The Hindu Business Line : Takeovers and substantial acquisition

A target company is a listed company i.e. whose shares are listed on any stock exchange and whose shares or voting rights are acquired/being acquired or whose control is taken over/being taken over by an acquirer.

Who is an acquirer?

An acquirer means (includes persons acting in concert with him) any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company

What is meant by the term "persons acting in concert (PACs)"?

PACs are individual(s)/company(ies)/any other legal entity(ies) who are acting together for a common objective or for a purpose of substantial acquisition of shares or voting rights or gaining control over the target company pursuant to an agreement or understanding whether formal or informal.

Acting in concert would imply co-operation, co-ordination for acquisition of voting rights or control. This co-operation/co-ordinated approach may either be direct or indirect.

The concept of PAC assumes significance in the context of substantial acquisition of shares since it is possible for an acquirer to acquire shares or voting rights in a company "in concert" with any other person in such a manner that the acquisition made by them may remain individually below the threshold limit but may collectively exceed the threshold limit.

Unless the contrary is established certain entities are deemed to be persons acting in concert such as companies with its holding company or subsidiary company, mutual funds with its sponsor/trustee/asset management company, etc.

How substantial quantity of shares or voting rights is defined?

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 has defined substantial quantity of shares or voting rights distinctly for two different purposes:

Threshold of disclosure: The following are the threshold levels for disclosure to be made by acquirer(s):

* * Five per cent and more shares or voting rights: A person who, along with PAC, if any, (collectively referred to as "acquirer" hereinafter) acquires shares or voting rights (which when taken together with his existing holding) would entitle him to more than 5 per cent or 10 per cent or 14 per cent shares or voting rights of target company, is required to disclose at every stage the aggregate of his shareholding to the target company and the stock exchanges within two days of acquisition or receipt of intimation of allotment of shares.

* * Any person who holds more than 15 per cent but less than 55 per cent shares or voting rights of target company, and who purchases or sells shares aggregating to 2 per cent or more shall within two days disclose such purchase/ sale along with the aggregate of his shareholding to the target company and the stock exchanges.

* * Any person who holds more than 15 per cent shares or voting rights of target company and a promoter and person having control over the target company, shall within 21 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration, disclose every year his aggregate shareholding to the target company.

* * The target company, in turn, is required to inform all the stock exchanges where the shares of target company are listed, every year within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration.

Trigger point for open offer: The following are the triggers for an open offer by an acquirer

* Fifteen per cent shares or voting rights: an acquirer who intends to acquire shares which along with his existing shareholding would entitle him to exercise 15 per cent or more voting rights, can acquire such additional shares only after making a public announcement (PA) to acquire at least additional 20 per cent of the voting capital of target company from the shareholders through an open offer.

* Creeping acquisition limit: An acquirer who holds 15 per cent or more but less than 55 per cent of shares or voting rights of a target company, can acquire such additional shares as would entitle him to exercise more than 5 per cent of the voting rights in any financial year ending March 31 only after making a public announcement to acquire at least additional 20 per cent shares of target company from the shareholders through an open offer.

* Consolidation of holding: An acquirer who holds 55 per cent or more but less than 75 per cent shares or voting rights of a target company, can acquire further shares or voting rights only after making a public announcement to acquire at least additional 20 per cent shares of target company from the shareholders through an open offer.

www.sebi.gov.in

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