SEBI takeover code – all or nothing

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SEBI takeover code – all or nothing

Posted On : Sep-14-2010 | seen (329) times | Article Word Count : 672 |

SEBI has been making several changes to the investment procedure in India. The regulator has been working at making the markets more investor friendly and transparent. After relooking the Mutual Funds, the regulator is now looking at the company takeover code. According to the new proposed revision, it is all or nothing for anyone making open offers for shares in Indian companies. Under the regime of existing guidelines, at the time of structuring of M&A deals, Private Equity investments and strategic acquisitions, there is a tendency in the investor community to keep their holding below 15% so that they don't get attracted to the mandatory open offer requirements.

Market regulator SEBI has proposed to revise the 1997 Takeover Code for companies in India. Open offers would now require 25% ownership and also need to be issued for the entire 100% equity of the target company, instead of 20% earlier.

Details of the new proposal

In support of the non-promoter: SEBI’s revised takeover code (awaiting board approval) offers more restrictive regulations on open offers, particularly in keeping with the interests of the minority shareholders, while relaxing the conditions that would warrant such offers. Thus, any effort to acquire control of a company would now need an open offer, one that would be for the entire 100% equity of the target company (including convertibles - no investor left behind). Moreover, to make that offer, a company would need to own 25% of the target company (15% earlier). Creeping acquisitions would now be limited to 5% annually, but only after 25% initial ownership. Open offer requirements may include indirect ownership of any kind that could provide de facto control of the target company.

In other words, not only have the regulators ensured that the open offer is now the de facto route towards gaining control of a company, but also that such offers are more ‘serious’ and investor-friendly on the one hand while open to a wider audience on the other.

The new regulations propose various steps to improve corporate governance. Some of these include preventing material transactions during the offer period, obtaining published opinion from independent directors of the target company, and disallowing representatives from the acquirer company on the board before 100% prior payment (in escrow) or until competing offers can be made. Non-compete fees have been done away with and would now be included in the offer price

What next?

The new takeover code will usher in a new era on corporate governance. Here is the good, bad and ugly of the new takeover code:

· It will provide a transparent and investor-friendly regulatory structure for acquisitions

· This would lead to funding constraints

· It could trigger further reforms.

· Moreover, corporate governance would also get a boost with better norms, pricing and timelines.

· Within BSE 500 companies, there are 98 companies where at least a single public shareholder holds 10% to 14.99% of stake. For such investors, this upward revision of takeover threshold limit can give time and space to increase their holdings to 25% without any need of an open offer.

· The increase in the open offer size to 100% will give the opportunity to several hedge funds, and PE funds to buy 100% ownership of some of the Indian companies, which was not possible under the existing guidelines.

Conclusion

The new 25% threshold will bring Indian takeover rules close to the takeover rules in some developed markets such as the UK, where open offers are triggered once the shareholding crosses 30% of a target company. The new code will increase market activity and benefit all parties involved.

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<h1>SEBI takeover code – all or nothing</h1> Author: <a href='http://www.articleseen.com/profile_Anjali Shukla.aspx'>Anjali Shukla</a> SEBI has been making several changes to the investment procedure in India. The regulator has been working at making the markets more investor friendly and transparent. After relooking the Mutual Funds, the regulator is now looking at the company takeover code. According to the new proposed revision, it is all or nothing for anyone making open offers for shares in Indian companies. Under the regime of existing guidelines, at the time of structuring of M&A deals, Private Equity investments and strategic acquisitions, there is a tendency in the investor community to keep their holding below 15% so that they don't get attracted to the mandatory open offer requirements.

Market regulator SEBI has proposed to revise the 1997 Takeover Code for companies in India. Open offers would now require 25% ownership and also need to be issued for the entire 100% equity of the target company, instead of 20% earlier.

Details of the new proposal

In support of the non-promoter: SEBI’s revised takeover code (awaiting board approval) offers more restrictive regulations on open offers, particularly in keeping with the interests of the minority shareholders, while relaxing the conditions that would warrant such offers. Thus, any effort to acquire control of a company would now need an open offer, one that would be for the entire 100% equity of the target company (including convertibles - no investor left behind). Moreover, to make that offer, a company would need to own 25% of the target company (15% earlier). Creeping acquisitions would now be limited to 5% annually, but only after 25% initial ownership. Open offer requirements may include indirect ownership of any kind that could provide de facto control of the target company.

In other words, not only have the regulators ensured that the open offer is now the de facto route towards gaining control of a company, but also that such offers are more ‘serious’ and investor-friendly on the one hand while open to a wider audience on the other.

The new regulations propose various steps to improve corporate governance. Some of these include preventing material transactions during the offer period, obtaining published opinion from independent directors of the target company, and disallowing representatives from the acquirer company on the board before 100% prior payment (in escrow) or until competing offers can be made. Non-compete fees have been done away with and would now be included in the offer price

What next?

The new takeover code will usher in a new era on corporate governance. Here is the good, bad and ugly of the new takeover code:

·         It will provide a transparent and investor-friendly regulatory structure for acquisitions

·         This would lead to funding constraints

·         It could trigger further reforms.

·         Moreover, corporate governance would also get a boost with better norms, pricing and timelines.

·         Within BSE 500 companies, there are 98 companies where at least a single public shareholder holds 10% to 14.99% of stake. For such investors, this upward revision of takeover threshold limit can give time and space to increase their holdings to 25% without any need of an open offer.

·         The increase in the open offer size to 100% will give the opportunity to several hedge funds, and PE funds to buy 100% ownership of some of the Indian companies, which was not possible under the existing guidelines.

Conclusion

The new 25% threshold will bring Indian takeover rules close to the takeover rules in some developed markets such as the UK, where open offers are triggered once the shareholding crosses 30% of a target company. The new code will increase market activity and benefit all parties involved.About the Author: The author is Business Editor. Visit at <a rel="nofollow" href="http://www.religareonline.com/Featuredstorydetails.aspx?newsid=68&title=FOCUS:%20SEBI%20takeover%20code%20%E2%80%93%20all%20or%20nothing"> www.religareonline.com </a> to read more such stories. Article Source: <a href='http://www.articleseen.com/Article_SEBI-takeover-code-–-all-or-nothing_32929.aspx'> http://www.articleseen.com/Article_SEBI takeover code – all or nothing_32929.aspx</a>

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The author is Business Editor. Visit at www.religareonline.com to read more such stories.

Keywords : online stock trading, sebi take overcode, online share trading, SEBI, Equity Derivatives, Indian Stock Markets, IPO Stocks, Online C,

Category : Finance : Finance

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