Takeover Panorama April 2014

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Takeover Panorama- A monthly Newsletter by TakeoverCode.com team
-Legal Update
-Hint of the Month:
-Latest Open Offers
-Case Study: SEBI’s view on the Scheme of Arrangement of M/s Aashee Infotech Limited
-Market Update

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Takeover Panorama April 2014

  1. 1. Takeover Panorama A Monthly Newsletter by Corporate Professionals Year VIII-Vol III
  2. 2. 2 Legal Update − Exemption Order in the matter of NRB Industrial Bearings Limited − Adjudicating / WTM orders 3 Hint of the Month 7 Latest Open Offers 8 Case Study − SEBI’s view on the Scheme of Arrangement of M/s Aashee Infotech Limited 12 Market Update 17 Insight
  3. 3. 3 Exemption granted as the proposed transfer of shares is between the trusts whose trustees as well as Settlor are common and belongs to the promoter and promoter group of the Target Company. Exemption Order in the matter of NRB Industrial Bearings Limited Facts: 1. NRB Industrial Bearings Limited (“Target Company”) is company incorporated under the Companies Act, 1956 having its registered office at Dhannur, 15, Sir P.M. Road, Fort, Mumbai - 400001. The equity shares of the Target Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”). 2. Mr. Trilochan Singh Sahney, is the Settlor of Trilochan Singh Sahney Trust 2 (“Acquirer”/”Trust 2”) and Trilochan Singh Sahney Trust 1 (“Transferor”/”Trust 1”). Mr. Trilochan Singh Sahney and Ms. Hanwantbir Kaur Sahney are the trustees of both the Acquirer and the Transferor. The beneficiaries of the Trust 2 are Mr. Trilochan Singh Sahney, his wife Ms. Hanwantbir Kaur Sahney, his son Mr. Devesh Singh Sahney, daughter Ms. Harshbeena Sahney Zaveri and his lineal bloodline descendants (collectively referred as “Sahney Family”). 3. The Target Company is a wholly owned subsidiary of NRB Bearings Limited. The Sahney families are the promoters of both the Target Company and NRB Bearings Limited. The shareholding of the Sahney family in NRB Bearings Limited is inter alia held through Trust 1 which holds 3,77,55,640 equity shares (constituting 38.95%) of NRB Bearings Limited. Trust 1 is also designated as one of the promoters of NRB Bearings Limited. 4. Mr. Trilochan Singh Sahney and Ms. Hanwantbir Kaur Sahney in the capacity of trustees of Trust 1, have proposed to transfer 38.95% shareholding in the Target Company to the Acquirer by way of share transfer as a part of the private family arrangement which would increase the holding of the Acquirer from 0% to 38.95% in the Target Company, thus triggering Regulation 3(1) of SEBI (SAST) Regulations, 2011. LEGAL UPDATES
  4. 4. 4 Grounds of Exemption: Accordingly, the Acquirer has filed the present application seeking exemption from open offer requirement under regulation 3 (1) of SEBI (SAST) Regulations, 2011 on the following grounds: • The proposed transfer is only to give effect to the promoter family arrangement and will not result in any change of control or change in management of the Target Company • For the proposed transfer, no price is to be paid by the Acquirer and the total issued and paid up capital of the Target Company will remain the same before and after the proposed acquisition. • There will be no change in the shareholding pattern of the promoter/ promoter group of the Target Company. • The transfer would in no way affect the interest of the shareholders including the minority shareholders of the Target Company. Decision: SEBI observed that the Acquirer is a private family trust settled by Mr. Trilochan Singh Sahney, the Trustee of the Transferor as well as the Acquirer. The Transferor is one of the promoter of the Target Company and falls within the definition of 'promoter group' under SEBI (ICDR) Regulations, 2009 and the Acquirer would become part of the promoter group pursuant to the proposed acquisition as the Trustees and the beneficiaries of the Acquirer are family members of Mr. Trilochan Singh Sahney, a promoter of the Target Company. Therefore, the Acquirer would be regarded as a person deemed to be acting in concert with the promoters of the Target company in terms of Regulation 2(1)(q) of the Takeover Regulations. Further, the reason for the proposed transfer to the Acquirer is the internal reorganisation within the Trilochan Singh Sahney Family. After considering all facts and circumstances of the case, exemption granted to the proposed Acquirer, the Trilochan Singh Sahney Trust 2 from complying with the requirements of Regulation 3(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
  5. 5. 5 2011 with respect to its proposed acquisition of 94,38,910 (38.95%) shares of the Target Company, namely NRB Industrial Bearings Limited by way of share transfer from Trust 1. Adjudicating/WTM orders Target Company Noticee Regulations Penalty Imposed/ Decision Taken M/s Vas Infrastructure Limited M/s Vas Educomp Pvt. Ltd. M/s Yashraj Containeurs Ltd. M/s Vasparr Shelter Ltd. M/s Pushpanjali Drums Pvt. Ltd. & M/s Precision Containeurs Ltd. Regulation 29(2) read with 29(3) and 31(2) read with 31(3) of SEBI (SAST) Regulations, 2011 and Regulation 13(4A) read with Regulation 13(5) of SEBI (PIT) Regulations, 1992 Rs. 10,00,000 M/s Raj Packaging Industries Limited Shri Madanchand Prasanchand Regulation 29(2) read with Regulation 29(3) of SEBI (SAST) Regulations, 2011 and Regulation 13(3) read with Regulation 13(5) of SEBI (PIT) Regulations, 1992 Rs. 10,00,000 M/s ICSA India Limited Shri Gopu Bala Reddy Regulation 31(2) read with 31(3) of SEBI (SAST) Regulations, 2011 and Regulation 13(4), 13 (4A) read with Regulation 13(5) of SEBI (PIT) Regulations, 1992 Rs. 3,00,000 M/s White Diamonds Shri. Ajay K Kakkad Regulation 8(1) read with 8(2) of SEBI (SAST) Rs. 4,00,000
  6. 6. 6 Industries Limited Regulations, 1997 M/s GHCL Limited M/s Dalmia Finance Limited Regulation 7(1A) of SEBI (SAST) Regulations, 1997 Rs. 3,00,000 M/s GHCL Limited M/s Hotex Company Limited Regulation 7(1A) of SEBI (SAST) Regulations, 1997 Rs. 3,00,000 M/s GHCL Limited M/s Oval Investment Private Limited Regulation 7(1A) of SEBI (SAST) Regulations, 1997 Rs. 3,00,000 M/s Rasoi Limited Smt. Sumitra Devi Mody, Smt. Shashi Mody, Shri. Varunn Mody, M/s. Axcon Trading & Manufacturing Co Ltd. and others Regulation 8(2) of SEBI (SAST) Regulations, 1997 Disposed off. M/s Zodiac Ventures Ltd. Mr. Ramesh V Shah, Mr. Jimit R Shah, Ms. Pushpa R Shah, Ms. Yesha R Shah Regulation 7(1) read with 7(2) of SEBI (SAST) Regulations, 1997 Rs. 2,00,000 M/s Zodiac Ventures Ltd. Mr. Hozef Darukhanawla Regulation 7(1A) read with 7(2) of SEBI (SAST) Regulations, 1997 Rs. 4,00,000 M/s Zodiac Ventures Ltd. M/s Zodiac Ventures Ltd. Regulation 8(3) of SEBI (SAST) Regulations, 1997 Rs. 2,00,000 M/s. Arunjyoti Enterprises Limited Mr. Polsani Ravinder Rao, Ms. Lakshmi Rajan, Mr. Ramana Boina Shankar, Mr. PV Ravi Kumar, Mr. P Suresh Gandhi, Mr. A R S Rajan, Ms. Ramana Bharati, Mr. Sreeram V Mangalapalli, Ms. P Leela Madhuri Devi, Mr. Venkat Naresh Majeti Regulation 7(1) read with 7(2) of SEBI (SAST) Regulations, 1997, Regulation 29(2) read with 29(3) of SEBI (SAST) Regulations, 2011 and Regulation 13(1), 13(3), 13(4), 13 (4A) read with Regulation 13(5) of SEBI (PIT) Regulations, 1992 Rs. 26,00,000
  7. 7. 7 HINT OF THE MONTH The acquirer cannot launch a voluntary delisting offer in terms of Delisting Regulations of SEBI, unless a period of twelve months has elapsed from the date of the completion of the offer period. {As substantiated from FAQ of SEBI on SEBI (SAST) Regulations, 2011}
  8. 8. 8 Target Company M/s ICVL Chemicals Limited Registered Office Mumbai Net worth of TC Rs.318.91 Lacs (31.03.2013) Listed At BSE Industry of TC Chemicals Acquirer M/s Ram Alloy Castings Private Limited Target Company M/s. Meenakshi Enterprises Limited Registered Office Chennai Net worth of TC 241.90 Lacs (31.03.2013) Listed At MSE Industry of TC NA Acquirer M/s Anurodh Merchandise Private Limited (Acquirer) and Mr. S.G.F Melkhasingh (PAC) Details of the offer: Offer to acquire 32,24,000 (26%) Equity Shares at a price of Rs. 12.00/- per fully paid up equity share payable in cash. Triggering Event: Induction of the Acquirer and PAC as Promoter and Person in Control of the Target Company. Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 8,73,000 (2.69%) equity shares and control over the Target Company. Details of the offer: Offer to acquire 84,52,580 per fully paid up equity share payable in cash. Latest Open Offers
  9. 9. 9 Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 13,750 (0.17%) equity shares and control over the Target Company. Details of the offer: Offer to acquire 21,35,250 (26%) Equity Shares at a price of Rs. 10/- per fully paid up equity share payable in cash. Target Company M/s Panafic Industrial Limited Registered Office New Delhi Net worth of TC Rs. 118.85 Lacs (31.12.2013) Listed At DSE Industry of TC Finance Acquirers Mr. Rajeev kumar Gupta & Ms. Sarita Gupta Target Company M/s. Shreenath Industrial Investment Company Limited Registered Office Guajrat Net worth of TC Rs. 49.55 lacs (28.02.2014) Listed At ASE Industry of TC NA Acquirer M/s Winsome Retails & Marketing Private Limited Details of the offer: Offer to acquire 8,84,000 (26%) Equity Shares at a price of Rs. 13/- per paid up equity share payable in cash. Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 1,10,000 (3.24%) equity shares and Preferential allotment of 7,45,000 (21.91) equity shares.
  10. 10. 10 Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 415,083 (9.29%) equity shares and control over the Target Company. Details of the offer: Offer to acquire 11,61,342 (26%) Equity Shares at a price of Rs. 10/- per fully paid up equity share payable in cash. Target Company M/s Surya Industrial Corporation Limited Registered Office Uttar Pradesh Net worth of TC Rs. 44.72 Lacs (31.12.2013) Listed At BSE, DSE, UPSE, ASE & JSE Industry of TC Other Elect.Equip./ Prod. Acquirers Mr Pratik Sharadkumar Mehta, Mrs Aruna Naresh Satunda, Mr Kaushal D Vadecha & Mr Nikhil Champaklal Shah Target Company M/s Saptharishi Finance Limited Registered Office Chennai Net worth of TC Rs. lacs (31.03.2013) Listed At MSE Industry of TC Finance Acquirer M/s Devki Nandan Textile Private Limited Details of the offer: Offer to acquire upto 51,400 (25.74%) Equity Shares at a price of Rs. 2/- per fully paid up equity share payable in cash. Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 1,48,600 (74.30%) Equity Shares and control over Target Company.
  11. 11. 11 Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 11,331,030 (61.62%) equity shares and control over the Target Company. Details of the offer: Offer to acquire 47,81,296 (26%) Equity Shares at a price of Rs. 61.75/- per fully paid up equity share payable in cash. Target Company M/s Anjani Portland Cement Limited Registered Office Hyderabad Net worth of TC Rs. 8504.41 (31.12.2013) Listed At BSE Industry of TC Cement Acquirers Chettinad Cement Corporation Limited Target Company M/s Thames Liners Limited Registered Office Mumbai Net worth of TC Rs. 70.57 Lacs (30.09.2013) Listed At CSE Industry of TC Finance Acquirer M/s DSK Capital Advisors LLP Details of the offer: Offer to acquire upto 5,100 (2.08%) Equity Shares at a price of Rs. 30/- per fully paid up equity share payable in cash. Triggering Event: Share Purchase Agreement (SPA) for the acquisition of 1,78,900 (73.02%) Equity Shares and control over Target Company.
  12. 12. 12 Case Study SEBI’s VIEW on the SCHEMe of Arrangement of Aashee Infotech Limited FACTS OF THE CASE M/s Aashee Infotech Limited (“Transferee Company”), proposed a composite scheme of arrangement, broadly categorized under two parts • Re - organization of its share capital, by way of reduction of its existing paid up share capital by 90% by way of adjustment of with existing accumulated losses; • Amalgamation of M/s Jatalia Global Venture Limited, M/s Lusa Private Limited, M/s Jatalia Industrial Park Private Limited and M/s Surya Soft-tech Limited (collectively referred as (“Transferor Companies”) with M/s Aashee Infotech Limited, the Transferee Company; KEY FEATURES OF THE SCHEME IS AS UNDER: • Reduction of Paid up Share Capital of M/s Surya Soft-tech Limited by 98% by way of adjustments with existing accumulated losses; • Para 12 of the scheme of arrangement, provides for change in control and management of the Transferee Company; • Para 9 of the scheme of arrangement, provides that, swapping of the name of the Transferee Company with that of one of the Transferor Company i.e. M/s Jatalia Global Venture Limited; [i.e. upon scheme becoming effective, the promoters and directors of M/s Jatalia Global Ventures Limited, shall become, the promoters and directors of the Transferee Company, thereby, all the existing directors and promoters, shall cease to be the promoter and director of the Transferee Company] • Clause C of Para 10 of the scheme of arrangement, provides for replacement of existing Main Objects in Memorandum of Association, with the clauses as stated under the scheme; • By virtue of issuance of shares to the shareholders of the Transferor Companies, the public shareholding to be impacted; The Transferee Company in accordance with the provisions of clause 24 (f) of the Listing Agreement, followed by SEBI Circulars CIR/CFD/DIL/5/2013 dated 4th March, 2013 and
  13. 13. 13 CIR/CFD/DIL/8/2013 dated 21st May, 2013, made an application to Stock Exchange/ SEBI, for their in principle approval to the scheme of arrangement; STOCK EXCHANGE OBSERVATION Stock Exchange vide its letter dated March 19th , 2014, conveyed that it is unable to grant its ‘No Objection’ to the scheme of arrangement, as SEBI has observation, which, inter alia includes the following: 1. Dilution in public shareholding of the Transferee Company is not in accordance with SCRR (1957) and the Listing Agreement; 2. Achieving listing status without complying with SCRR (1957) and ICDR Regulations (2009) 3. Change in control and management of the Transferee Company, without providing an exit opportunity – circumvention of obligations under SEBI SAST Regulation 2011 4. Increasing shareholding through preferential allotment – an attempt to bypass preferential issue guideline as per ICDR (2009) SEBI OBSERVATION o The public shareholding in Listed Transferee Company prior to the scheme of Arrangement stands at 77.96% held by 3,051 Shareholders. Post the Scheme the same public shareholding shall get reduced to 1.93%(approx) DILUTION IN PUBLIC SHAREHOLDING OF TRANSFEREE COMPANY WHICH IS NOT IN ACCORDANCE WITH PROVISIONS OF SECURITIES CONTRACTS (REGULATIONS) RULES, 1957 (SCRR) AND LISTING AGREEMENTS. o Further, in term of Rule 19A of SCRR, as amended on June 4, 2010 every Listed Company (other than public sector Company) shall maintain public shareholding of at least 25%. The object of this minimum shareholding requirement is to ensure the availability of minimum portion / no. of shares (floating stock) of the listed company with the public. o As against the requirement, post scheme, the public shareholding gets reduced to 1.93%. However, in the post scheme the shareholding pattern, the public shareholding is shown as 38.46% comprising of (i) the pre-scheme public shareholders of Transferee Company (1.93% - 3051 shareholders), (ii) the outgoing promoters of Transferee Company (0.54% holding 3 Shareholders) and some of the shareholders of Transferor Companies (Unlisted Companies) (35.99% - 142 Shareholders.
  14. 14. 14 o Thus SEBI has view that actual public shareholding in the post merged entity would be only 1.93%. Therefore, this is not in compliance with the requirement of Rule 19A of the SCRR and Clause 40A of Listing Agreements. Such a non compliance would defeat the objective of minimum public shareholding norm. o An unlisted company, in order to get listed is required to go through Initial Public Offer (IPO) route by complying with the provisions of Rule 19(2)(b) of SCRR and ICDR; ACHIEVING LISTED STATUS WITHOUT COMPLYING WITH THE REQUIREMENT OF SCRR AND ICDR o The said IPO process involves a due diligence processes conducted by a SEBI, Registered Merchant Banker, filling of a draft offer documents with SEBI / Stock Exchange / Merchant Banker, disseminating the draft offer documents on the website of SEBI / Stock Exchange / Merchant Banker, in principle approval by Stock Exchange, processing of the same by SEBI to ensure adequacy of disclosures, issuance of observation by SEBI, filling of prospectus with RoC, Publication etc. o As the listing of Transferor Companies is being achieved through a scheme of arrangement, the unlisted companies do not offer at least 25% of the shares of the companies in terms of Rule 19(2)(b) of SCRR. o The Scheme of Arrangement, envisaged in the instant case does not provide adequate information of the Unlisted Companies with regards to the background of the promoters, capital structure, history of the company, financial details, management of the company, government and others approval required for the business, risk factors associated with the business as no prospectus is prepared; o Without the complying with the aforesaid regulatory requirement, the unlisted transferor companies will enjoy the benefit of listing as above, which they are not entitled to; o The scheme of Arrangement also envisages change in promoters and management of the Listed Company. Such a change in the promoters effectively is change in control over the Company; CHANGE IN CONTROL OVER TRANSFEREE COMPANY WITHOUT PROVIDING AN EXIT OPPORTUNITY- AN ATTEMPT TO CIRCUMVENT THE OBLIGATIONS UNDER TAKEOVER REGULATIONS o SEBI in order to protect the interest of Investors has put into place for Takeover Regulations. The Takeover Regulation seeks to ensure that the substantial acquisition of shares and / or
  15. 15. 15 Control over a listed company in the securities market take place in a fair, equitable and transparent manner; o The regulations require the incoming promoters to make an open offer before acquiring the control over the Target Company. However, it may be argued that such change in management and control is exempt from the applicability of Takeover Regulation under Regulation 10(1)(d)(ii); o The change in control is taking place without any exit opportunity to the public shareholders of the listed entity. Moreover, the shareholding of erstwhile public shareholders of the listed entity would get reduced to irrelevant percentage in the post scheme capital, i.e. from 77% to 1.93%. Thus, the change in control is being achieved without going through a transparent mechanism of open offer processes envisaged in the Takeover Regulation. Thus, the principles underlying the regulations have also been defeated because of this non-transparent and opaque method adopted through the scheme of Arrangement; o SEBI has a view that, the present scheme appears to have been designed as an article to circumvent the compliance with the provisions of Takeover Regulations and surreptitiously claiming exemption from the applicability of the Takeover Regulation under regulation 10(1)(d)(ii). o A Listed Company going for preferential allotment has to comply with the requirements contained in Chapter VII of ICDR, in addition to the requirements specified in the Companies Act; INCREASING SHAREHOLDING THROUGH PREFERENTIAL ALLOTMENT – AN ATTEMPT TO BYPASS THE PREFERENTIAL ISSUE GUIDELINE UNDER ICDR o In the instant case, the shares of the listed company are reportedly issued to the shareholders of the unlisted companies as consideration for the merger; o However, it may be argued that such preferential allotment would be exempt from applicability of Chapter VII of ICDR under regulation 70(1)(b). the exemption is provided where the preferential allotment is made pursuant to a scheme approved by the High Court u/s 391-394 of the Companies Act, 1956 . in the instant case, the consideration for merger of the assets of the unlisted companies with the listed companies is paid through the preferential allotment of shares as part of the scheme in order to avail the exemption under the said regulation.
  16. 16. 16 In Nutshell,  SEBI is of view that the actual holding in the post amalgamated entity would be only 1.93%, hence, there will not be depth in the market and the price of the security would be prone to manipulation. Further, there will not be liquidity in trading and discovery of fair price is unlikely;  As listing of the unlisted companies is being achieved through backdoor as part of the scheme, this would jeopardize and tarnish the image of the securities market as a non- transparent and inefficient way of raising capital and listing.  The scheme of arrangement in its current form resulting in change in control over the listed company will be detrimental to the public shareholders of Transferee Company as the change in control is achieved through a non- transparent, inequitable and unfair method;  As part of the scheme, the shareholders of the unlisted companies are receiving shares of the listed company as consideration. Such an acquisition is being done as a preferential allotment without complying with the regulatory requirements. The shareholders of the unlisted companies are receiving marketable securities of the listed company in lieu of the shares of the unlisted companies which may not be marketable which tantamount to undue enrichment.
  17. 17. 17 Acquisition of IDBI's Stake in Stock Holding Corp by IFCI IDBI’s has sold its entire holding of 18.95% in Stock Holding Corporation of India to IFCI for an undisclosed amount. The deal hikes IFCI’s stake in its associate company to 52.86% from 33.91%. IDBI Limited was planning to sell its stake in the custodian and had offered its stake to other shareholders of the company which include GIC (14%) and SUUTI and LIC with (17%) each. However after evaluation IFCI agreed to purchase the stake. American Express Acquires Stake In Ezetap Credit card issuer American Express has acquired a minority stake in payment device maker Ezetap Private Limited. The funds will be used to expand in markets of South East Asia and Africa. Bangalore based Ezetap had earlier received venture funding of Rs 49.8 Cr from a consortium of investors led by Helion Venture Pr. Unitech Sells Land Parcels In South Realty firm Unitech Limited Limited has sold almost 10 acres of land in Bangalore and Mysore to local developers for about Rs 100-130 Cr to repay debt. The company currently has a debt of about Rs 6200 Cr including Rs 150-200 Cr from Life Insurance Corporation. The land parcels are non-core assets of the company, the proceeds of which will be used to repay debt. Market Updates
  18. 18. 18 Disclaimer: This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this paper have been developed on the basis of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and latest prevailing SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in India. The author and the company expressly disclaim all and any liability to any person who has read this paper, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this paper. Visit us at D- 28, South Extn. Part I New Delhi – 110049 T: 40622200 F: 91.40622201 E: info@takeovercode.com A venture of Our TEAM OUR GAMUT OF SERVICES:- Investment Banking; Valuation & Business Modelling; Merger & Acquisition; Tax & Transaction Advisory; ESOP/ESPS; Domestic & Cross Border Investment Structuring; Group Reorganisation; Corporate Funding; Issue Management. Ruchi Hans E: ruchi@indiacp.com D: +91.11.40622251 Divya Vijay E: divya@indiacp.com D: +91.11.40622248

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