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SEBI TAKEOVER CODE AN OVERVIEW & RECENT CHANGES VNS Legal, Advocates

SEBI TAKEOVER CODE AN OVERVIEW & RECENT CHANGES VNS Legal, Advocates. BACKGROUND. The SEBI Takeover Code aims to regulate acquisition of shares of a listed Company / acquiring control over a listed Company Effective October 22, 2011

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SEBI TAKEOVER CODE AN OVERVIEW & RECENT CHANGES VNS Legal, Advocates

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  1. SEBI TAKEOVER CODE AN OVERVIEW & RECENT CHANGES VNS Legal, Advocates VNS Legal

  2. BACKGROUND • The SEBI Takeover Code aims to regulate acquisition of shares of a listed Company / acquiring control over a listed Company • Effective October 22, 2011 • Earlier Takeover Code revamped post recommendations of advisory committee • Constantly evolving code in line with international practices. VNS Legal

  3. APPLICABILITY OF THE CODE • Applies in case of “substantial acquisition” of • Shares; or; • voting rights; or; • control, • By an acquirer by itself or together with Persons Acting in Concert. • Applies to direct and indirect acquisitions (global acquisitions also covered) VNS Legal

  4. IMPORTANT DEFINITIONS • Acquirer • Any Person acquiring , directly or indirectly • Shares or Voting Rights or Control • In the Target Company • By himself or Persons Acting in Concert • Control • Right to appoint majority of Directors or control the policy decisions of the company • By means of their share holding, or management rights or share holders agreements or any other manner VNS Legal

  5. IMPORTANT DEFINITIONS • Person Acting in Concert • Persons who for a common objective • Directly or indirectly cooperate • To acquire shares or voting rights or control over the Target Company • By means of an agreement or understanding • Certain cases of deemed PAC VNS Legal

  6. EARLIER PROVISION • Upto 5% - no disclosures • 5% to 14.9% - disclosures • 15% & above – Open Offer for 20% • Above 15% holders – permitted upto 5% p.a upto 54.9% • To hold 55% - Open Offer (subject to min pub shldg) • Above 55% holders – Open offer (subject to min pub shldg) VNS Legal

  7. NEW PROVISIONS • Upto 5% - no disclosures • 5% upto 25% - disclosure to S.Exch • To cross 25% - open offer of min 26% • Above 25% - upto 5% p.a upto 75% • Shareholding is Acq + PAC in aggregate • Increase in threshold & offer size VNS Legal

  8. TRIGGER OF OPEN OFFER • Reg 3 (1) – If holding >= 25% • Reg 3 (2) – for a person already holding above 25%, - if acq is more than 5% p.a • Between 25% to 75% - upto 5% p.a allowed. • Cannot acq more than permitted holding • Only Gross Acqn considered • Diff between post & pre allot – computation • Individual plus aggregate holding considered now. • Promoter treated on par with any other acquirer VNS Legal

  9. ACQN OF CONTROL • Reg 4 – separate regulation for acqn of control • Applicable irrespective of whether there is acqn of shares or not • Earlier exemption of postal ballot resolution, is now removed. VNS Legal

  10. INDIRECT ACQUISITION • Reg 5 (1) – defining indirect acqn • Acq of shares, voting rts, control • Over any company or other entity • That would enable the person + PAC to • Exercise voting right or control over target co • Such that it would attract open offer • Direct (vs) percentage rule • Reg 5 (2) - Indirect is construed as Direct if proportionate value of target is - > 80% of acquired entity’s value VNS Legal

  11. VOLUNTARY OFFERS • Min eligibility – 25% • Offer size – minimum of 10% • Last 52 week voluntary acqn by self & PAC – - cannot make a volunt offer • Cannot acq shares from open market during offer period • Cannot acquire for 6 months post offer period except thro another volun offer • Volun acq by Promoters – whether hit by the bar on earlier acqn rule ? VNS Legal

  12. OFFER SIZE • Reg 7 - Offer Size – • At least 26% of total shares as of 10th day of PA (including shares to be acq through PA) • If shareholding would exceed the max limit, undertaking to bring it down within time given under SCR Act. • Such person who has exceeded the max limit, cannot make a voluntary delisting offer for a period of 12 months post offer period VNS Legal

  13. OFFER PRICE • In case of direct acqns – as per Reg 8(2) • In case of indirect acqns – as per Reg 8 (3) • If acq has any outstanding convertible instrument, conversion price of those also to be computed • Non-compete fee to be added • Higher price paid during offer period – offer price will stand revised VNS Legal

  14. PRICING • Indirect acq – if delay in PA more than 5 days, int @ 10% p.a • Payment of diff in price if acq / PAC acquire post offer for a period of 26 weeks at a price higher than the offer price except for another open offer, delisting, market purchases other than thro negotiated deal. If Promoter subsc to Pref Offer @ higher price – impact ? VNS Legal

  15. EXEMPTIONS • Under Reg 10 (1) – for exemption u/ 3 & 4 • Interse transfer of shs amongst qualifying persons – between relatives, PAC, Promoters etc • Acqn in the ord course of business by broker, Merch Banker, Bank / FI as pledgee • Pursuant to scheme of merger / BIFR etc • SARFAESI • Delisting • Transmission VNS Legal

  16. EXEMPTIONS • Under Reg 10 (2) – acqn of shares without change in control pursuant to CDR Scheme • Under Reg 10 (3) - Increase in voting right beyond 25% pursuant to a buyback if the shareholding is not reduced < 90 days of buyback. VNS Legal

  17. EXEMPTIONS • Reg 10 (4) – Exemption under Creeping Acqn of 3(2) • Rights issue • Buy back – as long as not participated • Acqn by promoter from State Fin Corp pursuant to agmt • Acqn by promoter from VC Fund / FVCI pursuant to agmt VNS Legal

  18. RECENT CHANGES – PROCESS & PROCEDURE • Public Announcement – on the date of acqn / agreeing to acquire. In case of market purchases – prior to order placing. • In case of Indirect acqn – within 4 days. • within 4 days of intent / acqn – notify to S.Exch • Detailed Public Statement – within 5 days of PA VNS Legal

  19. PROCESS & PROCEDURE • Detailed PA to be sent to all S.Exch, SEBI & to Company plus publication in papers. • File Draft Letter of Offer to SEBI within 5 days of Detailed PS. • Create escrow a/c within 2 days of Detailed PA • First 500 crs – 25% • Excess – 10% of the balance • Send LOO to shareholders < 7 days of SEBI observations VNS Legal

  20. PROCESS • Acq + PAC to disclose their acq during the offer period < 24 hrs of acqn • Acq + PAC cannot acquire during the period 3 days prior to open of offer & till close of offer • Offer period – 10 days open • Once tendered cannot withdraw • Acq to complete formalities < 10 days of closure of offer VNS Legal

  21. OTHER ISSUES • Completion of acquisition • Can be made only after completion of offer process • Exemption for pref allotment • In case of 100% Escrow, can be completed after 21 days of Detailed PA • What happens to Open Offers triggered by Market purchases ? • Board appt – only after offer closes or 100% escrow after 15 days of Det PA VNS Legal

  22. OBLIGATIONS OF TARGET COMPANY • No matl changes during offer period unless spl resln thro postal ballot • Constitute committee of Indp Dirs to recommend on open offer & publish in papers + send to SEBI / S.Exch • Make available all info to acquirer VNS Legal

  23. DISCLOSURES • Disclosure to S.Exch & Company < 2 days of • Acqn exceeding 5% aggregate • Once above 5%, every acqn or disposal > 2% aggregate • Acqn includes pledge. Except for Bk/FI • Persons holdg > 25% and Promoters shd disclose their aggregate holdg to S.Ex & Co within 7 days of 31 MarPromoter to disclose creation / invocation / disposal of pledge < 7 days by Promoter / PAC VNS Legal

  24. IMPACT OF THE NEW CODE • Cost of open offers increases • Hostile takeover – quite remote • Exemptions – rationalised & clarified • Process & procedures – rationalised • Foreign acquirer – require FIPB clearances • Role of SEBI in processing offer docs – needs rationalisation & clarity VNS Legal

  25. ROLE OF PRACTICSING COMPANY SECRETARIES • Role of CS – crucial / critical in listed entities • Apart from ensuring compliance, can also assist in structuring transactions • Role as advisor to Open Offers • SEBI to consider empanelling CS to certify smaller offers. VNS Legal

  26. CONCLUSION • Objective of SEBI regulations - increasing transparency and protecting interest of the investors in the Capital Markets • Need to distinguish between large / small companies & role of intermediaries • Flexibility to be given to Promoters to increase holding • International practices to be adapted to Indian context. VNS Legal

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