SEBI Takeover Regulations, 2011

Introduction:

On 23rd September, 2011, the SEBI issued revised SEBI Takeover Regulations, 2011 by repealing the erstwhile SEBI Takeover Regulations, 1997.

The Takeover Regulations apply when there is a direct/indirect acquisition of equity shares / voting power/control of a listed company in excess of the specified limits. Based on the limits, the Acquirer has to comply with reporting requirements or acquire shares from the public. The person acquiring the shares / voting power/ control is an Acquirer and the company whose shares are being acquired is the Target Company.

Disclosure:

Event Based Disclosures :

Continuous Disclosures :

What is a Public Announcement (“PA”)

Any Acquirer who acquires shares /voting rights in excess of the limits has to make a Public Announcement (i.e., an advertisement) through a Merchant Banker specifying that he desires to acquire a minimum of 26% of the voting capital of the company from the public.

When is a PA required to be made

1. Acquisition (+ shares already held) of shares /voting rights > 25%by an Acquirer /Persons Acting in Concert (“PACs”)
2. Acquisition of shares /voting rights > 5% in any Financial Year by an Acquirer /PACs already holding > 25%but < 75% (popularly known as “Creeping Acquisition”)
3. Acquisition of Control over a Target Company (with or without shares/voting)

Indirect Acquisition

It means acquisition of shares/voting rights/control over a company/entity enabling a person and its PACs to exercise such percentage of voting rights/control over a Target Company, the acquisition of which would otherwise attract obligation to make PA of an open offer. (R.5(1))

R.5(2)

In case of Indirect Acquisition under R.5(1) where –

• The proportionate NAV of Target Company as a % of consolidated NAV of the entity/business being acquired;
• The proportionate sales turnover of Target Company as a % of consolidated sales turnover of the entity/business being acquired; or
• The proportionate market capitalisation of Target Company as a % of consolidated enterprise value for the entity/business being acquired;

is in excess of 80%, such Indirect Acquisition shall be regarded as Direct Acquisition of Target Company for the purposes of TOR Regulations.

It may be noted that a Public Announcement for an acquisition of shares from the public is not required if the acquisition falls within the exemptions contained in R.10 and fulfils the conditions mentioned therein.

Exemptions

• The Regulations contain various scenarios under which an exemption is available from making an Open Offer.
• SEBI also has powers to give relaxation from some of the provisions of the Regulations on an application made by the Target Company

Timing of the PA

If acquisition is by a combination of modes, then PA must be made on the date of the 1st of such acquisitions.

Pursuant to PA, a detailed public statement shall be published through the manager to the open offer not later than 5 working days of the PA

What must the PA contain

• The PA must be made in 1 English, 1 Hindi and 1 regional language daily newspaper (all 3 having wide circulations) circulating in the State where the Target Company’s Registered Office is located and the Stock Exchange where the shares are most frequently traded
• 1 copy of the PA must be given to the Target Company, stock exchanges where it is listed and to SEBI through the Merchant Banker
• The PA must contain the prescribed particulars and be in a form as near to the one specified by the Regulations.

Letter of Offer

• Within 5 working days of the detailed public statement, the Acquirer must file the draft Letter of Offer (“LO”) with SEBI
• The LO must be dispatched to the share holders not later than 7 working days from the date of receipt of comments from SEBI or where there are no comments, within 21 working days after it has been filed with SEBI
• The LO must be in a form as near to the Standard LO prescribed by the Regulations
• It must contain the Minimum Offer Price calculated as under:

Frequently Traded Shares

The shares of a company are frequently traded if the trading turnover in such shares during the 12 calendar months prior to the month in which the PA is made is at least 10% (by number of shares) of the target company. The open offer shall be made at a price not lower than –

For direct acquisition and indirect acquisition (parameters of R.5(2) are met), the offer price shall be the highest of,—

• The highest negotiated price per share of the target company for any acquisition under the agreement attracting PA;
• The volume-weighted average price paid/payable, by the acquirer or its PACs, during the 52 weeks immediately preceding the date of the PA;
• The highest price paid/payable, by the acquirer or its PACs, during the 26 weeks immediately preceding the date of the PA;
• The volume-weighted average market price of such shares for 60 trading days immediately preceding the date of the PA as traded on the stock exchange where the maximum volume of trading in the shares of the Target Company are recorded during such period, provided such shares are frequently traded;

For indirect acquisition where parameters of R.5(2) are not met, the offer price shall be the highest of,—

• Price calculated based on the above four methods. Highest price for any acquisition by the acquirer or the PAC between the date on which the primary acquisition is made / the date on which intention to make the PA is announced and the date of the PA is made
• fair price calculation based Other parameters including return on networth, book value of the shares of the Target Company, earning per share, comparable multiples, etc.

Infrequently Traded Shares

For infrequently traded shares in addition to the parameters prescribed for frequenly traded shares the following shall be considered

• Where shares are not frequently traded the offer price shall be the price determined by the acquirer and manager to the open offer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies;

If any payment is made in respect of non-compete fees, control premium then the offer price (as calculated above) has to be increased by such excess amount. Further, if any shares are acquired after the date of PA at a price higher than the offer price stated in the LO, then the highest price paid for such acquisition has to be paid under the open offer.

The price may be adjusted for any corporate actions, such as rights, bonus, stock splits, etc. if the record date for the same is within three days prior to the commencement of the open offer.

• The offer price may be paid in cash, listed equity shares / listed secured debt instruments / convertible debt securities or a combination

Other Conditions

• Every Acquirer must provide for an Escrow Account of 25% of the consideration for offer sizes ≤ ₹ 500 crores and 10% for the excess consideration above ₹ 500 crores
• The Escrow may consist of cash with a bank, bank guarantee, securities with margin.
• Various obligations are cast upon the Acquirer, Target Company and the Merchant Banker
• An offer once made can only be withdrawn if any statutory approval has been refused, the sole Acquirer has died, condition stipulated in agreement for acquisition attracting PA is not met or special circumstances exist which SEBI deems fit.
• If the offer results in public shareholding falling below the minimum threshold, then the Acquirer shall bring down the public shareholding to the level specified within the time permitted under SCR Rules, 1957. Further, it will not be eligible to make a voluntary delisting unless 12 months have elapsed from completion of offer period.

Competitive Bids

• Any other person can make a competitive PA within 15 working days of the first PA
• This Bid must be equal to the present + proposed shareholding of the first Acquirer

The first Acquirer can revise his offer pursuant to the competitive bid within 1 working day