Sebi announces new takeover norms; open offer trigger raised

Heralding a new set of rules for takeover of companies, the Securities and Exchange Board of India (Sebi) today said an entity buying 25 per cent stake in a listed firm will have to mandatorily make an offer to buy additional 26 per cent from public shareholders.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently, while the trigger for such offer has also been raised from 15 per cent in the existing regulations.

Partly accepting the recommendations of a Sebi-appointed panel on the matter, the Sebi also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

The decisions were taken at a Sebi board meeting here today and were later announced by the Chairman, Mr U K Sinha.

The Sebi panel on new takeover regulations had recommended an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent.

While the recommendation on trigger has been accepted, the same for offer size has been kept lower due to intense opposition from industry and other market participants.

At the time of recommendation of Achutan committee, it was said that all the public shareholders were required to be given an exit opportunity in case of promoters of target company selling out their stake to acquirers.

For removal of non-compete fees, which could be as high as 25 per cent of deal value, the logic was given that promoters should not get higher price than that for public shareholders.

Commenting on the Sebi decision, consultancy firm Corporate Professionals MD, Mr Pavan Kumar Vijay said: “The Sebi Board approved new Takeover Regulations. It is a good move in the direction of simplification of the complicated law“.

He said the move to raise open offer trigger point from 15 per cent to 25 per cent was a “good move for increasing fund raising options and joint ventures“.

It has been said that institutional investors were not being able to put money in listed companies in excess of 15 per cent in fear of mandatory requirement of additional 20 per cent open offer. Now, the investors can buy up to 25 per cent stake without making an open offer.

Mr Vijay said Sebi has decided to increase open offer size to only 26 per cent due to “industry pressure against the 100 per cent offer size recommendation of Achutan Committee“.

“Though logic of 26 per cent is not known, but the move is good for domestic promoters and industry as cost concerns and funding of offer is addressed to a major extent,” he added.

On non-compete fee, he said that the Sebi has accepted the Takeover Regulations Advisory Committee (TRAC) recommendation of scrapping the non-compete fee.

“Outright scrapping may not be treated as a right move as the promoters can not be treated as right in all cases. Where the promoters have real personal contribution in business, Non-compete fee is logical,” he added.

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