In a bid to make it easier for the takeover of listed entities, SEBI has put in place a new framework on the process and pricing of an open offer and delisting of shares.

Under the existing framework, if an open offer is triggered, compliance with Takeover Regulations could take the buyer’s holding to above 75 per cent or perhaps even 90 per cent. However, to ensure compliance with Securities Contract (Regulation) Rules, 1957, the acquirer must bring his stake down to 75 per cent even if he plans to delist. The SEBI (Delisting of Equity Shares) Regulations, 2021, (Delisting Regulations) would not let the acquirer even attempt a delisting unless the holding is first brought down to 75 per cent.

Such directionally contradictory transactions in a sequence pose complexity in the takeover of listed companies, especially where the acquirer desires to get the company delisted.

Convenient exercise

“The revised framework aims to make M&A transactions for listed companies a more rational and convenient exercise, balancing the interest of all investors in the process,” SEBI said.

If a company does not get delisted pursuant to the open offer under this framework, and the acquirer crosses 75 per cent due to the open offer, 12 months from the date of completion of the open offer will be provided to make further attempts to delist the company under the Delisting Regulations using the reverse book building mechanism.

If delisting during this extended 12-month period is also not successful, the acquirer then must comply with the minimum public shareholding norm within 12 months from the end of such period.

“The delisting reform proposed by SEBI takes away a big hurdle in pubic M&As which until now disallowed acquirers to delist a target company seamlessly. The current requirement of first being required to sell down to 75 per cent and then attempt a delisting process as per the reverse book building process has been done away with. First-time acquirer’s can now attempt a delisting by offering what they believe is a commercially reasonable price without having to worry about an exorbitant price thrown up by the reverse book building method,” said Vikram Raghani, Partner, J Sagar & Associates.

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With increasing shareholder activism and sound guidance provided to minority shareholders on the reasonableness of the price offered, this should be an attractive proposition for public M&A. The process also allows the acquirer another chance if the price offered for delisting is not attractive enough to get to the 90 per cent response. “It is unlikely that this second option will be used by too many acquirers since it would make the entire transaction fairly long from a timeline perspective. Nevertheless the two options put together seem to balance the equation for acquirers and minority shareholders,” Raghani said.

The other reform is in the area of related party transactions where the scope of the regulatory framework has been extended to transactions with shareholders holding 10 per cent or more in the company (20 per cent for now which will eventually be transitioned to 10 per cent). “From a governance standpoint, this only makes the rules tighter which should work well for all stakeholders involved,” Raghani said.

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