'Managements Need Defence Against Takeovers'

This was felt by a section of the business community including some members of the Confederation of Indian Industry (CII) who are going to present a paper on the recently-announced draft takeover code by the Securities and Exchange Board of India (Sebi) today. The other suggestions made by the representatives include allowing buyback of shares by companies, as also allowing access to loan in both foreign and local currencies.

One of the options could be that the foreign institutional investors (FII) may be permitted to lend to investment companies against collateral security of shares and such funding be permitted in foreign currency and the exchange risk borne by the promoter. It is also suggested that the acquirer should accept the offer from all the shareholders rather than on proportional basis.

 

Takeover should be encouraged in companies which are underperforming or sick or may become sick, since it is likely that the acquirer might possess better managerial and technical skills to turn around the company and create wealth for all stake holders including shareholders.

According to Rohit Chanana, treasurer, Hero Corporate Services of the Hero Group, there is ambiguity on various points in the draft code. For instance, he said, it is unclear whether the acquirer would have to make a public announcement in case he picks up voting rights in excess of 10 per cent through renunciation of rights by existing management that results in change in control of the company.

The other points and queries that have been raised in the paper regarding the suggestions made in the draft takeover code are:

nAs regards the point on exemption of inter se transfers between Indian promoters and foreign collaborators and those between promoters, provided the transferor and transferee hold not less than five per cent shares in the company for a period of three years prior to proposed acquisition;

Whether takeover code would be applicable in case of shares of holding company/companies having control over the target company being sold off resulting in a change in the control of holding company, thereby resulting in a change of control in target company in the following circumstances: holding /controlling company is an Indian company; it is a foreign company.

In cases where a person acquires stake less than 10 per cent, however, he is able to acquire control over the target company with the support of existing shareholders or institutions or both, whether it would be obligatory on the part of the acquirer to make an open offer.

And if yes, what happens in case the acquirer does not have requisite finance to make such offer, whether he would have to relinquish control in favour of the existing management.

Whether there is a legal recourse available to the existing management with a proven track record of maximising returns to stockholders including shareholders to stall the takeover.

Whether it is mandatory on the part of acquirer to accept offers received even if this may not result in change in control.