Takeover

• Imposing of curbs on off-market deals.
  1. Upto a threshold level of 5 per cent, off-market deals to be allowed.
  2. Between 5 per cent and 15 per cent, all deals to be made only through the stock market. Otherwise, open offer will be attracted.
  3. Exception : the "preferential allotment" route with approval from shareholders.
• Reducing the time limit for completion of the open offer from 4 months at present to 3 months.
• Putting restrictions on the sale of shares by the acquirer during the open offer period.
• Independant comment to be ginven by the board of directors to the shareholders of a target company regarding its future plans.
• Merchant banker to stop dealing in the shares of the target company, following his appointment as manager to the offer. Also to disclose its shareholding in the offer document.

FAQs on Takeover

• What is meant by Takeovers & Substantial acquisition of shares?
• What is a Target company?
• Who is an Acquirer?
• How is "control" defined?
• Can Acquirer make an offer for less than 20% of shares?
• Who is required to make a Public Announcement and when is the Public Announcement required to be made?
• What documents are to be filed with SEBI after making a P.A. and when are these documents to be filed ?
• What happens once SEBI gives comments on the draft letter of offer?
• Can an acquirer withdraw the offer once made?
• What are the safeguards incorporated in the takeover process so as to ensure that shareholders get their payments under the offer/ receive back their share certificates?
• Which are those acquisitions/ transactions where reporting to SEBI is mandatory?
• What is the time frame to submit such report and procedure fee thereof?

What is meant by Takeovers & Substantial acquisition of shares?
When "acquirer" takes the control of the "target company", it is termed as Takeover. When it acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares.

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

Who is an Acquirer?
An Acquirer 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.

How is "control" defined?
Control is the right to appoint either directly or indirectly or by virtue of agreements or in any other manner majority of directors on the Board of the target company or to control management or policy decisions affecting the target company. However, in case there are two or more persons in control over the target company the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management provided this transfer is done in terms of Reg. 3(1)(e). Also if consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person (s) prior to such acquisition of control, such control shall not be deemed to be a change in control.

Can Acquirer make an offer for less than 20% of shares?
No.

Who is required to make a Public Announcement and when is the Public Announcement required to be made?
The Acquirer appoints a Merchant Banker (MB) who has been registered with SEBI before making a PA . PA is required to be made through the said MB. The acquirer is required to make the P.A within 4 working days of the entering into an agreement to acquire shares or deciding to acquire shares/ voting rights of target company or after any such change or changes as would result in change in control over the target company.

In case of indirect acquisition or change in control, the PA is made by the acquirer within 3 months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company. The offer price in these cases is determined with reference to the date of the public announcement for the parent company and the date of the public announcement for acquisition of shares of the target company, whichever is higher, in accordance with the parameters mentioned in the Takeover Regulations.

What documents are to be filed with SEBI after making a P.A. and when are these documents to be filed ?
A copy (hard and soft) of the PA are required to be submitted to SEBI simultaneously with the publication of the same in the newspapers.

A draft letter of offer is required to be filed with SEBI within 14 days from the date of Public Announcement alongwith a filing fee of Rs.50,000/- per letter of offer (payable by Banker's Cheque / Demand Draft) A due diligence certificate as well as registration details as per SEBI circular no. RMB (G-1) series dated June 26, 1997 are also required to be filed alongwith the draft letter of offer.

What happens once SEBI gives comments on the draft letter of offer?
The MB will incorporate in the letter of offer the comments made by SEBI and send it within 45 days from the date of PA the letter of offer alongwith the blank acceptance form , to all the shareholders whose names appear in the register of the company on the Specified Date. The offer remains open for 30 days. The shareholders sends their Share certificate(s) / related documents to registrar or Merchant banker as specified in PA and letter of offer. The pays consideration to all those shareholders whose shares are accepted under the offer, within 30 days from the closure of offer.

Can an acquirer withdraw the offer once made?
No, the offer once made can not be withdrawn except in the undermentioned 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 Board merits withdrawal.

What are the safeguards incorporated in the takeover process so as to ensure that shareholders get their payments under the offer/ receive back their share certificates?
The acquirer has to open an escrow account before making the Public Announcement, in the form of cash deposited with a scheduled commercial bank or bank guarantee in favour of the Merchant Banker or deposit of acceptable securities with appropriate margin with the Merchant Banker. The Merchant Banker is also required to confirm the firms financial arrangements. If the acquirer fails to make the payment then the MB has a right to forfeit the escrow account and distribute the proceeds in the following way.

• 1/3 of amount to target company
• 1/3 to regional SEs, for credit to investor protection fund etc.
• 1/3 to be distributed on pro rata basis among the shareholders who have accepted the offer.

The Merchant Banker is sends back the rejected documents which are kept in the custody of the Registrar / Merchant Banker to the shareholder through Registered Post.

Besides forfeiture of escrow account, SEBI can also initiate separate action against the acquirer which may include prosecution / barring the acquirer from entering the capital market for a specified period etc.

Which are those acquisitions/ transactions where reporting to SEBI is mandatory?
Reporting is mandatory according to the Regulation 3(4) in respect of acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from state level Financial Institutions to co-promoters of company pursuant to the agreement.

What is the time frame to submit such report and procedure fee thereof?
The report is submitted to SEBI within 21 days from the date of acquisition / allotment with a fee of Rs.10,000/- per report.