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Takeover Code: The basics

After that, the trading price moves on the basis of normal market forces. In fact, although India’s Takeover Code has been developed through a public consultative process over the last two decades, corporates, leading corporate lawyers, and other interest groups have had a strong representation on SEBI-appointed committees. This perhaps led to incumbents retaining a dominant voice in the shaping of takeover regulations. Much has changed for the better from a regulatory perspective since the regime prior to 1994.

A SC judgement also requires telecom entities to pay crores in Adjusted Gross Revenue. The CCI is also contemplating a relaxation in the disclosure requirements for entities seeking merger approvals. The current disclosure requirement is made under 30 queries, if the market share of the post-merger entity exceeds 15%. A pandemic disrupted economy and market has turned up the innovation on sustenance and growth.

Second, the overall economic legislative framework makes this difficult, especially for takeover bids by foreign entities – notably before 2011. Even in the Takeover Code itself, conditions like the very limited circumstances for withdrawal of a bid increase the risk and costs for an acquirer. A short two-week window on competing offers surreptitiously works towards stifling competition in the market for corporate control. Furthermore, practice suggests that SEBI requires the acquirer to certify, and take responsibility for certain disclosures made public by the target company!

creeping acquisition means quick acquisition

Flip-in – This common poison pill is a provision that allows current shareholders to buy more stocks at a steep discount in the event of a takeover attempt. The provision is often triggered whenever any one shareholder reaches a certain percentage of total shares . The flow of additional cheap shares into the total pool of shares for the company makes all previously existing shares worth less. The shareholders are also less powerful in terms of voting, because now each share is a smaller percentage of the total. Also, the timeline for the open offer has been proposed to be reduced from the current 95 calendar days to 57 business days. Another key recommendation is to increase the open offer trigger.

Analysis of SEBI (Share-Based Employee Benefits & Sweat Equity) Regulation, 2021

The recommendations that seek to bring more fairness to shareholders of listed companies will have the unintended consequence of stunting the market for control. Concentrated holding as a means of takeover defense leads to a highly inefficient use of capital in a country with huge capital scarcity. Promoters who cling to inefficiently managed companies due to the comfort of concentrated holdings will only witness an erosion of value in comparison to well-governed companies.

We are investing Rs 100 crore over the next 10 years in marketing and establishing our brands worldwide. Hicare has strong brands and we will continue to run the creeping acquisition means quick acquisition management though Sara Lee holds 51 per cent. The chairman and managing director will be appointed by us and day-to-day affairs will also be handled by us.

creeping acquisition means quick acquisition

Any open offer for the sale of target company shares shall be offered to all shareholders of the target company, other than the acquirer, PAC, and the parties to any underlying agreement, including persons deemed to be PAC with such parties. Rather than just a 100% TRAC Recommendation, the offer size is merely increased to 26%. Due to the absence of appropriate bank funding options in India, it is a beneficial step from the perspective of local acquirers. In accordance with the notification of September 23, 2011, SEBI, the market regulator, has announced the much-anticipated SEBI Regulations, 2011 (hereafter referred to as “SEBI Regulations, 2011”), which would replace the previous Takeover Regulations, 1997. The new Regulations will take effect 30 days after their publication in the Official Gazette, i.e., from October 22, 2011, any acquisition or sale of shares in a listed company will be governed by the SEBI Regulations, 2011. Therefore, for the companies which have concluded their buyback in February 2020 are eligible for raising funds through equity including rights issue from the month of August 2020 till December 2020.

Prices Slide Further

In case shareholder/ renouncee has sold all of his entitlement, he will not get any shares and application will be rejected. Yes, such persons can purchase Rights Entitlements in online as well as offline mode and are eligible to apply for the shares offered under Rights Issue to the extent of the REs available in their demat accounts. Shareholders holding shares in physical form will not get any Rights Entitlements, i.e. they have no right to renounce until they provide their demat account details to RTA/ Company before closing of the Issue. After issue closing date, all Rights Entitlements will be extinguished in the Depository System in terms of SEBI Circular dated January 22, 2020. Vide SEBI Amendment dated September 28, 2020, the requirement of Minimum Subscription of 90% has been done away with i.e. now, there is no requirement of Minimum Subscription in the rights issue.

Analysts expect investors and promoters to hike their stakes once they become law. However, Kotak Securities believes promoters with per cent stake may raise their holding even before it comes into effect. This is because the new norms will require the promoters to make a full-sized open offer to buy 100 per cent shares of the firm. Promoters with per cent shareholding can easily cross the 25 per cent threshold as the existing takeover code allows them five per cent creeping acquisition within a financial year. Realising the skewed nature of takeovers, Sebi appointed the Takeover Regulatory Advisory Committee, which has recently filed its recommendations.

creeping acquisition means quick acquisition

Under the current regulation, investors have to make a mandatory open offer if their holding rises above 15%. This has forced many strategic and institutional investors to cap their holding below this limit. So, even if such investors want to, they cannot increase their holding. After acquiring the promoters’ stake, Daiichi Sankyo made an offer to buy 20% of Ranbaxy’s outstanding shares as per the prevailing law.

Depending upon the number of shares/ voting rights acquired/ the value thereof, disclosures under SAST and PIT Regulations are needed to be made by the Promoters/ the Designated Persons. It is to be noted that the members of Promoter and Promoter group cannot apply for additional shares beyond 75% threshold. With all these relaxations and rationalization process in the backdrop, fund raising via the Rights Issue mode has become all the more lucrative for listed India Inc. But, nonetheless, the process still involves many a tricky question, which are needed to be well planned and thought of, before initiating the exercise of rights issue. The industry also wants a change in the definition of a group as it stands in the Act.

Thus, a person holding, say, 73% can acquire only a further 2%. To regulate and provide for fair and effective competition among acquirers desirous of taking over the same target firm. Following that, the regulations were revised several times to reflect changing situations and demands in the corporate sector. SEBI Regulations, 1997 replaced SEBI Regulations, 1994, and was renamed SEBI Regulations, 1997. The level of trust that retail investors have in the capital market is a critical determinant of its growth. SEBI Regulations, 1997, replaced SEBI Regulations, 1994, and became the SEBI Regulations, 1997.

b. Vertical takeover

Also, the timeline for the open offer has been proposed to be lowered from the current 95 calendar days to 57 business days. The key recommendation is to raise the open offer size from 20 per cent to 100 per cent, which is a positive step for small investors. The people pill – High-level managers and other employees threaten that they will all leave the company if it is acquired. This only works if the employees themselves are highly valuable and vital to the company’s success. “Sebi can grant an exemption to the acquirer from making an open offer, post recording the reasons in writing and whilst prescribing any conditions it deems fit. However, from a practical perspective, the proposed acquirer will have to showcase exceptional circumstances warranting such an exemption,” said Tejesh Chitlangi, partner, IC Legal.

Privatisation of public sector undertakings still hangs fire, the labour market should be freed, capital account convertibility should be introduced fast. Plus, there are countless other measures in urban development, agriculture etc, which can be undertaken to push reforms to a new stage. The trend in the first two months of the current year is also poor. Demand is sluggish, political uncertainties have dampened sentiment and the general level of confidence is low. Of course, many companies enter the market with a lot of hope and expectation.

  • The industry has also been demanding that CCI should take only 120 days, and not 210 days as specified in the Act, to clear M&A proposals.
  • The committee deliberated that the option of Voluntary Offers would enable substantial shareholder to consolidate their holdings.
  • This has forced many strategic and institutional investors to cap their holding below this limit.
  • While the report seeks to rewrite the regulations on the assumption that too much is wrong with the previous version , it actually imports many of the obvious mistakes of the previous version.

And by the time answers are found the year during which work on the project is to begin is likely to pass. So would have the elections, the results of which could threaten the stability of the Government. The industry has also been demanding that CCI should take only 120 days, and not 210 days as specified in the Act, to clear M&A proposals.

TRAC to give investors equal gains on takeovers

Both in terms of basic and processed foods, the industry is likely to grow as incomes rise, social habits change and we are likely to see the emergence of a very large market in the years to come. The products will be in the market by the end of this financial year. Foods market is a tough proposition — all new entrants will face an uphill task in the first few years. We are aware of it and also the fact that we need to invest more in the short term to ensure long-term gains.

What is a voluntary offer?

The growing influence of shareholder activist groups, proxy advisory firms, and FIIs should ensure adequate representation in the next round of enhancements to the Takeover Code. One is to undertake expenditures that could be used to reconstruct the BJP’s dissipated vote bank. That the principal objective behind the scheme is to please voters is partly reflected in the decision to spread resources thin and start work at 21 different centres across the country. The other objective could be to increase demand and spur an industrial recovery directly and indirectly . The Indian telecom industry is oligopolistic, it is currently facing intense competition from Reliance’s Jio and Bharti-Airtel, two other significant providers. While Bharti-Airtel has been around for a very long time in the space, Jio a relatively new entrant, is a force to contend with.

December 13, 2022

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