After eleven months of deliberations, the Takeover Regulations Advisory Committee constituted, headed by C Achuthan submitted its report on Takeover Regulations to be applicable in India. As substantive changes are recommended by the committee to the present Takeover Regulations, the committee has drafted new text of Takeover Regulations.
The key recommendations of the Committee are summarised below:
* The threshold for trigger of open offer proposed to be raised to 25% from 15%. Further, creeping acquisition of 5% can be made per financial year by shareholders holding more than 25% so long as the maximum non-public shareholding limit would not be breached.
* Modification in definition of control to include ?ability? in addition to ?right? to appoint majority of the directors or to control the management or policy decisions. However, committee has refrained from stipulating whether the power to say ?no? would constitute ?control?.
* The open offer size raised from minimum 20% to 100%. Accordingly, the open offer would need to be made for acquisition of all the shares held by the balance shareholders of Target Company. Unless the delisting intention has been specified upfront acquirer would be required to either bring his holding down to ensure compliance by Target Company with the listing agreement, or proportionately reduce both his acquisitions under the agreement that triggered the open offer and acquisitions under the open offer.
* Indirect acquisition of shares, voting rights or control would attract open offer requirement regardless of materiality of the Target Company. Further, indirect acquisition would be treated as direct acquisition where the proportionate net asset value or proportionate sales turnover or proportionate market capitalization of Target Company as a percentage of consolidated / enterprise numbers is in excess of 80%.
* The basis of computing offer price shifted from weekly high low to volume-weighted average price. Further in case of indirect acquisitions the offer price would stand increased by 10% per annum for the prescribed period.
* The consideration paid for the shares in any form to the selling shareholders and his affiliates, concurrent with the purchase of shares, whether termed as ?control premium? or ?non-compete fees? or otherwise must be added to the negotiated price per share for the purpose of determining open offer pricing. Accordingly, the exclusion of non-compete fees from offer price has been proposed to be done away with.
* Overall timeline for completion of offer formalities has been reduced to 57 business days from 95 calendar days. Short public announcement needs to be given through a notice to the Stock Exchange on the same date as the date of transaction which triggered the open offer which would be followed by detailed public announcement within 5 business days.
* Exemption have been streamlined and classified with conditions for eligibility for such exemptions. Existing exemptions available for inter-se group transfers and white wash have been done away with.
The revised regulations are kept open for public comments till August 31, 2010.
(The views expressed are personal)