Open offers dip sharply after new law

The new takeover code seems to have taken the steam out of open offers, as fewer number of acquirers are crossing the higher threshold of 25 per cent.

In a clear signal that companies have become wary of triggering the mandatory open offer, only 16 companies made public announcements for these between October 23, 2011 and February 29, 2012. In comparison, 55 were made between April and October 22, 2011. The new code took effect from October 22. Along with raising the trigger from 15 per cent to 25 per cent, the Securities and Exchange Board of India (Sebi) also raised the minimum size of open offers from 20 per cent to 26 per cent.

Interestingly, between October 1, 2011 and October 21, 2011, as many as 17 companies made open offer announcements, to avoid the new rules.

LOSING STEAM Since the new takeover code has come into effect, general and open offer exemption requests to Sebi have seen a sharp decline
	Public announcements	General exemption requests	Open offer exemption requests
Old takeover code*	55	252	18
New takeover code**	16	78	4
Total	71	330	22
Source: Sebi; *From Apr 1, 2011 to Oct 22, 2011; **From Oct 23, 2011 to Feb 29, 2012

At a meeting late last month, Sebi's board deliberated on this drop. Sebi believes the new regulations give acquirers more room to raise shareholding in a target company without triggering an open offer. “The market may be taking time to fully understand the provisions of the Takeover Regulations, 2011,” is what Sebi has said on the declining trend.

Gautam Gupte, director, Ambit Corporate Finance, believes the new open offer size may not be such a big deterrent for acquirers to hold back. “All open offers have a commercial justification. The increase in size from 20 per cent to 26 per cent is unlikely to negate that justification. Acquirers now have more head room, as they can buy up to 25 per cent stake in a company. Overall merger and acquisition (M&A) activity has also taken a hit, due to weak market conditions. These could be the reasons for the decline in open offer activity.”

There was also a huge decline in applications to Sebi on open offer exemptions and general exemptions. For the year 2011-12, before the new takeover code took effect, 330 cases of general exemptions and 22 applications of open offer exemption were filed.

Between October 23, 2011 and February 29, 2012, the regulator received only 78 cases of general exemptions and four of open offer exemption.

Last month at a public event, Sebi chairman U K Sinha had said that Sebi might consider revising the takeover code to boost M&A activity. “There are some apprehensions that threshold limits work as obstacles for M&A activity in India, but we are looking at this. If some concrete suggestions come out, we will consider,” he had said.