The Takeover Panel has recommended sweeping changes to the decade old takeover code which if implemented could impact the M&A activity in the country. The recommendations come in, as India continues to grow as an investment destination, maturing from what was a nascent market for M&A activity when the country first introduced the code in 1997.
In the backdrop of the changing needs of the growing economy, this is a step forward to bring in line the Indian capital market regulations with global practices. Some of the radical changes that the committee recommends are : enhancing the threshold limit for making open offers to 25 percent in place of the existing 15 percent limit. Further, any such offer would be for 100 percent i.e. all shares of the target company as against 20 percent under the current regulations. Further the offer price is recommended to be based on 12 week average as against the 26 week average currently prescribed.
The recommendation for increasing the threshold limit for open offer to 25 percent is more in line with the global norms, such as UK, Singapore, Hong Kong etc. where such limits are higher due to the more evolved character of the markets. This enhanced threshold limit further provides more headroom to PE funds which can now own upto 25 percent stake in companies without having to make an open offer. Though this does not lead them to 26 percent (which gives the power to block special resolutions), however this may give them a higher say in company proceedings, being a major shareholder.
The objective behind moving to a 100 percent offer rule is to provide an equal exit opportunity to all public shareholders. This could however make acquisitions more expensive. Also, as this move could result in breach of the minimum public shareholding limit, the
Committee has recommended that an acquirer may upfront state his intention to delist via a single open offer, if it?s holding in the target were to cross the delisting threshold. Such option is not currently provided under the regulations.
Some other key changes which the report addresses is streamlining exemptions from the open offer requirement, doing away with exemptions for non-compete payments in M&As, greater clarity on indirect acquisitions, guidelines for valuation where offer price is paid through shares, rationalizing the timelines for open offer etc.
As SEBI rewrites the rules for the capital markets and making M&A activity more democratic and closer to global practices, it is yet to be seen how corporate India and the public reacts to this major overhaul.
(The views expressed are personal)