New takeover rule may be announced by year end

Market regulator Sebi is likely to announce the new takeover rule for companies by the end of this year, Chairman of the Takeover Regulatory Advisory Committee C Achuthan today said.

"Perhaps it might come at the end of this year itself, Let us hope so," he said on the sidelines of a conference on the Takeover Code.

There are various process involved, including tabulating the suggestions, internal discussion and evaluating the pros and cons in arriving at the new rule.

"We have even given the format. Everything is ready, now only some sort of tinkering is required," he said.

He agreed that Merger and Acquisitions costs would increase once the new code comes into play.

"I don't think that higher financing cost is going to be a deterrent for takeover activities," he opined.

On fears expressed over transfer of natural resources or assets into foreign hands and tendencies to block mega deals he said, "SEBI as a regulator can always stop if a takeover is not in the interest of the shareholders."

The scope of a takeover regulation is only related to acquisition of shares and controls, he said.

To a question whether the scope could be extended to unlisted companies as many big IT firms were taking over small unlisted companies, he said: "Unlisted companies were out of the radar of Sebi. It will never happen unless there is an indirect takeover. If you are acquiring A company and as a result of the acquisition you acquire B company and if it is listed than A company's acquisition will come under it."

Achuthan disagreed that the code would prove advantageous to foreign acquirer because of access to funds.

"Let us not look that way because there may be people in India also with sufficient funds. Here also there are capable people to takeover a company," he said.

On the issue of funding constraint for companies he said, "Funds are available but because of sensitivity of the matter at the initial stages nobody would like to go to the private fund provider, then it will be known, it is sensitive and markets will be unnecessarily affected that is the fear."

"In the initial stage itself if somebody goes to the market and if there is a rumour that you are going to be taken over...Because there are several persons involved. There is confidentiality involved in initial stages till the public announcement is made," he said.

"That is why we have made a provision for initial two stages. The first day you agree to take over, make a short announcement so that it is in the public domain," he said.

In terms of benefit to minority shareholders, he said that it would largely benefit them in terms of parity in pricing. It would also provide opportunity for complete exit and get the same price as a substantial share holder.