Acquirers push open offers under old takeover code

Acquirers have been rushing to utilise the short period available before implementation of the new takeover code, which could make buyouts more expensive. Acquirers in at least 13 small companies have filed draft offer documents to make open offers after July 28, when the new takeover code was approved by the Securities and Exchange Board of India (Sebi).

These offers, once cleared, will be covered by the old takeover code, which will be in force till October 21. Acquirers who cross the 15 per cent mark are required to make an open offer for a further 20 per cent under the old code. Also, promoters are required to make open offers if they breach the creeping acquisition limit of five per cent.

Two companies — Dr Wellman’s Homoeopathic Lab and Pharma Com (India ) — have already received clearance. Eleven open offers, filed in August and September, are pending. According to the Sebi website, the regulator had issued final observations for 37 open offers between March and September. Further, approval for 24 offer letters were pending as on September 30. All these, once cleared, will be carried out according to provisions of the old law.

Sebi has been showing some urgency in clearing pending offers off late. Last week alone, it cleared three offers whose combined size touched Rs 1,000 crore.

Arun Kejriwal, director, KRIS said, “The effective date has been notified as October 22. For Companies which make public announcement before October 22, the old code will apply. Many small companies, which want to get away with the old code are making these announcements. They want to complete the formalities under the old code itself.”

Experts say acquirers are keen to get past the 25 per cent mark at minimum cost. Under the new takeover code, shareholding of 25 per cent has been made an important level. Besides being the trigger for mandatory open offer, the level also qualifies promoters to make creeping acquisitions and voluntary offers. The size of the mandatory offer has also been raised, to 26 per cent.

In three of the above companies, Jaihind projects, Pitti laminations and Shree Ram Urban Infra, promoter group shareholders have made the open offers to increase stakes. Saurabh Agarwal, director, Kennis Group said, “The biggest change in the new takeover code is the shifting of initial trigger from 15 per cent to 25 per cent. Promoters who are holding in between 15 and 25 per cent stake could land in trouble. Many of these people will be looking to raise stake and cross the limit.”

He, however, added individual open offers need to be analysed separately to ascertain the reason for making the offer.