The Hindu Business Line : SEBI to ease takeover rules; more time to fix IPO price

Mumbai, Feb. 2 SEBI will amend its takeover regulations to ease the path for a possible acquisition of Satyam Computer and also to provide for such extraordinary cases in the future.

The scandal-hit IT company’s new Board had requested for certain exemptions from the takeover regulations, Mr C.B. Bhave, Chairman of SEBI, said at a news conference on Monday after a SEBI Board meeting.

“The SEBI Board recognised the special circumstances that have arisen in Satyam and concluded that the amendments must be made in a general context rather than in a specific case,” Mr Bhave said.

The exemptions sought by Satyam relate to the open offer price in case of a takeover, as several companies — Larsen & Toubro and Spice Group included — have shown interest in buying the company.

An offer price under the current regulations would be the higher of the six-month and the 2-week averages of the market price of Satyam, working out to be much higher than the current market price of the stock.

The Satyam stock sank like a stone on January 7 upon its promoter’s confession of a fraud in his company. It has gained a little since then, on the back of speculation that there might be a takeover.

“Prices prior to and including January 7 were those based on certain company information put out in public which now seem to be no longer valid; those accounting statements have been withdrawn by the auditors themselves. So under such circumstances, whether that price should be used or not is to be considered,” said Mr Bhave.

“The (SEBI) Board recognised that there is a real issue here and therefore we need to have a provision in our regulations in order to deal with such matters in general and not just for Satyam.”

On whether SEBI was making acquisition of Satyam “cheap” for other corporate promoters, Mr Bhave said: “The SEBI decision is not that Satyam should be sold cheap or expensive; it is that the price must be decided in a transparent manner.”

He conceded that many investors who bought Satyam earlier would feel they have suffered a loss. Investigations into trading will continue separately to possibly redress that. “But that is a different from the issue of an open offer.”

He would not put a time frame to SEBI making the amendments, but made a reference to the speed (seven days from Board decision to amendments) with which SEBI made it mandatory for listed companies to make public details of pledged shares owned by promoters after the Satyam scandal broke.

OTHER DECISIONS

Possibly in view of falling stock prices, the SEBI Board tightened the norms for issue of preferential warrants, raising the upfront payment to 25 per cent from 10 per cent. “They are probably making sure that falling market prices are not going to make it a cakewalk for promoters to raise stakes in their own companies,” said a broker.

On the IPO front, SEBI eased rules, allowing companies to announce their price-band even up to two days before the opening date of the issue. The price bands are usually announced in the Red Herring Prospectus about two weeks before the opening date.

The timelines for bonuses has also been reduced to 15 days between the Board decision and completion of bonus issue, when the articles of the company don’t call for shareholder approval. Where shareholder approval is required, the time line is 60 days. Earlier it was six months for both.

The Board of SEBI also decided that companies will announce their dividends on a “per-share” basis and not on percentage basis. The latter has the potential to mislead investors as the face value of share prices vary. Since EPS and the market price are all quoted on a per share basis, this would also bring in uniformity to company announcements, said Mr Bhave.

L&T response

Asked for a response to the SEBI announcement on easing of takeover regulations, Larsen and Toubro’s Chief Financial Officer, Mr Y.M. Deosthalee, said, “We have not decided anything as of now.” L&T, which acquired a 4 per cent stake in Satyam in December 2008, raised its holding to 12 per cent last week. There were speculations that it might increase its stake further.