It seems the government is not in favour of mandating a 100 per cent public offer norm as recommended by the Achuthan Panel. Will this not condemn public shareholders to a raw deal?

Shiny D'Souza, Panaji

This is admittedly the most contentious issue in the takeover regime. It is true that at present the promoters selling out are able to sell their entire stakeat an attractive price whereas the public shareholders are offered to sell to the acquirer only 20 per cent of the capital of the company. In other words, the regulations are skewed in favour of the incumbent promoters, goes the charge.

But a moment's reflection would show that the incumbent promoter brings more to the table for the acquirer - block votes which any day is more valuable than shares in driblets. Accordingly, he deserves more than the public shareholders.

At the same time, public shareholders have reason to be peeved with a mere 20 per cent offer. These are not the only parties in the takeover game. One has to keep in mind the interests of the acquirer also because if the takeover regulations insist on 100 per cent public offer, many of the potential acquirers would throw in their towels and the takeover game would end. Hence the need for striking a balance.

Role of white knight

What is the role of the white knight in takeovers?

Raguram Bhargava, Chennai

A white knight is a benevolent person roped in by the beleaguered incumbent promoter to ward off a takeover threat. This happened with East India Hotels Ltd. ITC bid aggressively by buying up close to 14 per cetn of its shares.

The Oberois, promoters of East India Hotels, roped in Mr Mukesh Ambani to bail them out by acting as a white knight. The Reliance group with its formidable cash resources easily knocked ITC out of the game by acquiring almost the same percentage of shares and declaring its preference for the incumbent promoter.

But there is a risk in this strategy — if the white knight himself turns an aggressor, the strategy would have backfired.

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(This article was published on May 29, 2011)
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