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Presentation by
Mohit Saraf
Partner
Luthra & Luthra
Law Offices
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Overview of Takeover Regulations
Salient Definitions
Types of Takeovers
Required Disclosures
Takeover code Trigger
Exempted Categories
Takeover at a Global Level
Takeover and Disinvestment
Advantages
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- SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997
issued by the Securities and Exchange Board of India (SEBI);
- Listing Agreement
SEBI Regulations for the first time introduced in 1994, but found
inadequate to control hostile takeovers or regulate competitive offers
and revision of offers.
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The Takeover Code came in for a fair amount of criticism due to the
various loopholes which surfaced.
Example:
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± This was followed by Bombay Dyeing's offer to acquire a majority stake in
AEC at a price of Rs. 90 per share on an all or none basis.
± SEBI rejected Bombay Dyeing's open offer on technical grounds as the bid
was not made within the 14 day period following the public announcement
by Torrent.
± Torrent raised its offer price to Rs. 132 per share, but shareholders failed to
respond in anticipation of a new bid by Bombay Dyeing. The Torrent offer
flopped receiving only about 1% response.
± Bombay Dyeing did not follow up with a revised bid as it felt that the revised
price of Rs. 132 was too high.
± AEC scrip flared up from Rs. 70 to a high of Rs. 170 in just a couple of
months.
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SEBI issued show cause notice to NEPC for its failure to meet
commitments to shareholders who responded to the open offer.
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Acquirer´ has been defined as any person who directly or indirectly acquires
or agrees to acquire:
either by himself or with any person acting in concert with the acquirer
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Control has been given an inclusive definition and includes:
The concept of
assumes significance in the context of take overs:
± acquisition made by the acquirer remains below the threshold limit
± taken together with the voting rights of persons acting in concert, the
threshold may exceed.
Example:
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1 Example:
Reliance
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1) Hostile takeover
2) Friendly takeover
3) Bailout takeover
Hostile takeover
Example:
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Bajoria together with people acting in concert acquired more than 5%
of shares in Bombay Dyeing without making appropriate disclosures,
required at the 5% level under the Takeover Regulations.
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Tendency of Financial Institutions (FI) to help out Promoters in hostile
takeovers
ICL in its hostile bid for RCL made an open offer for RCL shares at Rs.
300 per share when the share price was at Rs. 100.
Promoters of RCL sold out its 32% stake to ICL in a negotiated deal
during the term of the open offer at price ranging between Rs.200 to
Rs. 286 per share
ICL had full control of RCL without having to purchase single share
from from the institutional investors.
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- Friendly takeover
· Management of a company may face serious financial
problems or threats of hostile takeover
· Unable to ward off the takeover attempt.
· A friendly corporate body or group of companies may come to
the rescue by buying shares of the company in the open market
and/or by pumping resources to help the management.
Example:
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SIL made an open offer to purchase 10% of the shares of Indal
from the Public. (Takeover trigger at 10% then)
SEBI came up with ruling of public offer of not less than 20%.
SIL made a cash offer at Rs. 115 per share and Alcan made a bid
for Rs.175.
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- Bailout takeover
- Example:
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More than 15% shares or voting rights
± Any acquirer along with PAC holding more than 15% but less than
75% of shares or voting rights in a company shall disclose to the
company upon acquiring a further:
5%; or
10%
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± Every listed company shall within 30 days from the end of financial
year on March 31, as well the record date for declaration of
dividends make disclosure to the stock exchange(s) with changes,
if any, on which its shares are listed in respect of holding of persons
mentioned above.
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- Acquirer holding 15% or more but less than 75% of the shares or
voting rights of the company
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± An open offer is made by a Public Announcement
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Competitive Offer
± Any third person other than the acquirer who has made the first
public announcement can make a competitive bid or a counter
offer;
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The public offer provisions of the Takeover Code will not be apply in
the following cases:
± Sick company;
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Takeover Code at a Global Level
Global level arrangements - whether it attracts Takeover Code
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Example:
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± Mitsui applied to SEBI stating that the Take over code should not be
triggered as the change in control of Sesa-Goa was a result of acquisition of
its parent
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Takeover Code at a Global Level (Cont¶d.)
± Mitsui applied to SEBI stating that the Takeover Code should not be
triggered since the change in control of Sesa-Goa was a result of its
acquisition of Sesa-Goa's parent.
± Ministry of Finance ruled that under the 1994 takeover code, SEBI had no
jurisdiction over the developments abroad and therefore could not pass
sentence on something that happened outside its jurisdiction and thereby
no open offer was required.
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Takeover Code at a Global Level (Cont¶d.)
Examples:
± The Takeover Panel rejected the above application and accordingly SEBI
ordered the acquirer to make open offer for 20% to the public.
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Takeover Code at a Global Level (Cont¶d.)
± In global acquisition in April 1999, the Luxottica group had acquired the
sunglasses business of Bausch & Lomb (B&L), USA, for $640
million.
± When global deal took place, the control of B&L, India went to
Luxottica.
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Takeover Code at a Global Level (Cont¶d.)
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Takeover Code at a Global Level (Cont¶d.)
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The Takeover Code amended twice
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appointment of any representative of the acquirer or any person
having an interest in the acquirer as additional director or as
director to fill in any casual vacancy on its board after the PA
has been made.
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An acquirer required to make a PA not later than 4 working days of the
date of execution of Share Purchase Agreement or Shareholders
Agreement with the Central Government.
a)both the acquirer and the seller are the same in all the stages of
acquisition; and
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The management becomes more accountable.
± The management may also be forced to make an open offer to increase its
own stake. It may have to share powers by allowing minority shareholders
onto the board and thus create greater transparency.
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The share price automatically climbs. This climb in share prices has
already occurred in Bombay Dyeing, GE Shipping, and East India
Hotels, for instance.
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