Cerc Opposes Exemptions From Making Open Offers

The Consumer Education and Research Centre (CERC), Ahmedabad, has objected to the recommendations regarding acquisition of shares and takeover made by the Justice Bhagwati Committee.

In a letter to Union finance minister Yashwant Sinha, a copy of which was sent to the Securities and Exchange Board of India chairman, CERC stated that, in 84 per cent of acquisitions and takeovers during the year, the acquirer was exempted from making a public offer to shareholders.

It defeats the very objective of Sebi regulations and hurts the interests of small investors.

CERC urged Sinha to go into the matter or entrust it to a conscientious executive or advisor to take an independent and dispassionate view of what has happened and what needs to be done.

Ordinarily, acquirers approach one or two large shareholders, negotiate the price and acquire the shares. This saves time and avoids competing bids. Public offers began in the developed countries to end this practice. The motive was to prevent injustice and promote equitable treatment to small shareholders.

CERC stated that there should be no exemption from making a public offer to all shareholders. If Sebi feels there is a need for an exemption, it should be granted only in rare cases. This too can only be with the recommendation of a panel of experts. At least one-third of the panel members must be from recognised investor protection organisations, CERC felt.

If such an exemption is to be recommended by the shareholders of the company at a general meeting, it should be approved by a special resolution. Voting can be done by postal ballot. But, parties who would benefit from the resolution should not be entitled to vote, the CERC said in its letter.

The price for public offer should be the highest share price during the previous 26 weeks. But, if the acquirer has bought shares in the previous 52 weeks, the price of public offer should not be less than the acquirer's purchase price during this period.

If a public offer is being made for acquisition of shares, payment can be either in cash or through exchange of shares. But, the option to take shares or cash should rest with the shareholder. If there is exchange of shares, the shares should be listed in the A group of the Bombay Stock Exchange or grouped under S&P CNX Nifty of the National Stock Exchange.

Further, CERC recommended that, creeping acquisition over 51 per cent should not be allowed.

Acquisition of shares should not be more than 5 per cent in a year. If a party's holding crosses the 14 per cent limit, acquisition should be through a public offer for at least 20 per cent of the shares, it said.