Takeovers: Sebi panel wants 100% open offer

Recommends increasing the open offer size from 20% to as high as 100%

Takeovers are set to get costlier, with a Securities and Exchange Board of India (Sebi) panel favouring making it mandatory for the acquirer to make an offer for up to 100 per cent stake in any listed company.

As of now, an open offer for a minimum of 20 per cent in the target company is required to be made by any entity that has purchased 15 per cent equity, either from the promoters or from the open market.

Sebi had set up a Takeover Regulatory Advisory Committee, with former Securities Appellate Tribunal presiding officer, C Achuthan as chairman. The Committee, which prepared the report in consultation with the various stakeholders, is believed to have recommended making suitable changes in the existing takeover regulations.

While any changes are expected to take effect from the next financial year only, the committee is said to have recommended increasing the open offer size from 20 per cent to as high as 100 per cent. Also, it might increase the open offer trigger limit from 15 per cent, sources said.

While an increase in open offer size could mean larger cash outgo for the acquirers, the step is being considered in the larger interest of retail and other public shareholders.

By the current practice, all the public shareholders do not necessarily get an exit option, even if the ownership of a company changes hands, as the open offer size need not be more than 20 per cent. In most M&As, the promoters sell their stake to the acquirer, which later makes a 20 per cent open offer for public shareholders.

Accordingly, an acquirer can get away with acquisition of just 35 per cent stake in a listed company — 15 per cent from promoters or open market and further 20 per cent from public open offer — thus leaving as much as 65 per cent equity holders without any option to sell their shares.

The acquisition of shares and control of a company are currently governed by the Sebi (Substantial Acquisition of Shares and Takeover) Regulations, 1997, commonly known as the Takeover Code.

Abolition of non-compete fee payment in M&As
Sebi may consider abolishing payment of non-compete fees, which are paid by acquirers to the target company’s promoters in lieu of a commitment for not entering the same business.

A high-level panel set up by Sebi to reform the Takeover Code is believed to have suggested that either the non-compete fee be totally done away with, or the beneficiaries of such payments be asked to share the fee with the non-promoter or public shareholders, sources said.

In M&As, a non-compete fee is paid by the acquirer to the promoters of the target company for not entering the same trade, and such payments could be as high as up to 25 per cent of the deal value. A final decision is expected soon.

IPO forms short, simple
Sebi is also considering making application forms simpler and shorter for public offers, including IPOs. Concerned over the lukewarm and ever-falling retail response to the primary market, Sebi is mulling over ways to win over small investors in this segment and one of the steps under consideration is a simpler investment process.

According to sources, the application forms currently being used for bidding in initial and follow-on public offers are unnecessarily long and ask the investors to fill in some details that can be done away with.To make the forms shorter and simpler, the committee is also considering dividing them into two parts — one comprising the particulars needed to be filled in and the other with the details of the issue.

Sources said a proposal is also underway to make it mandatory in all public offers to give the investors the option to bid online, possibly through the stock exchanges themselves, where the forms could be much simpler and shorter.

Sebi has already asked the bourses to make a simpler form available online for IPO bidding through the ASBA (Applications Supported by Blocked Amount) process. Under ASBA, bid money remains in the investor’s bank account during the bidding process and get released after share allotment.

However, not all investors are required to bid through ASBA. Besides, this facility is not available for all issues and with all banks. Some changes can be expected on this front also, as Sebi is looking to expand the ASBA service further.

The primary market used to be retail investors’ favourite investment avenue and an entry point for many of them till a few years ago, but their interest has been dwindling of late.

This was reflected even in the recent offers from some public-sector firms, which have traditionally enjoyed a sound and safe investment image among public investors.

Sources said the government has also been asking Sebi to revive public investors’ interest in primary market.