SEBI announces new takeover norms

Heralding a new set of rules for takeover of companies, the Security Exchanges Board of India (SEBI) on Thursday said an entity buying 25 per cent stake in a listed firm will have to mandatorily make an offer to buy additional 26 per cent from public shareholders.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently, while the trigger for such offer has also been raised from 15 per cent in the existing regulations.

Partly accepting the recommendations of Achutan committee, a SEBI-appointed panel on the matter, the market regulator also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

The decisions were taken at a SEBI Board Meeting here on Thursday and were later announced by Chairman U.K. Sinha.

The SEBI panel on new takeover regulations had recommended an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent.

While the recommendation on trigger has been accepted, the same for offer size has been kept lower due to intense opposition from industry and other market participants.

At the time of recommendation of the panel, it was said that all the public shareholders were required to be given an exit opportunity in case of promoters of target company selling out their stake to acquirers.

For removal of non-compete fees, which could be as high as 25 per cent of deal value, the logic was given that promoters should not get higher price than that for public shareholders.

Commenting on the SEBI decision, consultancy firm Corporate Professionals MD Pavan Kumar Vijay said: “The SEBI Board approved new Takeover Regulations. It’s a good move in the direction of simplification of the complicated law.”

He said the move to raise open offer trigger point from 15 per cent to 25 per cent was a “good move for increasing fund raising options and joint ventures.”

It has been said that institutional investors were not being able to put money in listed companies in excess of 15 per cent in fear of mandatory requirement of additional 20 per cent open offer. Now, the investors can buy up to 25 per cent stake without making an open offer.

Mr. Vijay said SEBI has decided to increase open offer size to only 26 per cent due to “industry pressure against the 100 per cent offer size recommendation of Achutan Committee.”

“Though logic of 26 per cent is not known, but the move is good for domestic promoters and industry as cost concerns and funding of offer is addressed to a major extent,” he added.

On non-compete fee, he said that SEBI has accepted the TRAC recommendation of scrapping the non-compete fee.

“Outright scrapping may not be treated as a right move as Promoters can not be treated as right in all cases. Where the promoters have real personal contribution in business, non-compete fee is logical,” he added.

Giving details of the new takeover norms, Sebi said that its board considered the Report of the Takeover Regulations Advisory Committee (TRAC) and accepted most of its recommendations.

SEBI said that there would be no separate provision for non-compete fees and all shareholders should be given exit at the same price.

“In cases of competitive offers, the successful bidder can acquire shares of other bidder(s) after the offer period without attracting open offer obligations,” it said.

SEBI also said that voluntary offers would be allowed subject to certain conditions, while a recommendation on the offer by the Board of Target Company has been made mandatory.

Regarding control and offer size, the Sebi board decided that the existing definition of control would be retained as it is and the minimum offer size shall be increased to 26 per cent of the target company.

However, the board did not accept the recommendation of TRAC to provide delisting pursuant to an offer and proportionate acceptance.