Overview of sebi takeover regulations, 2011 - TakeoverCode.com
Overview of sebi takeover regulations, 2011 - TakeoverCode.com
Overview of sebi takeover regulations, 2011 - TakeoverCode.com
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<strong>Overview</strong> <strong>of</strong>SEBI TakeoverRegulations, <strong>2011</strong>11/09/2012LOGO
SEBITakeoverRegulations, <strong>2011</strong>11/09/2012
Need <strong>of</strong> SEBI Takeover RegulationsAnnouncement <strong>of</strong> Policy <strong>of</strong> Globalisation• Opportunity for Overseas InvestorsChange in India Capital Market Scenario• Need for some <strong>regulations</strong> to protect the interest <strong>of</strong>Investors1994• Enactment <strong>of</strong> SEBI (SAST) Regulations, 19941997• Enactment <strong>of</strong> SEBI (SAST) Regulations, 1997<strong>2011</strong>• Enactment <strong>of</strong> SEBI (SAST) Regulations, <strong>2011</strong>11/09/2012
<strong>Overview</strong> <strong>of</strong> RegulationsSEBI TakeoverRegulations,<strong>2011</strong>Chapter I –PreliminaryChapter II –SubstantialAcquisition <strong>of</strong>Shares, VotingRights orControlChapter III -Open OfferProcessChapter IV -OtherObligationsChapter V -Disclosure <strong>of</strong>Shareholdingand ControlChapterVI -MiscellaneousKeyDefinitionsProvidesthreshold limitfor open <strong>of</strong>fersandexemptionsDeals withConceptsrelated toopen <strong>of</strong>ferObligations <strong>of</strong>Acquirer, TC,MerchantBankerProvideslimits formakingdisclosureDeals withpower <strong>of</strong>the Boardto issuedirectionsRegulationRegulationRegulationRegulationRegulationRegulation1-23 - 1112 - 2324 - 2728 - 3132 - 3511/09/2012
11/09/2012BASIC CONCEPT
The Takeover Regulationsare applicable on the acquisition<strong>of</strong> 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 <strong>of</strong> Term Negative Control and the applicability <strong>of</strong> SEBI TakeoverRegulations on the same?Exemption Rejected in the matter <strong>of</strong> acquisition <strong>of</strong> shares <strong>of</strong> 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 <strong>of</strong> PA: September 2012Trading Turnover: September <strong>2011</strong> 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 <strong>of</strong>acquisition <strong>of</strong>shares/controltriggering PA10 th working dayprior to<strong>com</strong>mencement<strong>of</strong> tenderingPeriod10 working dayswithin whichshareholderstender theirsharesDate <strong>of</strong> paymentto shareholdersor withdrawal11/09/2012
PERSON ACTING IN CONCERTPersons who for a <strong>com</strong>mon objective acquireshares or voting rights or controlover Target Company,pursuant to an agreement or understanding,formal or informal,directly or indirectlyco-operate for acquisition <strong>of</strong> shares or votingrights or control over the Target Company.11/09/2012
ENTERPRISE VALUE*meansvalue calculatedasMarketCapitalization <strong>of</strong>a CompanyDebtMinorityInterestPreferredsharesTotal CashCashEquivalents* Reference given in Indirect acquisition <strong>of</strong> shares or control11/09/2012
ENTERPRISE VALUE123Minority InterestA significant but non-controlling ownership <strong>of</strong> less than50% <strong>of</strong> a <strong>com</strong>pany's voting shares by either an investor oranother <strong>com</strong>pany.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 <strong>com</strong>mon stockholders, and which takes precedence over <strong>com</strong>mon stock inthe event <strong>of</strong> a liquidation. E.g. Preference Shares11/09/2012
ENTERPRISE VALUEPaid up capital (No. <strong>of</strong> shares) (1) 10,000Closing Price <strong>of</strong> 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 product<strong>of</strong> the number <strong>of</strong> equity shares traded on a stock exchange andthe price <strong>of</strong> each equity share divided by the total number <strong>of</strong>equity shares traded on the stock exchange;Number <strong>of</strong> 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 <strong>of</strong> the number <strong>of</strong> equity shares bought andprice <strong>of</strong> each such equity share divided by the totalnumber <strong>of</strong> equity shares bought;Number <strong>of</strong> 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 <strong>of</strong> total shares” means thenumber <strong>of</strong> shares at the beginning <strong>of</strong> a period, adjusted forshares cancelled, bought back or issued during the aforesaidperiod, multiplied by a time-weighing factor;Preferentialallotment <strong>of</strong> 20sharesReduction <strong>of</strong> sharecapital10 shares01.04.<strong>2011</strong>01.06.<strong>2011</strong> 01.10.<strong>2011</strong> 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,<strong>2011</strong>• ThroughShareholderApprovalSEBI (SAST)Regulations,199711/09/2012ThroughOpenOffer OnlyIrrespective <strong>of</strong>acquisition <strong>of</strong>shares or votingrights
INDIRECT ACQUISITIONAcquisition <strong>of</strong> Voting Rights or control over other entitythat enable the Acquirerto exercise <strong>of</strong> such percentage <strong>of</strong>voting or control over Target CompanyAcquirerGlobalOfferB UK Ltd.Control100% 72.93%Target Company11/09/2012Indirect acquistion <strong>of</strong> 72.93%<strong>of</strong> the Target CompanyTrigger Open Offer
VOLUNTARY OPEN OFFER1 23SeparateprovisionsforvoluntaryOpen OfferMinimumOffer Sizeis 10%Subject tocertaineligibilitycriteria’s,conditionsandrestrictions11/09/2012
VOLUNTARY OPEN OFFER• Prior holding <strong>of</strong> 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 <strong>of</strong> shares for a period <strong>of</strong>six months after <strong>com</strong>pletion <strong>of</strong> the open <strong>of</strong>ferexcept by way <strong>of</strong> another voluntary open <strong>of</strong>fer or<strong>com</strong>peting <strong>of</strong>fer.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 <strong>of</strong> Escrow Account – Not later than two working daysprior to the date <strong>of</strong> DPSAmount <strong>of</strong> Escrow DepositTextOn first Rs. 500 CroresOn balance Text amountTextForms <strong>of</strong> Escrow AccountConceptText25% <strong>of</strong> the considerationAdditional 10% <strong>of</strong> 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 <strong>of</strong>ferfor a period <strong>of</strong> 12 monthsfrom the <strong>com</strong>pletion <strong>of</strong>Offer PeriodAdd Your Text11/09/2012
ACQUISITION AFTER THE TENDERINGPERIODAcquisition during26 weeks afterTendering PeriodAt a price higherthan <strong>of</strong>fer pricePayment <strong>of</strong>differencebetween highestprice and <strong>of</strong>ferpriceTo theshareholderswhose shares areaccepted in the<strong>of</strong>ferWithin 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 2010Re<strong>com</strong>mendation onOffer by theCommittee <strong>of</strong>IndependentDirectors• Mandatory‣ Constitution <strong>of</strong> Committee <strong>of</strong> Independent Directors (IDC).‣ Re<strong>com</strong>mendation on the Open <strong>of</strong>fer, as to whether the <strong>of</strong>fer , is or is not, fairand reasonable.‣ Publication <strong>of</strong> the re<strong>com</strong>mendations in newspapers at least two workingdays before the <strong>com</strong>mencement <strong>of</strong> the tendering period.11/09/2012
KEY POINTOnce a shareholder TEXT TEXT has tendered TEXThis shares in the open <strong>of</strong>fer 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 <strong>of</strong>fer hasalready been given by an acquirer toTEXT TEXT TEXT TEXTthe shareholders <strong>of</strong> 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 <strong>of</strong> the acquirerCircumstances as in the opinion <strong>of</strong> the Board, merit withdrawal11/09/2012
NO APPOINTMENT OF ACQUIRER ON THEBOARD OF TARGET COMPANYOffer PeriodxTEXTTEXTNo induction <strong>of</strong> Acquirer or hisrepresentative on Board <strong>of</strong> 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 <strong>of</strong> OpenOffer11/09/2012
OPEN OFFER REQUIREMENTReg. 3 (1)• Open Offer on crossinginitial threshold, i.e. 25%.TEXT TEXT TEXTReg. 3 (2)• Open <strong>of</strong>fer 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 <strong>of</strong>businessDisinvestmentagreementTEXT TEXT TEXT TEXTBuy BackAcquisition in exchange<strong>of</strong> sharesBIFR and MergerSchemesSARFAESI , DelistingTransmission,succession orinheritanceAcquisition from statelevelfinancialinstitutionsAcquisition from aventure capital fund ora foreign venturecapital investorSection 87(2) <strong>of</strong>Companies 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 <strong>of</strong> ambiguity.TEXT TEXT TEXT TEXT• At par with Global Practices prevalent for M&As.11/09/2012
ISSUES UNADDRESSED• Negative Control• Applicability <strong>of</strong> <strong>regulations</strong> on acquisition <strong>of</strong> partly paid upTEXT TEXT TEXTshares• Exemption from open <strong>of</strong>fer on account <strong>of</strong> forfeiture <strong>of</strong> SharesTEXT TEXT TEXT TEXT11/09/2012
THANK YOU..PAVAN KUMAR VIJAYCorporate Pr<strong>of</strong>essionals Capital Private LimitedD-28, South Extension –I, New Delhi-110 049Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.<strong>com</strong>In case <strong>of</strong> any query, log on to www.<strong>takeover</strong>code.<strong>com</strong>Our 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