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Home BackNote:Theanswersgivenherearegeneralinnature.Thequestionsandtheanswershavebeenstructuredtoenablethereaderstogainabroadunderstandingof(SubstantialAcquisitionofSharesandTakeovers)Regulations,1997.ForexactdetailsthereaderisadvisedtorefertothecopyoftheSEBI(SubstantialAcquisitionofSharesandTakeovers)Regulations,1997whichareavailableonourwebsite.ReadersmayalsonotethattheseanswersdonotaimtoexplaintheRegulationsinforce,sinceanswerstoquestionsinvolvingparticularcase/factpatternmaydependuponadministrativedecisionsandCourtorders,ifany,inrespectofthesame.

1.WhatismeantbyTakeovers&Substantialacquisitionofshares?

Whenan"acquirer"takesoverthecontrolofthe"targetcompany",itistermedasTakeover.Whenanacquireracquires"substantialquantityofsharesorvotingrights"oftheTargetCompany,itresultsintosubstantialacquisitionofshares.Theterm"Substantial"whichisusedinthiscontexthasbeenclarifiedsubsequently.

2.WhatisaTargetcompany?

ATargetcompanyisalistedcompanyi.e.whosesharesarelistedonanystockexchangeandwhosesharesorvotingrightsareacquired/beingacquiredorwhosecontrolistakenover/beingtakenoverbyanacquirer.

3.WhoisanAcquirer?

AnAcquirermeans(includespersonsactinginconcert(PAC)withhim)anyindividual/company/anyotherlegalentitywhichintendstoacquireoracquiressubstantialquantityofsharesorvotingrightsoftargetcompanyoracquiresoragreestoacquirecontroloverthetargetcompany

4.Whatismeantbytheterm"PersonsActinginConcert(PACs)"

PACsareindividual(s)/company(ies)/anyotherlegalentity(ies)whoareactingtogetherforacommonobjectiveorforapurposeofsubstantialacquisitionofsharesorvotingrightsorgainingcontroloverthetargetcompanypursuanttoanagreementorunderstandingwhetherformalorinformal.Actinginconcertwouldimplycooperation,coordinationforacquisitionofvotingrightsorcontrol.Thiscooperation/coordinatedapproachmayeitherbedirectorindirect.

TheconceptofPACassumessignificanceinthecontextofsubstantialacquisitionofsharessinceitispossibleforanacquirertoacquiresharesorvotingrightsinacompany"inconcert"withanyotherpersoninsuchamannerthattheacquisitionmadebythemmayremainindividuallybelowthethresholdlimitbutmaycollectivelyexceedthethresholdlimit.

Unlessthecontraryisestablishedcertainentitiesaredeemedtobepersonsactinginconcertlikecompanieswithitsholdingcompanyorsubsidiarycompany,mutualfundswithitssponsor/trustee/Assetmanagementcompany,etc.

5.Howsubstantialquantityofsharesorvotingrightsisdefined?

TheSEBI(SubstantialAcquisitionofSharesandTakeovers)Regulations,1997hasdefinedsubstantialquantityofsharesorvotingrightsdistinctlyfortwodifferentpurposes:

I.Thresholdofdisclosuretobemadebyacquirer(s):

1)5%andmoresharesorvotingrights:Apersonwho,alongwithPAC,ifany,(collectivelyreferredtoas"Acquirer"hereinafter)acquiressharesorvotingrights(whichwhentakentogetherwithhisexistingholding)wouldentitlehimtomorethan5%or10%or14%sharesorvotingrightsoftargetcompany,isrequiredtodiscloseateverystagetheaggregateofhisshareholdingtothetargetcompanyandtheStockExchangeswithin2daysofacquisitionorreceiptofintimationofallotmentofshares.

2)Anypersonwhoholdsmorethan15%butlessthan55%sharesorvotingrightsoftargetcompany,andwhopurchasesorsellssharesaggregatingto2%ormoreshallwithin2days

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disclosesuchpurchase/salealongwiththeaggregateofhisshareholdingtothetargetcompanyandtheStockExchanges.

3)Anypersonwhoholdsmorethan15%sharesorvotingrightsoftargetcompanyandapromoterandpersonhavingcontroloverthetargetcompany,shallwithin21daysfromthefinancialyearendingMarch31aswellastherecorddatefixedforthepurposeofdividenddeclaration,discloseeveryyearhisaggregateshareholdingtothetargetcompany.

4)TheTargetcompany,inturn,isrequiredtoinformallthestockexchangeswherethesharesoftargetcompanyarelisted,everyyearwithin30daysfromthefinancialyearendingMarch31aswellastherecorddatefixedforthepurposeofdividenddeclaration.

(II)Triggerpointformakinganopenofferbyanacquirer

1)15%sharesorvotingrights:

Anacquirerwhointendstoacquireshareswhichalongwithhisexistingshareholdingwouldentitlehimtoexercise15%ormorevotingrights,canacquiresuchadditionalsharesonlyaftermakingapublicannouncement(PA)toacquireatleastadditional20%ofthevotingcapitaloftargetcompanyfromtheshareholdersthroughanopenoffer.

2)Creepingacquisitionlimit:

Anacquirerwhoholds15%ormorebutlessthan55%ofsharesorvotingrightsofatargetcompany,canacquiresuchadditionalsharesaswouldentitlehimtoexercisemorethan5%ofthevotingrightsinanyfinancialyearendingMarch31onlyaftermakingapublicannouncementtoacquireatleastadditional20%sharesoftargetcompanyfromtheshareholdersthroughanopenoffer.

3)Consolidationofholding:

Anacquirerwhoholds55%ormorebutlessthan75%sharesorvotingrightsofatargetcompany,canacquirefurthersharesorvotingrightsonlyaftermakingapublicannouncementtoacquireatleastadditional20%sharesoftargetcompanyfromtheshareholdersthroughanopenoffer.

6.Howis"control"defined?

ControlincludestherighttoappointdirectlyorindirectlyorbyvirtueofagreementsorinanyothermannermajorityofdirectorsontheBoardofthetargetcompanyortocontrolmanagementorpolicydecisionsaffectingthetargetcompany.However,incasetherearetwoormorepersonsincontroloverthetargetcompanythecesserofanyoneofsuchpersonsfromsuchcontrolshallnotbedeemedtobeachangeincontrolofmanagementnorshallanychangeinthenatureandquantumofcontrolamongstthemconstitutechangeincontrolofmanagementprovidedthistransferisdoneintermsofReg.3(1)(e).Alsoifconsequentuponchangeincontrolofthetargetcompanyinaccordancewithregulation3,thecontrolacquiredisequaltoorlessthanthecontrolexercisedbyperson(s)priortosuchacquisitionofcontrol,suchcontrolshallnotbedeemedtobeachangeincontrol.

7.WhatisaPublicAnnouncement(PA)?

Apublicannouncementisanannouncementmadeinthenewspapersbytheacquirerprimarilydisclosinghisintentiontoacquiresharesofthetargetcompanyfromexistingshareholdersbymeansofanopenoffer.

8.WhatarethedisclosuresrequiredtobemadeunderPublicAnnouncement?

Thedisclosuresintheannouncementincludetheofferprice,numberofsharestobeacquiredfromthepublic,identityofacquirer,purposeofacquisition,futureplansofacquirer,ifany,regardingthetargetcompany,changeincontroloverthetargetcompany,ifany,theproceduretobefollowedbyacquirerinacceptingthesharestenderedbytheshareholdersandtheperiodwithinwhichalltheformalitiespertainingtotheofferwouldbecompleted.

9.WhatistheobjectiveofPublicAnnouncement?

ThePublicAnnouncementismadetoensurethattheshareholdersofthetargetcompanyare

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awareofanexitopportunityavailabletothem.

10.CanAcquirermakeanofferforlessthan20%ofshares?

No,theacquirercannotmakeanofferforlessthan20%ofshares.Theacquirerhastomakeanofferforaminimumof20%(lessonlyinspecifiedcases).

11.WhoisrequiredtomakeaPublicAnnouncementandwhenisthePublicAnnouncementrequiredtobemade?

TheAcquirerisrequiredtoappointaMerchantBanker(MB)registeredwithSEBIbeforemakingaPA.PAisrequiredtobemadethroughthesaidMB.TheacquirerisrequiredtomaketheP.Awithinfourworkingdaysoftheenteringintoanagreementtoacquiresharesordecidingtoacquireshares/votingrightsoftargetcompanyorafteranysuchchangeorchangesaswouldresultinchangeincontroloverthetargetcompany.

Incaseofindirectacquisitionorchangeincontrol,thePAshallbemadebytheacquirerwithinthreemonthsofconsummationofsuchacquisitionorchangeincontrolorrestructuringoftheparentorthecompanyholdingsharesoforcontroloverthetargetcompanyinIndia.Theofferpriceinsuchcasesshallbedeterminedwithreferencetothedateofthepublicannouncementfortheparentcompanyandthedateofthepublicannouncementforacquisitionofsharesofthetargetcompany,whicheverishigher,inaccordancewiththeparametersmentionedintheTakeoverRegulations.

12.WhetherappointmentofMerchantBankerfortheofferprocessismandatory?

Yes

13.WhatdocumentsaretobefiledwithSEBIaftermakingaP.A.andwhenarethesedocumentstobefiled?

AhardandsoftcopyofthePAarerequiredtobesubmittedtoSEBIsimultaneouslywiththepublicationofthesameinthenewspapers.

AdraftletterofofferisrequiredtobefiledwithSEBIwithin14daysfromthedateofPublicAnnouncementalongwithafilingfeeofRs.50,000/perletterofoffer(payablebyBankersCheque/DemandDraft)AduediligencecertificateaswellasregistrationdetailsasperSEBIcircularno.RMB(G1)seriesdatedJune26,1997arealsorequiredtobefiledalongwiththedraftletterofoffer.

14.DoesSEBI"approve"thedraftletterofoffer?

FilingofdraftLetterofOfferwithSEBIshouldnotinanywaybedeemedorconstruedthatthesamehasbeencleared,vettedorapprovedbySEBI.TheLetterofOfferissubmittedtoSEBIforalimitedpurposeofoverseeingwhetherthedisclosurescontainedthereinaregenerallyadequateandareinconformitywiththeTakeoverRegulations.ThisrequirementistofacilitatetheshareholderstotakeaninformeddecisionwithregardtotheOffer.SEBIdoesnottakeanyresponsibilityeitherforthetruthfulnessorcorrectnessofforanystatement,forfinancialsoundnessofAcquirer,orofPersonsActinginConcert,orofTargetCompany,whosesharesareproposedtobeacquiredorforthecorrectnessofthestatementsmadeoropinionsexpressedintheLetterofOffer.ItshouldbeunderstoodthatwhileAcquirerisprimarilyresponsibleforthecorrectness,adequacyanddisclosureofallrelevantinformationinthisLetterofOffer,theManagertotheOffer(aMerchantBanker)isexpectedtoexerciseduediligencetoensurethattheAcquirerdulydischargesitsresponsibilityadequately.

15.Whatisaletterofoffer?

Aletterofofferisadocumentaddressedtotheshareholdersofthetargetcompanycontainingdisclosuresoftheacquirer/PACs,targetcompany,theirfinancials,justificationoftheofferprice,theofferprice,numberofsharestobeacquiredfromthepublic,purposeofacquisition,futureplansofacquirer,ifany,regardingthetargetcompany,changeincontroloverthetargetcompany,ifany,theproceduretobefol