New takeover guidelines hike open offer trigger to 25%

Written by fe Bureau | Mumbai | Updated: Sep 24 2011, 06:11am hrs
The threshold for making a mandatory open offer to minority shareholders has been upped to 25% and the acquirer will need to make an offer for at least an additional 26% of the equity of the company, according to the new takeover code. Earlier the trigger for making an open offer to small shareholders was 15% with the buyer offering to buy at least 20% of the outstanding equity. The new takeover code exempts inter se transfers of shares amongst promoters from making an open offer.

The substantial acquisitions of shares and takeovers 2011, notified on Friday by the Securities and Exchange Board of India (Sebi) stipulates that open offer for acquiring shares, to be made by the acquirer and persons acting in concert with him, shall be for at least 26% of the total shares of the target company.

The new norms also do away with the non-compete fee buyers earlier payed to the seller. The notification states the price paid for shares of the target company shall include any price paid to gain control

On competing offers, the new code says that any person, other than the acquirer who has announced an open offer, shall be entitled to make a competing open offer within fifteen working days of the date of the detailed public statement made by the original acquirer. Moreover, the competing offer has to be for a number of shares which when taken together with shares held by the rival acquirer, shall be at least equal to the holding of the original acquirer, including the number of shares proposed to be acquired by him under the offer and any underlying agreement for the sale of shares of the target company pursuant to which the open offer is made.

Any stakeholder with a holding of between 25% and 75% can voluntarily make an open offer ensuring that the minimum public float in the company remains at 25%.

An acquirer shall not be entitled to acquire any shares of the target company for a period of six months after completion of the open offer, except through another voluntary open offer. However, such a restriction should not prevent the acquirer from making a competing offer in the target company.

The new code exempts acquisition pursuant to an inter se transfer of shares amongst immediate relatives, persons named as promoters for not less than three years prior to the proposed acquisition. It also exempt a company, its subsidiaries, its holding company, other subsidiaries of such a holding company, persons holding not less than 50% of the equity shares of such company, other companies in which such persons hold not less than 50% of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons.

Exemptions are also allowed to persons acting in concert, for not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement.On creeping acquisitions, new code allows stakeholders with an equity holding of between 25% and 75% to acquire 5% of the companys equity in a financial year. The new code says that during the open offer no person representing the acquirer or any person acting in concert with him shall be appointed as director on the board of the target company, whether as an additional director or in a casual vacancy. This would be possible only if the acquirer deposits the full consideration payable in an escrow account.