Take Over Code 2011
Transcript of Take Over Code 2011
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Vinod KothariVinod Kothari & CompanyCompany Secretaries in
PracticeE-mail:
[email protected]: 91-33-22817715/
22813742/ 22811276
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This Presentation is the property of Vinod Kothari
& Company and no part of it can be copied,
reproduced or distributed in any manner.
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y Amendment in some existing Definitionsy Insertion of some new definitionsy Increase in initial mandatory public offer trigger from 15%
to 25% It would mean persons holding below 15% can now shore up their
holding upto below 25% without obligation to make an offer
y Increase in minimum offer size from 20% to 26% It would mean that acquirers must commit additional financial
resources for acquiring a higher number of shares
y Requirement of making disclosures under Regulation 6 hasbeen done away with
y
Regulation for indirect acquisition and pricing of offers ofsuch acquisitionsy One reference date for calculating open offer price
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y Short Form Public Announcements immediately on director indirect acquisition
y Additional provision for withdrawal of open offer` Removal of whitewash provisions like acquisition of control
will still require open offer even if a special resolution hasbeen passed
`
Mandatory recommendation by Independent director to beappointed on the board of target company` Concept of voluntary offer and its restrictions` Deletion of provisions with regard to payment of non-
compete fee to the promoters of target company` Procedural timelines for various activities in the open offer
process has been reduced from 95 days to 57 businessdays from the date of public announcement
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` Disinvestment
Both direct and indirect acquisitionsnow covered government companies and unlistedpublic sector undertakings also brought into thepicture
` Promoter
Same meaning assigned as given in SEBI (ICDR)Regulations
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` Shares To include shares and securities carrying voting rights
Convertible securities excluded and defined separately the new definition also included the Depository Receipts. If
further says all Depository Receipts which entitle the holder toexercise the voting rights in the target company are alsotreated as shares.
x Important point: Unclear on preference shares, whether pref.shares included in the definition of securities or not
x Also unclear on whether pref. shares acquiring voting rights u/s87(2)(b) on non-declaration of dividend for a consistent periodamounts to acquisition of control
` Target Company Also to include body corporate or corporation established
under a Central legislation, State legislation or Provinciallegislation for the time being in force, whose shares are listedon a stock exchange
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` Acquisition Meaning directly or indirectly acquiring or agreeing to
acquire shares or voting rights in, or control over, atarget company.x Not a clear definitionx Does not include increase in shareholding or control by any
other mode of increasing voting rights or stake in thecompany for example buy-back of shares by the companyx Controversies have been there in the past on passive
acquisitionsx No positive action by acquirerx However, voting rights going up for example, in case of
buyback
` Convertible Securities Meaning securities convertible or exchangeable with
equity shares and includes convertible debt instrumentsand convertible preference shares;x Earlier any acquisition of convertible securities also
triggered the Takeover Code. But, now it has been madeclear that the Code will be hit only at the time of conversionTakeover Code 2011 by Vinod Kothari 10
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` Substituting old Reg 10 and 11
` Increase in limit from previous threshold of 15% to 25%for making public announcement and making public offer
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at crossing25% of shares,
voting rightsor control
First trigger
SecondTrigger
Acquisition ofmore than 5% in aFY over and above
the existingholding of 25%
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` Are the triggers based on net accretion to theholdings of the acquirer?
Under Reg 3 (1), the trigger is based on increase of holdingsabove 25%
x Hence, based on net increase
` Under Reg 3 (2), triggers are based on grossacquisitions That is, total acquisition in a financial year cannot exceed 5%
` My holding has gone up by more than 25%/ 5% butmy PACs holdings have fallen do we need to lookat the individual holdings or aggregate holdings Individual holdings Reg 3 (3)
` In case of increase in holdings due to allotment, thedifference between the pre-allotment and post-allotment percentage holding
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` All direct and indirect acquisitions of control over thetarget company irrespective of holding of shares, votingrights now requires public announcement
` Exemption if the control acquired by passing SpecialResolution in the old Regulation has been done away
with Curious implication
x If the company passes a special resolution amending articles ofassociation, whether open offer formalities triggered?
x Does not sound logical as after all special resolution itself requiresmembers consent
What if the present management already had control, andarticles are now amended, fortifying control?
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` Indirect acquisitions will also trigger the requirement of publicannouncement
`
Certain indirect acquisitions fulfilling assets, turnover or capitalisationcriteria would be deemed as indirect acquisitions [Reg 5(2)]
` Apex court in Technip SA v. SMS Holding Private Limited, (2005) 5 SCC465 demonstrated 2 criteria for determining indirect acquisitionirrespective of size and intention
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Proportionate Test
EffectualityTest
a mathematical test wherein
the indirect shareholding ofthe acquirer is determined by
calculating pro ratashareholding
depends on whether theacquisition of shares etc over theintermediate company has had
any effect and how the shares ofthe target company held by theintermediate company are voted
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` Reg 5 (2) sets a rule where indirect acquisition is
to be deemed to be direct` If Target companys NAV, sales or market cap is
80% or more of B
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` Minimum offer size increased from 20% to 26%
` The increase in offer size shall be proportionate to theincrease total shares after public announcement
` Offer size is 10% in case of voluntary offers Several elaborate provisions in case of increase in offer size
pursuant to a competing offer` Shareholding of acquirer cannot exceed 75% or 90%
at any time If exceeded, same to be brought down within the specified
time
` Open offers not to be made to acquirers, PAC andparties to the underlying agreement
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Highest of
these shall be
the minimum
offerprice
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Highest negotiated price under the agreement
Volume weighted average price paid or payable
by the acquirer in the 52 weeks preceding earlierof announcement in public domain and date ofcontracting the primary acquisition
Highest price paid or payable by the acquirer26 weeks preceding earlier of announcement inpublic domain and date of contracting theprimary acquisition
Highest price paid or payable by acquire betweenthe earlier of the date of contracting the primaryacquisition and the date of the publicannouncement of open offer
EPS of the target company provided that NAV orturnover or market capitalization exceeds 15%
Highest of theseshall be the
minimum offer priceReg 8 (12) imposesa 10% pa interest forthe time betweenprimary acquisitionand PA under theRegs
In case of incapability, price to be determinedby the acquirer and the manager to the open
offer
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` One reference date for calculating offer price i.e. the date on whichthe parent acquisition is announced in the public domain, or thedate on which the parent enters into any agreement, whichever isearlier
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` If acquirer or PACs acquire any shares during
26 weeks after tendering period at a price higherthan the offer price, they will pay the differenceto all shareholders who accepted the offer Apparently unfair provision to those who did not accept
the offer
` Provision not applicable to open marketpurchases However, applicable to bulk purchases, block deals,
etc
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` Option to receive the payment in cash where the acquirer or the PAC withhim acquires or agrees to acquire more than 10% in 52 weeks preceding thedate of PA
` All compliance requirements to be done before commencement of tendering
period if securities are offered else whole payment in cash` Provides for the methodology of computation of the value of listed securities
offered as consideration
` In case of payment of offer price by equity/debt of the acquirer/PACs,several conditions have been laid down in Reg 9 (5)
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` Inter-se transfers with several conditions
` Acquisitions pursuant to
Underwriting
Broking transactions on behalf of a client
Merchant banker pursuant to market making
Pursuant to a safety net u/r 44 of ICDR Regs
Stabilising agent etc u/r 45 of ICDR Regs
Bank as escrow agent
By a bank or PFI on invocation of a pledge Acquisitions pursuant to SARFAESI Act
Acquisitions pursuant to Delisting Regulations
Acquisition by way of transmission, inheritance or succession
Voting rights in case of preference shares due to non-payment of dividends
` Acquisition without change of control pursuant to a CDR` Increase in voting rights pursuant to a buyback, provided the holder
reduces holdings within 90 days
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Immediate Short Form public announcement to bemade in case of direct or indirect acquisitions
detailedPA within 5days of issue
such noticeImmediate PA
detailed
PA within 5days of
completion ofacquisition
On date of agreeingto acquire shares in
case of directacquisition
In case of indirectacquisition,immediate short
PA to be publishedwithin 4 business
days
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` No acquirers nominee to be appointed on theboard of the target reg 24 Directors representing the acquirer, if already on board,
shall not vote on matters relating to the offer
` Obligations of acquirer reg 25 Not to sell or alienate assets of the target company within
2 years from end of offer period
Not to sell shares of the target company during offerperiod reg 25 (4)
Acquirer and PACs shall be jointly and severallyresponsible
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` Except with special resolution by postal ballot, not todo the following
Alienate material assets Effect borrowings outside ordinary course of business Issue or allot any unissued securities Implement any buyback or make changes to capital structure Enter, amend or terminate material contracts Accelerate any contingent vesting of a right
` Upon receipt of DPS, the independent directors of thetarget company shall prepare and publish reasonedrecommendations of the board on the offer
` The BoD of the target shall facilitate the acquirersverification of offerors tendering shares
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` For disclosure purpose, acquisition and holding of anyconvertible security shall also be regarded as shares
` Shares taken by way of encumbrance shall also be treated as
an acquisition, and release of encumbrance shall be treatedas a disposal.
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Disclosure to bemade by acquirerwithin 2 working
days when
An acquisitionaggregating to 5% ormore voting rights orcontrol in target
company
Acquisition or disposalof 2% or more if theacquirers existing
holding is 5% or more
Encumbrance of sharesto be treated as
acquisition and releaseas disposal of shares
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` New formats for disclosures required under Reg29(1) and 29(2) introduced vide SEBI Circular No.
SEBI/CFD/DCR/SAST/ 2/2011/10/20 dated 20th
October, 2011`The new format for Reg 29(1) is more clear,
transparent and requires pre and post acquisition
details also as compared to the earlier format` Disclosure on total diluted share/voting capital of the
target company after the acquisition/disposal is alsorequired Here Diluted share/voting capital means the total number of
shares in the TC assuming full conversion of theoutstanding convertible securities/warrants into equityshares of the TC
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Disclosure within 7 daysof end of FY i.e. 31st
March of every year by
Every person(together withPAC) holding
25% or more ofshares, voting
rights or control
Promoter(together withPAC) of every
target company ofhis aggregate
shareholding andvoting rights
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Disclosure within 7 daysof creation or invocation
or release ofencumbrance by
Promoterstogether withPAC whoseshares are
encumbered
Promoter togetherwith PAC whose
shares have beenreleased or
encumbrance
invocated