Defending your turf

On 23 September the Securities and Exchange Board of India (SEBI) notified the new SEBI (Substantial Acquisition of Shares and Takeovers) Regulations. These regulations, – known as the takeover code – are effective from 23 October, ushering in the following key changes.

• The threshold for the initial open offer trigger has been increased from 15% to 25%.
• To ensure fair value for all shares tendered in an open offer, the minimum price payable has to be the highest of the following: (i) the negotiated price triggering the open offer; (ii) the volume-weighted average price paid by the acquirer in the preceding 52 weeks; (iii) the highest price paid by the acquirer during the preceding 26 weeks; or (iv) the market price based on volume-weighted average market prices in the preceding 60 trading days.
• Shareholders holding shares entitling them to exercise 25% or more of the voting rights in the target company may, without breaching minimum public shareholding requirements under the listing agreement, voluntarily make an open offer to consolidate their shareholding (minimum 10%).
• The minimum open offer size has been increased from 20% of the total issued capital to 26%.
• Provisions regarding non-compete fees have been scrapped, so that all shareholders are given an exit at the same price.
• In cases of competing offers, the successful bidder is allowed to acquire shares of other bidders after the offer period without attracting open offer obligations.
• The board of the target company is required to make a mandatory recommendation on the offer.
• An indirect acquisition of a company will be treated as a direct acquisition for all purposes if the indirectly acquired target company is a predominant part of the business or entity being acquired, comprising at least 80% of the target company’s assets or net sales or market capitalization.

Akil Hirani is the managing partner and head of the transactions practice at Majmudar & Co. The firm has offices in Mumbai, Bangalore, New Delhi, Hyderabad and Chennai.