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Overview of SEBI Takeover Regulations, 2011


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Overview of SEBI Takeover Regulations, 2011

  1. 1. Overview of SEBI Takeover Regulations, 20119/10/2012 LOGO
  2. 2. SEBI Takeover Regulations, 20119/10/2012
  3. 3. 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, 20119/10/2012
  4. 4. Overview of Regulations SEBI Takeover Regulations, 2011 Chapter II – Substantial Chapter V - Chapter Chapter III - Chapter IV -Chapter I – Acquisition of Disclosure of VI - Open Offer OtherPreliminary Shares, Voting Shareholding Miscellane Process Obligations Rights or and Control ous Control Provides Deals with Deals with Obligations of Provides threshold limit power of Key Concepts Acquirer, TC, limits for for open offers the BoardDefinitions related to Merchant making and to issue open offer Banker disclosure exemptions directionsRegulation Regulation Regulation Regulation Regulation Regulation 1-2 3 - 11 12 - 23 24 - 27 28 - 31 32 - 35 9/10/2012
  5. 5. BASIC CONCEPT9/10/2012
  6. 6. The Takeover Regulations are applicable on the acquisition of Voting Rights or Control over the Listed9/10/2012 Company
  7. 7. Shares9/10/2012
  8. 8. Key Definitions9/10/2012
  9. 9. ACQUIRER Who Directly Or Indirectly Acquires Or Agrees to Acquire Whether Or through By Himself With PACs Or with Shares Or Voting rights Or Control Over Target Company9/10/2012
  10. 10. ACQUISITION means Directly OR Indirectly Acquiring OR Agreeing to Acquire Shares OR Voting Rights OR Control Target Company9/10/2012
  11. 11. ACQUIRER Who Directly Or Indirectly Acquires Or Agrees to Acquire Whether Or through By Himself With PACs Or with Shares Or Voting rights Or Control Over Target Company9/10/2012
  12. 12. CONTROL9/10/2012
  13. 13. UNANSWERED ISSUEMeaning of Term Negative Control and the applicability of SEBI TakeoverRegulations on the same?Exemption Rejected in the matter of acquisition of shares of DaikaffilChemicals 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. 9/10/2012
  14. 14. SHARES • Equity Share capital carrying Means voting rights • Security which entitles the holder to exercise voting rights Includes • Depository receipts carrying an entitlement to exercise voting rights9/10/2012
  15. 15. FREQUENTLY TRADED SHARES • 10% Trading • 12 calendar months preceding the calendar month in which the Turnover PA is made For instance: Month of PA: September 2012 Trading Turnover: September 2011 to August 20129/10/2012
  16. 16. IDENTIFIED DATE Identified Date A date falling on the 10th business day prior to tendering period9/10/2012
  17. 17. IMPORTANT EVENTS Offer Period Identified Te n d e r i n g Date Period Date of Date of paymentacquisition of 10 working days 10th working day to shareholdersshares/control within which prior to or withdrawal triggering PA shareholders commencement tender their of tendering shares Period9/10/2012
  18. 18. PERSON ACTING IN CONCERT Persons who for a common objective acquire shares or voting rights or control over Target Company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights or control over the Target Company.9/10/2012
  19. 19. ENTERPRISE VALUE* means value calculated as Market Capitalization of a Company Minority Preferred Debt Interest shares Cash Total Cash Equivalents* Reference given in Indirect acquisition of shares or control9/10/2012
  20. 20. ENTERPRISE VALUE 1 Minority Interest A significant but non-controlling ownership of less than 50% of a companys voting shares by either an investor or another company. 2 Cash equivalent Investment securities that are short-term, have high credit quality and are highly liquid. 3 Preferred stock Capital stock which add Title a specific dividend that is Click to provides paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. E.g. Preference Shares9/10/2012
  21. 21. ENTERPRISE VALUE Paid up capital (No. of shares) (1) 10,000 Closing Price of preceding day (2) 10 Market Capitalization (3=1*2) 1,00,000 Debt (4) 5,000 Minority Interest (5) 25% (2500*10) 25,000 Preferred shares (1000*10) (6) 10,000 Cash and Cash equivalents (7) 4,000 Enterprise Value (3+4+5+6-7) 1,36,0009/10/2012
  22. 22. 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……………..9/10/2012
  23. 23. 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……………..9/10/2012
  24. 24. 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; Preferential Reduction of share allotment of 20 capital shares 10 shares 01.04.2011 01.06.2011 01.10.2011 As on DateCapital 100 120 90 90 100*61/365 120*122/365 90*182/365 WAN 16.71 40.11 44.88 101.709/10/2012
  26. 26. TYPES OF OFFER OPEN OFFER MANDATORY/ VOLUNTARY OFFER TRIGGERED OFFER Creeping Change in Indirect Initial Threshold Acquisition Control acquisition9/10/2012
  27. 27. INITIAL THRESHOLD & CREEPING ACQUISITION 3(1) 3(2) Acquirer along with Acquirer with PAC PAC holding 25% - 75% 25% or more Creeping shares or voting Acquisition - 5% in rights each F.Y.9/10/2012
  28. 28. CHANGE IN CONTROL • Through • Through Shareholder Shareholder Approval Approval SEBI (SAST) SEBI (SAST) Regulations, 201 Regulations, 1 1997 Through Open Offer Only Irrespective of acquisition of shares or voting9/10/2012 rights
  29. 29. INDIRECT ACQUISITION Acquisition of Voting Rights or control over other entity that enable the Acquirer to exercise of such percentage of voting or control over Target Company Global Offer Control Acquirer B UK Ltd. Target Company 100% 72.93% Indirect acquistion of 72.93% of the Target Company Trigger Open Offer9/10/2012
  30. 30. VOLUNTARY OPEN OFFER 1 2 3 Separate Subject to provisions Minimum certain for Offer Size eligibility voluntary is 10% criteria’s, Open Offer conditions and restrictions9/10/2012
  31. 31. 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.9/10/2012
  33. 33. MINIMUM OFFER SIZE Mandatory Voluntary Offer - Offer - 26% 10%9/10/2012
  34. 34. OFFER PRICE Add Your Text Offer Price – Specific Criteria for Direct Indirect Acquisition Acquisition Frequently Infrequently Traded Shares Traded Shares9/10/2012
  35. 35. OFFER PRICE New Regulations Old Regulations 26-weeks and 2 60 trading days weeks average Volume-weighted average market Simple Average price9/10/2012
  36. 36. NON COMPETE FEES Text Control Premium / Non- Compete Fees Tex Text To be included in Text the Offer Price Text9/10/2012
  37. 37. ESCROW ACCOUNTOpening of Escrow Account – Not later than two working days prior to the date of DPSAmount of Escrow Deposit Text Text On first Rs. 500 Crores 25% of the consideration On balance amount Text Concept Additional 10% of balance Text consideration Text Text Forms of Escrow Account  Cash  Bank Guarantee  Freely transferable equity shares or securities9/10/2012
  38. 38. INCREASE IN SHAREHOLDING BEYOND MAXIMUM PERMISSIBLE NON PUBLIC SHAREHOLDING AFTER THE OPEN OFFER Add Your Text Ineligibility to make Add Your Text voluntary delisting offer Obligation to bring down for a period of 12 months the shareholding Add Your Text from the completion of Offer Period Add Your Text9/10/2012
  39. 39. ACQUISITION AFTER THE TENDERING PERIOD Payment ofAcquisition during difference At a price higher 26 weeks after between highest than offer priceTendering Period price and offer price To the shareholders Within 60 dayswhose shares are from such accepted in the acquisition offer9/10/2012
  40. 40. TIMING OF MAKING OPEN OFFER Public Detailed Public Announcement Statement • On the same day or • Within 5 working as specified under days from PA the Regulation 139/10/2012
  41. 41. RECOMMENDATION ON THE OFFER BY BOARD 2007 2008 2009 2010 Recommendation on Offer by the Committee of • Mandatory Independent Directors Constitution of Committee of Independent Directors (IDC). Recommendation on the Open offer, as to whether the offer , is or is not, fair and reasonable. Publication of the recommendations in newspapers at least two working days before the commencement of the tendering period.9/10/2012
  42. 42. KEY POINT Once a shareholder has tendered TEXT TEXT TEXT his shares in the open offer made TEXT by the TEXT Acquirer, than he/ she TEXT TEXT CANNOT WITHDRAW or REVISE his/her request.9/10/2012
  43. 43. COMPETING OFFER Open Offer by any other person TEXT TEXT TEXT (Competitor Acquirer) after an offer has already been given by an acquirer to TEXT TEXT TEXT TEXT the shareholders of the Target Company.9/10/2012
  44. 44. WITHDRAWAL OF OPEN OFFEROffer once made cannot be withdrawn EXCEPT in the following circumstances TEXT TEXT TEXT Statutory Approvals required have been refused. Acquirer, being natural person, has died. TEXT TEXT TEXT TEXT Any condition in the agreement is not met for reasons outside the reasonable control of the acquirer Circumstances as in the opinion of the Board, merit withdrawal9/10/2012
  45. 45. NO APPOINTMENT OF ACQUIRER ON THE BOARD OF TARGET COMPANY Offer Period x TEXT TEXT No induction of Acquirer or his representative on Board of Target Company TEXT TEXT TEXT TEXT Exception: • After 15 working days from DPS, and • Deposit 100% consideration in the Escrow Account9/10/2012
  47. 47. EXEMPTION FROM OPEN OFFER Exemptions from Open Offer/ Procedural Requirements relating to Open Offer TEXT TEXT TEXT Regulation 11- Regulation 10- Exemptions by the Automatic Exemption TEXT TEXT TEXT Board TEXT Regulation 11(2) Regulation 11(1) Relaxation from Exemption from the Open Procedural Offer obligations Requirements of Open Offer9/10/2012
  48. 48. OPEN OFFER REQUIREMENT • Open Offer on crossing Reg. 3 (1) TEXT initial threshold, i.e. 25%. TEXT TEXT • Open offer for crossing Reg. 3 (2) TEXT TEXTcreeping TEXT TEXT acquisition limit, i.e. 5% • Change in Control Reg. 49/10/2012
  49. 49. AUTOMATIC EXEMPTIONS FROM OPEN OFFERReg 3 & 4 Reg 3 Reg 3 (1) Reg 3(2) Inter-se-transfer TEXT CDR Scheme TEXT Back under Buy Regulation 3(1) TEXT Right Issue Acquisition in the Buy Back ordinary course of business TEXT Disinvestment TEXT TEXT TEXT Acquisition in exchange of shares agreement Acquisition from state- BIFR and Merger level financial Schemes institutionsSARFAESI , Delisting Acquisition from a venture capital fund or Transmission, a foreign venture succession or capital investor inheritance Section 87(2) ofCompanies Act, 1956 9/10/2012
  51. 51. DISCLOSURES LIMITS Event Based Disclosure TEXT TEXT TEXT Continual Disclosures TEXT TEXT Encumbered Shares No obligation on the Target Company to give the disclosure to Stock Exchange.9/10/2012
  52. 52. IMPACT• Beneficial for Private Equity Players and Investors.• More protection forTEXT small shareholders. the TEXT TEXT• Simplification in the provisions.• More transparency TEXT removalTEXT TEXT and of ambiguity.TEXT• At par with Global Practices prevalent for M&As.9/10/2012
  53. 53. ISSUES UNADDRESSED• Negative Control• Applicability of regulations on TEXT TEXT acquisition ofTEXT partly paid up shares• Exemption from open offer on account of forfeiture of Shares TEXT TEXT TEXT TEXT9/10/2012
  54. 54. THANK YOU.. 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: In case of any query, log on to Our Services: Investment Banking I Valuation & Business Modelling I Mergers & Acquisitions I Tax & Transaction Advisory I ESOP/ESPS I Domestic & Cross BorderInvestment Structuring I Group Reorganisation I Corporate Funding I Issue Management 9/10/2012