Sebi To Query Hughes On Open Offer Waiver

The Securities and Exchange Board of India (Sebi) has decided to ask Hughes Tele.com India and Hughes Software Systems, subsidiaries of Hughes Electronics of the US, why their new parent should be exempted from making open offers for the shareholders of the two companies.

Early this week, EchoStar Communications agreed to acquire Hughes Electronics from its parent, General Motors, in a cash and stock deal valued at $26 billion.

"We are examining the entire issue based on our observations. Though the deal happened in the US, we would like to monitor its implications in the Indian market. We will ask the Indian subsidiaries for reasons for not coming out with open offers for the Indian shareholders as the parent firm's management has changed," a top Sebi official said.

Recently, Hughes Software informed the domestic stock exchanges that the question of an open offer did not arise. "Since there is no agreement or intention to acquire the Indian shares of Hughes Software and since the amalgamation is not an indirect acquisition of Hughes, and there is no change in control, no public offer is likely to be made," the company said in a notification to the stock exchanges.

But Sebi demurs, though it is yet to formally communicate this to the two companies.

"We will approach them at an appropriate time. As of now we are assessing the situation. But no firm in India should misuse loopholes in the system," the official said here on Thursday.

According to Sebi's Takeover Code, any takeover that leads to a change in management control must necessarily be followed by an open offer to buy at least an additional 20 per cent of the voting capital of the company from its existing shareholders. Sebi has at various times upheld the provisions of this "chain rule" which essentially implies that domestic shareholders must always get a chance to exit the company in case there is a change in management or ownership at the top.

Though the market regulator does not want to comment further on the issue, the official said Sebi would have no option but to ask the new parent to make an open offer if its investigations suggest violation of the spirit of the (takeover) code.

Hughes Tele.com India is a basic telephony operator in Maharashtra, while Hughes Software is one of the leading infotech players. Hughes Electronics of the US holds a 55.6 per cent stake in Hughes Software and a 25 per cent stake in Hughes Tele.com.