Escrow Rule Relaxed For Big Takeovers

The Sebi-appointed P N Bhagwati committee on takeovers has set a Rs 100 crore threshold that will serve as a benchmark to determine how much an offeror will have to deposit in the escrow account.

The committee has decided that if the total offer amount an acquirer has to pay out as a result of the open offer is over Rs 100 crore, then he will have to deposit only 10 per cent of the amount in the escrow account. If, however, the total offer amount is less than Rs 100 crore, the deposit required would be higher: 25 per cent of the total.

This major decision of the panel takes care of two aspects. The offeror would not be required to pay too high a deposit if he wants to take over a large company, where the offer amount is large. On the other hand, the fears of the smaller companies, who expect to be stalked by a pack of predators if the deposit figure is small, have also been addressed since the deposit is higher for the smaller companies, to put some pressure on the acquirer.

The panel has now finalised its much-awaited final report and will submit it shortly to Sebi chairman D R Mehta. Thereafter, the report will be adopted by the full Sebi board and then notified in the official gazette. The draft report, which was released on August 28 last year, was supposed to have been converted into a final one and then notified before the end of 1996, but the entire procedure was delayed owing to several reasons. The finance ministry had also expressed made certain observations on the provisions in the draft code which had to be accommodated.

Sources said the panel had also decided that rights offers where shareholder picks up shares in excess of his entitlements would be covered by the code. Upto the extent of the entitlement, the code would not be triggered off.

The creeping acquisitions clause has been accepted by the committee in its new version after some rounds of discussions. It has now been decided that creeping acquisitions can be permitted to the extent of 2 per cent every year, without the necessity of making an open offer. For existing managements, the committee has decided that they can consolidate their holding in a manner that if they exceed the 2 per cent creeping acquisition limit, they would make an open offer, but only for 10 per cent, in a 12-month period.

The essence of the code, the sources said, is that it would cover all aspects of secondary market transactions and exempt the primary market from its purview. Towards that end, it has also taken the preferential allotments, in all its dimensions, off the hook.