Fresh Look At Escrow Level, Minimum Offer

The issues to be reviewed include the 10 per cent level for escrow deposits, the minimum public offer of 20 per cent, the clauses associated with conditional bids and the dual rates for creeping acquisitions for consolidation of holdings. According to sources, Sebi has been flooded with feedback on the draft code from several quarters and a comprehensive review is in the offing based on the response.

A majority of those who have responded, both directly to Sebi and through the media, have felt that the escrow deposit level of a flat 10 per cent is too low, and throws companies open for takeovers simply by the parties depositing a small percentage. For smaller companies in particular, the level is seen to be too low, making them more vulnerable. An increase of the deposit level may, therefore, be one of the aspects the committee may consider, sources said.

The other important issue is the clause specifying that even for conditional bids, whatever is received up to 20 per cent of the equity would have to be taken up by the offeror. This means, if a conditional bid is for, say, 51 per cent of the equity, and the offeror only receives 22 per cent, the additional 2 per cent may be refunded but the 20 per cent would have to be retained.

This clause has been found to be absurd by most players, and could create enormous management problems. For instance, an existing management may hold 40 per cent, and an offeror may bid for 51 per cent. If he gets only 20 per cent and is forced to retain it, there will be a perpetual standoff situation between the bidder and the existing management. This would make smooth running of the company impossible, sources point out. Market players have wondered how the committee could suggest this in the first place.