FIs Want Acquirers Seeking Control To Make Second Offer

Mumbai, January 21: | Updated: Jan 22 2003, 05:30am hrs
Financial institutions (FIs) have quietly put in place an unwritten norm by which acquirers will now be expected to make a subsequent open offer even if they have a substantial stakeholding in a company if they want management control in a company. The BSES Ltd case, FIs agree, has made it amply clear that the institutions would now expect this to be done, and would be comfortable with such a system.

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The chairman of a leading FI told FE that the BSES Ltd case, where Reliance Industries, despite having 44 per cent stake did not get management control until it made a second open offer, had set the benchmark for this practice in future. Soon after Reliance made this second offer, it got management control in the power utility after years of waiting, with Reliance vice-chairman and managing director Anil Ambani becoming the chairman of BSES last week, and the Reliance group ending up with five seats in a 12-member BSES board. The FIs have about 36 per cent share in BSES.

The first open offer will be seen as being required because the acquirer has crossed the takeover code trigger of 15 per cent. If they want management control, then they would be expected to make a second open offer, the FI chairman said, explaining the FIs position.

Under the Securities and Exchange Board of India (Sebi) takeover regulations, the acquirer has to make an open offer for another 20 per cent of shares in a company the moment the 15 per cent threshold is crossed.

Reliance, it may be recalled, had made its first open offer in 2000, at a price of Rs 255 per share, and ended up with about 27 per cent stake in the company. Thereafter, its holding has steadily gone up in the company through market purchases and it had a 44 per cent holding around the time it pitched for management control late last year. This was done through a second open offer, as if to make it clear to FIs and shareholders that it was open and transparent about its intention to run BSES, where it had been sitting as a shareholder for years. The second open offer, which commenced on January 17, is at a price of Rs 230.10 per share.

The BSES case also delinked the issue of whether FIs would tender their shares in the open offer, from the issue of management control. FIs, after the second offer, began making it clear in private conversations with FE that they would not mind Reliance taking control of BSES now that they had come up with a second offer. Interestingly, Mr Ambani was appointed chairman of BSES just a day after the second offer commenced.

The other issue which the BSES case has established is that board majority is not essential for management control. Reliance has five seats on the board, while FIs have three, and the Maharashtra government has one.

FIs also said there was generally some correlation between the number of seats FIs had on the boards of companies, and their holdings in these companies. There may be some aberrations in case of some companies where FIs have sizeable holdings but few seats. But those are exceptions and not the rule, the FI chairman said.