Sterlite May Have To Make Further 20% Open Offer

In what could change the complexion of the entire Sterlite offer for the 10 per cent stake in aluminium major Indian Alumium Co (Indal), a further 20 per cent open offer for Indal shares may have to be made if Sterlite's offer meets with the 10 per cent response it has sought.

The Sterlite minimum conditional offer of 10 per cent Indal shares will also go through the necessary regulatory clearances only if the company deposits 50 per cent of the offer amount upfront in cash in an escrow account.

According to highly placed sources associated with the framing of the Sebi (Substantial Acquisitions and Takeovers) Regulations, 1997, the offeror company, Sterlite, would be expected to comply with the provisions of the regulations, which require a minimum 20 per cent open offer to be made once the 'trigger point' of 10 per cent equity is touched by an acquirer.

In Sterlite's case, the issue is made extremely interesting since the cables company, which is seeking to acquire a 10 per cent stake in Indal through the open offer, does not own a single share of Indal at the moment. This means once the open offer is over and if it gets the desired response of 10 per cent stake, the Sebi regulations on the matter would come into play and Sterlite would be expected to make a further 20 per cent minimum open offer.

"If Sterlite gets to 10 per cent, it would be expected to comply with the regulations. If, on the other hand, the response does not see Sterlite touch the trigger point, then the further 20 per cent offer is not necessary", sources said. This means that if the offer gets Sterlite only say 9 per cent, then this further 20 per cent clause would not apply.

In case the second open offer for another 20 per cent has to be made, Indal then has a situation where a substantial stakeholding may be acquired by Sterlite. That would change the entire situation for the aluminium company.

On another front, Sebi requires any minimum offer to be mandatorily of 20 per cent, conditional or otherwise. Sterlite has, however, planned a conditional offer seeking a minimum 10 per cent equity. This is now possible owing to some concessions made by Sebi before it finalised the takeover code last year. Sebi has allowed offerors the concession of not having to comply with the mandatory minimum 20 per cent acceptance clause if the offeror agrees to deposit 50 per cent of the offer amount in cash in an escrow account. If Sterlite does this, it is exempt from the minimum 20 per cent acceptance clause, and only then can it go ahead with the 10 per cent offer it has planned.

Sterlite has said in a statement that it "has made necessary escrow arrangements with its bankers for a minimum conditional offer...".

The concession on minimum acceptance was given to avoid a situation where a conditional bid fails to garner the targeted amount and yet the offeror is stuck with a substantial number of shares where no decisions can then be put through in the company owing to a standoff with the existing management of the target company.