Sebi's new takeover rules come into force

A new set of regulations has come into effect for merger and acquisitions in India, which would make taking over a listed company costlier for the acquirers, but more attractive for public shareholders.

Widely known as the Takeover Code, the new regulations were notified by the capital market regulator Sebi last month and has accordingly become effective from October 22.

With these rules coming into force, both promoter and public shareholders of a listed company would now get the same price for their shares being purchased by an acquirer.

At the same time, an acquirer would have to make an open offer for purchase of a minimum 26% stake from public shareholders, as against 20% earlier.

The new rules would also help the listed companies to get more investment from private equity players and other investors who are not interested in a takeover, as the trigger point for an open offer has been raised to 25%, from 15% earlier.

Now, an entity needs to make an open offer only if its holding reaches threshold limit of 25%, as against 15% earlier.

The new regulations replace the takeover rules that were in force since 1997.

A Sebi-appointed panel had suggested an open offer size of up to 100%, by the final regulations went ahead with a 26% offer to help domestic acquirers, as they lack access to large bank funding for such deals.

The new regulations would also require that any change in control of the listed company to be effected only after an open offer.

The exemption from open offer available in case of change in control without acquisition of substantial shares, through a special resolution by postal ballot process, has been withdrawn.

In another shareholder-friendly move, Sebi has scrapped the non-compete fee or control premium, which were being paid to only the promoters earlier and could have been as much as 25% of the public offer price.

Now, any amount paid to the promoters, in form of non-compete fee, control premium etc, would have to be added in the offer price.

Also, it has been made mandatory for the board of the target company to issue a recommendation on the offer being made by the acquirer and such a recommendation, to accept or reject the offer, would have to be made public at least two days before the commencement of the offer.