April 12, 2023 1

SEBI - Takeover Code

April 12, 2023 2

Evolution of TOC

April 12, 2023 3

Evolution...

Pre - 1990Clause 40 of Listing

Agreement

Pre - 1990Clause 40 of Listing

Agreement

Nov 1990Clause 40(A) & 40(B) of Listing Agreement

Nov 1990Clause 40(A) & 40(B) of Listing Agreement

Nov - 1994 SEBI Takeover

Code

Nov - 1994 SEBI Takeover

Code

Feb - 1997 New Takeover Code

(Bhagwati Committee)

Feb - 1997 New Takeover Code

(Bhagwati Committee)

Oct - 2002Few amendments as per Bhagwati

Committee’s reco.

Oct - 2002Few amendments as per Bhagwati

Committee’s reco.

Apr-2007SEBI amended Code

Apr-2007SEBI amended Code

Pre - 1990Pre - 1990

Post - 1994Post - 1994

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Modes of Restructuring – Where does TOC fit in

Indian M&A

Amalgamations

Merger De-merger

Acquisitions

Asset Purchase

Stock Purchase

The Takeover Code, 1997

SlumpSale

ItemizedSale

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Objectives Shareholders:

– Equality of treatment

– Adequate opportunity

– Protection of interests

Acquirers:

– Adequate disclosure

– Disclosure to all

– Disclosure within stipulated time limits

Managements:

– Ensure flow of information

– No unnecessary action during the offer period

AT THE SAME TIME:Ensure full play to the predatory instincts of the corporate and business class

(i.e. facilitate legitimate takeovers)

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Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997

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Framework of the Code…

Chapter 1 Preliminary, Definitions, exemptions and the takeover panel

Chapter 2 Disclosures of shareholding and control in a listed company

Chapter 3 Substantial Acquisition of shares and control

Chapter 4 Bail out takeovers

Chapter 5 Investigation and action by the Board

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Definitions

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Key Definitions...AcquirerAny person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer

SharesMeans shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights [but shall not include preference shares]

ControlRight to appoint majority of directors or Right to control management decisions or Right to take policy decisions exercisable by PAC, directly or indirectly, by virtue of their shareholding or management rights or SHA or voting agreements or in any other manner

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Key Definitions...Persons Acting in Concert (‘PAC’)

PACs - persons who for a common objective of substantial acquisition of shares or voting rights or gaining control over the target company, directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in or control over the target company.

Persons deemed to be PACs with other persons in the same category–a company, its holding or subsidiary company or a company under the same management and their directors or persons responsible for management of funds

–Mutual fund with sponsor or trustee or AMC

–FIIs with sub account (s)

–Merchant bankers with their clients as acquirers

–VCFs with sponsors

–Banks with financial advisors, stock brokers of acquirer, a company which is a holding / subsidiary or relative of the acquirer

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Key Definitions...

Promoter shall include Person/s in control of the company Named as promoters in any document of offer of securities

Deemed to be a promoter

Individual – spouse, parents, brothers, sisters or children Corporate:

a subsidiary or holding company any company in which it holds 26% or more of the equity capital any other body corporate under the same management

A financial institution, scheduled commercial bank, FII or VCF shall not be deemed to be a promoter by virtue of shareholding

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Key Definitions...Offer periodPeriod between the date of entering into MOU or the PA, as the case may be and the date of completion of offer formalities relating to the offer made under these regulations

Public shareholdingMeans shareholding held by persons other than promoters as defined

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Disclosures

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Periodical disclosures Disclosures by acquirer to the company / stock exchange within 2 working days

– If holding crosses 5%, 10%, 14%, 54% or 74% limits

– In case of acquisition under Regulation 11 (1) / (1A) – on Purchase or sale of 2% or more of the share capital

Company in turn to disclose to all stock exchanges within 7 days

Continual - “Yearly Disclosures” Disclosure to be made within 21 days to the company by –

– Persons holding more than 15%

– Promoter or every person having control over company Company in turn to disclose to all stock exchanges within 30 days

SEBI has the power to call for this information as and when it requires

Disclosures

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Open Offers Open Offers

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Trigger points….

Substantial acquisition

– Acquisition upto 15% of shares or voting rights or control - No open offer

– Beyond 15% - Open offer triggered

Consolidation of Holdings

– 15% to 55% - Open offer triggered for acquisition beyond 5% per year

– 55% to 75% - Open offer triggered on every acquisition

– Beyond 75% - Delisting triggered

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Trigger Provisions Regarding Open Offers

Regulation 10Substantial Acquisition of Shares

Open tender offer needs to be made if the Acquirer (along with PAC) decides to acquire, directly or indirectly, more than 15% of shares outstanding in Target

Once 15% stake has been acquired in the target, an open offer for a minimum of 20% of shares outstanding must be made

Regulation 11Consolidation of Holdings

Open tender offer needs to be made if:

–Acquirer and PAC hold >15% but < 55% of the Voting Capital of Target

–Want to exceed creeping limit of 5% within a financial year

Offer needs to be made if acquirer wants to exceed 55% shareholding in Target

Regulation 12

Acquisition of Control

Open tender offer needs to be made if acquirer along with PAC wants to acquire control over Target

Offer needs to be made irrespective of:

–Whether or not any shares have been acquired

–Whether control is acquired directly or indirectly

This regulation is not applicable if change of control is pursuant to a special resolution

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Exemptions

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Exemptions from Open Offer…

Reg. 3 Provides Exemptions from Reg. 10, Reg. 11 and Reg. 12…

  allotment to underwriter pursuant to any underwriting agreement;

    acquisition of shares in ordinary course of business by;Regd. Stock brokers on behalf of clients;

Regd. Market makers

Public financial institutions on their own account;  

Banks & FIs as pledges;

Acquisition of shares by way of transmission on succession or by inheritance

Acquisition of shares in companies whose shares are not listed;

Acquisition pursuant to a scheme framed under section 18 of Sick Industrial Companies Act (SICA) 1985

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Public Announcement to disclose intention to acquire a minimum of 20% of the voting capital

of the target company

an Acquirer may also make an offer for less than 20% of shares of target company in case the acquirer is already holding 75%

Acquirer is required to appoint a Merchant Banker registered with SEBI before making a PA and is also required to make the PA within four working days of the entering into an agreement to acquire shares

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Public Announcement

The other disclosures in this announcement would inter alia include:

the offer price, the number of shares to be acquired from the public, the identity of the acquirer, the purposes of acquisition, the future plans of the acquirer, if any, regarding the target company, the change in control over the target company, if any the procedure to be followed by acquirer in accepting the shares

tendered by the shareholders and the period within which all the formalities pertaining to the offer would be completed.

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Other key provisions

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Minimum Size of Offer

Minimum of 20% of the voting capital of the target company

Less than 20% where an acquirer has shareholding between 55% to 75%

Acquisition through MOU should ensure to maintain the minimum specified public shareholding post open offer

An acquirer may make a conditional offer which may be less than 20% of minimum offer size – (S&P / Crisil)

– Acquirer to deposit in the escrow account in cash a sum of 50% of the consideration payable under the public offer

– Cancel the MOU in case minimum acceptance condition is not met

– Disclosure in the Public Announcement

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Minimum Public shareholding

Breach of minimum public shareholding limit specified in the Listing Agreement:

Acquirer to make an offer to buy the remaining shares in accordance with the Delisting guidelines

Acquire only such number of shares under the agreement or MOU to maintain the minimum public shareholding

Acceptance on proportionate basis if number of shares offered by the shareholders are more

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Timing of Open Offer

Direct acquisition or change in control - Within 4 working days of –

Agreeing or deciding to acquire the shares/voting rights/change in control

Execution of Shareholders agreement

Upon conversion or exercise of option – Convertibles Indirect acquisition or change in control - Within 3 months of -

Consummation of acquisition or change in control or restructuring of the parent or holding company

Submission of Letter of Offer to SEBI / Shareholders

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Minimum Offer Price

Frequently traded shares, highest of the following:

– Negotiated price

– Highest of average of weekly highs and low of the last 26 weeks or daily highs and low of last 2 weeks

– Highest price paid by the acquirer during the last 26 weeks Infrequently traded shares – in consultation with Merchant Banker , highest of

the following:

– Negotiated price

– Highest price paid by the acquirer during the last 26 weeks

– Return on net worth, BV of shares, EPS, PE multiple vis-à-vis industry average

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Payment of Offer Price

Modes of payment –

Offer price payable in -

– Cash; or

– Shares (other than preference shares) of acquirer listed company; or

– Secured instruments of acquirer company with a minimum A Grade from a credit rating agency; or

– Combination of the above

Discharge of consideration -

Transfer of cash consideration to a special account within 7 days from closure of the offer

Issue of shares / secured instruments

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DATE OF PUBLIC ANNOUNCEMENT

Filing of Letter of

Offer with the SEBI

Within 14 days

Offer to reach the

shareholders

Within 45 days

Offer to open

Within 55 days

Offer to close

Dispatchconsideration to

shareholders

SEBI may permit extension on payment of interest for delay

MOU

Within 4 days

Within 20 days

Open a Special A/c for Payment

Within 7 days

Within 15 days of

Offer Closure

Timelines

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Thank you