| Click on the FAQ for detail |
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What is meant by Takeovers & Substantial acquisition of shares? |
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| When an "acquirer" takes over the control of the "target company", it is termed as Takeover. When an acquirer acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares. The term "Substantial" which is used in this context has been clarified subsequently. | | | |
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What is a Target company? |
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| A Target company is a listed company i.e. whose shares are listed on any stock exchange and whose shares or voting rights are acquired/ being acquired or whose control is taken over/being taken over by an acquirer. | | | |
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Who is an Acquirer? |
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| An Acquirer means (includes persons acting in concert (PAC) with him) any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company | | | |
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What is meant by the term "Persons Acting in Concert (PACs)" |
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PACs are individual(s) /company(ies)/ any other legal entity(ies) who are acting together for a common objective or for a purpose of substantial acquisition of shares or voting rights or gaining control over the target company pursuant to an agreement or understanding whether formal or informal. Acting in concert would imply co-operation, co-ordination for acquisition of voting rights or control. This co-operation/ co-ordinated approach may either be direct or indirect.
The concept of PAC assumes significance in the context of substantial acquisition of shares since it is possible for an acquirer to acquire shares or voting rights in a company "in concert" with any other person in such a manner that the acquisition made by them may remain individually below the threshold limit but may collectively exceed the threshold limit.
Unless the contrary is established certain entities are deemed to be persons acting in concert like companies with its holding company or subsidiary company, mutual funds with its sponsor / trustee/ Asset management company, etc.
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How substantial quantity of shares or voting rights is defined? |
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The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 has defined substantial quantity of shares or voting rights distinctly for two different purposes:
I. Threshold of disclosure to be made by acquirer(s):
1) 5% and more shares or voting rights: A person who, alongwith PAC, if any, (collectively referred to as " Acquirer" hereinafter) acquires shares or voting rights (which when taken together with his existing holding) would entitle him to more than 5% or 10% or 14% shares or voting rights of target company, is required to disclose at every stage the aggregate of his shareholding to the target company and the Stock Exchanges within 2 days of acquisition or receipt of intimation of allotment of shares.
2) Any person who holds more than 15% but less than 55% shares or voting rights of target company, and who purchases or sells shares aggregating to 2% or more shall within 2 days disclose such purchase/ sale along with the aggregate of his shareholding to the target company and the Stock Exchanges.
3) Any person who holds more than 15% shares or voting rights of target company and a promoter and person having control over the target company, shall within 21 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration, disclose every year his aggregate shareholding to the target company.
4) The Target company, in turn, is required to inform all the stock exchanges where the shares of target company are listed, every year within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration.
(II) Trigger point for making an open offer by an acquirer
1) 15% shares or voting rights:
An acquirer who intends to acquire shares which alongwith his existing shareholding would entitle him to exercise 15% or more voting rights, can acquire such additional shares only after making a public announcement (PA) to acquire atleast additional 20% of the voting capital of target company from the shareholders through an open offer.
2) Creeping acquisition limit:
An acquirer who holds 15% or more but less than 55% of shares or voting rights of a target company, can acquire such additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year ending March 31 only after making a public announcement to acquire atleast additional 20% shares of target company from the shareholders through an open offer.
3) Consolidation of holding:
An acquirer who holds 55% or more but less than 75% shares or voting rights of a target company, can acquire further shares or voting rights only after making a public announcement to acquire atleast additional 20% shares of target company from the shareholders through an open offer.
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How is "control" defined? |
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| Control includes the right to appoint directly or indirectly or by virtue of agreements or in any other manner majority of directors on the Board of the target company or to control management or policy decisions affecting the target company. However, in case there are two or more persons in control over the target company the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management provided this transfer is done in terms of Reg. 3(1)(e). Also if consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person (s) prior to such acquisition of control, such control shall not be deemed to be a change in control. | | | |
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What is a Public Announcement (PA)? |
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| A public announcement is an announcement made in the newspapers by the acquirer primarily disclosing his intention to acquire shares of the target company from existing shareholders by means of an open offer. | | | |
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What are the disclosures required to be made under Public Announcement? |
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| The disclosures in the announcement include the offer price, number of shares to be acquired from the public, identity of acquirer, purpose of acquisition, future plans of acquirer, if any, regarding the target company, 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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What is the objective of Public Announcement? |
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| The Public Announcement is made to ensure that the shareholders of the target company are aware of an exit opportunity available to them. | | | |
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Can Acquirer make an offer for less than 20% of shares? |
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| No, the acquirer cannot make an offer for less than 20% of shares. The acquirer has to make an offer for a minimum of 20% (less only in specified cases). | | | |
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Who is required to make a Public Announcement and when is the Public Announcement required to be made? |
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The Acquirer is required to appoint a Merchant Banker (MB) registered with SEBI before making a PA . PA is required to be made through the said MB. The acquirer is required to make the P.A within four working days of the entering into an agreement to acquire shares or deciding to acquire shares/ voting rights of target company or after any such change or changes as would result in change in control over the target company.
In case of indirect acquisition or change in control, the PA shall be made by the acquirer within three months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company in India. The offer price in such cases shall be determined with reference to the date of the public announcement for the parent company and the date of the public announcement for acquisition of shares of the target company, whichever is higher, in accordance with the parameters mentioned in the Takeover Regulations.
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Whether appointment of Merchant Banker for the offer process is mandatory? |
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What documents are to be filed with SEBI after making a P.A. and when are these documents to be filed ? |
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A hard and soft copy of the PA are required to be submitted to SEBI simultaneously with the publication of the same in the newspapers.
A draft letter of offer is required to be filed with SEBI within 14 days from the date of Public Announcement alongwith a filing fee of Rs.50,000/- per letter of offer (payable by Banker’s Cheque / Demand Draft) A due diligence certificate as well as registration details as per SEBI circular no. RMB (G-1) series dated June 26, 1997 are also required to be filed alongwith the draft letter of offer.
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Does SEBI "approve" the draft letter of offer? |
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| Filing of draft Letter of Offer with SEBI should not in any way be deemed or construed that the same has been cleared, vetted or approved by SEBI. The Letter of Offer is submitted to SEBI for a limited purpose of overseeing whether the disclosures contained therein are generally adequate and are in conformity with the Takeover Regulations. This requirement is to facilitate the shareholders to take an informed decision with regard to the Offer. SEBI does not take any responsibility either for the truthfulness or correctness of for any statement, for financial soundness of Acquirer, or of Persons Acting in Concert, or of Target Company, whose shares are proposed to be acquired or for the correctness of the statements made or opinions expressed in the Letter of Offer. It should be understood that while Acquirer is primarily responsible for the correctness, adequacy and disclosure of all relevant information in this Letter of Offer, the Manager to the Offer( a Merchant Banker ) is expected to exercise due diligence to ensure that the Acquirer duly discharges its responsibility adequately. | | | |
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What is a letter of offer? |
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| A letter of offer is a document addressed to the shareholders of the target company containing disclosures of the acquirer/ PACs, target company, their financials, justification of the offer price, the offer price, number of shares to be acquired from the public, purpose of acquisition, future plans of acquirer, if any, regarding the target company, 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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What happens once SEBI gives comments on the draft letter of offer? |
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| The MB will incorporate in the letter of offer the comments made by SEBI and then send within 45 days from the date of PA the letter of offer alongwith the blank acceptance form , to all the shareholders whose names appear in the register of the company on the Specified Date. The offer remains open for 20 days. The shareholders are required to send their Share certificate(s) / related documents to registrar or Merchant banker as specified in PA and letter of offer. The acquirer is required to pay consideration to all those shareholders whose shares are accepted under the offer, within 15 days from the closure of offer. In their own interest, the shareholders are advised to send such documents under registered post. Further, the shareholders may also note that under no circumstances such documents should be sent to the acquirer. | | | |
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How is the price determined in an open offer? |
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SEBI does not approve the offer price. The acquirer/ Merchant Banker is required to ensure that all the relevant parameters are taken in to consideration while determining the offer price and that justification for the same is disclosed in the letter of offer
The relevant parameters are :
(a) negotiated price under the agreement which triggered the open offer.
(b) price paid by the acquirer or persons acting in concert with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of public announcement, whichever is higher;
(c) the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the twenty six weeks or the average of the daily high and low prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher.
In case the shares of Target Company are not frequently traded then instead of point (c) above, parameters based on the fundamentals of the company such as return on networth of the company, book value per share, EPS etc. are required to be considered and disclosed.
In case of non-compete agreement for payment to any person other than the target company, if the payment is more than 25% of the offer price arrived in temrs of the Regulations, the same has to be factored into the offer price.
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What are the criteria for determining whether the shares of the Target Company are frequently or infrequently traded? |
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| The shares of the target company will be deemed to be infrequently traded if the annualised trading turnover in that share during the preceeding 6 calendar months prior to the month in which the PA is made is less than 5% (by number of shares) of the listed shares. If the said turnover is 5% or more, it will be deemed to be frequently traded. | | | |
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Are only those shareholders whose names appear in the register of target company on a specified date, eligible to tender their shares in the open offer? |
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| No. Any shareholder who holds the shares on or before the date of closure of the offer is eligible to participate in the offer. | | | |
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What is a competitive bid? |
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| Competitive bid is an offer made by a person, other than the acquirer who has made the first public announcement. | | | |
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