Indian takeover regulations up for overhaul

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The Takeover Regulations Advisory Committee (TRAC) constituted by the Securities and Exchange Board of India (SEBI) to review the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, (Takeover Code) submitted its report to SEBI on 19 July. Inspired by various court decisions in India, rulings of the Securities Appellate Tribunal and international best practices, and motivated by the objective to provide equitable treatment to all public shareholders, TRAC has proposed a new set of regulations that appear to balance the interests of all stakeholders. TRAC’s recommendations now await SEBI’s review and approval.

Organisation_chartTRAC has proposed to increase the initial trigger threshold under the Takeover Code from 15% voting rights in the target company to 25%. The minimum open offer size has been increased from 20% to 100% of the shares of the target company. Further, TRAC’s proposals have modified how the open offer price will be calculated. TRAC has also introduced the concept of deemed direct acquisition. The processes of voluntary open offer and competing offers have been streamlined for the convenience of all stakeholders.

The new recommendations hold several implications for promoters, public shareholders, strategic acquirers, private equity investors and target companies.

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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.

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