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New Take over code Effective from 22nd October 2011
INTRODUCTION The Securities and Exchange Board of India (“SEBI”) introduced the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Code, 1997") to regulate the acquisition of shares and voting rights in public listed companies in India
MEANING OF TAKEOVER a transaction or a series of transactions whereby a person acquires control over the assets of a company, either directly by becoming the owner of those assets or indirectly by obtaining control of the management of the company. Where shares are closely held (i.e. by small number of persons), a takeover will generally be effected by agreement with the holders of the majority of the share capital of the company being acquired. Where the shares are held by the public generally the take over may be effected: 1) by agreement between the acquirers and the controllers of the acquired company. 2) by purchase of shares on the stock exchange. 3) by means of a takeover bid
APPLICABILITY APPLICABILITY direct or indirect acquisition of shares or voting rights in or control over any target company.
PREFERENCE SHARES Takeover code 1997 excluded Preference shares from the definition of shares vide 2002 amendment. Now in amendment 2011, the same has been included any security which entitles the holder to voting rights
The Takeover Code, 2011 defines acquisition as “directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company” (“Acquisition”).
MAJOR CHANGES 1. The point at which the open offer is triggered has been changed from the earlier 15% to 26%. 2. The size of the open offer has been increased from 20% to 25%. 3. Non-compete fees which were paid earlier to promoters is now not permitted
Difference between New take over code and old code open offer trigger Open offer trigger above 25% above 15% Open offer size Open offer size 20% increase to 26% Creeping acquisition Creeping Acquisition allowed 5% for 5% allowed to promoters holding promoters up to 75% between 15-55% Scrapping of Non Non compete fees for compete fees to promoters Allowed promoters
“deemed to be acting in concert Takeover Code, 1997 included a company with any of its directors, or any person entrusted with the “management of the funds” of the company. Take over code 2011 widens scope to such persons as may be entrusted with the management of the company
Promoter allowed Promoter not allowed voluntary open offer voluntary open offer up to 10% to increase holding 57 days to complete open offer
Voluntary offer A concept of voluntary offer has introduced in Take over code 2011
Advantages to investor Minorities shareholders Promoters would get Non get fair share in open compete fees offer NO exemption in case of Companies get 51% acquisition from other holding in the new company competing acquired Promoters get voluntary Changes of control only open offer to increase the after open offer holding Frequently traded shares Board recommendation increase from 5 % to 10 made compulsory for % for more realistic open offer picture
OFFER SIZE Take over code 1997 to make an open offer, to offer for a minimum of 20% of the „voting capital of the Target Company‟ as on „expiration of 15 days after the closure of the public offer‟. Take over code 2011 an acquirer to place an offer for at least 26% of the „total shares of the Target Company‟, as on the „10th working day from the closure of the tendering period‟.
OFFER PERIOD The Takeover Code, 2011 provides that the offer period starts on the date of entering into an agreement to acquire shares, voting rights in, or control over a Target Company requiring a public announcement, or the date of the public announcement, whichever is earlier and ends on the date on which the payment of consideration to shareholders who have accepted the open offer is made.
Cost increases for the corporate to take over If the indirectly acquired target company is a predominant part of the business or entity being acquired, the takeover code would treat such indirect acquisition as a direct acquisition for all purposes.
Offer price paid would be highest among 4 prices that are as follows negotiated price volume weighted average price over the last 52 weeks prior to the public announcement the highest price payable or paid in the last 26 weeks before the public announcement, the volume weighted average price of 60 trading days prior to the public announcement.