Open Offers Must Be For A Minimum Of 20 Per Cent

The Securities & Exchange Board of India (Sebi) is set to make it clear that acquirers must make a minimum open offer for 20 per cent of the target companys equity in all cases. Sebi is seeking to harmonise various aspects of the takeover code in this regard.

The move is a direct fall-out of Sterlite conditional open offer for 10 per cent in Indal. After initially making an offer for 10 per cent, Sterlite agreed to up the minimum offer to 20 per cent following discussions with Sebi. Sterlites initial offer had given rise to heated debate and looked attractive to potential takeover sharks.

 

Sources said Sterlite could have appealed to the finance ministry if Sebi insisted on a 20 per cent open offer, but it raised the offer on being asked by Sebi. However, the controversy has exposed a lack of clarity in certain aspects of the takeover code.

It could be clarified that a minimum offer has to be for 20 per cent. A harmonious interpretation of the takeover code requires that a 20 per cent minimum open offer has to be made, sources said.

Following its discussions with Sebi, Sterlite was told to make a minimum offer of 20 per cent but was allowed to retain the 10 per cent acceptance clause since the company had arranged to deposit 50 per cent of the offer amount in cash. This means Sterlite is free not to accept responses to its offer, if they total less than 10 per cent of Indals equity.

Sources said apart from the 20 per cent clause, there were some other points which were spread over two or three places in the regulations. These points become clear only after reading various clauses of the code together. What may be done by Sebi in certain cases is to bring these parts together at one place in the regulations so that there is greater clarity, sources associated with the drafting of the new takeover code told Business Standard.

They made it clear that a review of regulations would not make any conceptual changes to the recommendations of the P N Bhagwati panel, which formed the basis of the new regulations. What will only be done is to reinforce the Bhagwati Committee recommendations and make them clear, the sources said.