 2
  3. 4. Key Regulations- Contd…… <ul><li>Determination of Offer Price: </li></ul><ul><li>In case of Direct Acquisition </li></ul><ul><li>In case of Indirect Acquisition </li></ul>Escrow Account Competitive Bid Relaxation from the strict provisions of Chapter III Regulation 20 Regulation 28 Regulation 25 Regulation 29A
  4. 5. Definitions-Acquirer <ul><li>“ Acquirer&quot; means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. </li></ul>
  5. 6. Query <ul><li>Whether a person agreeing to acquire shares is an acquirer under SEBI Takeover Regulations? </li></ul>Yes The scope of SEBI Takeover Regulations takes in its ambit not only a person directly or indirectly acquiring the shares or voting rights in the target company or acquiring control over the target company, but one agreeing to acquire shares/voting rights or control is also an acquirer and it is not necessary that one should actually acquire shares/voting rights or control to consider him as an acquirer. B.P. Amoco Plc & Castrol Limited Vs. SEBI
  6. 7. Definition-Shares <ul><li>“ Shares&quot; means shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights but shall not include preference shares. </li></ul>
  7. 8. Query <ul><li>Whether partly paid-up shares which do not carry any voting rights shall be covered in the definition of shares? </li></ul>If the partly paid up shares are excluded from voting, then they will not be covered in Takeover Code. However, in case of absence of any such condition, the partly paid up shares will be covered under the definition of shares as voting rights are embedded in such type of shares. Shri Ch.Kiron Margadarsi Financiers Vs SEBI  
  8. 9. Query <ul><li>Whether SEBI Takeover Regulations are applicable on preference shares where voting rights have been arise on them due to the non payment of dividend? </li></ul>No. Since vide amendment dated Sep 09, 2002, Preference Shares have been excluded from purview of SEBI Takeover Regulations, therefore, when voting rights have been arise on the preference shares due to the non payment of dividend, SEBI Takeover Regulations will not be applicable. Weizmann Ltd. and PACs Vs Adjudicating Officer
  9. 10. Definition- Person Acting In Concert <ul><li>Persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal),directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. </li></ul>
  10. 11. Query <ul><li>Whether shares held by all persons acting in concert with acquirer have to be taken into account for determining whether regulation 7 gets triggered? </li></ul><ul><li>Yes </li></ul><ul><li>The shares held by all the persons, who act in concert with him, are to be taken into account for determining whether regulation 7 gets triggered. </li></ul><ul><li>Radheshyam Tulsian –SAT . </li></ul>
  11. 12. Query <ul><li>Where a promoter who is interested in selling off his shareholding, can he be treated as person acting in concert with another co-promoter who is interested in acquiring shares? </li></ul><ul><li>No. </li></ul><ul><li>Where a promoter does not share common objective or purpose of acquirers in as much as it is not interested in acquiring further shares but, on the contrary, is interested in selling off its shareholding in Target Company with a view to meet its financial obligations, it must be held that such promoter was not acting in concert with acquirers. </li></ul>K.K. Modi-Supreme Court
  12. 13. Disclosures Requirements
  13. 14. Acquisition of more than 5%, 10%, 14%, 54% & 74% [Regulation 7 (1)] Persons, who are holding between 15% - 55%, acquisition/ sale aggregating 2% or more share capital/ voting rights [Regulation 7(1A)] Person holding more than 5% shares and Promoter or any person having control over the company.(Transitional Provisions) [Regulation 6] Thresholds Defined
  14. 15. Compliance Chart – Regulation 6 Regulation No. By whom To whom Time limit ( from date of notification ) 6(1) Any person holding More than 5% shares or voting rights Target Company within 2 months 6(2) Target Company All Stock Exchanges where shares are listed within 3 months 6(3) Promoter or any person having control over the company Target Company within 2 months 6(4) Target Company All Stock Exchanges where shares are listed within 3 months
  15. 16. Compliance Chart – Regulation 7 Regulation No. By whom To whom Time limit 7(1) Any person who acquires more than 5%, 10%, 14%, 54%, 74% Target Company & Stock Exchanges where shares are listed Within 2 Days of Acquisition 7 (1A) Any person who holds 15%-55% shares and purchases/sells 2% or more of shares Target Company & Stock Exchanges where shares are listed Within 2 Days of purchase/sale 7 (3) Target Company All Stock Exchanges where shares are listed Within 7 Days of receipt of information
  16. 17. Disclosures by Promoters or Person having control over a company [ Regulation 8 (2 )] Disclosure by Person holding more than 15% shares [ Regulation 8(1 )] Thresholds Defined Disclosures by Target Company [ Regulation 8 (3 )]
  17. 18. Compliance Chart – Regulation 8 Regulation No. By whom To whom When Time limit 8(1) Any person who holds more than 15% shares Company As on 31 st March 21 Days 8 (2) Promoters or person having control over a company Company As on 31 st March Record Date 21 Days 8 (3) Target Company Stock Exchange As on 31 st March Record Date 30 Days 8 (4) Maintenance of Register of Holdings
  18. 19. Query <ul><li>Whether an unlisted Company is also required to make disclosure under regulation 6, 7 & 8? </li></ul><ul><li>Yes </li></ul><ul><li>If an unlisted Company acquirers or holds shares/voting rights of a Listed Company beyond the limits specified under regulation 6, 7 & 8, then it is also required to make disclosures as any other acquirer. </li></ul>DALP Tradepool Pvt. Ltd – Informal Guidance
  19. 20. Query Whether dispatch of disclosures is sufficient to ensure compliance? No The proof of dispatch is not sufficient to prove compliance. The obligation is to ensure delivery to the stock exchange. Therefore, proof of delivery should be produced. Sudeep Chitlangia vs. AO
  20. 21. Thresholds Defined Disclosure by Promoters or Person forming part of promoter group about the shares pledged before notification [ Regulation 8A(1) ] Disclosures by Promoters or Person forming part of promoter group on pledge of share.[ Regulation 8A (2) ] Disclosures by Promoters or Person forming part of promoter group on invocation of pledge .[ Regulation 8A (3) ] Disclosures by Company when shares pledged exceeds 25000 or 1% of share capital .[ Regulation 8A (4) ]
  21. 22. Compliance Chart – Regulation 8A Regulation No. By whom To whom When (Event) Time limit 8A(1) Promoter or person forming part of the promoter group Company Details of shares pledged before notification Within 7 working Days of notification 8A (2) Promoter or person forming part of the promoter group Company On pledge of single shares Within 7 working days of pledge 8A(3) Promoter or person forming part of the promoter group Company On invocation of pledge Within 7 working days of invocation of pledge
  22. 23. Compliance Chart – Regulation 8A, Cont’d Regulation No. By whom To whom When Time limit 8A (4) Company Stock Exchange On receipt of information under regulation 8A (1), (2) and (3) if the total number of shares pledged during the quarter exceeds 25000 or 1% of the total paid up capital of the company Within 7 working days of receipt of information
  23. 24. Acquisition of 15% or more voting rights [Regulation 10] Persons, who are holding between 15% - 55%, acquisition more than 5% or more voting rights in a financial year.[Regulation 11(1)] Persons, who are holding between 55% - 75% , acquisition of any additional single share or voting right [Regulation 11(2)] Thresholds Defined Acquisition of Control or Change in Control with or without acquisition of shares [Regulation 12]
  24. 25. Compliance Chart – Regulation 10, 11& 12 Regulation No. By whom To whom When (Event) Time limit 10 Acquirer or by his PAC Shareholders of Target Company Acquisition of 15% or more voting rights Within 4 working Days of entering in to agreement for acquisition of share/voting rights 11(1) Acquirer or along with PAC holding equal or more than 15% but less than 55% of shares/ voting rights Shareholders of Target Company Acquisition of 5% or more shares or voting rights in Financial Year Within 4 working Days of entering in to agreement for acquisition of share/voting rights
  25. 26. Compliance Chart – Regulation 10, 11& 12 Regulation No. By whom To whom When (Event) Time limit 11(2) Acquirer or along with PAC holding equal or more than 55% but less than 75% of shares/ voting rights Shareholders of Target Company Acquisition of any additional single share or voting right Within 4 working Days of entering in to agreement for acquisition of share/voting rights 12 Acquirer or by his PAC Shareholders of Target Company Acquisition of control irrespective of with or without acquisition of shares Within 4 working Days of occurring the event
  26. 27. Regulation 12 <ul><li>“ Control” must be taken to mean de facto control also and not de jure control alone. </li></ul><ul><li>While determining control for the purpose of regulation 12, following points must be remembered: </li></ul><ul><li>• A pure assessment of numerical composition of Board by itself would lead one too far to identify seat of control. </li></ul><ul><li>• The fact that a company is professionally managed does not mean that nobody is in control over Company. </li></ul><ul><li>• Even majority holding of shares is not a decisive factor in determining effective control. </li></ul><ul><li>• On the other hands, sometimes a person not holding majority shares, say even less than 15%, can be said to have control over the Company if he has effective de facto control over the Company. </li></ul><ul><li>Ashwin K. Doshi -SAT </li></ul>
  27. 28. Query <ul><li>Whether exemption from making public announcement under regulation 12 will also exempt the acquirer from making public announcement under regulation 11(1)? </li></ul><ul><li>No </li></ul><ul><li>No, only because regulation 12 also speaks of public announcement, same by itself would not exempt acquirer from making a public announcement in terms of clause (1) of regulation 11. Moreover, merely because in a case where acquisition of additional shares may result in change of control over company, same by itself would not exempt acquirer from complying with statutory requirement of making public announcement under section 11. </li></ul><ul><li>Swedish Match AB-Supreme Court </li></ul>
  28. 29. Amendment in Regulation 11 (2) w.e.f. October 31, 2008 Proviso to Regulation 11 (2) Extra limit of 5% is allowed to persons holding 55%-75% shares Routes Allowed Purchase through Open market Buy-back Routes Dis-allowed Bulk Deal Block Deal Off-market Preferential Allotment
  29. 30. Issues in Amendment <ul><li>Whether the limit of 5% is allowed for one-time acquisition or it is allowed for one financial year? </li></ul><ul><li>Whether a person holding 53% shares can acquire 5% shares? </li></ul>
  30. 31. Clarification Circular August 06, 2009 <ul><li>Minimum 55% shareholding </li></ul><ul><li>It is allowed only to the acquirer who together with the PACs with him holds 55% or more shares in the Target Company </li></ul><ul><li>Not at par with regulation 11(1) </li></ul><ul><li>Creeping Acquisition is not allowed in each financial year. </li></ul><ul><li>One time acquisition </li></ul><ul><li>It is allowed once during the entire life time of the Target Company and can be made in one or more trenches without any restriction on the time frame. </li></ul><ul><li>No netting off allowed </li></ul><ul><li>The limit of 5% shall be calculated by aggregating all the purchases without netting the sales </li></ul><ul><li>Maximum 75% shareholding </li></ul><ul><ul><li>Irrespective of the level of minimum public shareholding to be maintained in terms of clause 40A of the listing agreement, the shareholding cannot exceed 75% </li></ul></ul>
  31. 32. Unanswered Questions <ul><li>What is the applicability of the SEBI (SAST) Regulations, 1997 on the acquirer who has acquired 5% shares before March 31, 2009 and another 5% shares after March 31, 2009 in terms of the second proviso to sub-regulation (2) of regulation 11 on the assumption that the creeping acquisition as allowed under said regulation is for each financial year. </li></ul>
  32. 33. Query <ul><li>Whether the acquirer belonging to promoter group is required to make open offer if the aggregate shareholding of promoter group exceeds beyond the creeping acquisition limit pursuant to the acquisition of shares by acquirer, irrespective of the fact that his individual shareholding is within the limit? </li></ul><ul><li>Yes. </li></ul><ul><li>The term acquirer includes the acquirer and other persons acting in concert with the acquirer. Since, the acquirer admittedly belongs to the promoter group therefore can be treated as persons acting in concert for the purpose of determining the triggering of the provisions of Regulation 11 (1) of Takeover Regulations and would be required to give open offer if his shareholding exceeded beyond the creeping acquisition. </li></ul>Shingar Ltd-SEBI
  33. 34. Query <ul><li>Whether for applying regulation 11 of the SEBI Takeover Regulations the comparative percentage of holdings in the pre acquisition and post acquisition equity share capital should be applied? </li></ul><ul><li>For the purpose of regulation 11, the incremental voting right acquired by the acquirer would be considered. </li></ul><ul><li>Jain Irrigation Systems Ltd. –Informal Guidance </li></ul>
  34. 35. Controversial Issues <ul><li>Whether a person holding shares between 15%-55%, can acquire further shares increasing his shareholding equal to or more than 55% in terms of regulation 11(1). </li></ul><ul><li>Whether in terms of regulation 11(2), the acquirer can increase his shareholding to 75%/90%. </li></ul><ul><li>In regulation 11(2), the acquirer is restricted from acquiring a single shares without giving the public announcement whereas Takeover Regulations are applicable only on the acquisition of voting rights . </li></ul>
  35. 36. Exemptions under Takeover Code
  36. 37. Key Exemptions
  37. 38. Exemptions Whether exemption is available from SEBI Takeover Code? No. Exemption is available only from the provisions of Regulation 10, 11 & 12. The provisions of regulation 7 are nevertheless required to be complie d.
  38. 39. Key Exemptions – Inter-se Exemption
  39. 40. Compliance Chart under Inter Se Transfer Particulars Inter se transfer among MRTP group Inter se transfer among relatives Inter se transfer among Qualifying promoters Inter se transfer between Acquirer and PACs Compliance with the regulation 6, 7 and 8 √ √ √ √ Advance Intimation under regulation 3(3) √ √ √ √ Report to SEBI under regulation 3(4) √ √ √ √ Pricing Norms i.e. Inter se transfer cannot be at a price exceeding 25% of the price determined under regulation 20(4) or 20(5). Χ Χ √ √ Prior holding of three years Χ Χ √ Χ
  40. 41. Query How the limit of 5% is calculated under regulation 3 (3) in case of acquisition of shares through fresh allotment?   In case of acquisition of shares by way of fresh allotment, such percentage shall be calculating after taking the post-allotment capital as denominator
  41. 42. Query <ul><li>If a person is already holding more than 15%, whether he is required to file the report under Regulation 3(4)? </li></ul><ul><li>Yes. </li></ul><ul><li>The compliance under regulation 3(4) is not a one-time compliance. </li></ul>Naagraj Ganeshmal Jain- SAT
  42. 43. Query For claiming exemption on inter-se transfer, whether prior holding of 3 years is required by all transferors and transferees? No The collective holding of transferor and transferee is required, therefore if there are more than one transferors and transferees and one of them does not hold shares for 3 years, the transfer will be eligible for exemption. Pudumjee Agro Industries Limited
  43. 44. <ul><li>What is the relevant date for deciding the eligibility for availing exemption?? </li></ul><ul><li>Regulation 3 comes into play only if a violation of the substantive clauses 10, 11 or 12 is first established. Therefore, the date of claiming exemption under regulation 3 cannot be prior to the date when regulation 10, 11 or 12 is attracted. </li></ul><ul><li>Whether acquisition of shares pursuant to conversion of warrants is an involuntary acquisition and hence eligible for exemption?? </li></ul><ul><li>The acquisition of shares and consequent voting rights is out of a voluntary action on the part of the Acquirers and it is not due to compulsion under or operation of any law. Hence, such acquisition is not exempt. </li></ul>SEBI Judgment
  44. 45. Determination of Offer Price <ul><li>Frequently Traded Shares </li></ul><ul><li>Regulation 20(4) </li></ul>In Case of Direct Acquisition Infrequently Traded Shares Regulation 20 (5)
  45. 46. Determination of Offer Price <ul><li>Frequently Traded Shares </li></ul><ul><li>Regulation 20(4) </li></ul>In Case of Indirect Acquisition Infrequently Traded Shares Regulation 20 (5) <ul><li>Date of public announcement for parent Company </li></ul><ul><li>Date of Public announcement for Target Company </li></ul><ul><li>Regulation 20(12) </li></ul>
  46. 47. Query <ul><li>Whether the date on which share purchase agreement was executed for acquisition of parent company can be taken as the relevant date where no public announcement has been made for the parent company? </li></ul><ul><li>NO </li></ul><ul><li>Where no public announcement has been made for the acquisition of shares of the parent company, the date when the share purchase agreement was entered into for the acquisition of shares of parent company cannot be taken as the date of its PA for the purpose of regulation 20(12) of the SEBI Takeover Code. </li></ul><ul><li>Hamlet Holdings II ApS and Others-SAT </li></ul>
  47. 48. Payment of Non-Compete Consideration
  48. 49. Issue Involved
  49. 50. Issue involved …
  50. 51. What SEBI held …
  51. 52. Competitive Bid <ul><li>When an acquirer has made an offer to acquire a Company, and subsequently, some other acquirer also makes an offer to acquire the same Company, that subsequent offer by other person is called Competitive Bid. </li></ul>
  52. 53. Competitive Offer Competitive Offer to the shareholders of Orissa Sponge Iron and Steel Limited
  53. 54. Competitive Offer Competitive Offer to the shareholders of Great Offshore Limited
  54. 55. Regulation 29A <ul><li>Relaxation from the strict compliance of provisions of Chapter III in certain cases </li></ul>In the background of recent fiddles discovered in the corporate sector, whereby the interest of investors has been bigoted to a great extent, Securities and Exchange Board of India has come out with regulatory changes to help the investors who are interested in reviving the victim companies so that any further prejudice to the interest of investors could be avoided.
  55. 56. Analysis of Regulation 29A <ul><li>Where BODs of the Company has been removed by Central Government or State Government or any other authority due to the serious mismanagement of operations and other person has been nominated to hold the office; </li></ul><ul><li>For the orderly conduct of the affairs of Target Company or to revive its operations, such new directors have devised a plan ; </li></ul><ul><li>There has been a competitive process ; </li></ul><ul><li>Provisions relating to open offer cannot be complied with. </li></ul>
  56. 57. Issue <ul><li>Why separate Regulation 29A has been inserted when Bail Out Takeover is there? </li></ul>
  57. 58. Practical Issues… <ul><li>Applicability of SEBI Takeover Code on Warrants </li></ul><ul><li>Valuation of shares in case of swapping </li></ul><ul><li>Inter Se transfer of shares among MRTP Group: The Group should be shown in the Balance Sheet of Target Company </li></ul><ul><li>Increase in shareholding pursuant to Corporate Actions such Buyback or forfeiture </li></ul><ul><li>Calculation of acquisition limits when shares are acquired through preferential allotment </li></ul><ul><li>Relationship between Promoter and Control </li></ul><ul><li>Actual Acquisition Vs Agree to Acquire </li></ul><ul><li>Netting off Vs Gross Acquisition </li></ul>
  58. 59. Practical Issues… Acquisition of shares but no increase in voting rights in terms of Voting Rights …
  59. 60. Thank You …

×