The Hindu Business Line : Takeover code: Curbs on share dealings by merchant bankers

THE Securities and Exchange Board of India (SEBI) has cast additional obligations on a merchant banker appointed by an acquirer under the Takeover Code. The capital market regulator has imposed restrictions on share dealings in a target company by a merchant banker appointed for a takeover transaction.

Sources said that SEBI has now amended the takeover code to stipulate that a merchant banker should not deal in the shares of the target company from the date of his appointment in terms of Regulation 13 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations till the expiry of fifteen days from the date of closure of the offer.

Further, SEBI has also stipulated that a merchant banker would be required to disclose his shareholding, if any, in the target company in the public announcement of offer and letter of offer made under the Takeover Code.

According to sources, the conflict of interest issue and the possibility of insider trading by such merchant bankers in a takeover situation could have prompted the regulator to undertake such steps.

Experts pointed out that insider dealing or trading could always arise in a scenario where a merchant banker is advising a company that is keen to mount a takeover on another company. Any announcement of an offer for takeover usually has an immediate effect in pushing up the value of shares in a target company and also perhaps of the company that is mounting the takeover.

SEBI has also made a host of changes to the Takeover Code including reduction in the number of days for which an offer to acquire shares should remain open from a period of 30 days to 20 days. Further, the date of opening of the offer should be not later than the 55th day (earlier it was sixtieth day) from the date of the public announcement.

It has also been stipulated that an acquirer should complete all procedures relating to the offer, including payment of consideration to shareholders who have accepted the offer, within 15 days (earlier 30 days) from the date of the closure of the offer.

For computing the percentage of voting capital specified in regulation 21 (minimum number of shares to be acquired), the SEBI has now held that the voting rights as at the expiration of 15 days after the closure of the public offer should be reckoned.

On offer price, the SEBI has held that in case where offer price consists of consideration payable in the form of securities, issuance of which requires approval of the shareholders, then such approval would now be required to be obtained by the acquirer within 7 days (earlier twenty one days) from the date of closure of the offer.

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