SAST REGULATIONS

SEBI (Substantial
Acquisition of Shares
& Takeovers)
Regulations 2011
:Takeover Code

Group Members
–Shalini Devendran 37
–Swapnali Ghadge 47
–Shilpee Haldar 50
–Rupali Helambe 51
–Priyanka Kadam 66
–Jenneey Rajani 129
–Neha Thakur 167
2
MET MMS SEBI SAST Regulations 2011 10/14/2014

Contents
• Takeover & Types
• Background of SEBI takeover code
• Objectives of the Takeover Regulations
• Definitions
• Trigger Events to Give Open Offer
• -Mandatory Offer
• -Voluntary Offer
• Offer size
• Offer Prize
• Non Compete Fee
• Mode of Payment
• Letter of Offer
• Escrow Account
• Competing offer
3

Contents
• Payment of Consideration
• Open Offer Process
• Withdrawal of open offer
• Obligations of the acquirer
• Obligations of the target company
• Obligations of the merchant banker
• Disclosures
• Exemptions
• Penalties
• Case Study
– Diageo and United spirits
• Conclusion

Takeover
• Takeover is the process to purchase enough share of a company to
overtake the current majority shareholder.
OR
• Takeover implies acquisition of control of a company which is already
registered through the purchase or exchange of shares.
5

Acquiring control
• The right to appoint majority of the directors or to control the
management or policy decisions
• Exercisable by a person or a person acting in concert, directly or
indirectly.
• By virtue of their shareholding or management rights or shareholder’s
agreements or voting agreements or in any manner.
6

Ways of Acquiring control
• Control could be acquired through acquisition of Shares.
• Acquiring Voting Rights through a power of Attorney.
• Acquiring control over an Investment or Holding company ,which in
turns holds controlling interest in the target company.
• Acquiring management control through formal or informal
understanding or agreement with the existing person in control.
7

Objective of takeover
Smooth the
earning
• To improve productivity and profitability by joint efforts .
• To achieve product development through acquiring firms.
• To effect savings in overheads and other working expenses.
• To diversify through acquiring companies with new product lines as
New
geograph
well as new market shares.
• To increase market share.
• To achieve market development.
To increase the client base through Vertical integration.
8
By absorbing
competitors and
set price
results
ic
locations.

Types of acquisition
Acquisition
Legal Context
Business Context
9

Legal Context
Friendly
Takeover
Hostile
Takeover
Bail-Out
Takeover
10

Business
Context
Horizontal
Vertical
Conglomerate
11

Applicability of SAST
• Takeover can be of a Listed or an Unlisted company
• In case of Takeover of an Unlisted and closely held company –
Companies Act, 1956 to apply.
• In case of Takeover of a Listed company, the following legal
framework to apply:
- SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
2011 issued by the Securities and Exchange Board of India (SEBI)
- Companies Act, 1956
- Listing Agreement
- Securities Contracts Regulation (SCR Act)
- FEMA, Competition Act 2002, Industrial Policy
- Other govt. policy and procedures
12

History of SEBI takeover code
• In 1980 Swaraj Paul's case highlighted the need for regulations in
case of Takeovers.
• The need was felt in 1990s when the government initiated the policy
of liberalization and globalization
• Takeovers in India were regulated by Clause 40 in the listing
agreement.
• Takeovers in India were regulated by Clause 40 in the listing
agreement.
• SEBI was established in 1992 as a body corporate under the SEBI Act,
1992.
13

• SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1994.
• Amended a number of times to address the changing circumstances
and needs of corporate sector.
• November 1995,under the chairmanship of Shri P.N.Bhagwati, former
Chief Justice of India was constituted to review the said regulations.
• SEBI was established in 1992 as a body corporate under the SEBI Act,
1992.
• SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1997
14

• Owing to several factors such as M&A activities in India as the
preferred mode of restructuring, the increasing sophistication of
takeover market, decade long regulatory experience and various
judicial pronouncements, it was felt necessary to review the Takeover
Regulations.
• In September 2009, the Takeover Regulations Advisory Committee
(TRAC) under the chairmanship of (Late) Sri. C. Achuthan was
constituted by SEBI .
• In June 2010, the Committee came out with the TRAC Report
proposing some sweeping changes .
15

• SAST Regulations, 2011 come into force with effect from October 22,
2011
• In 2013 SAST Regulations again get amended and now we have new
SAST Regulation 2013.
• The main purpose for the new takeover code 2013 is to prevent
hostile takeovers and at the same time, provide some more
opportunities of exit to innocent shareholders who don't wish to be
associated with a particular acquirer.
16

Listing Agreement 40(A)
• Listing Agreement 40(A) : Minimum level of Public shareholding.
• The issuer company agrees to comply with the requirements specified
in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation)
Rules, 1957.
• Where the issuer company is required to achieve the m
• minimum level of public shareholding specified in Rule 19(2)(b)
and/or Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
• Issuer company shall adopt any of the following methods to raise the
public shareholding to the required level :
-issuance of shares to public through prospectus
-offer for sale of shares held by promoters to public through
prospectus.
-sale of shares held by promoters through the secondary
market.
17

Listing Agreement 40(B)
• Listing Agreement 40(B) : Take Over Offer
• it is a condition for continued listing that whenever the take-over
offer is made or there is any change in the control of the management
of the company the person who secures the control of the
management of the company and the company whose shares have
been acquired shall comply with the relevant provisions of the SEBI
(Substantial Acquisition of Shares and Take-Overs) Regulations, 2011.
18

Need of SEBI takeover code
• To provide a transparent legal framework.
• To protect the interests of investors.
• To provide each shareholder an opportunity to exit his investment in
the target company.
• To ensure that fair and accurate disclosure of all material information
is made.
• To regulate and provide for fair and effective competition among
acquirers.
• The process of acquisition and mergers shall be completed in a time
bound manner.
19

6 chapters
Chapter I
Preliminary
-Reg 1: Short
title,
commencement
& applicability
-Reg 2:
Definitions
Chapter II
Substantial
acquisition of
shares, voting
rights or control
-Reg 3:
Substantial
acquisition of
shares or voting
rights
-Reg 4:
Acquisition of
control
-Reg 5: Indirect
acquisition of
shares or control
-Reg 6:
Voluntary offer
-Reg 7: Offer
size
-Reg 8: Offer
price
-Reg 9: Mode of
Payment
-Reg 10:
General
exemptions
-Reg 11:
Exemptions by the
Board
Chapter III
Open offer
process
-Reg 12: Manager to
Open Offer
-Reg 13: Timing
-Reg 14: Publication
-Reg 15: Contents
-Reg 16: Filing of letter
of offer with the Board
-Reg 17: Provision of
Escrow
-Reg 18: Other
Procedures
-Reg 19: Conditional
offer
-Reg 20: Competing
offers
-Reg 21: Payment of
Consideration
-Reg 22: Completion of
Acquisition
-Reg 23: Withdrawal of
Open offer
Chapter IV
Other Obligations
-Reg 24:
Directors of the
Target company
-Reg 25:
Obligations of
the acquirer
-Reg 26:
Obligations of
the target
company
-Reg 27:
Obligations of
the Manager to
the Open offer
Chapter V
Disclosures of
shareholding and
control
-Reg 28:
Disclosure
related
provisions
-Reg 29:
Disclosure of
acquisition and
disposal
-Reg 30:
Continual
Disclosures
-Reg 31:
Disclosure of
encumbered
shares
Chapter VI
Miscellaneous
-Reg 32:
Power to issue
Directions
-Reg 33:
Power to
remove
difficulties
-Reg 34:
Amendment to
other
regulations
-Reg 35:
Repeal and
Savings
10/14/2014
20

DEFINITIONS
21

Reg.2(1)(a)
Acquirer
“Acquirer” means:
any person who, directly or indirectly,
acquires or agrees to acquire whether
by himself, or through, or with persons
acting in concert with him, shares or
voting rights in, or control over a target
company.
22

Reg.2(1)(q)
Person acting in concert
• Defined in two parts:
1) persons who has common objective of acquisition of shares
or exercising control over a target company, an agreement or
understanding (formal or informal), co-operate directly or
indirectly, for acquisition of shares or voting rights in, or
exercise of control over the target company
2) lists out categories of person or entities that could be
presumed to be acting in concert.
- a company, its holding company, subsidiary company and any
company under the same management or control
- a company, its directors, and any person entrusted with the
management of the company
- a mutual fund, its sponsor, trustees, trustee company, and
asset management company
23

Control includes right
to
Reg.2(1)(e)
Control
Exercisable By virtue of
• Appoint majority of
directors
• Control the management
• Control policy decisions
• By a person individually
• By PACs
• Directly or Indirectly
• Shareholding
• Management rights
• Shareholders’ agreement
•Voting agreements
• Any other manner
A director or officer of the target company is not considered in control over it merely by
virtue of such a position
24

Reg.2(1)(b)
Acquisition
“Acquisition” means:
directly or indirectly, acquiring or
agreeing to acquire shares or voting
rights in, or control over, a target
company.
25

Reg.2(1)(z)
Target company
“Target Company” means:
a company and includes a body
corporate or corporation established
under a Central legislation, State
legislation or Provincial legislation for
the time being in force, whose shares
are listed on a stock exchange.
26

Reg. 2(1)(s)
Promoter
“Promoter” means:
-Person who is in control of the company
-Person named as a promoter in any
document for offer of securities to the
public or existing shareholders or in the
shareholding pattern filed with the stock
exchange(s) under the Listing Agreement,
whichever is later.
27

Reg. 2(1)(t)
Promoter group
“Promoter Group” means
i. In case the promoter is a body corporate,
•A subsidiary or holding company of such body corporate
•A company in which promoter holds 10% or more of the equity capital or
a company who holds 10% or more of the equity capital of the promoter
•Any company, in which a group of individuals or companies or
combinations thereof, who holds 20% or more of the equity capital in that
company, also holds 20% or more of the equity capital of the target
company
ii. In case the promoter is an individual,
•immediate relative (i.e., spouse or any parent, brother, sister or child of
that person or of his spouse)
•Any company in which 10% or more of the share capital is held by the
promoter or his immediate relative or a firm or HUF of which he/any one
or more of them are members
28

Reg.2(1)(v)
Shares
“Shares” means shares in the equity share
capital of a target company carrying voting
rights, and includes any security which entitles
the holder thereof to exercise voting rights.
29

Reg.2(1)(j)
Frequently traded shares
“Frequently Traded Shares” means shares
of a target company, in which the traded
turnover on any stock exchange during
the twelve calendar months preceding the
calendar month in which the public
announcement is made, is at least ten
percent of the total number of shares of
such class of the target company.
30

Reg.2(1)(p)
Offer period
“Offer Period” means:
the period between the date of entering into
an agreement, formal or informal, to acquire
shares, voting rights in, or control over a target
company requiring a public announcement, or
the date of the public announcement, as the
case may be, and the date on which the
payment of consideration to shareholders who
have accepted the open offer is made, or the
date on which open offer is withdrawn, as the
case may be.
31

Reg. 2(1)(za)
Tendering period
“Tendering Period” means:
the period within which shareholders
may tender their shares in acceptance
of an open offer to acquire shares
made under these regulations.
32

Reg.2(1)(k)
Identified date
“Identified Date” means the date falling
on the tenth working day prior to the
commencement of the tendering period,
for the purposes of determining the
shareholders to whom the letter of offer
shall be sent.
33

Reg.2(1)(h)
Enterprise value
“Enterprise Value” means:
the value calculated as market
capitalization of a company plus debt,
minority interest and preferred
shares, minus total cash and cash
equivalents.
34

Reg. 2(1)(zb)
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.
35

Example Volume Weighted Average Market price
Sr. No No. of shares
traded(A)
Market Price per
share (B)
Product of (A)
and (B)
1 200 500 1,00,000
2 300 667 2,00,100
3 500 898 4,49,000
4 700 450 3,15,000
5 600 999 5,99,400
TOTAL 2,300 16,63,500
36
Volume Weighted Average Market price = Product of (A and B) /Total of A
=1663500/2300
=Rs.723.26

Reg.2(1)(zc)
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.
Say, No. of shares bought on a particular day – A
Market price – B
Volume weighted average price = A1*B1+A2*B2+A3*B3+…….
A1+A2+A3+…….
37

Recap
• Takeover & Types
• Background of SEBI takeover code
• Objectives of the Takeover Regulations
• Definitions

6 chapters
Chapter I
Preliminary
-Reg 1: Short
title,
commencement
& applicability
-Reg 2:
Definitions
Chapter II
Substantial
acquisition of
shares, voting
rights or control
-Reg 3:
Substantial
acquisition of
shares or voting
rights
-Reg 4:
Acquisition of
control
-Reg 5: Indirect
acquisition of
shares or control
-Reg 6:
Voluntary offer
-Reg 7: Offer
size
-Reg 8: Offer
price
-Reg 9: Mode of
Payment
-Reg 10:
General
exemptions
-Reg 11:
Exemptions by the
Board
Chapter III
Open offer
process
-Reg 12: Manager to
Open Offer
-Reg 13: Timing
-Reg 14: Publication
-Reg 15: Contents
-Reg 16: Filing of letter
of offer with the Board
-Reg 17: Provision of
Escrow
-Reg 18: Other
Procedures
-Reg 19: Conditional
offer
-Reg 20: Competing
offers
-Reg 21: Payment of
Consideration
-Reg 22: Completion of
Acquisition
-Reg 23: Withdrawal of
Open offer
Chapter IV
Other Obligations
-Reg 24:
Directors of the
Target company
-Reg 25:
Obligations of
the acquirer
-Reg 26:
Obligations of
the target
company
-Reg 27:
Obligations of
the Manager to
the Open offer
Chapter V
Disclosures of
shareholding and
control
-Reg 28:
Disclosure
related
provisions
-Reg 29:
Disclosure of
acquisition and
disposal
-Reg 30:
Continual
Disclosures
-Reg 31:
Disclosure of
encumbered
shares
Chapter VI
Miscellaneous
-Reg 32:
Power to issue
Directions
-Reg 33:
Power to
remove
difficulties
-Reg 34:
Amendment to
other
regulations
-Reg 35:
Repeal and
Savings
10/14/2014
39

Trigger points for open offer
40

Trigger events for open offer
Open Offer
Mandatory Offer
Acquisition of Shares
(Reg. 3)
Acquisition of Control
(Reg. 4)
Indirect Acquisition of
Shares & Control
(Reg. 5)
Voluntary Offer
(Reg. 6)
41

Reg. 3 Acquisition of shares
SEBI TAKEOVER RESOLUTION, 1997 SEBI TAKEOVER RESOLUTION, 2011
Maximum
permissible
non-public
shareholding
42

The quantum of acquisition of additional
voting rights:
No Netting off
Allowed
Acquisition of
shares by way
of issue of
new shares
43

Reg. 4
Acquisition of control
• Irrespective of acquisition, no acquirer shall acquire, directly
or indirectly, control over such target company without
making a public announcement of an open offer for acquiring
shares of such target company in accordance with these
regulations
44

Reg 5
Indirect Acquisition of shares or
control
• Acquisition of shares or voting rights in, or control over,
any company that would enable any person and PAC with
him to exercise such percentage of voting rights in, or
control over, a target company, the acquisition of which
would otherwise attract the obligation to make a public
announcement shall be considered as an indirect
acquisition
45

•In case of an indirect acquisition where:
the proportionate net asset value of the target company as a
percentage of the consolidated net asset value of the entity or
business being acquired ; or
the proportionate sales turnover of the target company as a
percentage of the consolidated sales turnover of the entity or
business being acquired; or
the proportionate market capitalisation of the target company as
a percentage of the enterprise value for the entity or business
being acquired
46
Is >80%, on the basis of the most recent audited annual financial
statements, such indirect acquisition shall be regarded as a direct
acquisition

Reg. 6
Voluntary open offer
ELIGIBILITY
Prior holding of
atleast 25% or
more shares
No acquisition
during the
preceding 52
weeks except
by way of Open
Offer.
OFFER
SIZE
Minimum of
10% of the
total shares of
the Target
company
CONDITION
The aggregate
share holding
not to exceed
the maximum
permissible non-public
shareholding
RESTRICTION
No further
acquisition of
shares for a period
of six months
after completion
of the open offer
except by way of
• voluntary open
offer or
• competing
offer.
47

OPEN OFFER
AND
ITS RELATED CONCEPTS
48

SEBI TAKEOVER
REGULATIONS,
1997
20%
Reg. 7
Offer size
SEBI TAKEOVER
REGULATIONS,
2011
26%
49
•Acquirer getting simple majority i.e. 51% (25% + 26%)

Specific criteria for price
Offer Price
Direct Acquisition
(Reg. 8)
Frequently Traded
Shares
Infrequently Traded
Shares
Indirect Acquisition
(Reg. 8)
50

Reg. 8
Offer price
1997
Regulation
Higher of
• weekly high and low
of closing prices for
26 weeks
• Average of daily high
and low of last two
Offer Period weeks
2011
Regulation
• the average
market price of 60
trading days prior
to the date of the
public
announcement
51

The minimum offer price should be highest of the following, computed with reference
to the cut-off date:
Direct Acquisition[Regulation 8(2)] Indirect Acquisition[Regulation 8(3)]
1) The highest negotiated price per share
of the target company for any acquisition
under the agreement attracting the
obligation to make a public
announcement of an open offer
1)The highest negotiated price per share
of the target company for any acquisition
under the agreement attracting the
obligation to make a public
announcement of an open offer
2) Volume weighted average price paid or
payable by the acquirer or PAC during the
preceding 52 weeks#
2)Volume weighted average price paid or
payable by the acquirer or PAC during the
preceding 52 weeks*
3)The highest price paid or payable for
any acquisition by the acquirer or PAC
during the preceding 26 weeks#
3)The highest price paid or payable for
any acquisition by the acquirer or PAC
during the preceding 26 weeks*
52

Direct Acquisition[Regulation 8(2)] Indirect Acquisition[Regulation 8(3)]
4)For frequently traded shares: volume-weighted
average market price of such shares
for a period of 60 trading days#
For infrequently traded shares: the price
determined by the acquirer and the manager
to the open offer taking into account
valuation parameters
4)Volume weighted average market price of
such shares for a period of 60 trading days*,
for frequently traded shares
5) The per share value of the target company
computed (In case of Deemed Direct
Acquisition where net assets value or sales
turnover or market capitalization of the target
company is more than 15% of consolidated
net asset or sales turnover or the enterprise
value of the entity or business being acquired
as per latest audited annual financial
statements, the per share value of the target
company computed by the acquirer )
5)The per share value of the target company
computed (Where net assets value or sales
turnover or market capitalization of the target
company is more than 15% of consolidated
net asset or sales turnover or the enterprise
value of the entity or business being acquired
as per latest audited annual financial
statements, the per share value of the target
company computed by the acquirer
# Cut-off date: Date on which PA is made *Cut-off date: Earlier of, the date on which
the primary acquisition is contracted and
the date on which intention or decision to
make primary acquisition is announced
53

Volume weighted average price paid or payable by the
acquirer or PAC during the preceding 52 weeks
Suppose the date of public announcement is 30th September 2014
Date of
Acquisition
Price per share
(1)
No. of shares
acquired (2)
Consideration
(3=1*2)
15.10.2013 150 200 30000
25.11.2013 140 100 14000
05.1.2014 155 250 38750
06.1.2014 145 50 7250
6.4.2014 160 150 24000
6.5.2014 150 200 30000
6.7.2014 140 100 14000
16.9.2014 155 50 7750
Total 1100 165750
Volume weighted average price
(Total of 3/Total of 2)
150.68
54

The highest price paid or payable for any
acquisition by the acquirer or PAC during the
preceding 26 weeks preceding date of PA
Date of Acquisition Price per share No. of shares
acquired
6.4.2014 160 150
6.5.2014 150 200
6.7.2014 140 100
16.9.2014 155 50
Highest Price Paid
160
55

Volume-weighted average market price of such
shares for a period of 60 trading days preceding
date of PA
Date price Price per share
(1)
No. of shares
Traded
(2)
Consideration
(3=1*2)
01.08.2014 154 12542 1931468
15.09.2014 153 9751 1491903
29.09.2014 157 7220 1133540
Total 42181 4556911
Volume weighted average
108.03
market price
(Total of 3/Total of 2)
56

Minimum Offer Price
Minimum Offer Price shall be highest of Price (Rs)
Highest Price paid per share under the Agreement 162
Volume weighted average price paid or payable by the acquirer or
PAC during the preceding 52 weeks
150.68
The highest price paid or payable for any acquisition by the
acquirer or PAC during the preceding 26 weeks preceding date
of PA
160
volume-weighted average market price of such shares for a
period of 60 trading days preceding date of PA
108.03
Minimum Offer Price 162
57

NON COMPETE FEES
58

Non compete fees - Regulation8(7)
59
• SEBI takeover regulations, 1997
Non compete fees up to 25% of the offer price (Not to be included in
the Offer Price)
• SEBI takeover regulations, 2011
Non compete fees to be included in the Offer Price

MODE OF PAYMENT
60

Mode of payment
Regulation 9
61
The offer price may be paid:
(a) in cash
(b) by issue, exchange or transfer of listed shares in the equity share capital of
the acquirer or of any person acting in concert
(c) by issue, exchange or transfer of listed secured debt instruments issued by
the acquirer or any person acting in concert with a rating not inferior to
investment grade as rated by a credit rating agency registered with the Board
(d) by issue, exchange or transfer of convertible debt securities entitling the
holder thereof to acquire listed shares in the equity share capital of the acquirer
or of any person acting in concert; or
(e) a combination of the mode of payment of consideration stated in
clause (a), clause (b), clause (c) and clause (d)

Mode of payment
PROVIDED THAT -
• Where any shares have been acquired or agreed to be acquired by the
acquirer and PAC with him
• during 52 weeks immediately preceding the date of public announcement
constitute more than 10% of the voting rights in the target company and has
been paid for in cash,
• the open offer shall entail an option to the shareholder to require payment of
the offer price in cash, and
• a shareholder who has not exercised an option in his acceptance shall be
deemed to have opted for receiving the offer price in cash
62

Mode of payment
In case of revision in offer price
• The mode of payment of consideration may be altered subject to condition
• that the component of the offer price to be paid in cash prior to such
revision is not reduced
63

Shares to be issued or exchanged or transferred or the shares to be issued upon
conversion of other securities, shall conform to the following requirements:
• such class of shares are listed on a stock exchange and frequently traded at the
time of the public announcement;
• such class of shares have been listed for a period of at least two years preceding
the date of the public announcement;
• the issuer of such class of shares has redressed at least ninety five percent of the
complaints received from investors by the end of the calendar quarter immediately
preceding the calendar month in which the public announcement is made;
64

(d) the issuer of such class of shares has been in material compliance with the listing
agreement for a period of at least two years immediately preceding the date of the
public announcement:
Provided that in case where the Board is of the view that a company has not been
materially compliant with the provisions of the listing agreement, the offer price shall
be paid in cash only;
(e) the impact of auditors’ qualifications, if any, on the audited accounts of the issuer
of such shares for three immediately preceding financial years does not exceed five
percent of the net profit or loss after tax of such issuer for the respective years; and
(f) the Board has not issued any direction against the issuer of such shares not to
access the capital market or to issue fresh shares
65

Where listed securities are offered as consideration, the value of such securities shall
be higher of :
1. the average of the weekly high and low of the closing prices of such securities
quoted on the stock exchange during the six months preceding the relevant date;
30 th day prior
to the
shareholders
meeting
2. the average of the weekly high and low of the closing prices of such securities
quoted on the stock exchange during the two weeks preceding the relevant date;
3. the volume-weighted average market price for a period of sixty trading days
preceding the date of the public announcement are recorded during the six-month
period prior to relevant date
66

LETTER OF OFFER
67

Filing of letter of offer with the Board.
Regulation 16
68
LOF to be filled with SEBI within 5 working days from the date of detailed
public announcement through manager to the open offer:
Consideration payable under open offer Fee (Rs)
Up to 10 crore Rs. 1,25,000
> 10 crore but <= 1,000 crore Rs. 1,25,000 + 0.025% of the offer size in
excess of Rs. 10 crore
> 1,000 crore but <= 5,000 crore Rs. 1,25,000 + 0.03125% of the offer size in
excess of Rs. 1,000 crore
> 5,000 crore Rs. 2,50,00,000 + 0.01% of the offer size in
excess of Rs. 5,000 crore subject to
maximum of Rs. 3,00,00,000

Reg. 16 Filing of letter of offer with
the Board
• SEBI shall give its comments on the draft LOF within 15 working days of the
receipt of the draft LOF. If no comments being issued within such period, it
shall be deemed that SEBI does not have comments to offer
• If SEBI has sought clarifications or additional information from the Merchant
Banker, the period for issuance of comments shall be extended to the 5th
working day from the date of receipt of satisfactory reply to the clarification
or additional information sought
• Changes specified shall be carried out by the Merchant banker and the
acquirer in the letter of offer before it is dispatched to the shareholders
• In the case of competing offers, SEBI shall provide its comments on the draft
LOF in respect of each competing offer on the same day.
• If the disclosures in the draft LoF are inadequate, SEBI may call for a revised
LOF
69

ESCROW ACCOUNT
70

Escrow account
Reg. 17
• the acquirer shall create an escrow account towards security for performance
of his obligations under these regulations
71
SL. No Consideration payable under
the open offer
Escrow Amount
1. Up to Rs. 500 crores 25% of consideration
2. On the balance consideration An additional amount
equal to 10%of the balance
consideration

Acquirer may make
an offer conditional
as to minimum level
of acceptance
Conditional open offer, 100% of the consideration payable in respect of
minimum level of acceptance
or
50% of the consideration payable under the open offer,
whichever is higher, shall be deposited in cash in the escrow account
72

The escrow account may be in the form of:
• cash deposited with any scheduled commercial bank
• bank guarantee issued in favour of the Merchant banker by any scheduled
commercial bank
• deposit of frequently traded and freely transferable equity shares or other
freely transferable securities
The manager to the open offer shall not release the escrow account until the
expiry of thirty days from the completion of payment of consideration to
shareholders who have tendered their shares in acceptance of the open offer
73

• The escrow account deposited with the bank in cash shall be released only in the
following manner:
• the entire amount to the acquirer upon withdrawal of offer (regulation 23)
• for transfer of an amount not exceeding ninety per cent of the escrow
account, to the special escrow account in accordance with regulation 21
• to the acquirer, the balance of the escrow account after transfer of cash to
the special escrow account, on the expiry of thirty days from the completion
of payment of consideration to shareholders who have tendered their shares
in acceptance of the open offer, as certified by the manager to the open offer;
• the entire amount to the acquirer upon the expiry of thirty days from the
completion of payment of consideration to shareholders who have tendered
their shares in acceptance of the open offer, upon certification by the
manager to the open offer, where the open offer is for exchange of shares or
other secured instruments
74

Failure of Payment
• In case of non-fulfillment of any of the obligations under these regulations,
Merchant Banker has a right to forfeit the escrow account and distribute the
proceeds in the following way:-
1. 1/3rd of the escrow account to the target company
2. 1/3rd of the escrow account to the Investor Protection and Education
Fund established under the Securities and Exchange Board of India
Regulations, 2009
3. 1/3 to be distributed on pro rata basis among the shareholders who
have accepted the open offer.
75

Reg. 20
Competing Offer:
• Offer made by the person, other than the acquirer who has made the first
public announcement: within 15 working days from the date of detailed
public statement.
76
Existing
holding of
1st acquirer
No. of
shares
proposed
to be
acquired
under the
1st Offer
Underlying
agreement
for sale of
shares of
the Target
Company
Existing
holding of
Competitiv
e acquirer
+PAC
+No. of
shares to
be acquired
through
competitiv
e offer

Reg. 20
Competing Offer:
• Unless the 1st open offer made is a conditional offer, no acquirer
making a competing offer may be made conditional as to the
minimum level of acceptances.
• The 1st acquirer has a right to revise its offer up to 3 working days
prior to the opening of the offer.
• Schedule of activities and the offer opening and closing of all
competing offers shall be carried out with identical timelines.
• No person can make a PA of an open offer for acquiring shares, or
enter into any transaction that would trigger the Takeover Code
requiring a mandatory open offer, after fifteen working days from the
date of PA of an open offer under the Takeover Code till the expiry of
the offer period for such open offer.
77

Reg. 21
Payment of Consideration:
• For the amount of consideration payable in cash, the acquirer shall
open a special escrow account with a banker to an issue registered with
SEBI.
• Payment consideration together with 90% of the amount lying in the
escrow account transferred, make up the entire sum due and payable
to the shareholders as consideration for acceptances.
• The acquirer shall complete payment of consideration, whether in the
form of cash, or issue or exchange or transfer of securities, to all
shareholders who have tendered shares in acceptance of the open
offer, within 10 working days of the expiry of the tendering period.
• Unclaimed balances, if any, lying to the credit of the special escrow
account, at the end of 7 years from the date of deposit thereof, shall be
transferred to the Investor Protection and Education Fund.
78

Appoint a
Merchant Banker
Open Offer Process:
Public
Announcement
Detailed Public
Announcement
(DPA)
‘Identified date’ to determine the
name of the shareholders to whom
the letter of offer should be sent
Dispatch of Letter of
offer to shareholders
10th working day prior to the commencement
Pre Offer
Advertisement
Comments from
BOD of Target
company
Filing Draft Offer
Document with
SEBI
Escrow
Account
Copy to SEBI, SE & Target Co.
Receipt of
comments
from SEBI
Within 4 working days
Revision of
Offer Price
Opening
of the
Issue
Post Offer
Advertisement
Payment of
Consideration
Final Report from
Merchant Bank
Closing of
the Issue
prior to DPA
from the PA
from the date of DPA
Within 15 days of the
receipt of draft offer
Last day of
Competitive
bid
from the date of DPA
from the receipt of
comments from SEBI
from date of receipt of
comments from SEBI
Before the last 3 working days
prior to the commencement
of the tendering period
1 working days before the
commencement of the
tendering period
10 days from the
opening of issue
after the offer period
Within 10 working
days from the expiry of
the tendering period
from the expiry of the
tendering period
At least 2 working days before
the commencement of the
tendering period
of tendering period
79

Reg. 23
Withdrawal of Open Offer:
• An open offer once made cannot be withdrawn except:
– Statutory approvals required for the open offer have been refused
– The acquirer, being a natural person, has died
– any condition stipulated in the agreement is not met for reasons outside
the reasonable control of the acquirer, and such agreement is rescinded
(subject to such conditions having been specifically disclosed in the DPS
and the letter of offer); or
– Circumstances which in the opinion of SEBI merit withdrawal of open
offer
• In the event of withdrawal, the acquirer shall through the Merchant
banker, within 2 working days, provide grounds and reasons for
withdrawal of Open Offer:
– make an announcement in the newspapers (same as in case of PA)
– Inform in writing to SEBI, SE & Target company
– the stock exchange shall disseminate such information
80

OBLIGATIONS
81

Reg. 25
Obligation of Acquirer
• The acquirer shall ensure that firm financial arrangements have been made
for fulfilling the payment obligations under the open offer.
• If the acquirer has not declared an intention in the Detailed public statement
and the letter of offer to alienate any material assets of the target company
or of any of its subsidiaries whether by way of sale, lease, encumbrance or
otherwise outside the ordinary course of business, the acquirer shall be
debarred from causing such alienation for a period of two years after the
offer period.
-Provision: Special resolution by shareholders of the Target company by way of a
postal ballot
• Ensure that the contents of the Public announcement, the Detailed public
statement, the letter of offer and the post-offer advertisement are true, fair
and adequate in all material aspects and not misleading and are based on
reliable sources.
• The acquirer and PAC with him shall not sell shares of the target company
held by them, during the offer period.
82

Reg. 26
Obligation of Target Company:
• The BOD’s of the target company shall ensure that during the offer period, the business
of the target company is conducted in the ordinary course consistent with past practice.
• Unless approval of shareholders of the target company, by way of a special resolution
through postal ballot is obtained, the BOD’s of either the target company or any of its
subsidiaries shall not,—
-Alienate any material assets of the company except in the ordinary course of business
-Not to effect any material borrowings outside the ordinary course of business
-Not to issue or allot any authorised but unissued securities carrying voting rights
-Implement any buy back or effect any change to the Capital structure
-Enter into, amend or terminate any material contracts
• Furnish to the acquirer within 2 working days from the identified date, a list of
shareholders as per the register of members of the target company containing names,
addresses, shareholding, etc.
• Committee of independent directors to provide reasoned recommendations on such
open offer, at least 2 working days before the commencement of tendering period, and
publish such recommendations in newspaper (same as PA) and a copy to SEBI, SE,
Merchant Banker.
83

Reg. 27
Obligation of Merchant Banker:
• Prior to PA being made, it has to ensure that:
– the acquirer is able to implement the open offer; and
– firm arrangements for funds through verifiable means have been made
by the acquirer
• To ensure that the contents of the Public Announcement, the DPS
and the letter of offer and the post offer advertisement are true, fair
and not misleading.
• Provide to SEBI a due diligence certificate along with the draft letter
of offer.
• To ensure compliance with these regulations.
• It shall not deal on his own account in the shares of the target
company during the offer period.
• File a report to SEBI within 15 working days from the expiry of the
tendering period.
84

DISCLOSURES OF SHAREHOLDING
AND CONTROL
85

Reg. 28
Disclosure-related provisions:
86
• Aggregate shareholding or
• Voting rights
Disclosure of:
• Acquirer
• Promoter of Target Company
• PAC of Promoter of Target Company
by whom:
• Convertible security = regarded as shares
Acquisition & holding
of ‘Convertible
security’:
• Disseminate such information on receipt
Role of Stock
Exchange:
MET MMS SEBI SAST Regulations 2011
10/14/2014

Disclosures
Disclosures under
Chapter V
Reg. 29
Disclosure of
acquisition and disposal
Reg. 30
Continual Disclosures
Reg.31
Disclosure of
Encumbered Securities
87
MET MMS SEBI SAST Regulations 2011
10/14/2014

Reg. 29
Disclosure of acquisition and disposal
88
Reg. Triggering Event Disclose
Disclosure
by
Disclosure
to
Time Period
29 (1)
Acquisition + Held
shares or voting rights:
aggregating to 5% or
more shares or voting
rights
Aggregate
Shareholding
and voting
rights
Acquirer &
PAC
• Stock
Exchange
•Target
company
Within 2 working
days of:
• receipt of
intimation of
allotment of shares;
or
• acquisition of
shares
or voting rights in
the Target Company
29 (2)
Acquisition or disposal
of 2% or more shares
or voting rights by the
acquirer already
holding 5% or more
shares or voting rights
Every
acquisition and
disposal of 2%
or more shares

Reg. 30
Continual disclosure
89
Reg. Disclose Disclosure by
Disclosure
to
Time Period
30 (1)
Acquirer holding shares or
voting rights entitling 25% or
more voting rights in Target
Company as of 31st March
Person (holding
shares) and PAC
• Stock
Exchange
•Target
company
Within 7 working
days from the
end of financial
year i.e. 31st
March
30 (2)
Aggregate shareholding and
voting rights in Target Company
as of 31st March
Promoter of Target
company and PAC
of Promoter

Reg. 31
Disclosure of encumbered shares
Regulation Triggering Event Disclosure by
Disclosure
to
Time Period
31(1) and
31(2)
Creation or invocation or
release of encumbrance
on the shares held by
Promoter or PAC
Promoter &
PAC
• Stock
Exchange
•Target
company
Within 7 working days from
the event
• Reg. 28(3): Meaning of encumbrance: shall include
pledge, lien or any other transaction, by whatever name
called.
90

• Stock
Exchange
site where
the
disclosures
are
available.
91

• Disclosure
of Reg.
31(1) and
31(2) by
United
Breweries
Holding
Ltd.
92

TAKEOVER CODE
EXEMPTIONS
93

Exemptions
Regulation 10
Automatic
Exemptions
Regulation 11
Exemptions by
Board

Regulation 10(1)(a)(i)
Immediate
Relative
Means
Person's
Spouse
Includes
Person
Parents
/ Spouse
Parents
Person
Brother/
Spouse
Brother
Person
Sister/
Spouse
Sister
Person
and
Spouse
Child
95

Regulation 10(1) (a)(ii)
• If there is any transfer of shares between persons shown
as promoters in the shareholding pattern filed by the
Target Company as per
• Listing Agreement or
• SEBI Takeover Regulations
For at least 3 years prior to the proposed acquisition
96

Regulation 10(1) (a)(iii)
Acquisition pursuant to inter se transfer of shares amongst
qualifying parties being:
• A company,
• Its subsidiaries,
• Its holding company,
• Other subsidiaries of such holding company,
• Persons holding not less than 50% of the equity shares of such
company,
Regulation 10(1)(a)(iv)
Amongst PACs for not less than three years prior to the proposed
acquisition, and disclosed under the listing agreement.
97

• The exemption is available subject to the compliance of
the following conditions:
• Pricing for the transfer:
• If the shares of the Target Company are frequently traded
The acquisition price per share shall not be higher by more
than 25% of the VWAMP for a period of 60 trading days
preceding the date of issuance of notice for the proposed
inter se transfer, as traded on the stock exchange where
the maximum volume of trading in the shares of the target
company are recorded during such period.
98

• If the shares of the Target Company are
infrequently traded - The acquisition price shall
not be more than 25% of the price determined
under Regulation 8(2)(e) of the Regulations.
And
Taking into account the
valuation parameters
• The transferor and transferee shall have complied
with applicable disclosure requirements
99

Regulation 10(1)(b)
Acquisition in the ordinary course of business by:
• Underwriter registered
• Stock broker registered on behalf of his client
• Merchant banker registered with Board or a nominated
investor in the process of market making or subscription to
unsubscribed portion of issue
• SCBs acting as escrow agent
100

Regulation 10(1)(C)
• Acquisition 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, as contemplated in such agreement
101

Regulation 10(1)(d)
• Acquisition pursuant to a scheme
• Sick Industrial Companies(Special Provisions)Act, 1985
• Target company as a transferor company or as a transferee
company, or reconstruction of the target company, including
amalgamation, merger demerger or
• Of agreement involving the target company as a transferor
company or as a transferee company or reconstruction not
involving the target Company’s undertaking including
amalgamation, merger demerger
Subject to-
102

1. The component of cash and cash equivalents in
consideration paid being less than 25% of
consideration paid under the scheme
2. Where after implementation of the scheme of
arrangement, persons directly or indirectly holding at
least thirty three percent of the voting rights in the
combined entity are same as the persons who held the
entire voting rights before the implementation of the
scheme
103

• Acquisition pursuant to provisions of SARFAESI ACT, 2002
• Acquisition pursuant to provisions of SEBI Delisting
Regulations, 2009
• Acquisition of voting rights or preference shares carrying
voting rights arising out of the operation of 87(2) of
Companies Act, 1956
104

Regulation10(3)
• An increase in voting rights in a target company of any
shareholder pursuant to buy-back of shares provided
• Such shareholder reduces his shareholding such that his
voting rights fall to below the threshold referred to in
regulation 3(1) within 90 days from the date on which the
voting rights so increase.
105

Regulation10(4)
• Acquisition of shares by any shareholder of a target
company, up to his entitlement, pursuant to a rights issue;
Subject to fulfillment of the following conditions
• The acquirer has not renounced any of his
entitlements in such rights issue; and
• The price at which the rights issue is made is not
higher than the ex-rights price of the shares of the
target company
106

• 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
• 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.
107

• The acquirer shall intimate the stock exchange, the details
of the proposed acquisition in such form as may be
specified, at least four working days prior to the proposed
acquisition, and the stock exchange shall forthwith
disseminate such information to the public
• In respect of any acquisition made pursuant to exemption
provided for in this regulation, the acquirer shall file a
report with the stock not later than four working days from
the acquisition, and the stock exchange shall forthwith
disseminate such information to the public
108

• In respect of any acquisition of or increase in voting rights
pursuant to exemption provided the acquirer shall, within
21 working days of the date of acquisition, submit a
report to the Board giving all details in respect of
acquisitions, along with a nonrefundable fee of rupees 25
thousand
109

Exemptions by the Board(Regulation 11)
• Regulation 11(2): SEBI may for reasons recorded in writing,
grant exemption - subject to conditions as the Board deems fit
to impose in the interests of investors
• Regulation 11(2): The Board may grant a relaxation subject to
such conditions as the Board deems fit to impose in the
interests of investors being satisfied that,—
The target company is a company in respect of which the
Central Government or State Government or any other
regulatory authority has superseded the board of directors of
the target company and has appointed new directors under
any law for the time being in force, if—
110

1. Such board of directors has formulated a plan which provides
for transparent, open, and competitive process for
acquisition of shares or voting rights in, or control over the
target company to secure the smooth and continued
operation of the target company in the interests of all
stakeholders of the target company
2. The process adopted by the board of directors of the target
company provides for details including the time when the
open offer for acquiring shares would be made, completed
and the manner in which the change in control would be
effected
111

Regulation 11 (3) & 11(4)
For seeking exemption under
Regulation11 (1) -> The acquirer
For seeking relaxation under
Regulation 11(2) -> Target company shall file an application
with the Board, supported by a duly sworn affidavit, and
giving details of the grounds on which the exemption has
been sought and pay a non-refundable fee of rupees fifty
thousand
112

PENALTIES UNDER TAKEOVER
REGULATIONS
113

Regulation 32
Power of the board
• Divesting the shares acquired in violation of the regulations and
directing appointment of Merchant Banker for such divestiture
• Transfer of shares or any proceeds of a directed sale of shares
acquired in violation of the regulations to Investor Protection and
Education Fund
• Not to give effect to any transfer of shares acquired or exercise
voting rights attached to the shares acquired in violation of these
regulations
• Debarring the person from accessing the capital market or dealing
in securities
• Initiate enquiry proceedings against the intermediary registered
for failure to carry out the requirement of these regulations and
others.
114

Sec. 15H. Penalty for non-disclosure of
acquisition of shares and takeovers
If a person fails to
• Disclose the aggregate of his shareholding in the body corporate
before he acquires any shares of that body corporate
• Make a public announcement to acquire shares at a minimum
price
• Make a public offer by sending letter of offer to the shareholders
of the concerned
• Make payment of consideration to the shareholders who sold
their shares pursuant to letter of offer
Penalty
He shall be liable to a penalty twenty-five crore rupees or three
times the amount of profits made out of such failure, whichever
is higher.
115

Criminal prosecution under
section 24 of the SEBI Act.
In addition to any award of penalty by the Adjudicating
Officer under the Act, if any person attempts to
contravene any rules or regulations thereof and further,
for the non compliance of the directions of the
Adjudicating Officer, the person shall be
• Punishable with imprisonment for a term which shall not
be less than one month, but which may extend to ten
years or with fine which may extend to twenty-five crore
rupees or with both.
116

Section 11B of the SEBI Act
The Board may, in the interest of securities market, give
directions, without prejudice to its right to prosecute
under section 24 of the SEBI Act including:
a) Directing the person concerned not to further deal in
securities.
b) Prohibiting disposal of securities acquired in violation
of these regulations.
c) Direct sale of securities acquired in violation of these
regulations.
117

Sec. 11(4) of the SEBI Act:
The authority may give the directions to the person in default & the
directions may include the following:
• Suspend the trading of any security in a recognized stock exchange
• Restrain persons from accessing the securities market and prohibit any
person associated with securities market to buy, sell or deal in
securities
• Suspend any office-bearer of any stock exchange or self-regulatory
organization from holding such position
• Impound and retain the proceeds or securities in respect of any
transaction which is under investigation
• Attach bank accounts of persons involved in violation for a period not
exceeding one month
• Direct any intermediary or any person associated with the securities
market in any manner not to dispose of or alienate an asset forming
part of any transaction which is under investigation
118

Cease and desist order in proceedings
under section 11D of the Act
A Cease and desist order can be passed under this section
from committing or causing any violation of the SEBI
Takeover Regulations.
119

Adjudication proceedings under
section 15HB of the Act.
A residual clause :
Liable to a penalty which may extend to one crore
120

USL: “King of Good Times” Hands
Over Crown Jewel to Diageo
121

Parties involved in the deal
I. Target (United Spirits limited)
• United Spirits Limited, is an Indian alcoholic
beverages company, and the world's second-largest
spirits company in terms of volume. It is a subsidiary of
the United Breweries Group. USL exports its products to
over 37 countries.
II. Sellers
A. UBHL
• UBHL – principal holding company for UB group
• Post the deal it holds 7% of the share capital of the target
122

B. KFIL
• KFIL- wholly owned subsidiary of UBHL
• Post the deal it holds 4.09% stake in the target
C. SWEW
• Was incorporated as a co. ltd. By guarantee
• Post the deal it holds 0.10% of the share capital of the target (was not
classified as part of the promoter group)
D. United Spirits Limited Benefits Trust
• Was formed as private trust
• USL benefits trust holds the equity shares of the target as treasury
stock
123

E. PIGL
• Was incorporated as a wholly owned subsidiary of the target
• Prior to the deal it held 3.35% (not classified as part of the promoter
group)
• Post the deal it ceased to be a shareholder in the target
F. UB Sports
• Was incorporated as a wholly owned subsidiary of PIGL in Jersey
• Prior to the deal it held 0.42%
• Post the deal it ceased to be a shareholder in the target
124

III. Acquirer
• Diageo plc is a multinational alcoholic
beverages company headquartered in London. It is the
world's largest producer of spirits and a major producer
of beer and wine
125

Timetable of the deal
Sept 21 ‘12 • DIAGEO Group holds talk with to buy stake in the target
Nov 9 ‘12
• Execution of PAA, SHA and the SPA
• Target board approval for allotment of subscription
shares pursuant to PAA
• Public announcement was made for open offer
Nov 20 ‘12 • Publication of detailed public statement
Nov 27 ‘12
• Acquirer files draft letter of offer with SEBI, Target and
relevant stock exchange formally committing to open
offer
Dec 14 ‘13
• SHs of the target approve the allotment of the
subscription shares to the acquirer
Jan 31 ‘13 • SEBI conditionally clears DIAGEO’s open offer
126

Feb 4 ‘13
• Acquirer sends a letter through the manager of open offer to
SEBI to permit the commencement of tendering period no
later than 12 working days from the receipt of all statutory
approvals required for the deal
Feb 7 ’13
• SEBI allows extension of commencement of tendering period
for open offer subject to acquirer paying 10% interest p.a. to
public shareholding who tender their equity shares in the
open offer
Feb 27 ‘13 • CCI clears the deal conditionally
April 2 ‘13
• Date of publication of recommendation by the committee of
independent directors of target
April 3 ‘13
• Letter of offer dispatched to public shareholding by acquirer
for open offer
April 10 ‘13 • Commencement of tendering period for open offer
April 26 ‘13 • Date of expiry of tendering period
127

May 13 ’13
• Open offer is completed pursuant to which the acquirer
purchases 58,688 shares in the target representing 0.04% of
the emerging voting capital of the target
May 24 ‘13
• HC allowed UBHL to sell its shares in the target to the acquirer
group subject to UBHL depositing INR 2,500,000,000 as
security immediately after completion of transaction
May 27 ‘13
• PAA is consummated as target board allots 1,45,32,775 equity
shares to acquirer
July 4 ‘13
• Acquirer completes the acquisition of the sale of shares.
However the acquirer was unable to acquire 2.38% from USL
Benefit Trust as shares were charged as security toward
certain lenders and the same was not released
• SHA becomes effective and the acquirer, UBHL and KFIL are
classified collectively as promoters or promoter group as per
takeover code
128

Nov 7 ‘13
• Acquirer provides an update on the post open offer
status regarding equity shares of target held by USL
• Acquirer states the 26 week deadline within which sale
shares were required to be acquired which is to expire
on Nov 11 ‘13 will be missed
Nov 13 ’13
• The 26 week deadline is missed as Diageo group/
Promoter group is unable to release the charge on
remaining 2.38% shares held by UBL Benefit trust
• Final shareholding of Diageo group stood at 25.02% of
the emerging voting capital of the target
Dec 20 ‘13
• HC delivered its judgement which annuls the sale of
stake by UBHL to the Diageo Group
129

Deal structure (Prior to the deal)
Seller (classified
as promoter)
27.78%
Target
Sellers (not
classified as
promoter)
6.51%
Others
14.71%
Institutional
investors 51%
130

Preferred deal structure
UBHL + KFIL
11.50%
Acquirer
Preferential
allotment 10%
Other sellers
5.86%
Open offer
(public
shareholding)
26%
131

132

133

Fall back option 1
Preferential
allotment 10%
Acquirer
< 50.1%
Sellers
17.36%
Open offer
(public
shareholding)
< 22.66%
Voting
arrangement
134

Fall back option 2
Target
Acquirer
< 50.1%
Sellers
17.36%
Voting
arrangement
17.36%
+7.74% =
25.1%
135

Final deal structure
Shareholders Pre deal
Preferred deal outcome
(% of emerging voting
rights)
Post deal (% of emerging
voting rights)
New promoter
Acquirer Nil 53.36% 25.02%
Existing and continuing promoters
UBHL 18.03% 10% 7%
KFIL 9.69% 3.50% 4.41%
Other promoter
companies 0.06% 0.04% -
Total (UBHL + KFIL+
Others) 27.78% 13.54%
11.14% (during the offer period
lenders of UBHL had involved
the pledge over the shares of
the target
Others
SWEW, USL Benefit
Trust, PIGL and UB
Sports 6.51% negligible
2.38% (held by USL benefit
trust)
Public Shareholders 65.71% 33.10% 61.46%
136

Key deal terms
• PAA
• At least INR 16 billion to be used solely for the purpose of repaying
debt of the Target and/or its subsidiaries;
• The remaining to be used solely in the ordinary course of the
Target’s business, including as working capital.
• The subscription of Subscription Shares was subject certain
customary condition precedents such as:
o Statutory approvals including from CCI and GATA.
o Approval from the stock exchanges;
o Approval from the shareholders of the Target;
o Consent from the lenders of the Target;
o No material adverse change;
o No breach of the warranties by the Target;

• SPA
• Approval of the RBI for the acquisition of Sale Shares from PIGL, UB
Sports and USL Benefit Trust.
• Execution of escrow agreement between Acquirer, Sellers and lenders
and approval from RBI to enable the Acquirer to directly pay the
lenders.
• Order of Kar HC allowing the transfer of the Sale Shares or dismissing
the winding up petitions against UNHL, KFIL and SWEW
• SHA
Board Rights –
• The Promoter Group had the right to appoint one Director so long as it
held approximately 1% of the shares of the Target.
• The Promoter Group also had the right to recommend independent
non-executive director so long as it held approximately 4.5% of the
shares of the Target.
• The remaining directors would all be appointed by the Diageo Group.
To constitute a valid quorum for the board meeting, the presence of at
least 1 director appointed by the Diageo Group was required.

Management –
• The Acquirer has the right to appoint the chief executive
officer, the chief financial officer and head of internal audit
of the Target.
• Further, the Acquirer also has the right through the Target
to appoint a majority of the directors to the boards of each
of the subsidiaries of the Target.
Veto Rights –
• The Promoter Group have retained veto rights in respect of
certain matters such as
• (a) preferential issuance of equity shares of the Target at a
discount of the volume weighted average price for 30
trading days prior to such issuance
• (b) change of terms of the shares held by UBHL and
• (c) any voluntary winding up of the Target. The items over
which veto rights has been given to UBHL do not seem to
indicate that UBHL would even have negative control over
the Target.

Voting Arrangements-
• The Sellers agreed to exercise all their voting rights in
respect of the shares held by them in the Target in
accordance with the instructions of the Acquirer, till the
earlier of the following events occurred:
• (a) the date on which the Acquirer acquires not less than
50.1% of the voting rights in the Target; and
• (b) the fourth anniversary of the first day of the first full
annual accounting period of PAC 1 after the completion of
the acquisition of the Sale Shares under the SPA.
Right of First Offer -The Acquirer has a right of first offer
against any sale of shares by the Promoter Group.
 Acquisition Restrictions-
• The Promoter Group was provided a claw back right i.e. if
the Sellers were required to sell Additional Shares (then for
one year after the completion of the acquisition of the
Additional Shares by the Acquirer, the Sellers would have
priority in purchasing shares of the Target to replace the
sold Additional Shares.

 Tag Rights –
• Promoter Group has the right to sell their shares (tag along
right) in the event there is material disposal of shares by
the Acquirer.
• The Promoter Group would have to sell the shares at the
same price and on the same terms as the Acquirer.
Non-Compete-
• The Sellers are restrained from carrying a business similar
to that of the Target during the term of the SHA and two
years post the termination of the SHA.
• Interestingly, the letter of offer does not specific if the non-compete
is territory specific or not.

Financial Obligations Proposed to
be met for the Transaction
• The Letter of Offer provides that that the consideration for the Deal was to be
paid in cash.
• The maximum consideration that was payable under the Open Offer, assuming
full acceptance represented 26% of the Emerging Voting Capital of the Target,
was INR 54,410,708,160 (Rupees fifty four billion four hundred ten million seven
hundred eight thousand one hundred sixty only) in cash.
• In accordance with Regulation 17(3)of the Takeover Code, Diageo Group issued
a bank guarantee in favour of JM Financial Institutional Securities Private
Limited (the Open Offer Manager) for an amount of INR 6,191,070,816 (Rupees
six billion one hundred ninety one million seventy thousand eight hundred
sixteen only).
• Escrow account was being created through a Bank Guarantee, as per Regulation
17(4) of the Takeover Code, 1% of the consideration amount also had to be
deposited in the escrow account amounting to approx. INR 544,107,082.
142

Reg. 13(g)
143
Regulation 13(g) of the SAST states that the PA in case of acquirer
acquiring shares or voting rights in, or control over the target
company, under preferential issue, shall be made on the date on
which special resolution is passed for allotment of shares under sub-section
(1A) of section 81 of the Companies Act, 1956.

Controversy
• The main contention regarding USL-Diageo deal revolves around the
interpretation of the relevant date for making the public
announcement (PA) and hence the open offer price.
• The public announcement date should have been the date of
shareholder approval (i.e. December 13/14, 2012) and hence the
open offer price should have been calculated taking December 13/14,
2012 as relevant date. This would have increased the open offer price
to be greater than INR 1,440 given the recent rise in stock prices.
144

Impact of deal on takeover code
• Takeover Code now requires any acquirer acquiring control or 25% of
the shares or voting rights in a listed company pursuant to a
preferential allotment, to make a public announcement of an open
offer on the date of execution of such preferential allotment
agreement.
• An acquirer acquiring control or 25% of the shares or voting rights in a
listed company pursuant to a preferential allotment can only
withdraw the open offer if requisite statutory approvals are not
obtained.
145

Open offer 2014
• Diageo launched the Tender Offer through Relay B.V. (“Relay”), a
wholly-owned indirect subsidiary of Diageo
• Relay currently holds 28.78% of the issued share capital of USL
• Diageo plc launched a tender offer to the public shareholders of
United Spirits Limited to acquire up to 37,785,214 shares in USL,
which represents 26% of USL's fully diluted issued share capital as at
15 April 2014.
146

Open offer 2014
• The Tender Offer was INR 3,030 per share.
• Price represents a premium of:
i. 22.5% to the price at which Diageo last acquired USL shares on 31
January 2014; and
ii. 20.0% to the 60 day VWAP for USL (SEBI regulatory floor price).
• Diageo funded the consideration payable under the Tender Offer
through existing cash resources and debt.
147

Thank You
148

SAST REGULATIONS

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