SEBI TAKEOVER CODENOW & PROPOSED

J Sridhar21-08-2010

REGULATED BY CENTRAL GOVERNMENT TILL 1992

HANDED OVER TO SEBI IN 1992 TAKEOVER CODE OF 1994 BHAGWATI COMMITTEE REPORT-1997 TAKE-OVER CODE OF 1997 ACHUTAN COMMITTEE –TRAC- 2010 PROPOSED CODE -2010

EVOLUTION

DEFINITIONS EXEMPTIONS FROM 10,11,12 DISCLOSURES OF SHAREHOLDING &

CONTROL TRIGGERS FOR OPEN OFFER-10, 11, 12 THE OPEN OFFER PROVISIONS, OFFER

PRICE, OFFER QUANTUM, COMPETITIVE BID, ESCROW, WITHDRAWAL ETC

BAIL OUT TAKEOVERS

EXISTING TAKEOVER CODE

Transparent legal framework for facilitating takeover activities

Protecting interests of investors and giving a fair, equitable and transparent framework

To balance various conflicting objectives of various stake-holders

To provide shareholders exit opportunities To ensure fair and accurate disclosure To regulate fair and effective competition To ensure good corporate governance

OBJECTIVES OF CODE

PROPOSED TAKEOVER CODE

• DEFINITIONS• SUBSTANTIAL ACQUISITION OF SHARES/CONTROL• INDIRECT ACQUISITION• VOLUNTARY OFFER, OFFER SIZE, OFFER PRICE,

MODE OF PAYMENT, ETC.• GENERAL EXEMPTIONS FROM 3, 4• OPEN OFFER PROCESS-TIMING, CONTENT, LETTER

OF OFFER, ESCROW, CONDITIONAL OFFER, COMPETING OFFER, PAYMENT, COMPLETION, WITHDRAWAL OF OFFER, ETC.

• OBLIGATIONS – OF DIRECTORS, ACQUIRERS, TARGET COMPANY, ETC.

• MISCELLANEOUS

New / amended definitions Control – right or ability to appoint majority

of directors Delisting threshold – entitling exercise of

90% of voting rights Frequently traded shares – 10% in 12

preceding calendar months Identified date Maximum permissible non-public

shareholding – minimum public shareholding under LA

DEFINITIONS

Promoter - – as defined under ICDR Regulations

Promoter group – as defined under ICDR Regulations

Tendering period Business day Identified date, etc.

Definitions - continued

FROM 15%

TO 25%

EXISTING Vs PROPOSED – THRESHOLD LIMIT

15% TO 55% - 5%

IN A FINANCIAL

YEAR –ONE-TIME –

5% BETWEEN 55-75%

25% TO 75% -

5% IN A FINANC

IAL YEAR.

EXISTING Vs PROPOSED – CREEPING ACQUISITION

ONLY GROSS PURCHASES WILL BE CONSIDERED – NO NETTING OFF

DIFFERENCE BETWEEN PRE-ISSUE SHARE CAPITAL AND POST ISSUE SHARE CAPITAL – TREATED AS ADDITIONAL ACQUISITION

INTER-SE TRANSFERS – WILL BE TREATED AS ADDITIONAL ACQUISITION

CREEPING ACQUISITIONS

ACQUISITION OF CONTROL IRRESPECTIVE OF SHARES – TRIGGER – EXEMPTION

BY SHAREHOLD

ER RESOLUTION

INDIRECT OR DIRECT

ACQUISITION OF CONTROL –

WHETHER WITH OR WITHOUT

ACQUISITION OF SHARES.

DEFINED DIRECT

CONTROL

EXISTING Vs PROPOSED - CONTROL

3 CATEGORIES : Where Target Company is non-material-less

than 15% of market cap, sales turnover or NAV

Where Target Company is material-between 15-80% of market cap, sales turnover or NAV

Where Target Company is over 80% of market cap, sales turnover or NAV- will be deemed to be direct acquisition

INDIRECT ACQUISITION

BETWEEN 55-75% - CAN MAKE FOR

SUCH NUMBER AS

NOT TO UPSET THE MINIMUM PUBLIC

SHAREHOLDING

IF HOLDING BEYOND 25% - CAN MAKE

FOR A MINIMUM OF

10%.WHEN

COMPETITIVE BID RECEIVED

– HIKE TO MAXIMUM

EXISTING Vs PROPOSED – VOLUNTARY OFFERS

WHO CANNOT MAKE?◦ ONE WHO HAS REACHED THE 25% HOLDING /

ACQUIRED SHARES IN THE LAST 52 WEEKS.◦ THOSE WHO HAVE MADE AN OPEN OFFER

CANNOT ACQUIRE SHARES FOR 6 MONTHS AFTER COMPLETION OF OPEN OFFER, EXCEPT THROUGH ANOTHER VOLUNTARY OPEN OFFER.

VOLUNTARY OFFERS

FOR MINIMUM 20% OF

THE EXISTING PAID UP

CAPITAL OF THE

COMPANY

100% OF THE OUTSTANDING

SHARES;VOLUNTARY OFFERS –

MINIMUM10% ; MAXIMUM –

NOT TO UPSET THE MINIMUM

PUBLIC SHAREHOLDIN

G LIMIT

EXISTING Vs PROPOSED – OPEN OFFER SIZE

NO SUCH OPTIO

N CURRENTLY

HAVE AN OPTION – MUST DECLARE

UPFRONT.IF NOT DECLARED

– MUST EITHER BRING DOWN THE EXCESS HOLDING

OR ACCEPT PROPORTIONATELY LESS FROM AGT

AND OPEN OFFER.

DECLARE WHICH OPTION UPFRONT

EXISTING Vs PROPOSED – DELISTING OPTION

26 WEEK PRICE WITH

OTHER PARAMETERS

. DISTINGUISH

BETWEEN FREQUENTLY TRADED AND INFREQUENTL

Y TRADED

NOW REDUCED 60 DAY TRADING

PRICE WITH OTHER

PARAMETERS. DONE AWAY WITH

INFREQUENTLY TRADED SHARE. METHODOLOGY DEFINED FOR

DIRECT ACQUISITION AND

INDIRECT ACQUISITION

EXISTING Vs PROPOSED – OFFER PRICE

Highest of – Highest negotiated price under agreement

attracting offer Volume weighted average price paid by

acquirer during 52 weeks preceding PA Highest price paid during 26 weeks

preceding PA Volume weighted average market price

during 60 trading days preceding PA

OFFER PRICE for direct acqn

Highest of – Highest negotiated price under agreement

attracting offer Volume weighted average price paid by

acquirer during 52 weeks preceding PA Highest price paid during 26 weeks

preceding PA Highest price paid between the date of

primary acquisition or announcement and date of PA

Volume weighted average market price during 60 trading days preceding PA

OFFER PRICE for indirect acqn

PREVALENT-UPTO 25%

HAS BEEN DONE AWAY WITH

EXISTING Vs PROPOSED – NON COMPETE FEE

INTER-SE TRANSFER◦ ONLY AMONGST IMMEDIATE RELATIVES◦ AMONGST PROMOTERS – SHOWN AS SUCH IN THE SHAREHOLDING

PATTERN FILED WITH SE IN THE LAST 3 YEARS◦ AMONGST COMPANY, ITS HOLDING COMPANY AND SUBSIDIARIES◦ AMONGST PERSONS ACTING IN CONCERT

ACQUISTIONS BY STOCK BROKER, MERCHANT BANKER, UNDERWRITER

ACQUISTIONS PURSUANT TO◦ A BIFR SCHEME◦ ARRANGEMENT, MERGER, AMALGAMATION AS APPROVED BY COURT

ACQUISITION PURSUANT TO DELISTING ACQUISITION PURSUANT TO TRANSMISSION, SUCCESSION OR

INHERITANCE ACQUISITION BY OPERATION OF SECTION 87(2) OF COMPANIES

ACT.

PROPOSED EXEMPTIONS

ONLY UNDER REGULATION 3 ◦ AS RECOMMENDATIONS UNDER CDR◦ ACQUISITON BY A CONSORTIUM OF BANKS AND

FINANCIAL INSTITUTIONS, CONSEQUENT TO INVOCATION OF PLEDGE

◦ RETRANSFER OF PLDEDGED SHARES BY PLEDGEE TO PLEDGOR

◦ (GROUP EXEMPTION REMOVED) PURSUANT TO BUY BACK ( REGULATION 3(1))

◦ IN EXCESS OF 25% EXEMPTION FROM REGULATION 3(2)

◦ RIGHTS ISSUE ◦ BUY BACK

PROPOSED EXEMPTIONS

COMPULSORY

REFERENCE TO PANEL FOR

EXEMPTIONS.

OPTIONAL REFERENCE TO PANEL.

MORE ITEMS FOR WHICH REPORT IS

TO BE FILED WITH SEBI WITHIN 21

DAYS

EXISTING Vs PROPOSED – REFERENCE TO PANEL

WITHIN 4

WORKING

DAYS

ON THE DATE OF DECIDING TO ACQURING

SHARES.FOR ORDERS THROUGH

STOCK BROKER – BEFORE PLACING ORDER.

ON CONVERSION WITH NO FIXED DATE – SAME DAY

AS DATE OF CONVERSIONCONVERSION WITH FIXED DATE – 2 BUSINESS DAYS

BEFOREINDIRECT ACQUISITION –

WITHIN 5 DAYS OF PRIMARY CONTRACT

DIRECT ACQUISITION – ON THE SAME DAY OF

PRIMARY CONTRACTANY OTHER – WITHIN 2

BUSINESS DAYS OF INTENTION

EXISTING Vs PROPOSED – WHEN TO ISSUE PA

ONLY PUBLIC ANNO

UNCMENT

PUBLIC ANNOUNCMENT TO THE

STOCK EXCHANGES

&PUBLIC

STATEMENT TO BE ISSUED

IN THE NEWSPAPERS

EXISTING Vs PROPOSED – PUBLIC STATEMENT

WITHIN 5 BUSINESS DAYS OF PUBLIC STATEMENT – FILE LETTER OF OFFER

WITHIN 15 BUSINESS DAYS – COMMENTS FROM SEBI

WITHIN 7 BUSINESS DAYS OF RECEIPT OF COMMENTS – DESPATCH LETTER OF OFFER

TENDERING PERIOD – NOT LATER THAN 12 BUSINESS DAYS FROM DATE OF RECEIPT OF COMMENTS

OPEN – FOR 10 BUSINESS DAYS PAYMENT – WITHIN 10 BUSINESS DAYS

SUGGESTED TIME LINES

Conditional offers as to minimum level of acceptance – 100% of consideration for minimum level to be put in ESCROW

Competing offers – an acquirer having made a voluntary offer can switch to normal full-size offer when a competing offer is made

Agreement triggering offer obligation can be acted upon on 100% payment in ESCROW

Material transactions during the offer period cannot be done without shareholders’ approval.

CONDITIONAL OFFERS

COMPETITIVE OFFER WITHIN 15 BUSINESS DAYS. NO WITHDRAWAL OF SHARES OFFERED BY

SHAREHOLDERS OPINION WITH REASONED RECOMMENDATIONS

BY COMMITTEE OF INDEPENDENT DIRECTORS ON OPEN OFFER

ACQN TO BE COMPLETED W/I 57 DAYS FROM PA ESCROW – 25% ON FIRST RS.500 CR + 10% ON

BALANCE MODE OF PAYMENT – THROUGH CASH, ISSUE,

EXCHANGE OR TRANSFER OF SECURITIES

OTHER CHANGES PROPOSED

UPTO 24.99% - NO ACTION 25% AND ABOVE – MAKE OPEN OFFER-100% PERSONS HOLDING ABOVE 25% BUT LESS

THAN 75% - CAN CREEP BY 5% EVERY YEAR VOLUNTARY OFFERS FOR MINIMUM 10%, IF

HOLDING BEYOND 25% OPEN OFFER, IF ACQUIRING CONTROL

EITHER DIRECTLY OR INDIRECTLY NO COMPETE FEE GOOD, PROGRESSIVE CODE

SUMMATION OF THE TAKEOVER CODE

THANK YOU