10% Stake Mopup By Managements May Be Allowed

This has been done to allow existing management a strong defence mechanism against corporate raiders.

However, in the interest of transparency, the acquisition can be made after public intimation.

The committee met yesterday to consider several suggestions on the draft code which was made public on August 28.

The revised draft had already provided for creeping acquisition at the rates of 2 per cent for existing holding more than 10 per cent but less than 25 per cent and 5 per cent for holding between 25 to 50 per cent.

But managements have now been allowed to consolidate at the rate of 10 per cent.

 

It decided to retain the 10 per cent escrow deposit level, but broadened the acceptability by including, apart from cash and bank guarantees, shares of blue-chips with suitable margins according to the satisfaction of merchant banker.

Debentures, bonds, certificate of deposits have also been allowed, in short: easily realisable securities.

The panel has also broadened the ways in which the offer can be made and allowed A rated debentures to be offered as part of the open offer.

This would include not only debentures of the acquirer company, but also other debentures the acquirer company may hold in its portfolio. Government paper and units have also been allowed to be offered in exchange for the target

company shares. "This has been facilitated because an offeror may not have only cash readily

available at the time of making the offer", a panel member said. This can also serve as a sweetener.

For example, an offeror may not want to sell his units and realise the cash to make payment in the offer, but if he is allowed to offer the units themselves then the shareholder may offload the units and realise the money.

If the offer is a mix of cash and shares, the option has to be given to the investor to decide which way he would like to participate in the offer.

Besides, the panel has suggested that if the acquirer has paid cash in exchange of the shares of the target company during the last 12 months before the offer, then the cash option has to be mandatorily made to the target company shareholders in the open offer.

The Indian corporate sector has been worried over the past month about the possible repercussions of the takeover code since it is generally believed that foreign corporate raiders would have an edge over Indian targets by way of the new regulation.

The consolidation of 10 per cent allowed by the panel attempts to provide an equal footing against the foreigners who may have more financial muscle. The panel after deliberation chose not to make changes in the other areas of the minimum public offer, conditional bid and minimum retention level or even the limiting of takeover mandates to category I merchant banker.

Several suggestions had been made for an increase in the escrow deposit level from 10 per cent to about 25 per cent to avoid frivolous bids.