Speculation is rife on how the M&A scene in India will be impacted if Sebi goes ahead with its proposal to raise the threshold limit for open offers from the existing 15% to 25% and revises the open offer size from the current 20% to 100%.
One school of thought is that this might lead to a slew of hostile takeovers in India. ?This is because under the current guidelines, the voluntary open offer cannot take the acquirer?s holding beyond 75%, making it difficult for anyone to complete the 100% buyout,? said Jagannadham Thunuguntla, equity head, SMC Capitals. ?Several hedge funds, private equity funds must be eagerly awaiting to grab 100% ownership of select Indian companies, which was not possible under the existing guidelines.?
While experts agree that promoters do face some threat, they feel hostile takeovers won?t be easy in India. For one thing, the compulsion to acquire 100% in the company will substantially increase the acquisition cost. ?If the acquirer has to make an open offer for 75% and the share prices sees a spurt, the valuations can mount substantially making the deal unviable,? said Dhanraj Bhagat, partner ? specialist advisory services, Grant Thornton. On the flip side, promoters wanting to sell out to strategic investors might face a problem as buyers may desist from taking over due to the steep acquisition cost.
For another, hostile takeovers have almost been non-existent in India so far. This is more because of cultural reasons than regulatory issues, feel experts. While buying shares from the open market may prove to be expensive, it will equally be difficult for acquirers to purchase sizeable shares from institutional investors as they won?t readily sell out without the promoter?s consent. Another potential threat is that PE funds can up their stake in a company and then sell out to strategic investors, making the company a potential takeover target.