Overview of sebi takeover regulations, 2011 - TakeoverCode.com

Overview ofSEBI TakeoverRegulations, 201111/09/2012LOGO

SEBITakeoverRegulations, 201111/09/2012

Need of SEBI Takeover RegulationsAnnouncement of Policy of Globalisation• Opportunity for Overseas InvestorsChange in India Capital Market Scenario• Need for some regulations to protect the interest ofInvestors1994• Enactment of SEBI (SAST) Regulations, 19941997• Enactment of SEBI (SAST) Regulations, 19972011• Enactment of SEBI (SAST) Regulations, 201111/09/2012

Overview of RegulationsSEBI TakeoverRegulations,2011Chapter I –PreliminaryChapter II –SubstantialAcquisition ofShares, VotingRights orControlChapter III -Open OfferProcessChapter IV -OtherObligationsChapter V -Disclosure ofShareholdingand ControlChapterVI -MiscellaneousKeyDefinitionsProvidesthreshold limitfor open offersandexemptionsDeals withConceptsrelated toopen offerObligations ofAcquirer, TC,MerchantBankerProvideslimits formakingdisclosureDeals withpower ofthe Boardto issuedirectionsRegulationRegulationRegulationRegulationRegulationRegulation1-23 - 1112 - 2324 - 2728 - 3132 - 3511/09/2012

11/09/2012BASIC CONCEPT

The Takeover Regulationsare applicable on the acquisitionof Voting Rights orControl over the Listed11/09/2012Company

11/09/2012Shares

11/09/2012Key Definitions

ACQUIRERDirectlyAcquiresWhoOrOrIndirectlyAgrees to AcquireBy HimselfWhetherOr throughOr withWith PACsShares Or Voting rightsOr ControlOver11/09/2012Target Company

ACQUISITIONmeansDirectlyORIndirectlyAcquiringORAgreeing to AcquireShares OR Voting Rights OR ControlTarget Company11/09/2012

ACQUIRERDirectlyAcquiresWhoOrOrIndirectlyAgrees to AcquireBy HimselfWhetherOr throughOr withWith PACsShares Or Voting rightsOr ControlOver11/09/2012Target Company

11/09/2012CONTROL

UNANSWERED ISSUEMeaning of Term Negative Control and the applicability of SEBI TakeoverRegulations on the same?Exemption Rejected in the matter of acquisition of shares of DaikaffilChemicals India Limited (Order dated 14.02.2007)• Acquirer Proposes to acquire 25.10% voting rights through PreferentialAllotment.• Increase in shareholding from Nil to 25.10%.• Exemption Rejected as the acquirer will acquire Negative Control over theCompany.11/09/2012

SHARESMeans• Equity Share capital carryingvoting rightsIncludes• Security which entitles the holderto exercise voting rights• Depository receipts carrying anentitlement to exercise voting rights11/09/2012

FREQUENTLY TRADED SHARESTradingTurnover• 10%• 12 calendar months precedingthe calendar month in which thePA is madeFor instance:Month of PA: September 2012Trading Turnover: September 2011 to August 201211/09/2012

IDENTIFIED DATEIdentifiedDateA date falling onthe 10thbusiness dayprior totendering period11/09/2012

IMPORTANT EVENTSOffer PeriodIdentifiedDateTe n d e r i n gP e r i o dDate ofacquisition ofshares/controltriggering PA10 th working dayprior tocommencementof tenderingPeriod10 working dayswithin whichshareholderstender theirsharesDate of paymentto shareholdersor withdrawal11/09/2012

PERSON ACTING IN CONCERTPersons who for a common objective acquireshares or voting rights or controlover Target Company,pursuant to an agreement or understanding,formal or informal,directly or indirectlyco-operate for acquisition of shares or votingrights or control over the Target Company.11/09/2012

ENTERPRISE VALUE*meansvalue calculatedasMarketCapitalization ofa CompanyDebtMinorityInterestPreferredsharesTotal CashCashEquivalents* Reference given in Indirect acquisition of shares or control11/09/2012

ENTERPRISE VALUE123Minority InterestA significant but non-controlling ownership of less than50% of a company's voting shares by either an investor oranother company.Cash equivalentInvestment securities that are short-term, have high creditquality and are highly liquid.Preferred stockClick to add TitleCapital stock which provides a specific dividend that ispaid before any dividends are paid to common stockholders, and which takes precedence over common stock inthe event of a liquidation. E.g. Preference Shares11/09/2012

ENTERPRISE VALUEPaid up capital (No. of shares) (1) 10,000Closing Price of preceding day (2) 10Market Capitalization (3=1*2) 1,00,000Debt (4) 5,000Minority Interest (5) 25%(2500*10)25,000Preferred shares (1000*10) (6) 10,000Cash and Cash equivalents (7) 4,000Enterprise Value (3+4+5+6-7) 1,36,00011/09/2012

VOLUME WEIGHTED AVERAGE MARKET PRICE“Volume weighted average market price” means the productof the number of equity shares traded on a stock exchange andthe price of each equity share divided by the total number ofequity shares traded on the stock exchange;Number of shares traded on the Stock Exchange on a particular day: XMarket Price: YVolume weighted Average Market Price =X1*Y1+X2*Y2+X3*Y3………X1+X2+X3……………..11/09/2012

VOLUME WEIGHTED AVERAGE PRICE“Volume weighted average price” means theproduct of the number of equity shares bought andprice of each such equity share divided by the totalnumber of equity shares bought;Number of shares bought on a particular day: AMarket Price: BVolume weighted Average Price =A1*B1+A2*B2+A3*B3………A1+A2+A3……………..11/09/2012

WEIGHTED AVERAGE NUMBER OF TOTALSHARES“Weighted average number of total shares” means thenumber of shares at the beginning of a period, adjusted forshares cancelled, bought back or issued during the aforesaidperiod, multiplied by a time-weighing factor;Preferentialallotment of 20sharesReduction of sharecapital10 shares01.04.201101.06.2011 01.10.2011 As on DateCapital 100120 90 90WAN100*61/36516.71120*122/36540.1190*182/36544.88 101.7011/09/2012

TRIGGERED POINTSFOROPEN OFFER11/09/2012

TYPES OF OFFEROPEN OFFERMANDATORY/TRIGGERED OFFERVOLUNTARY OFFERInitial ThresholdCreepingAcquisitionChange inControlIndirectacquisition11/09/2012

INITIAL THRESHOLD & CREEPINGACQUISITION3(1)3(2)Acquirer along withPACAcquirer with PACholding 25% - 75%25% or moreshares or votingrightsCreepingAcquisition - 5% ineach F.Y.11/09/2012

CHANGE IN CONTROL• ThroughShareholderApprovalSEBI (SAST)Regulations,2011• ThroughShareholderApprovalSEBI (SAST)Regulations,199711/09/2012ThroughOpenOffer OnlyIrrespective ofacquisition ofshares or votingrights

INDIRECT ACQUISITIONAcquisition of Voting Rights or control over other entitythat enable the Acquirerto exercise of such percentage ofvoting or control over Target CompanyAcquirerGlobalOfferB UK Ltd.Control100% 72.93%Target Company11/09/2012Indirect acquistion of 72.93%of the Target CompanyTrigger Open Offer

VOLUNTARY OPEN OFFER1 23SeparateprovisionsforvoluntaryOpen OfferMinimumOffer Sizeis 10%Subject tocertaineligibilitycriteria’s,conditionsandrestrictions11/09/2012

VOLUNTARY OPEN OFFER• Prior holding of atleast 25% or more shares;Eligibility• No acquisition during the preceding 52 weekswithout attracting the obligation to make a publicannouncement.Condition• The aggregate shareholding not exceeds themaximum permissible non-public shareholding.Restriction• No further acquisition of shares for a period ofsix months after completion of the open offerexcept by way of another voluntary open offer orcompeting offer.11/09/2012

OPEN OFFERAND ITSRELATED CONCEPTS11/09/2012

MINIMUM OFFER SIZEMandatoryOffer -26%VoluntaryOffer -10%11/09/2012

OFFER PRICEAdd Your TextOffer Price –Specific Criteria forDirectAcquisitionIndirectAcquisitionFrequentlyTraded SharesInfrequentlyTraded Shares11/09/2012

OFFER PRICENew RegulationsOld Regulations60 trading days26-weeks and 2weeks averageVolume-weightedaverage marketpriceSimple Average11/09/2012

NON COMPETE FEESControl Premium Text / Non-Compete FeesTexTextTo be included inTextthe Offer PriceText11/09/2012

ESCROW ACCOUNTOpening of Escrow Account – Not later than two working daysprior to the date of DPSAmount of Escrow DepositTextOn first Rs. 500 CroresOn balance Text amountTextForms of Escrow AccountConceptText25% of the considerationAdditional 10% of balance TextconsiderationTextCashBank GuaranteeFreely transferable equity shares or securities11/09/2012

INCREASE IN SHAREHOLDING BEYONDMAXIMUM PERMISSIBLE NON PUBLICSHAREHOLDING AFTER THE OPEN OFFERAdd Your TextAdd Your TextObligation to bring downthe shareholdingAdd Your TextIneligibility to makevoluntary delisting offerfor a period of 12 monthsfrom the completion ofOffer PeriodAdd Your Text11/09/2012

ACQUISITION AFTER THE TENDERINGPERIODAcquisition during26 weeks afterTendering PeriodAt a price higherthan offer pricePayment ofdifferencebetween highestprice and offerpriceTo theshareholderswhose shares areaccepted in theofferWithin 60 daysfrom suchacquisition11/09/2012

TIMING OF MAKING OPEN OFFERPublicAnnouncement• On the same day oras specified underthe Regulation 13Detailed PublicStatement• Within 5 workingdays from PA11/09/2012

RECOMMENDATION ON THE OFFER BYBOARD2007 2008 2009 2010Recommendation onOffer by theCommittee ofIndependentDirectors• Mandatory‣ Constitution of Committee of Independent Directors (IDC).‣ Recommendation on the Open offer, as to whether the offer , is or is not, fairand reasonable.‣ Publication of the recommendations in newspapers at least two workingdays before the commencement of the tendering period.11/09/2012

KEY POINTOnce a shareholder TEXT TEXT has tendered TEXThis shares in the open offer madeby the Acquirer, than he/ sheTEXT TEXT TEXT TEXTCANNOT WITHDRAW or REVISEhis/her request.11/09/2012

COMPETING OFFEROpen Offer by any other personTEXT TEXT TEXT(Competitor Acquirer) after an offer hasalready been given by an acquirer toTEXT TEXT TEXT TEXTthe shareholders of the TargetCompany.11/09/2012

WITHDRAWAL OF OPEN OFFEROffer once made cannot be withdrawn EXCEPT in the following circumstancesTEXT TEXT TEXTStatutory Approvals required have been refused.Acquirer, being natural person, has died.TEXT TEXT TEXT TEXTAny condition in the agreement is not met for reasons outsidethe reasonable control of the acquirerCircumstances as in the opinion of the Board, merit withdrawal11/09/2012

NO APPOINTMENT OF ACQUIRER ON THEBOARD OF TARGET COMPANYOffer PeriodxTEXTTEXTNo induction of Acquirer or hisrepresentative on Board of TargetCompanyTEXT TEXT TEXT TEXTException:• After 15 working days from DPS, and• Deposit 100% consideration in the Escrow Account11/09/2012

TEXT TEXT TEXTExemption FROMOPEN OFFERTEXT TEXT TEXT TEXT11/09/2012

EXEMPTION FROM OPEN OFFERExemptions from OpenOffer/ ProceduralRequirements relating toOpen OfferTEXT TEXT TEXTRegulation 11-Regulation 10-Exemptions by theAutomatic ExemptionTEXT TEXT TEXT Board TEXTRegulation 11(1)Exemption from the OpenOffer obligationsRegulation 11(2)Relaxation fromProceduralRequirements of OpenOffer11/09/2012

OPEN OFFER REQUIREMENTReg. 3 (1)• Open Offer on crossinginitial threshold, i.e. 25%.TEXT TEXT TEXTReg. 3 (2)• Open offer for crossingcreeping acquisition limit, i.e.5%TEXT TEXT TEXT TEXTReg. 4• Change in Control11/09/2012

AUTOMATIC EXEMPTIONS FROM OPENOFFERReg 3 & 4Reg 3Reg 3 (1)Reg 3(2)Inter-se-transferTEXT TEXT TEXTCDR SchemeBuy Back underRegulation 3(1)Right IssueAcquisition in theordinary course ofbusinessDisinvestmentagreementTEXT TEXT TEXT TEXTBuy BackAcquisition in exchangeof sharesBIFR and MergerSchemesSARFAESI , DelistingTransmission,succession orinheritanceAcquisition from statelevelfinancialinstitutionsAcquisition from aventure capital fund ora foreign venturecapital investorSection 87(2) ofCompanies Act, 195611/09/2012

DISCLOSURESTEXT TEXT TEXTLIMITSTEXT TEXT TEXT TEXT11/09/2012

DISCLOSURES LIMITSEvent Based DisclosureTEXT TEXT TEXTContinual DisclosuresTEXTTEXTEncumbered SharesNo obligation on the TargetCompany to give the disclosureto Stock Exchange.11/09/2012

IMPACT• Beneficial for Private Equity Players and Investors.TEXT TEXT TEXT• More protection for the small shareholders.• Simplification in the provisions.• More transparency and removal of ambiguity.TEXT TEXT TEXT TEXT• At par with Global Practices prevalent for M&As.11/09/2012

ISSUES UNADDRESSED• Negative Control• Applicability of regulations on acquisition of partly paid upTEXT TEXT TEXTshares• Exemption from open offer on account of forfeiture of SharesTEXT TEXT TEXT TEXT11/09/2012

THANK YOU..PAVAN KUMAR VIJAYCorporate Professionals Capital Private LimitedD-28, South Extension –I, New Delhi-110 049Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.comIn case of any query, log on to www.takeovercode.comOur Services: Investment Banking I Valuation & Business Modelling I Mergers &Acquisitions I Tax & Transaction Advisory I ESOP/ESPS I Domestic & Cross BorderInvestment Structuring I Group Reorganisation I Corporate Funding I Issue Management11/09/2012