DEMYSTIFYING TAKEOVER CODE<br />Pavan Kumar Vijay<br />:<br />
KEYWORDS IN TAKEOVER CODE<br />When an <br />&quot;acquirer&quot;<br />takes over the “shares” or “control” of the <br />&...
LIFTING THE VEIL <br />T<br />SHARES <br />Acquisition <br />CONTROL <br />BOTH SHARES & CONTROL<br />AKEOVER<br />
UNDERSTANDING SHARES<br />Reg 2 (k)<br />Shares carrying voting rights & any security which would entitle to receive share...
UNDERSTANDING CONTROL <br />“<br />Control is the right to<br /><ul><li> Appoint majority of the directors
 To control the management
 Control the policy decisions</li></ul>By virtue ofShareholding or Management rights or Shareholders Agreements or Voting ...
THRESHOLDS DEFINED <br />FOR COMPLIANCE <br />Acquisition of more than  5%, 10%, 14%, 54% & 74% [Regulation 7]<br />Person...
THRESHOLDS DEFINED <br />FOR OPEN OFFER<br />Acquisition more than  15% or more voting rights [Regulation 10]<br /> Person...
Reg  3(1)(e)<br />INTER – SE TRANSFER <br />An Insight <br />
Legal Insight: Inter-se Transfer 	 <br /><ul><li>REGULATION 3(1)(e) OF SEBI (SAST) REGULATIONS,     </li></ul>   1997 GOVE...
Categories for Inter-se transfer<br />Qualifying Promoters<br />Group under MRTP Act, 1969<br />Categories <br />Relatives...
DETAILED ANALYSIS <br />
Category I – Inter-se Transfer amongst Group <br />Main Features <br /><ul><li> Group here is signifying the group as</li>...
Category I – Group… contd <br />Definition of Group <br />SECTION 2(ef) OF MRTP ACT, 1969 DEFINES GROUP INTO TWO PARTS:<br...
 Associated persons such as relatives of director of a company, partner of a firm & any trustee in relation to a trust.
 Any associated person in relation to    associated person.</li></ul>Two or more Individuals, AOI, firms, trusts, body cor...
Category II – Inter-se transfer amongst relatives <br /><ul><li>Relatives under this regulation means the</li></ul>    Rel...
 Spouse
 Members of HUF
 Relative mentioned in Schedule 1A.
  Schedule 1A gives a list of 22 persons.           </li></ul>Main Features <br />
Category III – Promoters… contd <br />Category III – Inter-se transfer for Qualifying  Promoters <br />Qualifying Indian P...
Category III – Promoters… contd <br /> Qualifying  Promoters - Defined<br />Any person who<br />DIRECTLY OR INDIRECTLY<br ...
Category III – Promoters… contd <br />
Category III – Promoters… contd <br />Category IV – Acquirer and Persons acting in concert.  <br />PAC <br /> Reg2(e)<br /...
Pre- Conditions for availing Inter- se transfer.  <br />
Checks & Balances<br />
Checks & Balances under Regulation 3<br />C<br />O<br />M <br />P<br />L<br />I<br />A<br />N<br />C<br />E<br />Stock Exc...
Checks & Balances under Regulation 7<br />Acquirer : Compliance of regulation 7(1) or 7(1A)<br />Seller: Compliance of reg...
Taxation Issues<br />STT <br />vs. <br />LTCG/STCG<br />
Taxation Issues..contd.<br /> A Comparative Study<br />Securities Transaction Tax<br />LTCG/STCG<br /><ul><li> STT is levi...
 LTCG/STCG is levied when the</li></ul>   transfer is made in off market<br />   mode.<br /><ul><li>LTCG –
    20%  with indexation benefit on</li></ul>     the amount of capital gain .<br /><ul><li>    10% without indexation ben...
   10% on the amount of capital gain. </li></li></ul><li>INTER- SE TRANSFER : A STRATEGICAL MOVE<br />Good means for conso...
INTER- SE TRANSFER: Clause 40A <br />Regulation 3(1A) <br />“Nothing contained in sub-regulation (1) shall affect the appl...
I<br />SSUES<br />
MATTER OF DEBATE:<br />Whether Reporting under Regulation 3(4) is one time reporting?<br />HELD: <br />Regulation 3(4) is ...
MATTER OF DEBATE:<br />Whether the belated filing of report should not be considered as commission of offence when there i...
Inter-se transfer is a good  tool  for<br />consolidation of holdings…………..<br />However,the exemption is available subjec...
PREFERENTIAL ALLOTMENT OF SECURITIES <br />
An issue by a company<br />Of<br />Equity shares / Securities convertible into equity/FCDs/Warrants/PCDs/Convertible Prefe...
BENEFITS <br /><ul><li>Simple way to raise capital of the Company
No need to appoint Merchant Banker.
Economical way to raise capital.
Minimum Formalities.</li></li></ul><li>GOVERNING LAW<br />The Companies Act, 1956<br />SEBI (Disclosure and Investor Prote...
Proposed Allottees<br />Chapter – XIIIA of <br />SEBI (DIP) Guidelines<br />Chapter – XIII of <br />SEBI (DIP) Guidelines<...
Time Line- Preferential Allotment<br />15 days (12 months in case of QIBs)<br />30 days<br />25 days<br />Shareholders’ Re...
Pricing Schedule<br />6 months<br />30 days<br />2 weeks<br />Relevant Date<br />General Meeting<br />
Lock-in Requirement<br />Others<br />QIBs<br />Existing<br />Holding <br />Preferential <br />Allotment <br />Existing<br ...
Currency of Security Convertible into Equity Shares<br />QIBs<br />OTHERS<br />FCDs/ PCDs/ any other <br />convertible Sec...
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Demystifying Takeover Code

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This presentation explains in detail and a lucid manner, all the provisions of SEBI Takeover code. Also, it deals with certain debatable issues under the code.

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Demystifying Takeover Code

  1. 1. DEMYSTIFYING TAKEOVER CODE<br />Pavan Kumar Vijay<br />:<br />
  2. 2. KEYWORDS IN TAKEOVER CODE<br />When an <br />&quot;acquirer&quot;<br />takes over the “shares” or “control” of the <br />&quot;target company&quot;,<br />it is termed as Takeover.<br />When an acquirer acquires <br />&quot;substantial quantity of shares or voting rights&quot;<br />of the <br />Target Company, <br />it results into substantial acquisition of shares.<br />
  3. 3. LIFTING THE VEIL <br />T<br />SHARES <br />Acquisition <br />CONTROL <br />BOTH SHARES & CONTROL<br />AKEOVER<br />
  4. 4. UNDERSTANDING SHARES<br />Reg 2 (k)<br />Shares carrying voting rights & any security which would entitle to receive shares with voting rights in future But shall not include PREFERNCE SHARES <br />REG 2(k)<br />What is the status of partly paid shares under SAST Regulations, 1997?<br />ISSUE <br />The partly paid up shares are also shares under Takeover Code as voting rights is embedded in partly paid up shares. <br />
  5. 5. UNDERSTANDING CONTROL <br />“<br />Control is the right to<br /><ul><li> Appoint majority of the directors
  6. 6. To control the management
  7. 7. Control the policy decisions</li></ul>By virtue ofShareholding or Management rights or Shareholders Agreements or Voting Agreements or in any other manner.<br />REG 2(c)<br />
  8. 8. THRESHOLDS DEFINED <br />FOR COMPLIANCE <br />Acquisition of more than 5%, 10%, 14%, 54% & 74% [Regulation 7]<br />Persons, who are holding between 15% - 55%, acquisition/ sale aggregating more than 2% or more voting rights [Regulation 7(1A)]<br />
  9. 9. THRESHOLDS DEFINED <br />FOR OPEN OFFER<br />Acquisition more than 15% or more voting rights [Regulation 10]<br /> Persons, who are holding between 15% - 55%, acquisition more than 5% or more voting rights in a financial year.[Regulation 11(1)]<br />Persons, who are holding more than 55%, acquisition of single share or voting right [Regulation 11(2)] <br />
  10. 10. Reg 3(1)(e)<br />INTER – SE TRANSFER <br />An Insight <br />
  11. 11. Legal Insight: Inter-se Transfer <br /><ul><li>REGULATION 3(1)(e) OF SEBI (SAST) REGULATIONS, </li></ul> 1997 GOVERNS THE ACQUISITIONS THROUGH INTER<br /> SE TRANSFERS. <br /><ul><li>EXEMPTION FROM APPLICABILITY OF REGULATION</li></ul> 10,11 & 12 i.e. REQUIREMENT FROM MAKING<br /> PUBLIC OFFER. <br />
  12. 12. Categories for Inter-se transfer<br />Qualifying Promoters<br />Group under MRTP Act, 1969<br />Categories <br />Relatives under Companies Act, 1956<br />Acquirer & Persons acting in concert<br />
  13. 13. DETAILED ANALYSIS <br />
  14. 14. Category I – Inter-se Transfer amongst Group <br />Main Features <br /><ul><li> Group here is signifying the group as</li></ul> defined under MRTP Act, 1959. <br /><ul><li> Another important feature is where persons</li></ul> constituting such group have been shown as<br /> group in the last published Annual Report of the<br /> Target Company.<br />
  15. 15. Category I – Group… contd <br />Definition of Group <br />SECTION 2(ef) OF MRTP ACT, 1969 DEFINES GROUP INTO TWO PARTS:<br />AssociatedPersons<br /><ul><li> Group of persons having control without exercising controlling interest.
  16. 16. Associated persons such as relatives of director of a company, partner of a firm & any trustee in relation to a trust.
  17. 17. Any associated person in relation to associated person.</li></ul>Two or more Individuals, AOI, firms, trusts, body corporates who are in theposition to exercise control , whether directly & indirectly over any body corporate, firm or trust.<br />
  18. 18. Category II – Inter-se transfer amongst relatives <br /><ul><li>Relatives under this regulation means the</li></ul> Relatives defined under Section 6 &<br /> Schedule 1A under Companies Act, 1956.<br /><ul><li> The definition of relative u/s 6 includes
  19. 19. Spouse
  20. 20. Members of HUF
  21. 21. Relative mentioned in Schedule 1A.
  22. 22. Schedule 1A gives a list of 22 persons. </li></ul>Main Features <br />
  23. 23. Category III – Promoters… contd <br />Category III – Inter-se transfer for Qualifying Promoters <br />Qualifying Indian Promoter & Foreign Collaborators, who are shareholders.<br />Qualifying Promoters<br />
  24. 24. Category III – Promoters… contd <br /> Qualifying Promoters - Defined<br />Any person who<br />DIRECTLY OR INDIRECTLY<br />is in control <br />of the company <br />Who is named as Promoter<br /> in any <br />Offer Document OR Shareholding Disclosure, <br />Whichever is later<br />& includes….<br />
  25. 25. Category III – Promoters… contd <br />
  26. 26. Category III – Promoters… contd <br />Category IV – Acquirer and Persons acting in concert. <br />PAC <br /> Reg2(e)<br />ACQUIRER<br />Reg 2(b)<br />Exemption available only after 3 years from the date of closure of open offer made under these Regulations. <br />
  27. 27. Pre- Conditions for availing Inter- se transfer. <br />
  28. 28. Checks & Balances<br />
  29. 29. Checks & Balances under Regulation 3<br />C<br />O<br />M <br />P<br />L<br />I<br />A<br />N<br />C<br />E<br />Stock Exchange<br />SEBI<br />SEBI<br />Advance Intimation (4 days in Advance)<br />Report<br />(21 days of acquisition)<br />Fees to be accompanied with Report<br />(Rs 10000<br />25000)<br />Reg 3(3)<br />Reg 3(4)<br />Reg 3(5)<br />
  30. 30. Checks & Balances under Regulation 7<br />Acquirer : Compliance of regulation 7(1) or 7(1A)<br />Seller: Compliance of regulation 7(1A)<br />Target Company:Compliance of Regulation 7(3) <br />
  31. 31. Taxation Issues<br />STT <br />vs. <br />LTCG/STCG<br />
  32. 32. Taxation Issues..contd.<br /> A Comparative Study<br />Securities Transaction Tax<br />LTCG/STCG<br /><ul><li> STT is levied when the transfer is</li></ul> made through stock exchange.<br /><ul><li> STT is @ 0.125% of the sale value.
  33. 33. LTCG/STCG is levied when the</li></ul> transfer is made in off market<br /> mode.<br /><ul><li>LTCG –
  34. 34. 20% with indexation benefit on</li></ul> the amount of capital gain .<br /><ul><li> 10% without indexation benefit on</li></ul> amount of capital gain .<br /><ul><li>STCG –
  35. 35. 10% on the amount of capital gain. </li></li></ul><li>INTER- SE TRANSFER : A STRATEGICAL MOVE<br />Good means for consolidation of holdings in a Company.<br />
  36. 36. INTER- SE TRANSFER: Clause 40A <br />Regulation 3(1A) <br />“Nothing contained in sub-regulation (1) shall affect the applicability of the listing requirements.”<br />Effect of Regulation 3(1A)<br />The above-mentioned regulation is giving the effect that the exemption under regulation cannot exceed the provisions of listing agreement,i.e.the minimum public holding of 25% cannot be exceeded by the exemption of Inter- se Transfer<br />
  37. 37. I<br />SSUES<br />
  38. 38. MATTER OF DEBATE:<br />Whether Reporting under Regulation 3(4) is one time reporting?<br />HELD: <br />Regulation 3(4) is applicable to all cases wherever the acquisition exceeds the limit prescribed in the regulations irrespective of the existing holding of the acquirer.<br />NAAGRAJ GANESHMAL JAIN V P.SRI SAI RAM, THE SAT<br />
  39. 39. MATTER OF DEBATE:<br />Whether the belated filing of report should not be considered as commission of offence when there is no substantial loss to the investors?<br />HELD:<br />It was held that when the belated filing of the report under 3(4) does not resulted in any gain to the appellant & also no loss to the invested, the imposition of the penalty is not justified.<br />SAMRAT HOLDINGS V SEBI<br />
  40. 40. Inter-se transfer is a good tool for<br />consolidation of holdings…………..<br />However,the exemption is available subject to strict compliance of Regulation 3(3),3(4) & 3(5).<br />Concluding Remarks<br />
  41. 41. PREFERENTIAL ALLOTMENT OF SECURITIES <br />
  42. 42. An issue by a company<br />Of<br />Equity shares / Securities convertible into equity/FCDs/Warrants/PCDs/Convertible Preference Shares<br />pursuant to a resolution u/s. 81(1A) of Act, to any select group of persons by way of private placement. <br />
  43. 43. BENEFITS <br /><ul><li>Simple way to raise capital of the Company
  44. 44. No need to appoint Merchant Banker.
  45. 45. Economical way to raise capital.
  46. 46. Minimum Formalities.</li></li></ul><li>GOVERNING LAW<br />The Companies Act, 1956<br />SEBI (Disclosure and Investor Protection) Guidelines, 2000 <br />(Chapter – XIII & XIIIA)<br />Listing Agreement<br />SEBI (SAST) Regulations, 1997<br /> Unlisted Public Companies (Preferential Allotment) <br /> Rules, 2003<br />
  47. 47. Proposed Allottees<br />Chapter – XIIIA of <br />SEBI (DIP) Guidelines<br />Chapter – XIII of <br />SEBI (DIP) Guidelines<br />Allotment to QIBs (not in <br />Promoter Group) <br />by companies <br />listed on <br />NSE / BSE<br />OTHERS<br />
  48. 48. Time Line- Preferential Allotment<br />15 days (12 months in case of QIBs)<br />30 days<br />25 days<br />Shareholders’ Resolution must be implemented within 15 days (12 months in case of QIBs)except in case of pending regulatory approvals<br />Despatch of Individual Notices<br />Filing of application of<br /> in-principal approval <br />Board Meeting<br />General Meeting<br />Relevant Date<br />Allotment of Shares<br />
  49. 49. Pricing Schedule<br />6 months<br />30 days<br />2 weeks<br />Relevant Date<br />General Meeting<br />
  50. 50. Lock-in Requirement<br />Others<br />QIBs<br />Existing<br />Holding <br />Preferential <br />Allotment <br />Existing<br />Holding <br />Preferential <br />Allotment <br />PROMOTERS – <br />20% of Total Capital - for 3 Years<br />Remaining – for one Year<br />No Lock in <br />For One Year, <br />except in case <br />of <br />Trading through <br />Stock Exchange <br />For Six Months <br />OTHERS – For One Year<br />
  51. 51. Currency of Security Convertible into Equity Shares<br />QIBs<br />OTHERS<br />FCDs/ PCDs/ any other <br />convertible Security –60<br />Months from the <br />date of allotment <br />Warrants convertible into <br />Equity Shares – <br />can’t be issued to QIBs <br />FCDs/ PCDs/ any other <br />convertible Security –No <br />time prescribed for conversion<br />Warrants convertible into <br />Equity Shares - 18 months <br />from the date of allotment <br />
  52. 52. Preferential Allotment:- In- Principle & Listing <br />O<br /><ul><li>Process of identification of allottees.
  53. 53. Bank Statements
  54. 54. DIP Compliances – Pricing, Lock in ,</li></ul> Identity<br /><ul><li> Clause 40A of Listing Agreement
  55. 55. Change in Management/Control</li></ul>RVATIONS<br />BSE<br />
  56. 56. Preferential Allotment viz-a-viz Takeover Code<br />
  57. 57. Limit for Preferential Allotment<br />Limits are calculated taking into account the<br />EXPANDED CAPITALof the Company<br />& not the EXISTING CAPITAL of the Company.<br />
  58. 58. Illustration I <br />Acquirer<br />(holding 20%) <br />Through Preferential Allotment<br />Acquirer’s holding cannot exceed 24.99% of Expanded Capital.<br />
  59. 59. Illustration II <br />Acquirer<br />(holding 5 %) <br />Through Preferential Allotment<br />Acquirer’s holding cannot exceed 14.99% of Expanded Capital.<br />
  60. 60. Illustration III <br />Acquirer<br />(holding 0%) <br />Through Preferential Allotment<br />Acquirer’s holding cannot exceed 14.99% of Expanded Capital.<br />
  61. 61. Example:<br />
  62. 62. Queries<br />Query 1<br />What is the exact formula for calculating the % of shareholding, in case of issue of warrants? At what point of time, the number of warrants would be taken into account – on the day of issuing warrants or on the date of conversion of warrants into shares?<br />Query 2<br />Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation<br />
  63. 63. Queries<br />Query 3<br />What is the maximum limit of preferential allotment? Can a Company through preferential allotment expand its capital without any limit?<br />
  64. 64. Queries<br />Query 4<br />Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation?<br />What, if, the same question arises in case the promoter is holding 60%? The issue is as there is acquisition of shares but such acquisition has not change the voting rights. The question is what is relevant in terms of takeover code, acquisition or voting rights?<br />
  65. 65. Conclusion<br />To sum up… preferential allotment is becoming a buzz word these days…<br />However, it is subject to various checks & balances.<br />

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