New Takeover Regulation

Transcription

1 New Takeover Regulation Presentation by CA Dara J. Kalyaniwala October 15, 2011 Prabhudas Lilladher Group 1

2 New Takeover Regulation FLOW OF PRESENTATION 1. EVOLUTION OF THE TAKEOVER REGULATIONS 2. PRESENT: SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS, 2011 Prabhudas Lilladher Group 2

3 EVOLUTION OF THE TAKEOVER REGULATIONS Prabhudas Lilladher Group 3

4 Evolution of the Takeover Regulations SP The SEBI (Substantial Acquisition of Shares and Takeover) Regulations 1994 came in for a fair amount of criticism due to the various loopholes which surfaced. Trigger point 10% Takeover of AEC The Torrent group made an open offer to acquire 20% in Ahmedabad Electricity Company ("AEC") at Rs. 65 per share. This was followed by Bombay Dyeing's offer to acquire a majority stake in AEC at a price of Rs. 90 per share on an all or none basis. Prabhudas Lilladher Group 4

5 Evolution of the Takeover Regulations (Contd) SEBI rejected Bombay Dyeing's open offer as the bid was not made within the 14 day period following the PA by Torrent. Torrent raised its offer price to Rs. 132 per share, but shareholders failed to respond in anticipation of a new bid by Bombay Dyeing. The Torrent offer flopped receiving only about 1% response. Prabhudas Lilladher Group 5

6 Evolution of the Takeover Regulations (Contd) Bombay Dyeing did not follow up with a revised bid as it felt that the revised price of Rs. 132 was too high. AEC scrip flared up from Rs. 70 to a high of Rs. 170 in just a couple of months. Takeover of Damania Airways Failed due to SEBI forcing Acquirers to enhance price. Prabhudas Lilladher Group 6

7 Evolution of the Takeover Regulations (Contd) The Khemkas of the NEPC group, after acquiring management control in Damania Airways made an open offer to acquire 20% in the company at Rs per share. The ruling price was then Rs SEBI pressure forced Khemkas to revise price of open offer to Rs NEPC group unable to make payments to all the shareholders. Prabhudas Lilladher Group 7

8 Evolution of the Takeover Regulations (Contd) Justice P N Bhagwati Committee. SEBI (SAST) Regulations, C Achuthan Committee. SEBI (SAST) Regulations, Prabhudas Lilladher Group 8

9 SEBI (SAST) REGULATIONS, 2011 Prabhudas Lilladher Group 9

10 SEBI (SAST) Regulations, Changes in some important definitions. Trigger Points. Open offer size. Open offer price. Process & timelines in an Open Offer. Conditional Offer. Competitive offer. New Obligations of various participants. Prabhudas Lilladher Group 10

11 CHANGES IN SOME IMPORTANT DEFINITIONS Prabhudas Lilladher Group 11

12 Changes in Definitions Control includes a) the right to appoint majority of the directors or b) To control the management or policy decisions exercisable by a person acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. New Code has dropped an important exemption of joint control turning to single control. Enterprise Value = (Market cap+ Debt+ Minority Interest + Pref Shares) cash & cash equivalents Prabhudas Lilladher Group 12

13 Changes in Definitions (contd) shares means shares in the equity share capital of a TC carrying voting rights including all depository receipts carrying an entitlement to exercise voting rights. offer period means period between date of agreement for acquiring shares/control or date of PA AND date of payment to shareholders who offered their shares or withdrawal of offer. tendering period means the period within which shareholders may tender their shares in acceptance of an open offer. Prabhudas Lilladher Group 13

14 TRIGGER POINTS Prabhudas Lilladher Group 14

15 Trigger Points Reg 3(1) Acquisition of shares = or > 25% (15%) Reg 3(2) Creeping Acquisition: For persons holding between 25% and max permissible non-public shareholding (MPNPu): 5% in a FY, provided that such acquirer shall not be entitled to acquire shares exceeding such no. as would take aggregate shareholding above MPNPu shareholding. Gross acquisitions to be taken into account. in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the postallotment percentage voting rights shall be regarded as the quantum of additional acquisition (?). Prabhudas Lilladher Group 15

16 Trigger Points( Contd) Reg 3(3) Acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert. Reg 4: Acquisition of Control: Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly.control. Exemption of shareholders passing Special Resolution is withdrawn. Prabhudas Lilladher Group 16

17 Trigger Points( Contd) Reg 5 Indirect Acquisition of shares or control In the case of an indirect acquisition where, (a) the proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or business being acquired; (b) the proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or business being acquired; or (c) the proportionate market capitalisation of the target company as a percentage of the enterprise value for the entity or business being acquired(?); Prabhudas Lilladher Group 17

18 Trigger Points( Contd) Reg 5 Indirect Acquisition of shares or control (Contd) is in excess of 80%, on the basis of the most recent audited annual financial statements, such indirect acquisition shall be regarded as a direct acquisition of the target company for all purposes of these regulations including without limitation, the obligations relating to timing, pricing and other compliance requirements for the open offer. Prabhudas Lilladher Group 18

19 Trigger Points( Contd) Reg 6 Voluntary Offer An Acquirer holding >/=25% but less than MPNPu shareholding can make a Voluntary Open Offer for 10% or more shares if Acquirer or PAC has not acquired any shares in preceding 52weeks without attracting Takeover Code. Such an acquirer cannot acquire shares for 6 months after completing the Open Offer, except pursuant to another Open Offer Prabhudas Lilladher Group 19

20 OPEN OFFER SIZE Prabhudas Lilladher Group 20

21 Open Offer Size Reg 7(1): Offer Size for offers under Reg 3 & 4 : 26% (20%) of total shares of TC as at end of 10 th WD (15 days) from closure of tendering period. Reg 7 (2): Offer size in case of Voluntary Open Offer to be 10%. Reg 7(4): If shareholding of Acquirer after Open Offer crosses MPNPu shareholding, Acquirer to bring down holding to level specified in SCRR 1957 Prabhudas Lilladher Group 21

22 Open Offer Size (Contd) Reg 7(5): Where Acquirer s shareholding crosses MPNPu Shareholding after open offer, such Acquirer cannot seek delisting for 12 months after completion of offer period. Prabhudas Lilladher Group 22

23 OPEN OFFER PRICE Prabhudas Lilladher Group 23

24 Open Offer Price Reg 8(2): For all offers other than Indirect acq where TC does not fulfill the 80% criteria, the offer price will be the highest of the following: Highest Negotiated price per share Volume weighted average price paid by Acquirer or PAC in 52 weeks immediately preceding PA. Highest price paid by Acquirer or PAC during 26 weeks immediately preceding PA. Volume weighted average market price for 60 trading days immediately preceding PA (if frequently traded). Price determined by Acquirer and manager for infrequently traded shares. Per share value computed in Reg 8(5), if applicable If Acquirer or PAC holds convertibles at a specific price, such specific price - Reg 8(6) Prabhudas Lilladher Group 24

25 Open Offer Price (Contd) Reg 8(3): For Indirect acquisition where TC does not fulfill the 80% criteria, the offer price will be the highest of the following: Highest Negotiated price. Volume weighted average price paid by Acquirer or PAC in 52 weeks immediately preceding Primary Acquisition announced or contracted whichever is earlier. Highest price paid by Acquirer or PAC during 26 weeks immediately preceding Primary Acquisition announced or contracted, whichever is earlier. Highest price paid by Acquirer or PAC during earlier of Primary Acquisition announced or contracted and the date of PA as per SEBI SAST Reg Prabhudas Lilladher Group 25

26 Open Offer Price (Contd) Volume weighted average market price for 60 trading days immediately preceding Primary Acquisition announced or contracted whichever is earlier (if frequently traded). Per share value computed in Reg 8(5), if applicable If Acquirer or PAC holds convertibles at a specific price, such specific price -Reg 8(6) Reg 8(4): If for any reason the offer price is incapable of being determined under any of the above parameters, offer price shall be the fair price to be determined by the Acquirer and MB Prabhudas Lilladher Group 26

27 Open Offer Price (Contd) Reg 8(5): For Indirect acquisition and where the 80% criteria is met: If the proportionate NAV or proportionate Sales turnover or proportionate market cap of the TC exceeds 15% of the consolidated NAV or consolidated Sales turnover or consolidated market cap of the entity/ business being acquired, then the Acquirer is required to compute and disclose the per share value of the TC taken into account for the acquisition with detailed methodology adopted for such computation. Prabhudas Lilladher Group 27

28 Open Offer Price (Contd) Reg 8(7): Offer price shall include price paid for the control, in any form whether stated in the agreement or not (removed provision of noncompete fee available in SAST 97) Reg 8(9): Price parameters in Reg 8(2) and (3) can be adjusted for corporate actions like rights/ bonus de-mergers etc if corp action falls 3 WD s before opening of offer. Reg 8(14): For DVR shares, price to be determined by acquirer and MB. Price not to be lower than price arrived by applying premium paid in offer price for ES over Volume weighted average market price Prabhudas Lilladher Group 28

29 PROCESS & TIMELINES IN AN OPEN OFFER Prabhudas Lilladher Group 29

30 Process and Timelines in an Open Offer Make a PA Public Announcement Acquirer to arrange for Escrow Publish Detailed Public Statement File DLOF with SEBI SEBI to give comments MB to dispatch LOF Last date for Acquirer to make upward revisions Same day as Trigger event. (Zero date) 2 WD before DPS Within 5 WD of PA Within 5 WD of DPS Within 15 WD of DLOF Within 7 WD of SEBI comments 3WD before Tender period opens Prabhudas Lilladher Group 30

31 Process and Timelines in an Open Offer (Contd) Last date for Acquirer to make upward revisions MB to issue stat ad giving tender details Tender period opens Tender period closes Payment by acquirer MB to issue post offer adv 3 WD before tender period opens 1 WD before tender period opens Within 12 WD s of SEBI s comments. 10 WD s after opening. Within 10 WD s of closure. Within 5 WD s of date of payment Prabhudas Lilladher Group 31

32 Open Offer Process Make a PA Public Announcement Reg 13(2): Previously within 4 WD AFTER trigger event. Now, BEFORE or SAME day as trigger event. Reg 13(2)(g) says PA on date of PASSING special resolution u/s 81(1A). Appears problematic (What if allottee does not subscribe?) Reg 13(4) now introduces detailed public statement to be published within 5 WD s of PA. Explanation in Reg 13(4) says clarified.. but it is confusing. Prabhudas Lilladher Group 32

33 Open Offer Process Public Announcement Reg 13(2): Previously within 4 WD AFTER trigger event. Now, BEFORE or SAME day as trigger event. Reg 13(2)(g) says PA on date of PASSING special resolution u/s 81(1A). Appears problematic (What if allottee does not subscribe?) Reg 13(4) now introduces detailed public statement to be published within 5 WD s of PA. Explanation in Reg 13(4) says clarified.. but it is confusing. Prabhudas Lilladher Group 33

34 Open Offer Process (Contd) As per Reg 14(1) the PA has to be merely sent to SE s, SEBI and TC, NOT REQUIRED TO BE PUBLISHED IN NEWSPAPERS. The DPS has to be Published in same manner as PA in SAST Reg 15: Contents of PA and DPS to be specified. Basic info stated in Regs. Reg 16: File DLOF with SEBI, within 5 WD of DPS. Reg 18(1), file with TC & SE s also. Prabhudas Lilladher Group 34

35 Open Offer Process (Contd) Reg 16(3): SEBI shall display the PA, DPS and DLOF on its website. Reg 16(4): SEBI shall give its comments within 15 WD s of receipt of DLOF. Reg 17: Escrow: At least 2 WD before DPS, the escrow will be created. 25% of first Rs 500 cr offer size and 10% of Balance. Other terms of escrow same as in SAST LOF to be sent within 7 WD s from SEBI comment Prabhudas Lilladher Group 35

36 Open Offer Process (Contd) Reg 18(3): Acquirer can make upward revisions anytime till start of 3 WD s before start of tendering period. Reg 18(6): Acquirer to disclose details of shares acquired by Acquirer or PAC during offer period, within 24 hours of any acquisition. Not allowed to acquire shares during period between 3 WD s before start of tendering period & closure of tendering period. Reg 18(7):Issue Advertisement 1 WD before start of tendering period Prabhudas Lilladher Group 36

37 Open Offer Process (Contd) Reg 18(8): Tendering period to start within 12 WD from receipt of SEBI s comments and to remain open for 10 WD s. Reg 18(9): Shareholders cannot withdraw after tendering. Reg 18(10): Acquirer to pay within 10 WD s. Reg 18(12): Issue post offer Advt within 5 WD s of payment & send to SEBI, TC and SE s. Prabhudas Lilladher Group 37

38 CONDITIONAL OFFER Prabhudas Lilladher Group 38

39 Conditional Offer Reg 19: Offers can be conditional as to the MINIMUM level of acceptance. Three requirements stipulated. 1. If Offer is pursuant to an agreement, the agreement should contain a rescinding clause. 2. Acquirer & PAC s will not acquire shares during offer period. 3. Acquirer & PAC s will not be entitled to be appointed on the Board of the TC during the offer period [Reg 24(2)] Prabhudas Lilladher Group 39

40 COMPETITIVE OFFER Prabhudas Lilladher Group 40

41 Competitive Offer Reg 20: Within 15 WD s of DPS. Competitive offer shall be for such number of shares which will make second acquirer's stake equal to the first acquirer s holding+ Offer size. If first offer is not a conditional offer, the competitive offer cannot be conditional. Schedule of activities & tendering period for all competing offers shall be identical and the tender closing date for all shall be the same. Price revisions can be made only upto 3 WD s before tender opening date. Prabhudas Lilladher Group 41

42 NEW OBLIGATION OF VARIOUS PARTICIPANTS Prabhudas Lilladher Group 42

43 New Obligation of various participants Reg 24(3): During pendency of Competing offers, no new Director can be appointed on the Board of the TC. Reg 25(4): The Acquirer and PAC s shall not sell any shares of the TC during the Offer period. Reg 26(6) & (7): Upon the Board of TC receiving the DPS, they shall form a committee of INDEPENDENT directors to provide reasoned recommendations on the offer which shall be published at least 2 WD before start of tendering period and shall also be sent to all shareholders of the TC, SEBI, SE s and MB Prabhudas Lilladher Group 43

44 RECAP & IMPACT Prabhudas Lilladher Group 44

45 Recap & Impact Trigger limit increased to 25%. More PIPE deals, promoters holding < 20% in problem. Offer size enhanced to 26% from 20%, more public shareholders to benefit. Non compete fee concept deleted. Minority shareholders will get fair price. Creeping acquisitions for promoters allowed till 75%. Indirect Acquisitions. Good pricing structure introduced. Global transactions involving Indian subsidiaries may yield fair price to Indian shareholders. Offer period reduced, hence sellers to get money fast. Clarity on delisting only after 12 months. Mandatory for Board of TC to give recommendations. Prabhudas Lilladher Group 45

46 Thank You CA Dara J. Kalyaniwala ID: Prabhudas Lilladher Group 46