Sebi Board Approves New Takeover Code

The board of the Securities and Exchange Board of India (Sebi) yesterday approved the takeover code prepared by the Justice P N Bhagwati committee with certain modifications.

In a statement issued yesterday after a meeting of its board, the market regulator said it was permitting acquirers who held more than 10 per cent but less than 51 per cent to make creeping acquisitions of two per cent of stock in any 12-month period.

Any purchase by a person holding more than 51 per cent will have to be made in a transparent manner, through a public tender offer. The rationale is that such a person (having a substantial acquisition) is an owner and thus cannot pull up shares through a pick and choose method, Sebi chairman D R Mehta told reporters after the meeting.

As reported in Business Standard yesterday, a crucial change in the code now is that the acquirer, including the existing management, should make a public offer to acquire a minimum of 20 per cent in case the conditions for mandatory public offer mentioned are attracted.

The mandatory public offer under the new takeover code will be triggered when the threshold of 10 per cent is crossed and when there is a change in control.

The government will now have to issue a notification in the official gazette after which it will come into force. After the finishing touches are given to the report, the code will be forwarded and the notification is likely to come through within the next 3-4 weeks, sources said.

The definition of `control proposed in the draft regulations would be suitably modified to make it more precise and comprehensive.

For the first time, the obligations of the board of the target company have been spelt out. In particular, during the offer period, the board of the target company is precluded from inducting into the board any person belonging to the acquirer or transfer shares in their name till after completion of all formalities relating to the offer.

Sebi will not be involved in the pricing of the offer, since this is essentially a market function. Pricing will be based on the parameters like the negotiated price, the average of the high and low prices over a 26-week period preceding the date of the public announcement, the highest price paid by the acquirer for any acquisition during the 26-week period before the date of the public announcement and the price for preferential offers, if any.

Conditional offers have now been allowed subject to either the minimum mandatory acceptance of 20 per cent with differential pricing, or with a deposit of 50 per cent of the value of the offer in cash in an escrow account (in cases where the bidder does not want to be saddled with the 20 per cent acquisition). This will check frivolous conditional offers, he said.

We will no longer remain passive on the boards of companies, said IDBI chairman SH Khan said while welcoming the new takeover code.