Offer Likely To Be Mandatory For Psu Selloffs

The takeover panel chaired by P N Bhagwati is unlikely to exempt public sector disinvestments from open offer nor will such open offers be able to ignore market price for offer pricing.

According to sources familiar with the developments, while no decision was taken with regard to the presentation made by disinvestment secretary Pradeep Baijal on Monday, the committee was of the opinion that the government could always choose between the bid price or the market price (the 6-month high-low average) whichever was lower.

The government contention was that the rigging in the scrip price of the target company led to a higher offer price which resulted in lack of interest among prospective bidders. "They have the flexibility of taking the lower of the bid or market price," sources said.

Meanwhile, the committee has practically shot down the idea of increasing the open offer limit to 51 per cent. While the committee's report would be finalised only on January 25, sources said at present the committee saw no reason to hike the open offer limit to 51 per cent. The current 20 per cent minimum offer limit was felt to be adequate enough to cater to the current requirements. Only the disclosures aspects would have to be followed more stringently so that prospective victims could have a good idea of the corporates which were interested in them.

It has been more or less agreed to by the members that change in management control through preferential allotments in reverse mergers should be brought under the Securities and Exchange Board of India's (Sebi) takeover code. Reverse mergers happen when an unlisted company merges with a listed company and the control of the unlisted company comes under the management of the listed company and the shareholders of the unlisted company are alloted shares through preferential allotment. In case of transfers within the same group, an open offer would become mandatory only when preferential allotments are made at a premium of 25 per cent to the prevailing market price.

Sources said that wherever such preferential allotments result in an increase of stake beyond 15 per cent, the open offer clause would be automatically triggered and an open offer would have to be made to the shareholders of the listed company.