Corporates Jittery Over Takeover Code

The new takeover code drafted by the Bhagwati committee has cast a chill over corporate India even as the Securities and Exchange Board of India (Sebi) prepares to submit it to the government for notification in the official gazette.

Industrialists said they were feeling threatened by prospects of hostile takeovers and expressed fear of existing managements being usurped by foreign predators since the code does not provide adequate safeguards to ward off such threats.

The three apex industry chambers the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industries (Ficci) and the Associated Chambers of Commerce and Industry (Assocham) have voiced urgency for a defence mechanism against hostile takeovers to be put in place before the code comes into force.

 

The CII and Assocham have suggested that the recast Companies Act must be made operative before the takeover code. The industrialists have called for provisions like buy-back of shares, non-voting or preferential voting shares, lifting of curbs on inter-corporate loans besides raising the creeping acquisition limit for promoters from the proposed annual rate of 2 per cent.

Rahul Bajaj, chairman, Bajaj Auto, said: India has still not reached a stage where one should unnecessarily destabilise an efficient management. That does not mean that every management can continue to be in their seats without fear of a takeover. But the takeover code must become operational after the new Companies Act comes into force, presuming that it would contain provision for buy-back, non-voting shares and changes in Sections 370 and 372 of the current Act. This will give the present management some safety and the right balance for safeguards and takeover threat.

Lalit Mohan Thapar, chairman and managing director, Ballarpur Industries Ltd, said the takeover issue was a key concern for the Indian industry, and for his own group. He said if he had excess cash, he would rather buy back shares and consolidate his stake in his group companies rather than expand his business. Thapar added that the government must allow share buy-back and relax the norms for external commercial borrowings.