2. BACKGROUND
The SEBI Takeover Code aims to regulate
acquisition of shares of a listed Company /
acquiring control over a listed Company
Effective October 22, 2011
Earlier Takeover Code revamped post
recommendations of advisory committee
Constantly evolving code in line with
international practices.
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3. APPLICABILITY OF THE CODE
Applies in case of “substantial acquisition” of
Shares; or;
voting rights; or;
control,
By an acquirer by itself or together with
Persons Acting in Concert.
Applies to direct and indirect acquisitions
(global acquisitions also covered)
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4. IMPORTANT DEFINITIONS
Acquirer
Any Person acquiring , directly or indirectly
Shares or Voting Rights or Control
In the Target Company
By himself or Persons Acting in Concert
Control
Right to appoint majority of Directors or control
the policy decisions of the company
By means of their share holding, or management
rights or share holders agreements or any other
manner
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5. IMPORTANT DEFINITIONS
Person Acting in Concert
Persons who for a common objective
Directly or indirectly cooperate
To acquire shares or voting rights or control over
the Target Company
By means of an agreement or understanding
Certain cases of deemed PAC
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6. EARLIER PROVISION
Upto 5% - no disclosures
5% to 14.9% - disclosures
15% & above – Open Offer for 20%
Above 15% holders – permitted upto 5%
p.a upto 54.9%
To hold 55% - Open Offer (subject to min
pub shldg)
Above 55% holders – Open offer (subject
to min pub shldg) VNS Legal
7. NEW PROVISIONS
Upto 5% - no disclosures
5% upto 25% - disclosure to S.Exch
To cross 25% - open offer of min 26%
Above 25% - upto 5% p.a upto 75%
Shareholding is Acq + PAC in aggregate
Increase in threshold & offer size
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8. TRIGGER OF OPEN OFFER
Reg 3 (1) – If holding >= 25%
Reg 3 (2) – for a person already holding above
25%, - if acq is more than 5% p.a
Between 25% to 75% - upto 5% p.a allowed.
Cannot acq more than permitted holding
Only Gross Acqn considered
Diff between post & pre allot – computation
Individual plus aggregate holding considered now.
Promoter treated on par with any other acquirer
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9. ACQN OF CONTROL
Reg 4 – separate regulation for acqn of
control
Applicable irrespective of whether there is
acqn of shares or not
Earlier exemption of postal ballot
resolution, is now removed.
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10. INDIRECT ACQUISITION
Reg 5 (1) – defining indirect acqn
Acq of shares, voting rts, control
Over any company or other entity
That would enable the person + PAC to
Exercise voting right or control over target co
Such that it would attract open offer
Direct (vs) percentage rule
Reg 5 (2) - Indirect is construed as Direct if
proportionate value of target is - > 80% of
acquired entity’s value
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11. VOLUNTARY OFFERS
Min eligibility – 25%
Offer size – minimum of 10%
Last 52 week voluntary acqn by self & PAC – -
cannot make a volunt offer
Cannot acq shares from open market during offer
period
Cannot acquire for 6 months post offer period
except thro another volun offer
Volun acq by Promoters – whether hit by the bar
on earlier acqn rule ?
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12. OFFER SIZE
Reg 7 - Offer Size –
At least 26% of total shares as of 10th day of
PA (including shares to be acq through PA)
If shareholding would exceed the max limit,
undertaking to bring it down within time
given under SCR Act.
Such person who has exceeded the max
limit, cannot make a voluntary delisting offer
for a period of 12 months post offer period
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13. OFFER PRICE
In case of direct acqns – as per Reg 8(2)
In case of indirect acqns – as per Reg 8 (3)
If acq has any outstanding convertible
instrument, conversion price of those also
to be computed
Non-compete fee to be added
Higher price paid during offer period –
offer price will stand revised
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14. PRICING
Indirect acq – if delay in PA more than 5 days,
int @ 10% p.a
Payment of diff in price if acq / PAC acquire post
offer for a period of 26 weeks at a price higher
than the offer price except for another open
offer, delisting, market purchases other than
thro negotiated deal. If Promoter subsc to Pref
Offer @ higher price – impact ?
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15. EXEMPTIONS
Under Reg 10 (1) – for exemption u/ 3 & 4
Interse transfer of shs amongst qualifying persons –
between relatives, PAC, Promoters etc
Acqn in the ord course of business by broker, Merch
Banker, Bank / FI as pledgee
Pursuant to scheme of merger / BIFR etc
SARFAESI
Delisting
Transmission
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16. EXEMPTIONS
Under Reg 10 (2) – acqn of shares
without change in control pursuant to
CDR Scheme
Under Reg 10 (3) - Increase in voting
right beyond 25% pursuant to a buyback
if the shareholding is not reduced < 90
days of buyback.
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17. EXEMPTIONS
Reg 10 (4) – Exemption under Creeping
Acqn of 3(2)
Rights issue
Buy back – as long as not participated
Acqn by promoter from State Fin Corp
pursuant to agmt
Acqn by promoter from VC Fund / FVCI
pursuant to agmt
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18. RECENT CHANGES –
PROCESS & PROCEDURE
Public Announcement – on the date of
acqn / agreeing to acquire. In case of
market purchases – prior to order placing.
In case of Indirect acqn – within 4 days.
within 4 days of intent / acqn – notify to
S.Exch
Detailed Public Statement – within 5 days
of PA
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19. PROCESS & PROCEDURE
Detailed PA to be sent to all S.Exch, SEBI & to
Company plus publication in papers.
File Draft Letter of Offer to SEBI within 5 days of
Detailed PS.
Create escrow a/c within 2 days of Detailed PA
First 500 crs – 25%
Excess – 10% of the balance
Send LOO to shareholders < 7 days of SEBI
observations
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20. PROCESS
Acq + PAC to disclose their acq during the
offer period < 24 hrs of acqn
Acq + PAC cannot acquire during the
period 3 days prior to open of offer & till
close of offer
Offer period – 10 days open
Once tendered cannot withdraw
Acq to complete formalities < 10 days of
closure of offer VNS Legal
21. OTHER ISSUES
Completion of acquisition
Can be made only after completion of offer
process
Exemption for pref allotment
In case of 100% Escrow, can be completed
after 21 days of Detailed PA
What happens to Open Offers triggered by
Market purchases ?
Board appt – only after offer closes or
100% escrow after 15 days of Det PA
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22. OBLIGATIONS OF TARGET
COMPANY
No matl changes during offer period
unless spl resln thro postal ballot
Constitute committee of Indp Dirs to
recommend on open offer & publish in
papers + send to SEBI / S.Exch
Make available all info to acquirer
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23. DISCLOSURES
Disclosure to S.Exch & Company < 2 days of
Acqn exceeding 5% aggregate
Once above 5%, every acqn or disposal > 2%
aggregate
Acqn includes pledge. Except for Bk/FI
Persons holdg > 25% and Promoters shd
disclose their aggregate holdg to S.Ex & Co
within 7 days of 31 Mar
Promoter to disclose creation / invocation /
disposal of pledge < 7 days by Promoter / PAC
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24. IMPACT OF THE NEW CODE
Cost of open offers increases
Hostile takeover – quite remote
Exemptions – rationalised & clarified
Process & procedures – rationalised
Foreign acquirer – require FIPB clearances
Role of SEBI in processing offer docs –
needs rationalisation & clarity
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25. ROLE OF PRACTICSING
COMPANY SECRETARIES
Role of CS – crucial / critical in listed
entities
Apart from ensuring compliance, can also
assist in structuring transactions
Role as advisor to Open Offers
SEBI to consider empanelling CS to certify
smaller offers.
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26. CONCLUSION
Objective of SEBI regulations - increasing
transparency and protecting interest of
the investors in the Capital Markets
Need to distinguish between large / small
companies & role of intermediaries
Flexibility to be given to Promoters to
increase holding
International practices to be adapted to
Indian context.
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