To protect the interest of public shareholders, Sebi will strengthen the regulations for mergers whereby very large unlisted companies would be restrained from getting listed by merging with a very small company.
Besides, to improve the disclosure standards, an unlisted company merging with a listed one would have to comply with the requirement of disclosing material information.
Moving ahead to streamline as well as strengthen the norms, the Securities and Exchange Board of India (Sebi) said that an unlisted company can be merged with a listed one only if it is listed on a stock exchange having nationwide trading terminals.
With the revised norms, the holding of pre-scheme public shareholders of the listed entity, as well as that of Qualified Institutional Buyers (QIBs) of the unlisted company, should not be less than 25% in the merged entity.
In a release, Sebi said the objective of bringing these changes is to "have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company".
Among others, the pricing formula — as specified in the ICDR (Issue of Capital and Disclosure Requirements) norms — would have to be followed in order to prevent issue of shares to select group of shareholders instead of all shareholders pursuant to the scheme.
Sebi said schemes involving merger of an unlisted company resulting in reduction in the voting share of pre-scheme public shareholders by over 5% of total capital of merged entity can be approved through e-voting of public shareholders.
This facility can be used for schemes involving transfer of whole or substantially the whole of the undertaking of a listed company provided consideration for such transfer is not in the form of listed equity shares.
Further, schemes involving merger of unlisted subsidiary with listed holding company where the shares of the unlisted subsidiary have been acquired by the holding company directly or indirectly from the promoters/promoter group can also be subject to e-voting.
"Companies would be required to submit compliance report confirming compliance with the circular and Accounting Standards duly certified by Company Secretary, CFO and Managing Director," the release said.
According to the markets regulator, arrangements involving merger of a wholly-owned subsidiary with the parent company would not have to be submitted to it. Such schemes have to be filed with stock exchanges for the limited purpose of disclosures only.
"The regulations attempt to ensure the rights of the public shareholders are protected and also get them greater look-in on mergers with unlisted subsidiaries," Sanjeev Krishan, Partner and Leader (Deals) at PwC India said.