Sebi mulls change in takeover norms; control, pricing on radar

Capital markets watchdog Sebi may soon consider some changes in its takeover norms for listed companies, including in the provisions governing price offered to minority investors and those defining change in control.

These changes would be part of efforts to further safeguard the interest of smaller investors in case of merger and acquisition transactions involving listed companies, while also making the compliance easier for the concerned entities.

The proposals are so far in the initial stages and any final decision would be taken after detailed discussions among all the stakeholders, sources said.

The changes would also take into account the related provisions of the new Companies Act, which began coming into force at the stat of the current fiscal on April 1, 2014, as also the subsequent notification of related rules, clarification circulars and amendments made by the government.

Besides, Sebi plans to incorporate certain provisions to remove those ambiguities that have come to light in the existing regulations including on issues like definition of control after cases like Jet-Etihad deal.

Sebi revamped its regulations governing M&A deals and substantial acquisition of shares of listed companies in a big way in 2011, when it put in place a new and detailed Takeover Code.

Under the new Code, an entity buying 25 per cent stake in a listed firm needs to mandatorily make an offer to buy additional 26 per cent from public shareholders.

The open offer also gets triggered even if a company gets 'control' of the listed firm with a stake lower than 25 per cent, but in some cases there have been difference of opinion on the definition of 'control'.

The new norms increased the open offer size for public shareholders from 20 per cent previously, while the trigger threshold was also raised from 15 per cent earlier.

Since notifying the new takeover regulations in 2011, Sebi has further tightened these norms on a few occasions including by bringing entities acquiring more than five per cent stake under its insider trading regulations.

Earlier this year, Sebi also said that price offered to the public shareholders and the price for preferential allotment would need to be decided on basis of the prevailing market price on the earliest date when the company's board approves the transaction.

Still, there have been cases where the provisions for market-determined price for takeover offers have led to a high level of speculation and possible manipulation in share price of the target company.

To plug this loophole and safeguard markets from such manipulations, Sebi may also consider changes in the pricing mechanism for takeover offers. There have been some suggestions about delinking the takeover price from the prevailing share price, but no final decision has been taken in this regard.