Pre 1991: Only the MRTP Act, 1969 and the Companies Act, 1956 had merger control provisions. Post 1991: The Companies Act, 1956; SEBI (Takeover) Guidelines, 2011; and the Competition Act, 2002 now form the backbone of merger control provisions in India.
M&A and Takeovers are the powerful ways to achieve corporate growth, but because of their complex nature, to protect the interest of all the parties, curb the malpractices and to facilitate orderly development these activities are regulated by a takeover code in most part of the world. In India after liberalization Govt. started to regulate these activities by introducing a takeover code.
[i] Friendly takeover, [ii] Bail out takeover, [iii] Hostile takeover
Hostile takeover
Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company.
The hostile takeover takes place as per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011
SECURITIES AND EXCHANGE BOARD OF INDIA(SUBSTANTIAL ACQUISTION OF SHARES AND TAKEOVERS ) REGULATION ,2011 TAKEOVER CODE
Takeover Code
1. The concept of Takeover Although, the term Takeover has not been defined under the said Regulations, the term basically envisages the concept of an acquirer taking over the control or management of the target company . When an acquirer, acquires substantial quantity of shares or voting rights of the target company, it results in the Substantial acquisition of Shares.
(I) For the purpose of disclosures to be made by acquirer(s): (II) For the purpose of making an open offer by the acquirer
Any acquirer who acquires shares or voting rights in a target company , which taken together with shares or voting rights , if any , held by him and by the persons acting in concert with him in such target company , aggregating to 5% or more of shares of such target company ,shall disclose their holdings to the target company and the Stock Exchanges where the shares of the target company are traded within 2 days of receipt of intimation of allotment of shares or acquisition of shares . Every subsequent acquisition or disposal of shares of target company representing 2% or more of shares needs to be disclosed to the target company and stock exchange
Continual Disclosures
2) More than 25% shares or voting rights: Every person (together with PAC) holds more than 25% shares or voting rights of the target company, shall within 7 working days from the financial year ending March 31 make yearly disclosures to the stock exchange/target company in respect of his holdings as on the mentioned date .
Continual Disclosures
3) Disclosures by promoters: The promoter of the target company (together with PAC) disclose their aggregate shareholding and voting rights as of 31st march The disclosures shall be made within 7 working days from the end of each financial year to the Stock exchange /Target company .
If the acquisition results into entitlement of 25% or more voting rights in the target company, the acquirer is required to make an open offer to acquire at least 26% shares from the existing public shareholders of the target company in terms of the Takeover Code (open offer obligation).
Acquisition of control
Acquisition of control, directly or indirectly, by the acquirer, irrespective of shares or voting rights held, triggers open offer obligation. Control includes right to Appoint majority of directors Control the management Control policy decisions
Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations
In a mandatory open offer, the acquirer has to offer to acquire minimum 26% of the total shares of the target company from public shareholders, in accordance with the Takeover Code.
PAC
Persons acting in concert means, persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company.
Public Announcement
A Public announcement is generally an announcement given in the newspapers by the acquirer, primarily to disclose his intention to acquire a minimum of 26% of the voting capital of the target company from the existing shareholders by means of an open offer.
The offer price, The number of shares to be acquired from the public, The identity of the acquirer, The purposes of acquisition, The future plans of the acquirer, if any, regarding the target company, The change in control over the target company, if any The procedure to be followed by acquirer in accepting the shares tendered by the shareholders and the period within which all the formalities pertaining to the offer would be completed .
The basic objective behind the PA being made is to ensure that the shareholders of the target company are aware of the exit opportunity available to them in case of a takeover / substantial acquisition of shares of the target company. They may, on the basis of the disclosures contained therein and in the letter of offer, either continue with the target company or decide to exit from it.
Procedure to be followed after the Public Announcement Acquirer is required to file a draft Offer Document with SEBI within 5 days of the PA through its Merchant Banker, along with appropriate filing fees along with the draft offer document, the Merchant Banker also has to submit a due diligence certificate as well as certain registration details
The filing of the draft offer document is a joint responsibility of both the Acquirer as well as the Merchant Banker Thereafter, the acquirer through its Merchant Banker sends the offer document as well as the blank acceptance form within 32 days from the date of PA, to all the shareholders whose names appear in the register of the company on a particular date
The offer remains open for 10 days. The shareholders are required to send their Share certificate(s) / related documents to the Registrar or Merchant Banker as specified in the PA and offer document The acquirer is obligated to offer a minimum offer price as is required to be paid by him to all those shareholders whose shares are accepted under the offer, within 10 days from the closure of offer
Minimum Offer Price and Payments made It is not the duty of SEBI to approve the offer price, however it ensures that all the relevant parameters are taken in to consideration for fixing the offer price and that the justification for the same is disclosed in the offer document.
Acquirers are required to complete the payment of consideration to shareholders who have accepted the offer within 10 days from the date of closure of the offer. In case the delay in payment is on account of nonreceipt of statutory approvals and if the same is not due to wilful default or neglect on part of the acquirer, the acquirers would be liable to pay interest to the shareholders for the delayed period in accordance with Regulations.
Acquirer(s) are however not to be made accountable for postal delays. If the delay in payment of consideration is not due to the above reasons, it would be treated as a violation of the Regulations.
Before making the Public Announcement the acquirer has to create an escrow account having 25% of total consideration payable under the offer of size Rs. 500 crores (Additional 10% if offer size more than 500 crores)
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;
Upon the public announcement of this competitive bid, the original acquirer shall have the option to either revise the original offer or withdraw it.
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Withdrawal of offer
No public offer , once made , shall be withdrawn except under the following circumstances1 The statutory approval required have been refused 2 The sole acquirer has died 3 such circumstances as in the opinion of the Board merit withdrawal
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