SEBI - Takeover

Code
Presented By:
Harkesh Bansal(05)
Deep Shikha(08)
Siddharth Iyer(10)
Jaimin Patwa(19)
Jharna Tinani(26)
February 19, 2016

Evolution of TOC

February 19, 2

Evolution...
Apr-2007
SEBI amended Code

Post - 1994

Oct - 2002
Few amendments
as per Bhagwati
Committees reco.
Feb - 1997
New Takeover Code
(Bhagwati
Committee)
Nov - 1994
SEBI Takeover
Code

Nov 1990
Clause 40(A) & 40(B)
of Listing Agreement

Pre
Pre --1990
1990
Clause
Clause 40
40 of
ofListing
Listing
Agreement
Agreement

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Pre - 1990

Modes of Restructuring Where does TOC fit in

Indian M&A

Amalgamations

Merger

Acquisitions

Asset
Purchase

De-merger

Slump
Sale

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Stock
Purchase
Itemized
Sale

The Takeover
Code, 1997

Objectives

Shareholders:
Equality of treatment
Adequate opportunity
Protection of interests

Acquirers:
Adequate disclosure
Disclosure to all
Disclosure within stipulated time limits

Managements:
Ensure flow of information
No unnecessary action during the offer period

AT THE SAME TIME:

Ensure full play to the predatory instincts of the corporate and business class
(i.e. facilitate legitimate takeovers)

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Securities and Exchange

Board of India
(Substantial Acquisition of
Shares and Takeovers)
Regulations, 1997

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Framework of the Code

Chapter 1

Preliminary, Definitions, exemptions and the takeover panel

Chapter 2

Disclosures of shareholding and control in a listed company

Chapter 3

Substantial Acquisition of shares and control

Chapter 4

Bail out takeovers

Chapter 5

Investigation and action by the Board

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Definitions

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Key Definitions...
Acquirer
Any person who, directly or indirectly, acquires or agrees to acquire
shares or voting rights in the target company, or acquires or agrees to
acquire control over the target company, either by himself or with any
person acting in concert with the acquirer
Shares
Means shares in the share capital of a company carrying voting rights and
includes any security which would entitle the holder to receive shares with
voting rights [but shall not include preference shares]
Control
Right to appoint majority of directors or Right to control management
decisions or Right to take policy decisions exercisable by PAC, directly or
indirectly, by virtue of their shareholding or management rights or SHA or
voting agreements or in any other manner

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Key Definitions...
Persons Acting in Concert (PAC)

PACs - persons who for a common objective of substantial acquisition of shares

or voting rights or gaining control over the target company, directly or indirectly
co-operate by acquiring or agreeing to acquire shares or voting rights in or
control over the target company.

Persons deemed to be PACs with other persons in the same category

a company, its holding or subsidiary company or a company under the same management and their
directors or persons responsible for management of funds

Mutual fund with sponsor or trustee or AMC

FIIs with sub account (s)

Merchant bankers with their clients as acquirers

VCFs with sponsors

Banks with financial advisors, stock brokers of acquirer, a company which is a holding / subsidiary or
relative of the acquirer

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Key Definitions...
Promoter shall include
Person/s

in control of the company

Named as promoters in any document of offer of securities

Deemed to be a promoter
Individual spouse, parents, brothers, sisters or children
Corporate:

subsidiary or holding company

any company in which it holds 26% or more of the equity capital
any other body corporate under the same management

A financial institution, scheduled commercial bank, FII or VCF shall not be deemed to
be a promoter by virtue of shareholding

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Key Definitions...
Offer period
Period between the date of entering into MOU or the PA, as the case may be
and the date of completion of offer formalities relating to the offer made
under these regulations

Public shareholding
Means shareholding held by persons other than promoters as defined

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Disclosures

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Disclosures
Periodical disclosures
Disclosures by acquirer to the company / stock exchange within 2 working
days

If holding crosses 5%, 10%, 14%, 54% or 74% limits

In case of acquisition under Regulation 11 (1) / (1A) on Purchase or sale

of 2% or more of the share capital

Company in turn to disclose to all stock exchanges within 7 days

Continual - Yearly Disclosures
Disclosure to be made within 21 days to the company by

Persons holding more than 15%

Promoter or every person having control over company

Company in turn to disclose to all stock exchanges within 30 days

SEBI has the power to call for this information as and when it requires

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Open Offers

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Trigger points.

Substantial acquisition

Acquisition upto 15% of shares or voting rights or control - No open offer

Beyond 15% - Open offer triggered

Consolidation of Holdings

15% to 55% - Open offer triggered for acquisition beyond 5% per year

55% to 75% - Open offer triggered on every acquisition

Beyond 75% - Delisting triggered

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Trigger Provisions Regarding Open Offers

Regulation 10

Regulation 11

Regulation 12

Substantial Acquisition of
Shares

Consolidation of
Holdings

Acquisition of Control

Open tender offer

needs to be made if the
Acquirer (along with
PAC) decides to
acquire, directly or
indirectly, more than
15% of shares
outstanding in Target
Once 15% stake has
been acquired in the
target, an open offer for
a minimum of 20% of
shares outstanding
must be made

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Open tender offer

needs to be made if:

Acquirer and PAC

hold >15% but < 55%
of the Voting Capital of
Target

Open tender offer needs to

be made if acquirer along
with PAC wants to acquire
control over Target

Offer needs to be made

irrespective of:

Want to exceed
creeping limit of 5%
within a financial year

Offer needs to be
made if acquirer
wants to exceed 55%
shareholding in Target

Whether or not any shares

have been acquired

Whether control is acquired

directly or indirectly

This regulation is not

applicable if change of control
is pursuant to a special
resolution

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Exemptions

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Exemptions from Open Offer

Reg. 3 Provides Exemptions from Reg. 10, Reg. 11 and Reg. 12

allotment to underwriter pursuant to any underwriting agreement;

acquisition of shares in ordinary course of business by;

Regd. Stock brokers on behalf of clients;

Regd. Market makers

Public financial institutions on their own account;

Banks & FIs as pledges;

Acquisition of shares by way of transmission on succession or by inheritance

Acquisition of shares in companies whose shares are not listed;

Acquisition pursuant to a scheme framed under section 18 of Sick Industrial Companies Act
(SICA) 1985

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Public Announcement

to disclose intention to acquire a minimum of 20% of the voting

capital of the target company

an Acquirer may also make an offer for less than 20% of shares of
target company in case the acquirer is already holding 75%

Acquirer is required to appoint a Merchant Banker registered with

SEBI before making a PA and is also required to make the PA within
four working days of the entering into an agreement to acquire
shares

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Public Announcement
The other disclosures in this announcement would inter alia include:

the offer price,

the number of shares to be acquired from the public,
the identity of the acquirer,
the purposes of acquisition,
the future plans of the acquirer, if any, regarding the target
company,
the change in control over the target company, if any
the procedure to be followed by acquirer in accepting
the shares
tendered by the shareholders and the period within which all the
formalities pertaining to the offer would be completed.

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Other key provisions

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Minimum Size of Offer

Minimum of 20% of the voting capital of the target company

Less than 20% where an acquirer has shareholding between 55% to

75%

Acquisition through MOU should ensure to maintain the minimum

specified public shareholding post open offer

An acquirer may make a conditional offer which may be less than 20%
of minimum offer size (S&P / Crisil)

Acquirer to deposit in the escrow account in cash a sum of 50% of the

consideration payable under the public offer

Cancel the MOU in case minimum acceptance condition is not met

Disclosure in the Public Announcement

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Minimum Public shareholding

Breach of minimum public shareholding limit specified in the Listing

Agreement:

Acquirer to make an offer to buy the remaining shares in accordance with

the Delisting guidelines

Acquire only such number of shares under the agreement or MOU to

maintain the minimum public shareholding

Acceptance on proportionate basis if number of shares offered by

the shareholders are more

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Timing of Open Offer

Direct acquisition or change in control - Within 4 working days of

Agreeing or deciding to acquire the shares/voting rights/change in

control

Execution of Shareholders agreement

Upon conversion or exercise of option Convertibles

Indirect acquisition or change in control - Within 3 months of

Consummation of acquisition or change in control or restructuring of the

parent or holding company

Submission of Letter of Offer to SEBI / Shareholders

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Minimum Offer Price

Frequently traded shares, highest of the following:

Negotiated price

Highest of average of weekly highs and low of the last 26 weeks or daily
highs and low of last 2 weeks

Highest price paid by the acquirer during the last 26 weeks

Infrequently traded shares in consultation with Merchant Banker ,

highest of the following:

Negotiated price

Highest price paid by the acquirer during the last 26 weeks

Return on net worth, BV of shares, EPS, PE multiple vis--vis industry

average

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Payment of Offer Price

Modes of payment

Offer price payable in

Cash; or

Shares (other than preference shares) of acquirer listed company; or

Secured instruments of acquirer company with a minimum A Grade from a

credit rating agency; or

Combination of the above

Discharge of consideration

Transfer of cash consideration to a special account within 7 days from

closure of the offer

Issue of shares / secured instruments

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Timelines
MOU
Within 4
days
DATE OF PUBLIC ANNOUNCEMENT
Within
14 days
Filing of
Letter of
Offer with
the SEBI

Within
45 days
Offer to reach
the
shareholders

Within
55 days

Within
7 days

SEBI may permit

extension on
payment of
interest for delay

Offer to
open

Within 20 days

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Within
15 days of
Offer
Closure

Offer to
close

Open a
Special A/c
for Payment

Dispatch
consideration to
shareholders

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Examples

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Example Group
F co1

Public,FIs etc

100%

51%

F co2

Indian
listed co

49%

Acquisition of more than 15% stake in

a listed company
Exemption under Regulation 3(1)(e)
Inter se transfer amongst the Group
Group as per the MRTP Act
Disclosure as Group in the last published
annual report

F co2, wholly owned subsidiary of F

co1, hence should constitute as Group
Transfer of 51%
stake in Indian listed
co to F co2

Would the transfer trigger open offer ??

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ExampleNon Compete Fee

FACTS:

X Ltd proposes to acquire a 35% stake in Y Ltd.

15% stake is proposed to be acquired from Mr. A, the promoter

X Ltd will also pay a non compete fee as under:

Rs. 150 per share to Mr. A
Rs. 50 per share to Y Ltd. (target company)

Minimum offer price as per the Takeover Code is determined at Rs. 500 per share

ISSUE:

What consideration per share would flow from X Ltd to:

Mr. A, the promoter
Mr. B, an ordinary shareholder who tenders his shares

CALCULATION:
Non compete fees paid to person(s) other than the Target Company

Rs.150

25% of the minimum offer price

(25% of 500)

Rs.125

Amount to be added to the offer price

(150 125)

Rs. 25

Revised Offer Price

(500 + 25)

Rs.525

Consideration per share that would flow to Mr. A

Consideration per share that would flow to Mr. B

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(500 + 150)

Rs.650
Rs.525

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Example Acquisition of convertibles

Domestic currency convertibles
(debentures, warrants etc.)

ADRs / GDRs / FCCBs

X Ltd.

A co
Outside India

Mr. B

India

What should A co and B do to ensure compliance with the Takeover Code? When
should these steps be taken?
Both A co and Mr. B will be required to make relevant disclosures.
Calculation to be based on the expanded capital presuming full conversion into shares.
Such disclosure shall be made at the time of conversion of such instruments into
shares carrying voting rights
Regulations 10, 11 & 12 applicable only at the time of conversion
into shares carrying voting rights

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Thank you

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