The document outlines the key provisions of SEBI's takeover code regarding open offers for acquisition of shares in an Indian target company. Some of the main points covered include: 1) The initial trigger point for a mandatory open offer is acquisition of 25% or more voting rights in the target company. 2) Creeping acquisitions of up to 5% per year are allowed without an open offer for acquirers holding between 25-75% stake. 3) Acquisition of control, directly or indirectly, requires an open offer. Various types of indirect acquisitions are defined. 4) Voluntary open offers must meet certain conditions but allow non-mandatory acquisitions of over

1.
Project on SEBI Takeover Code
Applicability: These regulations shall apply to direct and indirect acquisition of shares or voting
rights in, or control over Target Company.
Initial trigger point for Open offer:
When the acquirer alone or with PAC acquire shares or voting rights in the target company
which along with the existing holdings would entitle them to exercise 25% or more of the voting
rights in the target company, should make public announcement for open offer.
Creeping acquisition upto 5% in a financial year:
The acquirer alone or together with PAC, when holding 25% or more voting rights but less than
maximum permissible non-public shareholding i.e. generally 75% [or 90% in case of Public
sector undertakings as per Rule 19 (2) (c) of Securities Contracts (Regulation) Rules, 1957], can
acquire upto 5% of shares or voting rights in any financial year without making public
announcement for open offer.
Acquisition of control:
Acquisition by way of control whether directly or indirectly would require the acquirer to make
public announcement for open offer.
Indirect acquisition of shares or control:
Any acquisition of shares or voting rights in, or control over, the Target Company which if
acquired directly would trigger a public announcement of open offer is considered to be indirect
acquisition. Indirect acquisition of control is categorized into three types, based on the value of
the target company relative to overall transaction. Each such type of indirect acquisition is
subject to distinct norms as to offer price computation, disclosures, offer timing, etc.
Voluntary Open Offer:
Voluntary open offer means public announcement of an open offer given by the acquirer
voluntarily without triggering the mandatory open offer obligations.
A voluntary offer is subject to certain conditions which includes the following:
⇒ Minimum offer size is 10% of the total shares of the target company;
⇒ The aggregate shareholding of the acquirer and PAC after completion of the open offer
cannot exceed the maximum permissible non-public shareholding;
⇒ Voluntary offer cannot be made where an acquirer or PAC has acquired shares of the
target company in the preceding 52 weeks without attracting the obligation to make an
open offer;

2.
⇒ During voluntary offer period such acquirer shall not be entitled to acquire any shares
otherwise than under the open offer;
⇒ An acquirer and PAC who have made a voluntary offer shall not be entitled to acquire
any shares of the target company for a period of 6 months after completion of the open
offer except pursuant to another voluntary open offer or making a competing offer upon
any other person making an open offer or bonus issue or stock splits.
Offer Size:
⇒ The minimum offer size of 26% of the total shares of the target company needs to be
computed, as of 10th working day from the closure of the tendering period.
⇒ The total shares as of the 10th working day should take into account all potential
increases in the number of outstanding shares during the offer period contemplated as of
the date of PA.
⇒ In case of an increase in the total number of shares post PA, not contemplated as on the
date of PA, the offer size will need to be increased proportionately.
Offer Price:
Different methods have been provided for determining the offer price of direct acquisition and
indirect acquisition. The price is determined at volume weighted average market price at 60 days
rather than simple average.
Non-compete fees or control premium or otherwise payable to the exiting sellers shall be
included to the price payable to the shareholders of the target company. This would mean that
the promoter and the public shareholder would exit at the same price.
General Exemptions:
General Exemptions are granted to the following categories of acquisition subject to fulfillment
of specified conditions:
⇒ Interest transfer amongst qualifying persons viz., immediate relatives and promoters as
mentioned in shareholding pattern of the Company not less than 3 years prior to the
proposed acquisition, a company, its subsidiary or holding company or other subsidiaries
of the holding company or persons holding not less than 50% of the shares of the
Company etc.

3.
⇒ Acquisition in the ordinary course of business by stock brokers on behalf of their clients,
underwriters.
⇒ Acquisitions at subsequent stages, by an acquirer who has made a public announcement
of an open offer for acquiring shares pursuant to an agreement of disinvestment.
⇒ Acquisition pursuant to Scheme under Sick Industrial Companies (Special Provisions)
Act, 1985 or arrangement involving target company as transferor or transferee company
in amalgamation, merger or demerger pursuant to an order of Court or Competent
authority
⇒ Acquisition under operation of law: Pursuant to the provisions of Securitization and
Reconstruction of Financial Assets and Enforcement of security Interest, to the scheme of
SEBI (Delisting of shares), transmission or succession or inheritance.
⇒ Acquisition of voting rights or preference shares carrying voting rights on account of
non-payment of Dividend
⇒ The acquisition of shares of a target company, not involving a change of control over
such target company, pursuant to a scheme of corporate debt restructuring in terms of the
Corporate Debt Restructuring Scheme.
⇒ Increase in voting rights in a target company of any shareholder pursuant to buy-back of
shares.
⇒ Acquisition of shares by any shareholder of a target company, upto his Entitlement,
pursuant to a rights issue; (b) acquisition of shares by any shareholder of a target
company, beyond his entitlement, pursuant to a rights issue, subject to fulfillment of the
following conditions:
⇒ Acquisition of shares in a target company by any person in exchange for shares of
another target company tendered pursuant to an open offer for acquiring shares under
these regulations;

4.
⇒ Acquisition of shares in a target company from state-level financial institutions or their
subsidiaries or companies promoted by them, by promoters of the target company
pursuant to an agreement between such transferors and such promoter;
⇒ Acquisition of shares in a target company from a venture capital fund or a foreign venture
capital investor registered with the Board, by promoters of the target company pursuant
to an agreement between such venture capital fund or foreign venture capital investor and
such promoters.
Exemption by the Board:
SEBI for reasons recorded in writing may grant exemption from the obligation to make an open
offer and from compliance of procedural requirements of the regulation if it deems fit in the
interest of the investors and securities market.
Disclosures:
i. Event Based disclosures:
a. When the acquirer acquires the shares or voting rights in the Target Company, which
taken together with the existing holding of him and PAC’s to 5% or more of shares or
voting rights of the Target Company, then disclosure in the prescribed format has to be
submitted by the acquirer to the stock exchanges and the target company within 2 days of
the receipt of intimation of allotment or acquisition.
b. When the acquirer together with the PAC holds more than 5% of the shares or voting
rights of the Company, then every acquisition and disposal of shares representing 2% of
the shares of the target company has to be informed by the acquirer to the stock
exchanges and the target company within 2 days of the acquisition or disposal.
c. Encumbrance of shares:
When the shares are encumbered by the promoter or by the persons acting in concert with
him, shall disclose the details of creation, invocation and release of the encumbrance to
the stock exchange and the Target Company within 7 days of such creation, invocation or
release.
ii. Continual Disclosure:
Every person who along with the PAC holds shares or voting rights more than 25% of the shares
or voting rights of the target company has to inform the aggregate shareholding or voting rights
as of 31st March of every year to the stock exchange and the target company within 7 days from
the end of financial year.

5.
The new regulations provides for detailed procedure for open offer covering important points
like manager to the open offer, timing, publication of letter of offer, filing with the Board,
provision of escrow, payment of consideration, completion of acquisition, withdrawal of offer
etc.
To sum up, it could be seen that SEBI has made efforts to maintain the balance between the
concerns of investors, promoters and shareholders. The benefits being increase in threshold for
open offer to the investors, more opportunity for fund raising to the promoters, inclusive of non-
compete price to be factored in the offer price being beneficial to the shareholders. However it
also has negative sides like increase of non-compete price to be factored in offer price will
increase the cost of acquisition, holding of shares in few hands may affect liquidity in the market.