Sebi board likely to clear Takeover Code on Oct 25

Expected to dilute the open offer size from 100 per cent to 75 per cent.

From November, mergers and acquisitions (M&As) on Indian soil are likely to be governed by a new set of guidelines. The Securities and Exchange Board of India (Sebi) board is scheduled to meet on October 25. The proposed Takeover Code revamp is the most important element on its agenda.

According to people familiar with the development, the capital market regulator is set to make some minor changes on the basis of feedback from market participants. The new norms need to be notified after the final regulatory nod.

Sebi is widely expected to dilute the requirement that the open offer has to be for 100 per cent stake. This may be brought down to 75 per cent. The regulator has been inundated with feedback suggesting the proposed norm will severely hamper M&As by leading to an exponential rise in acquisition costs.

The Sebi-appointed Takeover Regulations Advisory Committee under the chairmanship of C Achuthan (appointed in September 2009) gave a 139-page report in July. Achuthan had earlier chaired the Securities Appellate Tribunal. The panel said the open offer should be for all shares of the target company, instead of the current requirement of not more than an additional 20 per cent stake.

India Inc will closely track the decision as it has already announced M&A deals worth $601 million (Rs 2,680 crore), taking the year-to-date total to over $42 billion (Rs 1.87 lakh crore), according to a report by Grant Thornton.

Open offer trigger, price
Sebi is expected to go with the recommendation for increasing the open offer trigger limit to 25 per cent. The current limit is 15 per cent. The committee was of the view that since a holding of 25 per cent allowed exercise of de facto control over a company, this could be fixed as the appropriate open offer threshold.

Another recommendation expected to be cleared relates to the disparity between the offer price paid to the promoters and the minority shareholders in the form of a non-compete fee. The panel has proposed that any non-compete fee or control premium paid to the promoters will have to be factored in while calculating the open offer price for other shareholders.

Other important recommendations of the panel include creeping acquisition being permitted only to those who hold more than 25 per cent of the voting capital (subject to aggregate post-acquisition shareholding not exceeding the maximum permissible non-public shareholding) and that independent directors of a target company be required to give their separate recommendation on the open offer.

The panel also said no appointment of representatives of the acquirer could be made on the board of directors of the target company unless the acquirer places the entire consideration under the open offer in cash, in an escrow account.