Sebi, RBI panel on M&As

Capital market regulator Securities and Exchange Board Of India (Sebi) and banking sector regulator Reserve Bank of India (RBI) are planning to set up a joint committee to look into the issues related to mergers and acquisitions (M&As) in the corporate sector.

Speaking to reporters after attending a one-day workshop on the capital market organised by the Federation of Indian Chamber of Commerce and Industries (Ficci) in Chennai on Tuesday, Sebi Chairman Chandrashekhar Bhaskar Bhave said the new committee would also work on a framework to bring more transparency in M&As.

Sebi has decided to bring down the number of days for rights issues of companies to 43 days from the current 109 days. “This will attract more companies to raise funds through the capital markets, which are now using private placements,” Bhave said. The market regulator has asked the Primary Market Advisory Committee to look into the matter of right issues and suggest ways to bring down their period 43 days.

The current Sebi guidelines on M&As state that any entity, which acquires in excess of 15 per cent in a target company, is required to make an open offer to the public shareholders for acquiring at least 20 per cent of the total capital of the company, which is the case in mergers and acquisitions.

One of the most common complaints is the time taken by the regulator to clear the open offer. The recent open offer of The Walt Disney company made for Ronnie Screwala-promoted UTV Software was cleared by the market regulator yesterday, six months after the deal was signed.

Once a draft letter of offer is filed with Sebi, the regulator checks whether there has been any violation of the Takeover Regulations by any other acquirer in the company’s history. Often, past acquisitions that would seem to have triggered an open offer obligation are discovered. Sebi then demands the acquirer to prove that past acquisitions were in compliance with the regulations. The Takeover Regulations impose restrictions on the target company during the open offer period.

If the public shareholders’ access to the open offer gets delayed, their receipt of funds is delayed. During this delay, the market price could move either way — if the price moves up, the shareholder could sell his shares in the market instead of tendering them in the open offer. If the price goes down, the shareholders’ ability to have all their shares purchased would get further diluted since all shareholders.