Sebi mulls new, easier framework for companies to delist post open offer

Aims to remove sequentially contradictory transactions in the takeover process

Market regulator Sebi on Friday proposed a new framework to make it easier for companies to delist following an open offer by allowing an incoming acquirer to launch both simultaneously.

At present, in case of a direct or indirect change in ownership at a listed company, the new acquirer has to make a 26 per cent mandatory open offer. If the open offer is entirely successful, there is a possibility that the shareholding of the new acquirer reaches 90 per cent. In order to comply with the 25 per cent minimum public shareholding norms, the acquirer again has to divest to below 75 per cent. Interestingly, if the acquirer intends to dilute, the promoter holding first needs to be brought down to 75 per cent and then again is required to be increased to 90 per cent.

“It has been represented that such directionally contradictory transactions in a sequence pose complexity in the takeover of listed companies and dissuade an incoming acquirer from seeking to acquire control over listed companies,” Sebi said in a discussion paper on Friday seeking public comments till July 16.

The paper is based on recommendations made by a sub-group of Sebi’s primary market advisory committee (PMAC).

The exert panel is in favour of permitting simultaneous open offer and delisting bids with several checks and balances in order to address some of the implications the proposal poses.

Under the new framework, the acquirer will have to disclose the intent to delist upfront at the time of making an open offer. Also, as the delisting price is usually far higher than the open offer price. The acquirer will have to disclose two separate offer prices—one for open offer and one for delisting.

If the delisting bid goes through, the acquirer will have to pay the delisting price to all the shareholders. If the delisting bid fails, all the shareholders will be paid the open offer price. The panel has also proposed to retain the power to reject a delisting bid by a majority of the minority shareholders.

“If these approvals are not received, the delisting element of the open offer would stand rendered void and the open offer would continue with the takeover price,” says the Sebi discussion paper.

The new framework also proposes to allow the acquirer to take more than one shot at delisting if the bid fails pursuant to the open offer. This will be allowed without the acquirer having to bring down its stake to below 75 per cent for a period of 18 months.

Industry players said Sebi’s proposal will be particularly beneficial to multinational companies (MNCs). In the recent past, open offers have gotten triggered in MNC firms like Wabco India and Federal-Mogul Goetze (India) due to change in ownership at their global parent. The new promoter then had to make an open offer which took their holdings close to 90 per cent. Later the promoters had to again divest their holdings within a year to meet the 25 per cent public float requirement.