The proposed takeover code to replace the 1997 vintage one is certainly going to be scanned carefully by just about any entity that has an interest in the M&A space. One thing is for sure, the code will bring a welcome change for retail investors. The code proposes to give a chance to all retail investors to participate in an open offer, which means that they can get the same price as is given to the promoters instead of queueing up to avail of the 20% window. This means the famous market rumours, so popular and so responsible for driving prices of scrips up before a proposed deal, will now fall flat. No investor having bought into a scrip needs to bother?each one will now be counted in the new price. There cannot be a more level-playing field than this. The Sebi panel on the takeover code has also recommended that independent directors of target companies must give their feedback on an open offer price. This recommendation is very significant. One might believe that going by past records of independent directors in India, this proposal might not work in practice but such a presumption is misplaced. The mandate on the directors is not an advisory but a compulsion. So the information, one presumes, will travel to the stock exchange. Thus, an independent director can not only look very silly if he/she does not take care to do the due diligence on the pricing, but he/she also runs the risk of being proceeded against. Based on all these inputs, retail investors will now get an exit option if they do not want to continue with the new management after a merger or acquisition. The takeover code suggested by the Sebi committee will, therefore, be a strong cushion to perk up the confidence of retail investors in the capital market, and Sebi will be earning kudos for the timely and unstinted adoption of the report.
The suggested recommendations would no doubt significantly increase the investment requirement for any acquisition and in getting a strategic stake for companies. The suggestions for combining the open offer with the process of delisting the shares of the company is a welcome measure. The open offer price suggested at 12 weeks average closing price is realistic as against the existing regulations, as it avoids short-term fluctuation in the price. The Achilles? heel of the Indian markets has been the reluctance of companies to allow takeovers. The committee has done the correct thing by developing a code that encourages only the serious players to mount such offensives and at the same time writing in rules that are transparent in encouraging them to do so.
