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The Finance Ministry has decided against a proposed rule that would have pegged the open offer size under the new takeover code at 100 per cent.
Having a mandatory open offer size of 100 per cent would have required an acquirer reaching the threshold limit of 25 per cent to buy out all the shares held by all other shareholders of the target company. At present, the mandatory open offer size is pegged at 20 per cent, which is in line with international practice.
The SEBI board is likely to meet on June 30 to discuss among other things the recommendations of the Achuthan Committee report on the new Takeover Code. Indications are that the SEBI board will finalise its views on the Achuthan panel report, official sources said. The Finance Ministry has conveyed its views to the capital market regulator on most recommendations of the panel.
For raising mandatory offer threshold to 25%
While the Finance Ministry is against the proposed 100 per cent open offer size rule, it is in favour of a hike in the initial acquisition threshold for a mandatory open offer to 25 per cent of the voting capital of the target company, from the current level of 15 per cent.
The SEBI-appointed Achuthan panel had recommended a 100 per cent open offer rule as it would be demonstrative of the seriousness of the acquirer besides being equitable to the interests of the minority shareholders. The main factor that has led the Finance Ministry to go against the 100 per cent open offer size rule is the concern expressed by domestic companies on the acquisition finance front.
At a recent stakeholder consultations meet, chaired by Dr Kaushik Basu, Chief Economic Advisor to the Finance Ministry, a section of India Inc had pointed out that the proposed rule on open offer size would place many domestic companies at a disadvantage. This was because Indian banks do not finance takeover, but foreign banks readily do so, it said.
“Going in for 100 per cent open offer size from current level of 20 per cent is too much of a jump. It is not acceptable to us. We are yet to decide what would be the ideal size. It could be 40 per cent, 51 per cent or 55 per cent… Overall, it is a good report, but it cannot be accepted in full,” official sources said.
Non-compete fees
On non-compete fees, the Finance Ministry has been unable to decide on the stance it should take, given the different views among the stakeholders.
The Finance Ministry will look at the international practices on the issue of non-compete fees and then take a decision on it, a senior official said.
The Achuthan committee had recommended the abolition of non-compete fees. But India Inc wants this concept to stay. Apex industry associations have contended that the concept of non-compete fees was an international practice and, therefore, should be allowed even in the new takeover code.
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