Amendments to Takeover Regulations

SEBI has recently made certain amendments to the Takeover Regulations 2011 which are as follows:-

Public announcement in case of preferential allotment

In case an open offer is triggered by a preferential announcement, it is now provided that the public announcement shall be made on the date when the Board of Directors authorizes such resolution. The erstwhile requirement was that public announcement shall be made on date of passing of special resolution approving the preferential allotment. A related amendment further provides that in case the acquisition through preferential allotment is not successful, the open offer shall still not be withdrawn.

There can be a valid concern that the acquirer would have to make an open offer and acquire shares even if he is unable to acquire shares pursuant to the preferential allotment. However, it is generally unlikely that the Board would initiate a proposal for preferential allotment and then the resolution is not approved.

This preponement may affect the pricing of the open offer since the minimum offer price is calculated with reference to the date of public announcement. The schedule of open offer would also change.

Revised trigger date for public announcement for multiple methods of acquisition

A new non-obstante clause 12(2A) provides for a revised trigger date for public announcement when the acquisition is proposed through (i) agreement and one or more specified modes, or (ii) otherwise through one or more of such specified modes. In such cases, the public announcement shall be made on the date of the first of such of such acquisitions and the acquirer cannot wait till the open offer trigger is actually crossed. Thus, if, say, an acquirer proposes to acquire 31% through 3 modes, 10%, 12% and 9% in that sequence, the public announcement needs to be made on making of the first acquisition of 10%. The acquirer shall disclose the proposal to make further acquisitions in such public announcement.

This would apply if all the acquisitions are together “proposed” at the first instance. If, however, shares are acquired below the trigger point and later further shares are acquired without the later acquisition being part of the original proposal, then I think the public announcement would be triggered only when the open offer trigger is crossed.

Completion of acquisitions during the offer period

Where the acquisition is proposed through preferential allotment or through stock market settlement process (other than bulk/block deals), the acquirer can now complete the acquisition while the open offer is in process. However, the shares shall be kept in an escrow account and the acquirer shall not exercise voting rights on such shares. The shares in escrow account may be released after 21 working days of the public announcement if the acquirer deposits 100% of the open offer amount assuming full acceptance.

Disclosures when acquirer’s holding goes below 5%

Disclosures of holdings are intended to begin when an acquirer acquires 5% or more shares and thereafter when he further acquires/sells 2% or more shares. A question that arose recently whether disclosure is required if there is a sale of 2% or more shares and the post-sale holding thereby goes below 5%. The amended clause now provides that disclosure is required also for the sale which results in the holding going below 5%. This was even otherwise an accepted interpretation as, for example, in Bhavesh Pabari v. SEBI (2012) 24 Taxman 64 (SAT).

Reference date in case of buyback of shares

Increase in percentage holding of a non-participating shareholder in buyback of shares may result in implications under the Regulations. A certain period is given to the shareholder to restore his shareholding so that there are no implications. It is now specified that this period shall be calculated from the date of the closure of the buyback offer.