Sebi panel for 100 open offer

The Sebi-appointed Takeover Regulations Advisory Committee has proposed landmark changes on mergers amp; acquisitions...

The Sebi-appointed Takeover Regulations Advisory Committee has proposed landmark changes on mergers amp; acquisitions ,making the rules easier for minority shareholders but tougher for companies. The panel has suggested hiking the open offer size to 100 per cent from the current 20 per cent to benefit all shareholders. It has also recommended an increase in the acquisition threshold that will trigger an open offer to 25 per cent of the capital from 15 per cent now besides making it mandatory for independent directors of the target company to make a recommendation on the open offer pricing.

Having considered all relevant factors,the committee has concluded that there is a very strong case for allowing all public shareholders to obtain a complete exit whenever an open offer is made. This recommendation is based on several aspects including sound conceptual underpinnings,international best practices and feedback from the public, panel chairman C Achutan said. The panel noted that the 100 per cent open offer requirement could result in an acquirer ending up holding beyond the maximum permissible non-public shareholding,which may require the acquirer to either delist or reduce his holding to meet the continuous listing requirement. Acquirer should state upfront his intention to delist if his holding in the target company were to cross the delisting threshold pursuant to the open offer.

In the absence of any such disclosure or when the response to the open offer is below the delisting threshold,the acquirer would be required to either proportionately reduce both his acquisitions under the agreement that triggered the open offer and the acquisitions under the open offer or to bring down his holding to comply with continuous listing requirements.

The panel also proposed changes in the offer price. The market price will be based on 12 weeks volume weighted average of market prices as against higher of weekly averages of market prices for 26 weeks or 2 weeks On voluntary open offer,the panel recognized the need to enable transparent consolidation by persons already holding in excess of 25 per cent. The committee has recommended voluntary offers of a minimum size of at least 10 per cent and a maximum size of such number of shares as would not result in a breach of the maximum non-public shareholding permitted under the listing agreement. Under the existing regulations,an offer for a percentage lesser than minimum prescribed percentage can only be done by shareholders holding more than 55 per cent.

On competing offers,the committee has recommended certain changes such as increasing the period for making a competing bid,prohibiting acquirers from being represented in the board of target company,and permitting any competing acquirer to negotiate and acquire the shares tendered to the other competing acquirer,at the same price that was offered by him to the public.

With a view to rationalize the time lines for making a competing offer,the panel recommended that a competing offer may be made within 15 business days from the date of the original detailed public statement instead of 21 calendar days from the date of the original public announcement. No further offer should be allowed to be made after the expiry of the said period of 15 business days until the completion of all the competing offers. Currently the regulations are silent on this aspect.

It has also recommended that the execution of the agreement that triggered the open offer obligation may be completed during the pendency of the open offer provided 100 of the consideration payable under the open offer is deposited in escrow. Currently,an agreement which triggers an open offer can be consummated only after completion of the offer formalities. While no change has been recommended in the annual creeping acquisition limit of 5,the Committee has recommended that creeping acquisition be permitted only to acquirers who already hold more than 25 of the voting capital,subject to the aggregate post-acquisition shareholding not exceeding the maximum permissible non-public shareholding.