Objective of the regulations

  • To provide a level playing field for the shareholders of listed company and to protect their interest in case of takeover by other company.
  • To ensure that promoters are committed and confident and do not hesitate to dilute their stake for the benefit of the company.
  • To encourage capital market development and transparency.

Applicability of takeover code

These guidelines are applicable only when the target company is listed.

o        Whether the regulations will be applicable if the shares are listed but not traded on the stock exchanges?

o        Whether the company whose shares are not listed but other securities are listed on the stock exchanges is covered by these regulations?

NON APPLICABILITY

  1. Acquisition of shares in companies whose shares are not listed on any stock exchange;
  2. Allotment in against application made to a public issue

      EXCEPTION:                                                            

     In case of firm allotment, such allotment shall be exempt only if full disclosures are made in the prospectus      about

  • the identity of the acquirer
  • purpose of acquisition,
  • consequential changes in voting rights, shareholding pattern of the  company and in the Board of Directors of the Company
  • Whether such allotment would result in change in control over the company.
  1. Allotment of shares through rights issue

     (i) to the extent of his entitlement; and

     (ii) Upto the percentage specified for each level.

       This does not apply to the acquisition by any person presently in control of the     company and if he has            made disclosures in the rights letter of offer that they         intend to acquire additional shares beyond their         entitlement if the issue is under        subscribed and acquisition does not result in the change of control of            management.

  1. allotment to underwriters pursuant to any underwriting agreement;
  2. interse transfer of shares:-

       This includes the transfer amongst

     i)Group

    What does it refer to-

       Group is as defined in the MRTP Act, 1969 and the persons constituting such group have been shown as             group in the last published Annual Report of the target company;

      That means the transfer amongst persons are not shown as group in the last annual report shall not be                 exempt.

      ii)Relatives

       A person shall be deemed to be a relative of another, if, and only if,
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) Or one of the following

  • Father
  • Mother (including step-mother)
  • Son (including step-son)
  • Son's wife
  • Daughter (including step-daughter)
  • Father's father
  • Father's mother
  • Mother's mother
  • Mother's father
  • Son's son
  • Son's son's wife.
  • Son's daughter.
  • Son's daughter's husband
  • Daughter's husband
  • Daughter's son
  • Daughter's son's wife
  • Daughter's daughter
  • Daughter's daughter's husband
  • Brother (including step-brother)
  • Brother's wife
  • Sister (including step-sister)
  • Sister's husband

      iii)     (a) Qualifying Indian Promoters and foreign collaborators who are shareholders.

                (b)  Qualifying promoters.

      iv) the acquirer and person acting in concert with him,where such transfer of shares takes place three years after the date of closure of public offer           made by them under these regulation

  1. acquisition of shares in the ordinary course of business by stock-broker on behalf of
    clients; registered market maker, Public Financial Institutions on their own account, banks and public financial institutions as pledges, IFC, ADB,IBRD , Commonwealth Development Corporation, a merchant banker or a promoter of the target company pursuant to a scheme of safety net under the provisions of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000
  1. Acquisition of shares by a person in exchange of shares received under a public offer
    made under these Regulations.
  1. acquisition of shares by way of transmission on succession or inheritance;
  2. acquisition of shares by government companies [or the state government as the case

         may be within the meaning of Section 617 of the Companies Act, 1956 (1 of 1956) and statutory corporations;

  1. transfer of shares from state level financial institutions, including their subsidiaries, to

      co-promoter(s) of the company [or their successors or assignee(s) or an acquirer who has substituted and  erstwhile promoter] 3 pursuant to an             agreement between such financial institution and such co-promoter(s);

  1. pursuant to a scheme -

           -   framed under Section 18 of the Sick Industrial Companies (Special Provisions)  Act,1985;

         -   of arrangement or reconstruction including amalgamation or merger or demerger under      any law or              regulation, Indian or foreign.

  1. transfer of shares from venture capital funds or foreign venture capital investors registered with the Board to promoters and others.
  2. change in control by takeover of management of the borrower target company by the

               secured creditor or by restoration of management to the said target company by the said secured                           creditor in terms of the                             Securitization and Reconstruction of Financial Assets and Enforcement of                        Security Interest Act, 2002 (54 of 2002)

  1. acquisition of shares in terms of guidelines or regulations regarding delisting of securities specified or framed by the Board;

Target Company

A Target company is a listed company i.e. whose shares are listed on any stock exchange and whose shares or voting rights are acquired/ being acquired or whose control is taken over or being taken over by an acquirer.

Acquirer

An Acquirer means and includes persons acting in concert (PAC) with him i.e. any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company.

Takeovers & Substantial acquisition of shares

When an "acquirer" takes over the control of the "target company", it is termed as Takeover. When an acquirer acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares. The term "Substantial" which is used in this context has been clarified subsequently.

How substantial quantity of shares or voting rights is defined?

Substantial quantity of shares or voting rights is defined distinctly for two different purposes:

       I. Threshold for disclosure to be made by acquirer(s):

                 1)     5% and more shares or voting rights:

                 When the acquirer acquires shares or voting rights (which when taken together with his existing                           holding) would entitle him to                   more than 5% or 10% or 14% shares or voting rights of target                                     company,he has to disclose at every stage the aggregate of                       his shareholding to the target                              company and the Stock Exchanges within 2 days of acquisition or receipt of intimation of                             allotment of shares.

        Date of purchase shall be the date of acquisition of shares.

2)     Any person who holds more than 15% but less than 55% shares or voting rights of target company, and who purchases or sells shares aggregating to 2% or more shall within 2 days disclose such purchase/ sale along with the aggregate of his shareholding to the target company and the Stock Exchanges.

3)     Every Company whose shares are acquired in the aforesaid manner shall disclose to  all the stock exchanges on which shares of the said company is listed the aggregate number of shares held by each such persons referred to above within seven days of receipt of the information.

Disclosure of shareholding

Yearly Disclosure by Persons

By whom Particulars of disclosure To whom Time Period
Every Person (including those mentioned u/r 6) who holds more than 15% of shares or voting rights in the company His shareholding in that company As on 31stMarch COMPANY Within 21 Days from the financial year ending March 31st
Promoter/ Person having control over a company No. & % of shares / voting rights held by him with PAC COMPANY Within 21 Days from the financial year ending March 31 & Record Date for the purpose of Dividend.

 

Yearly Disclosures by the Company

By whom Particulars of disclosure To whom Time Period
Every Company whose shares are listed on a Stock Exchange 1.Changes if any, in the holdings of persons holding 15% All Stock Exchanges, where its shares are listed Within 30 Days from the financial year ending March 31 &

Record date for the purpose of Dividend.
2. Changes if any in the holdings of the promoters or persons having control.

 

     II.        Trigger point for making an open offer by an acquirer

1)    15% shares or voting rights:

An acquirer who intends to acquire shares which alongwith his existing shareholding would entitle him to exercise 15% or more voting rights, can acquire such additional   shares only after making a public announcement to acquire atleast additional 20% of the voting capital of target company from the shareholders through an open offer.

            2) Creeping acquisition limit:

     An acquirer holding 15% or more but less than 55% of shares or voting rights of    a        target company, can acquire additional shares upto 5% of the voting rights in any     financial year ending March 31 without making any open offer.

3) Consolidation of holding:

     An acquirer who holds 55% or more shares or voting rights of a target company,   can acquire further shares or voting rights only after making a public announcement to acquire atleast additional 20% shares of target company from the    shareholders through an open offer.

What is control?

Definition of control as per Takeover code is an inclusive one. It include right to

  • appoint majority of the directors or
  • to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of

-          their shareholding or management rights or

-          shareholders agreements or

-          voting agreements or

-          in any other manner;

When there is NO change in control?

(i) In case of interse transfer as discussed latter Further any change in the nature and         quantum of control amongst them do not constitute change in control of management.

(ii) If consequent upon change in control of the target company, the control acquired is equal         to or less than the control exercised by person (s) prior to such acquisition of control, it shall not be deemed to be a change in control.

Open offer

  • Procedure for giving open offer
  1. Appointment of merchant banker

     Acquirer has to appoint a Category I merchant banker registered with SEBI, who is not         associate of or group of the acquirer or the target company.

  1. Public announcement

o        Merchant Banker has to give public announcement within 4 working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein.

o        Public announcement shall be made in all editions of one English national daily with wide circulation, one Hindi national daily with wide circulation and a regional language daily with wide circulation at the place where the registered office of the target company is situated and at the place of the stock exchange where the shares of the target company are most frequently traded.

o        Simultaneously a copy of the public announcement shall be,

          (i) submitted to the SEBI through the merchant banker,
(ii) sent to all the stock exchanges on which the shares of the company are listed                    for being notified on the notice board,
(iii) sent to the target company at its registered office for being placed before the               Board of Directors of the company.

o        The offer under these Regulations shall be deemed to have been made on the date on which the public announcement has appeared in any of the newspapers referred above.

  1. Content  of Public Announcement

The public announcement referred to in Regulations 10 or Regulation 11 or Regulation 12 shall contain the following particulars, namely :-

  1. the paid up share capital of the target company, the number of fully paid up and partly paid up shares;
  2. the total number and percentage of shares proposed to be acquired from the public, subject to a minimum as specified in sub-regulation (1) of Regulation 21;

iii. the minimum offer price for each fully paid up or partly paid up share;

  1. mode of payment of consideration;
  2. the identity of the acquirer(s) and in case the acquirer is a company or companies, the identity of the promoters and, or the persons having control over such company(ies) and the group, if any, to which the company(ies) belong;
  3. the existing holding, if any, of the acquirer in the shares of the target company, including holdings of persons acting in concert with him;

2 [ via. the existing shareholding, if any, of the merchant banker in the target company. ] 2

vii. salient features of the agreement, if any, such as the date, the name of the seller, the price at which the shares are being acquired, the manner of payment of the consideration and the number and percentage of shares in respect of which he acquirer has entered into the agreement to acquire the shares or the consideration, monetary or otherwise, for the acquisition of control over the target company, as the case may be;

viii. the highest and the average price paid by the acquirer or persons acting in concert with him for acquisition, if any, of shares of the target company made by him during the twelve month period prior to the date of public announcement;

  1. Object and purpose of the acquisition of the shares and future plans, if any, of the acquirer for the target company, including disclosures whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company in the succeeding two years, except in the ordinary course of business of the target company

Provided that where the future plans are set out , the public announcement shall also set out how the acquirers propose to implement such future plans.

1 [ Provided further that the acquirer shall not sell, dispose or otherwise encumber any substantial asset of the target company except with the prior approval of the shareholders.

(ixa) an undertaking that the acquirer shall not sell, dispose of or otherwise encumber any substantial asset of the target company except with the prior approval of the shareholders. ] 1

  1. the `specified date' as mentioned in Regulation 19;
  2. the date by which individual letters of offer would be posted to each of the shareholders ;

xii. the date of opening and closure of the offer and the manner in which and the date by which the acceptance or rejection of the offer would be communicated to the shareholders;

xiii. the date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted;

xiv. disclosure to the effect that firm arrangement for financial resources required to implement the offer is already in place, including details regarding the sources of the funds whether domestic i.e from banks, financial institutions, or otherwise or foreign ie. from Non -Resident Indians or otherwise.

  1. provision for acceptance of the offer by person(s) who own the shares but are not the registered holders of such shares;

xvi. statutory approvals, if any, required to be obtained for the purpose of acquiring the shares under the Companies Act, 1956 (1 of 1956), the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), The Foreign Exchange Regulation Act, 1973, (46 of 1973) and/or any other applicable laws;

xvii. approvals of banks or financial institutions required, if any;

xviii. whether the offer is subject to a minimum level of acceptance from the shareholders; and

xix. such other information as is essential for the shareholders to make an informed decision in regard to the offer. Brochures, advertising material etc.

 

  1. Submission of Letter of offer to SEBI

o        Acquirer shall file the draft of the letter of offer through its merchant banker within 14 days from the date of public announcement.

o        The letter of offer shall be dispatched to the shareholders not earlier than 21 days from its submission to SEBI.

     However, if SEBI specifies any changes within 21 days from the date of submission of the letter of offer the merchant banker and the acquirer shall carry out such changes before dispatching it to shareholders.

o        SEBI may call for revised letter of offer with or without rescheduling the date of opening or closing of the offer and may offer its comments to the revised letter of offer within 7 working days of filing of such revised letter of offer if the disclosures in the draft letter of offer are inadequate or SEBI has received any complaint or has initiated any enquiry or investigation in respect of the public offer.

  1. Minimum Offer Price

If the shares are frequently traded i.e.

If the annualised trading turnover during the preceding 6 calendar months prior to the month in which Public Announcement is made is 5% or more of number of listed shares.

The minimum price at which open offer can be given has to be HIGHEST of-

  1. Negotiated price under the agreement which triggered the open offer
  2. higher of the price paid by the acquirer for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of public announcement,
  3.      HIGHER of the two-
  • the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the twenty six weeks

                                                          OR

  • the average of the daily high and low prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement

     In case of shares which have been listed within six months preceding the public announcement, the trading turnover may be annualised with reference to the actual number of days for which the shares have been listed.

If the shares are infrequently traded i.e.

      If the annualised trading turnover in share during the preceding 6 calendar months      prior to the month in which the Public Announcement is made is less than 5% of the      number of listed shares.

Instead of weekly high low prices as in point (c) other parameters including return on networth, book value of the shares of the target company, earning per share, price earning multiple vis-vis the industry average shall be considered.

However if considered necessary the SEBI may require valuation of such infrequently traded shares by an independent merchant banker (other than the manager to the offer) or an independent chartered accountant of minimum ten years' standing or a public financial institution.

  1. Mode Of Consideration

     Offer price can be paid to shareholders in any of the following modes-

(a)   in cash

(b)   by issue, exchange and/or transfer of shares (other than preference shares) of acquirer company, if the person seeking to acquire the shares is a listed body corporate; or

(c)   by issue, exchange and, or transfer of secured instruments of acquirer company with a minimum 'A' grade rating from a credit rating agency registered with SEBI;

(d)   a combination of clause (a), (b), or (c):

  • If the payment is made in cash to any class of shareholders for acquiring their shares under any agreement or pursuant to any acquisition in the open market or in any other manner during the immediately preceding 12 months from the date of public announcement, the letter of offer shall provide an option to the shareholders to accept payment either in cash or by exchange of shares or other secured instruments referred to above. Any class of shareholders means that if preference shares are redeemed in cash within 12 months, this will be applicable.
  • The mode of payment may be altered in case of revision in offer price or size subject to the condition that the amount to be paid in cash as mentioned in any announcement or the letter of offer is not reduced.
  • The offer price for partly paid up shares shall be calculated as the difference between the offer price and the amount due towards calls-in-arrears or calls remaining unpaid together with interest, if any, payable on the amount called up but remaining unpaid.
  1. Minimum number of shares to be acquired
  2. Open offer shall be for a minimum 20% of the voting capital of the company.
  3. If the acquisition made in pursuance of a public offer results in the public shareholding in the target company being reduced below the minimum level required as per the Listing Agreement, the acquirer shall take necessary steps to facilitate compliance of the target company with the relevant provisions thereof, within the time period mentioned therein.
  4. Where the public offer is made by an acquirer holding 55% or more but less than 75% of the shares or voting rights of the company has to ensure that the public shareholding in the target company does not fall below the minimum level permitted by the Listing Agreement. In this case less than 20% can also be acquired so as to meet the requirements of minimum public shareholding laid down in the Listing Agreement.
  • For the purpose of computing the percentage referred the voting rights as at the expiration of 15 days after the closure of the public offer shall be reckoned.

? What if more than agreed shares are tendered by the shareholders?

     Where the number of shares offered by the shareholders is more than the shares agreed to be acquired, acceptance shall be made on a proportional basis, in consultation with the merchant banker, taking care to ensure that the basis of acceptance is decided in a fair and equitable manner.

Non compete premium

     Non-compete premium paid to promoters in excess of 25% of the offer price shall be added to the offer price.

     However in Heidelberg Cement-Mysore Cements case SEBI had asked Heidelberg to pay the non-compete premium to the non-promoter shareholders also although the premium was 25%. The case is pending in SAT. Same is the situation of Tata Tea-Mount Everest case where premium was only 7%.

Obligations of the acquirer

Towards the target company-

  1. Within 14 days of the public announcement of the offer, the acquirer shall send a copy of the draft letter of offer to the target company at its registered office address, for being placed before the board of directors and to all the stock exchanges where the shares of Target Company are listed.
  2.  The public announcement of offer to acquire the shares of the target company shall be made only when the acquirer is able to implement the offer.

Towards shareholders of target company-

  1. The acquirer shall ensure that the letter of offer is sent to all the shareholders (including non-resident Indians) of the target company, whose names appear on the register of members of the company as on the specified date mentioned in the public announcement, so as to reach them within 45 days from the date of public announcement. However, if the public announcement is made pursuant to an agreement to acquire shares or control over the target company, the letter of offer shall be sent to shareholders other than the parties to the agreement.
  2. A copy of the letter of offer shall also be sent to the Custodians of Global Depository Receipts or American Depository Receipts to enable such persons to participate in the open offer, if they are entitled to do so.
  3. A copy of the letter of offer shall also be sent to warrant holders or convertible debenture holders, where the period of exercise of option or conversion falls within the offer period.
  4. The date of opening of the offer shall be not later than the 55th day from the date of public announcement.
  5. The offer to acquire shares from the shareholders shall remain open for a period of twenty days.
  6. If acquirer is a company, the public announcement of offer, brochure, circular, letter of offer or any other advertisement or publicity material issued to shareholders in connection with the offer must state that the directors accept the responsibility for the information contained in such documents.

If any of the directors desires to exempt himself from responsibility for the information in such document, such director shall issue a statement to that effect, together with reasons thereof for such statement.

  1. During the offer period, the acquirer or persons acting in concert with him shall not be entitled to be appointed on the board of directors of the target company.

However, if the acquirer after assuming full acceptances has deposited in the escrow account 100% of the consideration he may be entitled to be appointed on the Board of Directors of the target company after a period of 21 days from the date of public announcement.

  1. If any of the persons representing or having interest in the acquirer is already a director on the board of the target company or is an "insider" within the meaning of Securities and Exchange Board of India (Insider Trading) Regulations, 1992, he not participate in any matter(s) concerning or 'relating' to the offer including any preparatory steps leading to the offer.
  2. The acquirer shall ensure that firm financial arrangements has been made for fulfilling the obligations under the public offer and suitable disclosures in this regard shall be made in the public announcement of offer.
  3. Within 15 days from the date of the closure of the offer acquirer shall complete all procedures relating to the offer including payment of consideration.

If the acquirer is unable to make the payment to the shareholders before the said 15 days due to non-receipt of requisite statutory approvals, the SEBI may, if satisfied that non-receipt of requisite statutory approvals was not due to any wilful default or neglect of the acquirer or failure of the acquirer to diligently pursue the applications for such approvals, grant extension of time for the purpose, subject to the acquirer agreeing to pay interest to the shareholders for delay beyond fifteen days, as specified by SEBI.

  1. In the event of withdrawal of offer in terms of the Regulations, the acquirer shall not make any offer for acquisition of shares of the target company for a period of six months from the date of public announcement of withdrawal of offer.
  2. In the event of non-fulfillment of obligations under Chapter III or Chapter IV of the Regulations, the acquirer shall not make any offer for acquisition of shares of any listed company for a period of twelve months from the date of closure of offer.
  3. If the acquirer, in pursuance to an agreement, acquires shares which along with his existing holding, if any, increases his share holding beyond 15% then such an agreement for sale of shares shall contain a clause to the effect that in case of non-compliance of any provisions of SEBI regulations, the agreement for such sale shall not be acted upon by the seller or the acquirer.
  4. Where the acquirer or persons acting in concert with him has acquired any shares in the open market or through negotiation or otherwise, after the date of public announcement, he shall disclose the number, percentage, price and the mode of acquisition of such shares to the stock exchanges on which the shares of the target company are listed and to the merchant banker within 24 hours of such acquisition and the stock exchanges shall forthwith disseminate such information to the public.
  5. Acquirer shall be debarred from disposing of or otherwise encumbering the assets of the target company for a period of 2 years from the date of closure of the public offer, if in the public announcement or letter of offer, he has not stated his intention.

?Can the shareholder of target company withdraw the acceptance?

The shareholder shall have the option to withdraw acceptance tendered by him upto three working days prior to the date of closure of the offer.

 

?Can an acquirer withdraw the offer once made?

>No, the offer once made can not be withdrawn except in the following circumstances:

-         Statutory approval(s) required have been refused;

-         The sole acquirer being a natural person has died;

-         Such circumstances as in the opinion of the SEBI merits withdrawal.

Obligations of board of directors of the target company

  1. Board of directors of the target company are prohibited from the following unless the approval of shareholders is obtained after the date of the public announcement of offer, during the offer period, -
  2. sell, transfer, encumber or otherwise dispose of or enter into an agreement for sale,   transfer, encumbrance or for disposal of assets otherwise, not being sale or disposal of assets in the ordinary course of business, of the company or its subsidiaries;
  3. issue or allot any authorised but unissued securities carrying voting rights during the offer period;

This excludes conversion of debentures, warrants, issue or allotment of shares pursuant to public or rights issue in for which the offer document has already been filed with ROC or Stock Exchanges

  1. enter into any material contracts.
  2. A list of shareholders or warrant holders or convertible debenture holders as are eligible for participation containing names, addresses, shareholding and folio       number, and of those persons whose applications for registration of transfer of shares are pending with the company has to be furnished to the acquirer, within 7 days of the request of the acquirer or within 7 days from the specified date, whichever is later.
  3. Once the public announcement has been made, the board of directors of the target company shall not, -
  4. appoint as additional director or fill in any casual vacancy on the board of directors,         by any person(s) representing or having interest in the acquirer, till the date of          certification by the merchant banker.

          Provided that upon closure of the offer and the full amount of consideration          payable to the shareholders being deposited in the special account, changes as          would give the acquirer representation on the Board or control over the company,         can be made by the target company.

  1. allow any person representing or having interest in the acquirer, if he is already a director on the board of the target company before the date of the public announcement, to participate in any matter relating to the offer, including any preparatory steps.
  2. The board of directors of the target company may send their unbiased comments and recommendations on the offers to shareholders, if they so desire and for the purpose seek the opinion of an independent merchant banker or a Committee of Independent Directors;

However for any misstatement or for concealment of material information, the directors shall be liable for action in terms of these Regulations and the SEBI Act.

  1. Board of directors of the target company shall facilitate the acquirer in verification of securities tendered for acceptances.
  2. Upon fulfillment of all obligations by the acquirers under the Regulations as certified by the merchant banker, the board of directors of the target company shall transfer the securities acquired by the acquirer, whether under the agreement or from open market purchases, in the name of the acquirer and, or allow such changes in the board of directors as would give the acquirer representation on the board or control over the company.

 

Obligations of the merchant banker

  1. Before the public announcement of offer is made, to ensure that
  2. the acquirer is able to implement the offer;
    b. the provision relating to escrow account referred to in Regulation 28 has been               made;
    c. firm arrangements for funds and money for payment through verifiable means to    fulfil the obligations under the offer are in place;
    d. the public announcement of offer is made in terms of the Regulations;
    e. his shareholding, if any in the target company is disclosed in the public           announcement and the letter of offer.
  3. To furnish to the SEBI a due diligence certificate which shall accompany the draft letter of offer.
  4. To ensure that the public announcement and the letter of offer is filed with SEBI, target company and also sent to all the stock exchanges on which the shares of the target company are listed in accordance with the Regulations.
  5. To ensure that the contents of the public announcement of offer as well as the letter of offer are true, fair and adequate and based on reliable sources, quoting the source wherever necessary.
  6. To ensure compliance of the Regulations and any other laws or rules as may be applicable in this regard.

 The merchant banker shall not deal in the shares of the target company during the     period commencing from the date of his appointment till the expiry of 15 days from   the date of closure of the offer.

  1. Upon fulfillment of all obligations by the acquirers under the Regulations, the merchant banker shall cause the bank with whom the escrow amount has been deposited to release the balance amount to the acquirers.
  2. To send a final report to SEBI within 45 days from the date of closure of the offer.

 

BAIL OUT TAKEOVERS

A substantial acquisition of shares in a financially weak company not being a sick industrial company, in pursuance to a scheme of rehabilitation approved by a public financial institution or a scheduled bank is referred as Bail Out takeover.

     "Financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year, that is to say, of the sum total of the paid-up capital and free reserves.

The peculiar provisions in respect of such takeovers are as follows-

(a)  The lead institution shall be responsible for ensuring compliance with the provisions

(b)  The lead institution shall appraise the financially weak company taking into account the financial viability, and assess the requirement of funds for revival and draw up the rehabilitation package on the principle of protection of interests of minority shareholders, good management, effective revival and transparency.

(c)  The rehabilitation scheme shall also specifically provide the details of any change in management.

(d)  The scheme may provide for acquisition of shares in target company in any of the following manner:

  1. Outright purchase of shares, or
    b. exchange of shares, or
    c. a combination of both.

     However the scheme as far as possible may ensure that after the proposed acquisition the erstwhile promoters do not own any shares in case the new promoters pursuant to such scheme make such acquisition.

 

Procedure for acquisition of shares

  1. Lead institution shall invite offers for acquisition of shares from atleast three parties.
  2. Lead institution shall select one of the parties having regard to the managerial competence, adequacy of financial resources and technical capability of the person acquiring shares to rehabilitate the financially weak company.
  3. The lead institution shall provide necessary information to acquirer about the financially weak company and particularly in relation to its present management, technology, range of products manufactured, shareholding pattern, financial holding and performance and assets and liabilities of such company for a period covering five years from the date of the offer as also the minimum financial and other commitments expected of from the person acquiring shares for such rehabilitation.
  4. The lead institution shall evaluate the bids received with respect to the purchase price or exchange of shares, track record, financial resources, reputation of the management of the person acquiring shares and ensure fairness and transparency in the process.
  5. Offers received shall be listed in order of preference and after consultation with the persons in the affairs of the management of the financially weak company accept one of the bids.
  6. The person acquiring shares shall on receipt of a communication in this behalf from the lead institution make a formal offer to acquire shares from the promoters or persons in charge of the affairs of the management of the financially weak company, financial institutions and also other shareholders of the company at a price determined by mutual negotiation between the person acquiring the shares and the lead institution.

Public announcement

(1)The person acquiring shares from the promoters or the persons in charge of the management of the affairs of the financially weak company or the financial institution shall make a public announcement of his intention for acquisition of shares from the other shareholders of the company.

(2) Such public announcement shall contain relevant details about the offer including the information about the identity and background of the person acquiring shares, number and percentage of shares proposed to be acquired, offer price, the specified date, the date of opening of the offer and the period for which the offer shall be kept open and

(3) The letter of offer shall be forwarded to each of the shareholders other than the promoters or the persons in charge of management of the financially weak company and the financial institutions.

(4) If the offer results in the public shareholding being reduced to 10% or less of the    voting capital of the company, the acquirer shall either -

  1. within a period of three months from the date of closure of the public offer, make an offer to buy out the outstanding shares remaining with the shareholders at the same offer price, which may have the effect of delisting the          target company; OR
  2.   or undertake to disinvest through an offer for sale or by a fresh issue of capital to           the public which shall open within a period of 6 months from the date of closure of          public offer, such number of shares so as to satisfy the listing requirements.

 (5) For the purposes of computing the percentage the voting rights as at the expiration of  twenty days after the closure of the public offer shall be reckoned.

 (6) While accepting the offer from the shareholders other than the promoters or persons  in charge of the financially weak company or the financial institutions, the person  acquiring shares shall offer to acquire from the individual shareholder his entire  holdings if such holding is upto hundred shares of the face value of rupees ten each or  ten shares of the face value of rupees hundred each.

Competitive Bid

     No one can make a competitive bid for acquisition of shares of the financially weak company once the lead institution has evaluated the bid and accepted the bid of the acquirer.