SEBI TAKEOVER CODE
AN OVERVIEW & RECENT
CHANGES
VNS Legal, Advocates
VNS Legal
BACKGROUND
 The SEBI Takeover Code aims to regulate
acquisition of shares of a listed Company /
acquiring control over a listed Company
 Effective October 22, 2011
 Earlier
Takeover
Code
revamped
post
recommendations of advisory committee
 Constantly evolving code in line with
international practices.
VNS Legal
APPLICABILITY OF THE CODE
 Applies in case of “substantial acquisition” of
 Shares; or;
 voting rights; or;
 control,
 By an acquirer by itself or together with
Persons Acting in Concert.
 Applies to direct and indirect acquisitions
(global acquisitions also covered)
VNS Legal
IMPORTANT DEFINITIONS
Acquirer
Any Person acquiring , directly or indirectly
Shares or Voting Rights or Control
In the Target Company
By himself or Persons Acting in Concert
Control
Right to appoint majority of Directors or control
the policy decisions of the company
By means of their share holding, or management
rights or share holders agreements or any other
manner
VNS Legal
IMPORTANT DEFINITIONS
Person Acting in Concert
Persons who for a common objective
Directly or indirectly cooperate
To acquire shares or voting rights or control over
the Target Company
By means of an agreement or understanding
Certain cases of deemed PAC
VNS Legal
EARLIER PROVISION
Upto 5% - no disclosures
5% to 14.9% - disclosures
15% & above – Open Offer for 20%
Above 15% holders – permitted upto 5%
p.a upto 54.9%
To hold 55% - Open Offer (subject to min
pub shldg)
Above 55% holders – Open offer (subject
to min pub shldg) VNS Legal
NEW PROVISIONS
Upto 5% - no disclosures
5% upto 25% - disclosure to S.Exch
To cross 25% - open offer of min 26%
Above 25% - upto 5% p.a upto 75%
Shareholding is Acq + PAC in aggregate
Increase in threshold & offer size
VNS Legal
TRIGGER OF OPEN OFFER
 Reg 3 (1) – If holding >= 25%
 Reg 3 (2) – for a person already holding above
25%, - if acq is more than 5% p.a
 Between 25% to 75% - upto 5% p.a allowed.
 Cannot acq more than permitted holding
 Only Gross Acqn considered
 Diff between post & pre allot – computation
 Individual plus aggregate holding considered now.
 Promoter treated on par with any other acquirer
VNS Legal
ACQN OF CONTROL
Reg 4 – separate regulation for acqn of
control
Applicable irrespective of whether there is
acqn of shares or not
Earlier exemption of postal ballot
resolution, is now removed.
VNS Legal
INDIRECT ACQUISITION
Reg 5 (1) – defining indirect acqn
Acq of shares, voting rts, control
Over any company or other entity
That would enable the person + PAC to
Exercise voting right or control over target co
Such that it would attract open offer
 Direct (vs) percentage rule
Reg 5 (2) - Indirect is construed as Direct if
proportionate value of target is - > 80% of
acquired entity’s value
VNS Legal
VOLUNTARY OFFERS
Min eligibility – 25%
Offer size – minimum of 10%
Last 52 week voluntary acqn by self & PAC – cannot make a volunt offer
Cannot acq shares from open market during offer
period
Cannot acquire for 6 months post offer period
except thro another volun offer
 Volun acq by Promoters – whether hit by the bar
on earlier acqn rule ?
VNS Legal
OFFER SIZE
Reg 7 - Offer Size –
At least 26% of total shares as of 10th day of
PA (including shares to be acq through PA)
If shareholding would exceed the max limit,
undertaking to bring it down within time
given under SCR Act.
Such person who has exceeded the max
limit, cannot make a voluntary delisting offer
for a period of 12 months post offer period
VNS Legal
OFFER PRICE
In case of direct acqns – as per Reg 8(2)
In case of indirect acqns – as per Reg 8 (3)
If acq has any outstanding convertible
instrument, conversion price of those also
to be computed
Non-compete fee to be added
Higher price paid during offer period –
offer price will stand revised
VNS Legal
PRICING
Indirect acq – if delay in PA more than 5 days,
int @ 10% p.a
Payment of diff in price if acq / PAC acquire post
offer for a period of 26 weeks at a price higher
than the offer price except for another open
offer, delisting, market purchases other than
thro negotiated deal. If Promoter subsc to Pref
Offer @ higher price – impact ?
VNS Legal
EXEMPTIONS
Under Reg 10 (1) – for exemption u/ 3 & 4
Interse transfer of shs amongst qualifying persons –
between relatives, PAC, Promoters etc
Acqn in the ord course of business by broker, Merch
Banker, Bank / FI as pledgee
Pursuant to scheme of merger / BIFR etc
SARFAESI
Delisting
Transmission
VNS Legal
EXEMPTIONS
Under Reg 10 (2) – acqn of shares
without change in control pursuant to
CDR Scheme
Under Reg 10 (3) - Increase in voting
right beyond 25% pursuant to a buyback
if the shareholding is not reduced < 90
days of buyback.
VNS Legal
EXEMPTIONS
Reg 10 (4) – Exemption under Creeping
Acqn of 3(2)
Rights issue
Buy back – as long as not participated
Acqn by promoter from State Fin Corp
pursuant to agmt
Acqn by promoter from VC Fund / FVCI
pursuant to agmt
VNS Legal
RECENT CHANGES –
PROCESS & PROCEDURE
Public Announcement – on the date of
acqn / agreeing to acquire. In case of
market purchases – prior to order placing.
In case of Indirect acqn – within 4 days.
within 4 days of intent / acqn – notify to
S.Exch
Detailed Public Statement – within 5 days
of PA
VNS Legal
PROCESS & PROCEDURE
Detailed PA to be sent to all S.Exch, SEBI & to
Company plus publication in papers.
File Draft Letter of Offer to SEBI within 5 days of
Detailed PS.
Create escrow a/c within 2 days of Detailed PA
First 500 crs – 25%
Excess – 10% of the balance
Send LOO to shareholders < 7 days of SEBI
observations
VNS Legal
PROCESS
Acq + PAC to disclose their acq during the
offer period < 24 hrs of acqn
Acq + PAC cannot acquire during the
period 3 days prior to open of offer & till
close of offer
Offer period – 10 days open
Once tendered cannot withdraw
Acq to complete formalities < 10 days of
closure of offer VNS Legal
OTHER ISSUES
Completion of acquisition
Can be made only after completion of offer
process
Exemption for pref allotment
In case of 100% Escrow, can be completed
after 21 days of Detailed PA
What happens to Open Offers triggered by
Market purchases ?
Board appt – only after offer closes or
100% escrow afterVNS15
Legaldays of Det PA
OBLIGATIONS OF TARGET
COMPANY
No matl changes during offer period
unless spl resln thro postal ballot
Constitute committee of Indp Dirs to
recommend on open offer & publish in
papers + send to SEBI / S.Exch
Make available all info to acquirer
VNS Legal
DISCLOSURES
Disclosure to S.Exch & Company < 2 days of
Acqn exceeding 5% aggregate
Once above 5%, every acqn or disposal > 2%
aggregate
Acqn includes pledge. Except for Bk/FI
Persons holdg > 25% and Promoters shd
disclose their aggregate holdg to S.Ex & Co
within 7 days of 31 Mar
Promoter to disclose creation / invocation /
disposal of pledge < 7 days by Promoter / PAC
VNS Legal
IMPACT OF THE NEW CODE
Cost of open offers increases
Hostile takeover – quite remote
Exemptions – rationalised & clarified
Process & procedures – rationalised
Foreign acquirer – require FIPB clearances
Role of SEBI in processing offer docs –
needs rationalisation & clarity
VNS Legal
ROLE OF PRACTICSING
COMPANY SECRETARIES
Role of CS – crucial / critical in listed
entities
Apart from ensuring compliance, can also
assist in structuring transactions
Role as advisor to Open Offers
SEBI to consider empanelling CS to certify
smaller offers.
VNS Legal
CONCLUSION
Objective of SEBI regulations - increasing
transparency and protecting interest of
the investors in the Capital Markets
Need to distinguish between large / small
companies & role of intermediaries
Flexibility to be given to Promoters to
increase holding
International practices to be adapted to
Indian context.
VNS Legal