PRESENTATION ON TAKEOVERS

TAKEOVERS : 

TAKEOVERS OF LISTED COMPANIES

CONTENTS : 

CONTENTS Overview of Takeover Regulations Salient Definitions Types of Takeovers SUBSTANTIAL ACQUISITION- Disclosure Requirements under Regulations. SUBSTANTIAL ACQUISITION- Public Announcements and its contents under the Regulations

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Some other Important Provisions: Specified Date Offer Price Minimum Number of Shares to be acquired Letter of Offer Escrow Account Payment Consideration Obligations of the Acquirer Activity Chart for Acquirer Obligations of the Merchant Banker

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Some other Important Provisions: Competitive Bids Upward Revision of Offer Withdrawal of Offer Exemptions from Open Offers Directions / Penalties-For Violation of Takeover Code Decided Case Laws

OVERVIEW OF TAKEOVER REGULATIONS : 

OVERVIEW OF TAKEOVER REGULATIONS MEANING OF TAKEOVER: “Takeover” is a transaction whereby a person acquires control over the company either: directly by becoming the owner of the Company; or in directly by obtaining control of the management of the company. “Take Over” – taking over the control of management “Substantial acquisition of shares or voting Rights”- acquiring substantial quantity of shares or voting rights

GUIDING PRINCIPLES OF SEBI TAKEOVER REGULATIONS, 1997 : 

GUIDING PRINCIPLES OF SEBI TAKEOVER REGULATIONS, 1997 Fairness and Equality of Treatment & Opportunity. Transparency Protection of Shareholders’ interests Facilitating capital restructuring Ensuring a level playing field

IMPORTANT DEFINITIONS: : 

IMPORTANT DEFINITIONS: Acquirer” has been defined as any person who directly or indirectly acquires or agrees to acquire: shares or the voting rights in the target company; or control over the target company either by himself or with any person acting in concert with the acquirer

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”Promoter’ means - (a)   any person who is in control of the target company; (b)   any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later; and includes any person belonging to the promoter group “Target Company” means a listed company whose shares or voting rights or control is directly or indirectly acquired

TYPES OF TAKEOVERS: : 

TYPES OF TAKEOVERS: Takeover bids may be classified as under: 1) Hostile takeover 2) Friendly takeover 3) Bailout takeover Hostile Takeover: The method of trying to take the control of the company without the knowledge of the existing management is known as “hostile takeover”.

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Friendly takeover: Management of a company may face serious financial problems or threats of hostile takeover Unable to ward off the takeover attempt. A friendly corporate body or group of companies may come to the rescue by buying shares of the company in the open market and/or by pumping resources to help the management. Bailout Takeover: Taking over of the management of such weak companies for nurturing them back in normal activities by a company having expertise and resources is known as “Bailout takeover”

SUBSTANTIAL ACQUISITION- Disclosure Requirements under Regulations : 

SUBSTANTIAL ACQUISITION- Disclosure Requirements under Regulations Regulation 7: On crossing 5% or 10% or 14%, 54% and 74% inform Target Company and SE within 2 days. Persons holding between 15% & 55%, to disclose purchase or sales aggregating to 2% or more, within 2 days to target company and the stock exchanges. The company to inform SE within 7 days thereof Regulation 8: Continual Disclosures on yearly basis within 21 Days of the end of the Financial Year by persons having 15% or more promoters / persons in control of the company Company to inform Stock exchanges accordingly within 30 days of the end of the Financial Year.

SUBSTANTIAL ACQUISITION- Disclosure Requirements under Regulations : 

SUBSTANTIAL ACQUISITION- Disclosure Requirements under Regulations Regulation 8A: Disclosures of pledged or invoked shares within 7 working days from the date of creation of pledge od from the date of invocation of the pledge on shares by A promoter or every person forming part of the promoter group promoters / persons in control of the company Company to inform Stock exchanges accordingly within 7 working days of the end of the receipt thereof if, during any quarter ending March, June, September and December of any year: (a) aggregate number of pledged shares of a promoter or every person forming part of promoter group taken together with shares already pledged during that quarter by such promoter or persons exceeds twenty five thousand; or (b) aggregate of total pledged shares of the promoter or every person forming part of promoter group along with the shares already pledged during that quarter by such promoter or persons exceeds one per cent. of total shareholding or voting rights of the company, whichever is lower.”

SUBSTANTIAL ACQUISITION- Public Announcements under the Regulations : 

SUBSTANTIAL ACQUISITION- Public Announcements under the Regulations

PUBLIC ANOUNCEMENT: : 

PUBLIC ANOUNCEMENT: Public Announcement shall be made By the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights. exceeding the respective percentage specified therein. Public Announcement shall be made in: One English National daily One Hindi National daily One regional Language with wide Circulation at the Place where registered office of the Target Company is situated and at the Place of the Stock Exchange where the Shares of the target Company are most frequently traded

Contents of Public Announcement : 

Contents of Public Announcement Details of the Capital Structure of the target Company the total number and percentage of shares proposed to be acquired from the public the minimum offer price date and mode of payment of consideration the identity and the existing holding of the acquirer and of the merchant banker if any in the target company Object and purpose of the acquisition of the shares and future plans, if any, of the acquirer for the target company. an undertaking that the acquirer shall not sell, dispose of or otherwise encumber any substantial asset of the target company except with the prior approval of the shareholders the `specified date' the date of opening and closure of the offer details of various statutory approvals and other approvals of banks or financial institutions required if any.

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SPECIFIED DATE: ‘Specified date’ is the date to be specified in the Public Announcement for the purpose of determining the names of the shareholders to whom the letter of offer should be sent. Provided that such specified date shall not be later than the thirtieth day from the date of the public announcement.

OFFER PRICE: : 

OFFER PRICE: Minimum Offer Price : Frequently traded shares: Highest of: 1. Negotiated price 2. Price paid for any acquisitions during 26 weeks prior to the date of PA 3. Average of weekly high and low of closing prices during 26 weeks preceding the PA date 4. Average of daily high and low of prices during 2 weeks preceding the date of PA date For infrequently traded shares instead of point 3 and 4 above Return on net worth, book value, EPS, price earning multiple vis-à-vis industrial average etc. are to be considered

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MINIMUM NUMBER OF SHARES TO BE ACQUIRED: The public offer made by the acquirer to the shareholders of the target company shall be minimum 20 % of the voting capital of the company. LETTER OF OFFER: Within 14 days from the date of public announcement acquirer shall, through its merchant banker, file with the Board, the draft of the letter of offer The letter of offer shall be dispatched to the shareholders not earlier than 21 days from its submission to the Board

ESCROW ACCOUNT: : 

ESCROW ACCOUNT: (1) The acquirer shall deposit in an escrow account such escrow amount which shall be calculated in the following manner,— (a) For consideration payable under the public offer,— up to and including Rs. 100 crores — 25%; exceeding Rs. 100 crores — 25% up to Rs.100 crores and 10% thereafter. (b) For offers which are subject to a minimum level of acceptance, and the acquirer does not want to acquire a minimum of 20%, then 50% of the consideration payable under the public offer in cash shall be deposited in the escrow amount. (2) The escrow account shall consist of,— (a) cash deposited with a scheduled commercial bank; or (b) bank guarantee in favour of the merchant banker; or (c) deposit of acceptable securities with appropriate margin, with the merchant banker; or (d) cash, deposited with a scheduled commercial bank in case of clause (b) of sub-regulation (2) of this Regulation.

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(3) In case there is any upward revision of offer, consequent upon a competitive bid or otherwise, the value of the escrow account shall be increased to equal at least 10% of the consideration payable upon such revision. (4) Where the escrow account consist of bank guarantee or deposit of approved securities, the acquirer shall also deposit with the bank a sum of at least 1% of the total consideration payable, as and by way of security for fulfillment of the obligations under the Regulations by the acquirers.

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PAYMENT OF CONSIDERATION: The acquirer shall, within a period of 7 days from the date of closure of the offer, open a special account with a Bankers to an Issue registered with the Board and deposit therein, such sum as would, together with 90% of the amount lying in the escrow account, if any, make up the entire sum due and payable to the shareholders as consideration for acceptances received and accepted in terms of these Regulations.

OBLIGATIONS OF THE ACQUIRER: : 

OBLIGATIONS OF THE ACQUIRER: (1) Within 14 days of the PA, the acquirer shall send a copy of the draft letter of offer to the target company and to all the stock exchanges where the shares of the company are listed. (2) To sent letter of offer to all the shareholders, so as to reach them within 45 days from the date of PA. (3) The date of opening of the offer shall be not later than the fifty fifth (55th) day from the date of PA. (4) The offer to acquire shares from the shareholders shall remain open for a period of twenty (20th) days. (5) The shareholder shall have the option to withdraw acceptance tendered by him up to three (3rd) working days prior to the date of closure of the offer.

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(6) During the offer period, the acquirer or persons acting in concert with him shall not be entitled to be appointed on the board of directors of the target company (7) Within a period of 15 days from the date of the closure of the offer, make payment of consideration to the shareholders who have accepted the offer. (8) In the event of withdrawal of offer, the acquirer shall not make any offer for acquisition of shares of the target company for a period of six months from the date of public announcement of withdrawal of offer. (9)The acquirer shall not dispose of or otherwise encumbering the assets of the target company for a period of 2 years from the date of closure of the public offer unless he has stated his intention about the same in the PA.

OBLIGATIONS OF THE MERCHANT BANKER: : 

OBLIGATIONS OF THE MERCHANT BANKER: (1) To furnish to the Board a due diligence certificate which shall accompany the draft letter of offer. (2) To not to deal in the shares of the target company during the period commencing from the date of his appointment till the expiry of the fifteen (15) days from the date of closure of the offer. (3) Once the acquirer has fulfilled his Obligations, the merchant banker shall cause the bank with whom the escrow amount has been deposited to release the balance amount to the acquirers. (4) To send a final report to the Board within 45 days from the date of closure of the offer.

ACTIVITY CHART FOR THE ACQUIRER: : 

ACTIVITY CHART FOR THE ACQUIRER:

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COMPETITIVE BID: Within 21 days of PA of first offer Min. offer size shall be the post offer holding of the first offeror less the existing holding of the competitive bidder First offeror can revise the price & offer size within 14 days after competitive bid announced Date of closure of original and competitive 0ffers would be the same. UPWARD REVISION OF OFFER: Price & offer size can be revised upto 7 working days prior to closure of offer. WITHDRAWAL OF OFFER : Offer can be withdrawn only in the following circumstances: Refusal of statutory approval Death of sole acquirer As in the opinion of SEBI merits withdrawal.

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EXEMPTIONS-From Open Offers AUTOMATIC: Transmission or succession or inheritance Acquisition by Government companies Scheme of arrangement or reconstruction under any law Acquisition in un-listed companies Non converted GDRs/ADRs Acquisition by banks & public FIs as pledgees Transfer from State level FIs to co-promoters pursuant to agreement Acquisition of shares by FIs/broker in ordinary course of business

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EXEMPTIONS-From Open Offers CONDITIONAL: Acquisition in Public/Rights issue Inter-se Transfer amongst Group companies, Relatives, Promoters, Acquirers and PACs Requirements w.r.t above: Pre acquisition, acquirers are required to inform SE four days in advance. Post acquisition, the acquirers are required to file a report with SEBI.

DECIDED CASE LAWS: : 

DECIDED CASE LAWS: In Milan Mahendra Securities Pvt. Ltd. vs. SEBI it was held that Shares acquired by way of security for advances given to the clients cannot be termed as acquisition within the meaning of the Regulations and there is no violation of Regulation 7(1). In the case of ORG Informatics Ltd. v SEBI, it was recommended by Takeover Panel that it appears that the financial position of the target company is weak and it is not in a position to repay the loan amount to the acquirer, the conversion of loan along with interest payable to the acquirer into equity would not result into change in control or management of the target company since the objective appears to revive the potential sick company. In Hindustan Steel Ltd v State of Orissa it was held by the Hon'ble Supreme Court that penalty is not leviable for an omission or commission not done willfully.