Background In July 2010, the Takeover Regulatory Advisory Committee ('the Committee') introduced the Takeover Regulations ('TRAC') to replace the extant Substantial Acquisition of Shares and Takeovers, Regulations 1997 ('TOC'). Most of the recommendations in the TRAC approved by SEBI in its meeting on July 28, 2011 The fine print of the NEW TOC was notified on September 23, 2011 The NEW TOC is effective from October 22, 2011 Any PA made prior to October 22, 2011 to fall under TOC Offer size 26% of total shares (as of 10 th working day from the closure of the tendering period) Offer to all shareholders of the target company, other than the acquirer, PAC and the parties to any underlying agreement including persons deemed to be acting in concert with such parties for the sale of shares of the target company Control Delisting pursuant to open offers Key definitions added/modified in NEW TOC Definition of PAC in old TOC retained Additionally following are deemed to be PAC Promoters and members of promoter group; Immediate relatives; A collective investment scheme and its collective investment management company, trustees and trustee company 'associate' now includes partnership firm TRAC recommendation not accepted Specifically disallows voluntary delisting pursuant to open offer Shareholding to be brought to 75% withint 12 months Permits voluntary delisting only after period of 12 months Equity share capital carrying voting rights and includes any security entitling the holder to exercise voting rights Depository receipts entitling to exercise voting rights Promoter: a. Definition - promoter is drawn from ICDR 2009, accordingly, he will be a person in control of the issuer. b. persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public. c. The person or persons named in the offer document as promoters. Acquisition 'Acquisition' is defined for the first time. Acquisition means, directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company Frequently traded Traded turnover in preceding twelve months is at least 10% of total shares
A Co. B Co-->If any of the conditions are satisfied, indirect acquisition of stake in ICo will deemed to be directacquisition I Co (Listed in India) a) Proportionate net asset value of ICo as a % of the consolidated net asset value of BCo> 80% OR b) Proportionate sales turnover of ICo as a % of consolidated sales turnover of BCo> 80% OR c) Proportionate market capitalization of ICo as a % of enterprise value of BCo> 80% While there are separate provisions for direct and indirect acquisitions, direct acquisitions merely structured to appear as indirect are treated as direct acquisitions for the purposes of the NEW TOC Non compete Under NEW TOC, the consideration paid, whether termed as 'control premium' or 'non-compete fees', or otherwise must be added to the negotiated price per share for the purpose of determining open offer pricing. All the shareholders now shall be given exit at the same price Where acquirer or PAC has outstanding convertible instruments convertible into shares of the target co. at a specific price, the price at which they are to be converted will be a parameter in pricing under 8(2) and 8 (3) 8(10) Where the acquirer or PAC acquires shares of the target co. during the period of 25 weeks after the tendering period at a price higher than the offer price, the difference between such acquisitionprice and offer price to be paid to all shareholders accepted in the open offer within 60 days from such acquisition. Proviso: The above will not apply to acquisitions underanother open offer or pursuant to delisting Regulation 2009 or open market purchase on the stock exchange in the ordinary course (not being bulk or block deal) on the shares oftarget company. Acquisitions under an agreement triggering open offer to be completed within 26 weeks from the expiry of offer period Regn 18(6) Acquirer or PAC shall not acquire or sell any shares of target co. during 3 days before and during tendering period (10 days) Regn 25(4) Acquirer or PAC shall not sell shares of target co. during the offer period. Existing TOC Provisions 15-55% <=5% 55-75% <=5% one time only New TOC 25-75% <=5% Express provision stating Gross acquisitions to be taken into account regardless of any intermittent fall in shareholding or voting rights
Where the target co. has made an issue of new shares in any given F.Y. the difference between pre-allotment and post-allotment percentage to be considered as the quantum of additional acquisition. Acquisition from PAC - Open offer triggered in case individual shareholding on acquisition breaches the threshold/creeping acquisitions although aggregate shareholding remains unchanged. Voluntary offer Eligibility Condition Restrictions Acquirer along with PAC should be holding at least 25% or more shares in the target company Acquirer or PAC has not acquired any shares of the target company in the preceding fifty two weeks without attracting the obligation to make a public announcement Their aggregate shareholding after completion of the open offer does not exceed the maximum permissible non-public shareholding Acquirer will not acquire further shares in the Target co. for a period of six months after completion of the open offer except by way of another voluntary open offer or competing offer. Acquirer not to acquire shares during offer period. In case of voluntary open offer, the offer size may be of 10% or more of the voting rights at the will of the acquirer Competitive offer Offer size for competing offer - Holding of the acquirer who has made PA + Shares proposed to be acquired under the offer + Any underlying agreement for the sale of shares of the target company pursuant to which the open offer is made. Key Exemptions Inter-se promoter transfer: a) Exemption for transfers within MRTP Group done away with b) Three year holding disclosure per listing agreement - condition for transfer between entities other than holding subsidiary c) Cap on transfer price now applicable for all inter-se transfers -> Earlier no cap on transfers within MRTP Group and Relatives u/s 6 of Companies Act Acquisition pursuant to Scheme: Direct - involving target company Indirect - without involving target company Exempt subject to conditions
Increase in voting rights pursuant to Buyback: Increase in shareholding attracting Regulation 3(1) Others Right issue: Upon entitlement Beyond entitlement Transfer from WOS to parent pursuant to scheme of arrangement Reg. 10(1)(d) (d) acquisition pursuant to a scheme - (iii) of arrangement not directly involving the target company as a transferor company or as a transferee company or reconstruction not involving the target company's undertaking, including amalgamation, merger or demerger, pursuant to an order of a court or a competent authority under any law or regulation, Indian or foreign, subject to - (a) The component of cash and cash equivalents in the consideration paid being less than twentyfive percent of the consideration paid under the scheme; and; (b) Where after implementation of the scheme of arrangement, persons directly or indirectly holding at least thirty-three per cent of the voting rights in the combined entity are the same as the persons who held the entire voting rights before the implementation of the scheme Rights issue Exempt from obligation of open offer under Reg. 3(2) Acquisition upto his entitlement Acquisition beyond his entitlement, subject to following conditions: Acquirer has not renounced any of its entitlements Price for rights issue is not higher than ex-rights price of shares Ex-rights price is sum of: Volume weighted avg market price during 60 trading days x No. of shares prior to rights Total shares after allotment Price at which shares offered in rights issue x No. of shares offered in rights issue Total shares after allotment General Points: Acquisition contracted under any agreement attracting any open offer to be completed within 26 weeks from the expiry of offer period. In case of a Conditional Offer, Acquirer and PAC shall not acquire any shares during the offer period In case of other offers - Regulation 18(6) - acquirer and PAC not to acquire/sell shares during tendering period including 3 days prior v/s Regulation 25(4) - acquirer and PAC not to sell shares during offer period?
Computation mechanism providedd to compute offer price for equity shares carrying differential voting rights ('DVRs') Can companies issue DVRs?? Concept of DVR has been done away under proposed Companies Bill, 2008