sast regulations
DESCRIPTION
SEBI TAKEOVER REGULATIONSTRANSCRIPT
SEBI (Substantial Acquisition of Shares
& Takeovers) Regulations 2011
:Takeover Code
Group Members–Shalini Devendran 37
–Swapnali Ghadge 47
–Shilpee Haldar 50
–Rupali Helambe 51
–Priyanka Kadam 66
–Jenneey Rajani 129
–Neha Thakur 167
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• Takeover & Types• Background of SEBI takeover code• Objectives of the Takeover Regulations• Definitions• Trigger Events to Give Open Offer
• -Mandatory Offer• -Voluntary Offer
• Offer size• Offer Prize• Non Compete Fee• Mode of Payment• Letter of Offer• Escrow Account• Competing offer
Contents
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• Payment of Consideration• Open Offer Process• Withdrawal of open offer• Obligations of the acquirer• Obligations of the target company• Obligations of the merchant banker• Disclosures• Exemptions• Penalties• Case Study
–Diageo and United spirits• Conclusion
Contents
Takeover
• Takeover is the process to purchase enough share of a company to overtake the current majority shareholder.
OR
• Takeover implies acquisition of control of a company which is already registered through the purchase or exchange of shares.
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Acquiring control
• The right to appoint majority of the directors or to control the management or policy decisions
• Exercisable by a person or a person acting in concert, directly or indirectly.
• By virtue of their shareholding or management rights or shareholder’s agreements or voting agreements or in any manner.
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Ways of Acquiring control
• Control could be acquired through acquisition of Shares.
• Acquiring Voting Rights through a power of Attorney.
• Acquiring control over an Investment or Holding company ,which in turns holds controlling interest in the target company.
• Acquiring management control through formal or informal understanding or agreement with the existing person in control.
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Objective of takeover
• To improve productivity and profitability by joint efforts .
• To achieve product development through acquiring firms.
• To effect savings in overheads and other working expenses.
• To diversify through acquiring companies with new product lines as well as new market shares.
• To increase market share.
• To achieve market development.
To increase the client base through Vertical integration.
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By absorbing competitors and set price
Smooth the
earning results
New geogra
phic location
s.
Types of acquisition
Acquisition
Legal Context
Business Context
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Legal ContextFriendly Takeover
Hostile Takeover
Bail-Out Takeover
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Types of acquisition
Types of acquisition
Business Context
Horizontal
Vertical
Conglomerate
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Applicability of SAST
• Takeover can be of a Listed or an Unlisted company
• In case of Takeover of an Unlisted and closely held company – Companies Act, 1956 to apply.
• In case of Takeover of a Listed company, the following legal framework to apply:
- SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 issued by the Securities and Exchange Board of India (SEBI)
- Companies Act, 1956- Listing Agreement- Securities Contracts Regulation (SCR Act) - FEMA, Competition Act 2002, Industrial Policy- Other govt. policy and procedures
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History of SEBI takeover code
• In 1980 Swaraj Paul's case highlighted the need for regulations in case of Takeovers.
• The need was felt in 1990s when the government initiated the policy of liberalization and globalization
• Takeovers in India were regulated by Clause 40 in the listing agreement.
• Takeovers in India were regulated by Clause 40 in the listing agreement.
• SEBI was established in 1992 as a body corporate under the SEBI Act, 1992.
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• SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.
• Amended a number of times to address the changing circumstances and needs of corporate sector.
• November 1995,under the chairmanship of Shri P.N.Bhagwati, former Chief Justice of India was constituted to review the said regulations.
• SEBI was established in 1992 as a body corporate under the SEBI Act, 1992.
• SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997
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History of SEBI takeover code
• Owing to several factors such as M&A activities in India as the preferred mode of restructuring, the increasing sophistication of takeover market, decade long regulatory experience and various judicial pronouncements, it was felt necessary to review the Takeover Regulations.
• In September 2009, the Takeover Regulations Advisory Committee (TRAC) under the chairmanship of (Late) Sri. C. Achuthan was constituted by SEBI .
• In June 2010, the Committee came out with the TRAC Report proposing some sweeping changes .
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History of SEBI takeover code
• SAST Regulations, 2011 come into force with effect from October 22, 2011
• In 2013 SAST Regulations again get amended and now we have new SAST Regulation 2013.
• The main purpose for the new takeover code 2013 is to prevent hostile takeovers and at the same time, provide some more opportunities of exit to innocent shareholders who don't wish to be associated with a particular acquirer.
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History of SEBI takeover code
Listing Agreement 40(A) • Listing Agreement 40(A) : Minimum level of Public shareholding.
• The issuer company agrees to comply with the requirements specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
• Where the issuer company is required to achieve the m
• minimum level of public shareholding specified in Rule 19(2)(b) and/or Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
• Issuer company shall adopt any of the following methods to raise the public shareholding to the required level :
-issuance of shares to public through prospectus
-offer for sale of shares held by promoters to public through prospectus.
-sale of shares held by promoters through the secondary market.
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Listing Agreement 40(B)
• Listing Agreement 40(B) : Take Over Offer
• it is a condition for continued listing that whenever the take-over offer is made or there is any change in the control of the management of the company the person who secures the control of the management of the company and the company whose shares have been acquired shall comply with the relevant provisions of the SEBI (Substantial Acquisition of Shares and Take-Overs) Regulations, 2011.
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Need of SEBI takeover code
• To provide a transparent legal framework.• To protect the interests of investors.• To provide each shareholder an opportunity to exit his investment in
the target company.• To ensure that fair and accurate disclosure of all material information
is made.• To regulate and provide for fair and effective competition among
acquirers.• The process of acquisition and mergers shall be completed in a time
bound manner.
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6 chapters
Chapter I
Preliminary-Reg
1: Short title,
commencement & applicabil
ity
-Reg 2:
Definitions
Chapter IISubstantial
acquisition of shares,
voting rights or control
-Reg 3:
Substantial
acquisition of
shares or voting rights
-Reg 4:
Acquisition of
control
-Reg 5:
Indirect acquisitio
n of shares or control
-Reg 6:
Voluntary offer
-Reg 7: Offer
size
-Reg 8: Offer
price
-Reg 9: Mode
of Payment
-Reg 10:
General exemptio
ns
-Reg 11:
Exemptions by the
Board
Chapter III
Open offer process
-Reg 12:
Manager to Open
Offer-Reg 13:
Timing-Reg 14:
Publication
-Reg 15:
Contents-Reg 16:
Filing of letter of
offer with the Board-Reg 17:
Provision of
Escrow-Reg 18: Other
Procedures
-Reg 19:
Conditional offer-Reg 20:
Competing offers-Reg 21:
Payment of
Consideration-Reg 22:
Completion of
Acquisition
-Reg 23:
Withdrawal of Open offer
Chapter IV
Other Obligation
s
-Reg 24:
Directors of the Target
company-Reg 25:
Obligations of the acquirer-Reg 26:
Obligations of the
target company-Reg 27:
Obligations of the Manager
to the Open offer
Chapter VDisclosures
of shareholding and control
-Reg 28:
Disclosure related provision
s-Reg 29:
Disclosure of
acquisition and
disposal-Reg 30:
Continual
Disclosures
-Reg 31:
Disclosure of
encumbered
shares
Chapter VI
Miscellaneous
-Reg 32:
Power to issue
Directions
-Reg 33:
Power to remove
difficulties
-Reg 34:
Amendment to other
regulations
-Reg 35:
Repeal and
Savings
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DEFINITIONS
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Reg.2(1)(a) Acquirer
“Acquirer” means:
any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company.
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Reg.2(1)(q) Person acting in concert
• Defined in two parts:
1) persons who has common objective of acquisition of shares or exercising control over a target company, an agreement or understanding (formal or informal), co-operate directly or indirectly, for acquisition of shares or voting rights in, or exercise of control over the target company
2) lists out categories of person or entities that could be presumed to be acting in concert.
- a company, its holding company, subsidiary company and any company under the same management or control
- a company, its directors, and any person entrusted with the management of the company
- a mutual fund, its sponsor, trustees, trustee company, and asset management company
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Control includes right to
Exercisable By virtue of
• Appoint majority of directors
• Control the management
• Control policy decisions
• By a person individually
• By PACs• Directly or
Indirectly
• Shareholding• Management rights• Shareholders’
agreement• Voting agreements• Any other manner
A director or officer of the target company is not considered in control over it merely byvirtue of such a position
Reg.2(1)(e) Control
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Reg.2(1)(b)Acquisition
“Acquisition” means:
directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company.
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Reg.2(1)(z) Target company
“Target Company” means:
a company and includes a body corporate or corporation established under a Central legislation, State legislation or Provincial legislation for the time being in force, whose shares are listed on a stock exchange.
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Reg. 2(1)(s)Promoter
“Promoter” means:
-Person who is in control of the company
-Person named as a promoter in any document for offer of securities to the public or existing shareholders or in the shareholding pattern filed with the stock exchange(s) under the Listing Agreement, whichever is later.
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Reg. 2(1)(t)Promoter group
“Promoter Group” means i. In case the promoter is a body corporate, •A subsidiary or holding company of such body corporate•A company in which promoter holds 10% or more of the equity capital or a company who holds 10% or more of the equity capital of the promoter•Any company, in which a group of individuals or companies or combinations thereof, who holds 20% or more of the equity capital in that company, also holds 20% or more of the equity capital of the target company
ii. In case the promoter is an individual, •immediate relative (i.e., spouse or any parent, brother, sister or child of that person or of his spouse)•Any company in which 10% or more of the share capital is held by the promoter or his immediate relative or a firm or HUF of which he/any one or more of them are members
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Reg.2(1)(v)Shares
“Shares” means shares in the equity share capital of a target company carrying voting rights, and includes any security which entitles the holder thereof to exercise voting rights.
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Reg.2(1)(j) Frequently traded shares
“Frequently Traded Shares” means shares of a target company, in which the traded turnover on any stock exchange during the twelve calendar months preceding the calendar month in which the public announcement is made, is at least ten percent of the total number of shares of such class of the target company.
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Reg.2(1)(p) Offer period
“Offer Period” means: the period between the date of entering into an agreement, formal or informal, to acquire shares, voting rights in, or control over a target company requiring a public announcement, or the date of the public announcement, as the case may be, and the date on which the payment of consideration to shareholders who have accepted the open offer is made, or the date on which open offer is withdrawn, as the case may be.
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Reg. 2(1)(za) Tendering period
“Tendering Period” means:
the period within which shareholders may tender their shares in acceptance of an open offer to acquire shares made under these regulations.
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Reg.2(1)(k) Identified date
“Identified Date” means the date falling on the tenth working day prior to the commencement of the tendering period, for the purposes of determining the shareholders to whom the letter of offer shall be sent.
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Reg.2(1)(h)Enterprise value
“Enterprise Value” means:
the value calculated as market capitalization of a company plus debt, minority interest and preferred shares, minus total cash and cash equivalents.
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Reg. 2(1)(zb)Volume Weighted average market price
“Volume Weighted Average Market Price” means:
the product of the number of equity shares traded on a stock exchange and the price of each equity share divided by the total number of equity shares traded on the stock exchange.
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Example Volume Weighted Average Market price
Sr. No No. of shares traded(A)
Market Price per share (B)
Product of (A) and (B)
1 200 500 1,00,0002 300 667 2,00,1003 500 898 4,49,0004 700 450 3,15,0005 600 999 5,99,400
TOTAL 2,300 16,63,500
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Volume Weighted Average Market price = Product of (A and B) /Total of A=1663500/2300=Rs.723.26
Reg.2(1)(zc)Volume weighted average price
“Volume Weighted Average Price” means the product of the number of equity shares bought and price of each such equity share divided by the total number of equity shares bought.
Say, No. of shares bought on a particular day – A
Market price – B
Volume weighted average price = A1*B1+A2*B2+A3*B3+…….
A1+A2+A3+…….
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Recap
• Takeover & Types• Background of SEBI takeover code• Objectives of the Takeover Regulations• Definitions
6 chapters
Chapter I
Preliminary-Reg
1: Short title,
commencement & applicabil
ity
-Reg 2:
Definitions
Chapter IISubstantial
acquisition of shares,
voting rights or control
-Reg 3:
Substantial
acquisition of
shares or voting rights
-Reg 4:
Acquisition of
control
-Reg 5:
Indirect acquisitio
n of shares or control
-Reg 6:
Voluntary offer
-Reg 7: Offer
size
-Reg 8: Offer
price
-Reg 9: Mode
of Payment
-Reg 10:
General exemptio
ns
-Reg 11:
Exemptions by the
Board
Chapter III
Open offer process
-Reg 12:
Manager to Open
Offer-Reg 13:
Timing-Reg 14:
Publication
-Reg 15:
Contents-Reg 16:
Filing of letter of
offer with the Board-Reg 17:
Provision of
Escrow-Reg 18: Other
Procedures
-Reg 19:
Conditional offer-Reg 20:
Competing offers-Reg 21:
Payment of
Consideration-Reg 22:
Completion of
Acquisition
-Reg 23:
Withdrawal of Open offer
Chapter IV
Other Obligation
s
-Reg 24:
Directors of the Target
company-Reg 25:
Obligations of the acquirer-Reg 26:
Obligations of the
target company-Reg 27:
Obligations of the Manager
to the Open offer
Chapter VDisclosures
of shareholding and control
-Reg 28:
Disclosure related provision
s-Reg 29:
Disclosure of
acquisition and
disposal-Reg 30:
Continual
Disclosures
-Reg 31:
Disclosure of
encumbered
shares
Chapter VI
Miscellaneous
-Reg 32:
Power to issue
Directions
-Reg 33:
Power to remove
difficulties
-Reg 34:
Amendment to other
regulations
-Reg 35:
Repeal and
Savings
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Trigger points for open offer
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Trigger events for open offer
Open Offer
Mandatory Offer
Acquisition of Shares (Reg. 3)
Acquisition of Control (Reg. 4)
Indirect Acquisition of Shares & Control (Reg. 5)
Voluntary Offer (Reg. 6)
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SEBI TAKEOVER RESOLUTION, 1997
SEBI TAKEOVER RESOLUTION, 2011
15%
55%2
nd Tr
igge
r
Cree
ping
Acqu
isiti
on 5
% in
a
F.Y.
75%
Maximum permissible non-public shareholding
3rd
Trig
ger
25%
75%
1st
Trig
ger
1st
Trig
ger
2nd Tr
igge
r
Cree
ping
Acqu
isiti
on 5
% in
a
F.Y.
Reg. 3 Acquisition of shares
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No Netting off Allowed
Acquisition of shares by way of issue of new shares
The quantum of acquisition of additional voting rights:
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Reg. 4Acquisition of control
• Irrespective of acquisition, no acquirer shall acquire, directly or indirectly, control over such target company without making a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations
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Reg 5Indirect Acquisition of shares or
control
• Acquisition of shares or voting rights in, or control over, any company that would enable any person and PAC with him to exercise such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement shall be considered as an indirect acquisition
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the proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or business being acquired ; or
the proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or business being acquired; or
the proportionate market capitalisation of the target company as a percentage of the enterprise value for the entity or business being acquired
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Is >80%, on the basis of the most recent audited annual financial statements, such indirect acquisition shall be regarded as a direct acquisition
• In case of an indirect acquisition where:
Reg. 6Voluntary open offer
ELIGIBILITY
Prior holding of
atleast 25% or more sharesNo
acquisition during the preceding 52 weeks except by
way of Open Offer.
OFFER SIZE
Minimum of 10% of the total shares
of the Target
company
CONDITION
The aggregate
share holding not to exceed
the maximum permissibl
e non-public
shareholding
RESTRICTIONNo further
acquisition of shares for a period of six months after completion of the open offer except by way of• voluntar
y open offer or
• competing offer.
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OPEN OFFERAND
ITS RELATED CONCEPTS
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SEBI TAKEOVER
REGULATIONS, 1997
20%
SEBI TAKEOVER
REGULATIONS, 2011
26%
• Acquirer getting simple majority i.e. 51% (25% + 26%)
Reg. 7Offer size
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Specific criteria for price
Offer Price
Direct Acquisition(Reg. 8)
Frequently Traded Shares
Infrequently Traded Shares
Indirect Acquisition(Reg. 8)
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Reg. 8Offer price
1997 Regulation
Higher of • weekly high and
low of closing prices for 26 weeks
• Average of daily high and low of last two Offer Period weeks
the average market price of 60 trading days prior to the
date of the public announcement
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2011 Regulation
Direct Acquisition[Regulation 8(2)] Indirect Acquisition[Regulation 8(3)]
1) The highest negotiated price per share of the target company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer
1)The highest negotiated price per share of the target company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer
2) Volume weighted average price paid or payable by the acquirer or PAC during the preceding 52 weeks#
2)Volume weighted average price paid or payable by the acquirer or PAC during the preceding 52 weeks*
3)The highest price paid or payable for any acquisition by the acquirer or PAC during the preceding 26 weeks#
3)The highest price paid or payable for any acquisition by the acquirer or PAC during the preceding 26 weeks*
The minimum offer price should be highest of the following, computed with reference to the cut-off date:
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Direct Acquisition[Regulation 8(2)]
Indirect Acquisition[Regulation 8(3)]
4)For frequently traded shares: volume-weighted average market price of such shares for a period of 60 trading days#
For infrequently traded shares: the price determined by the acquirer and the manager to the open offer taking into account valuation parameters
4)Volume weighted average market price of such shares for a period of 60 trading days*, for frequently traded shares
5) The per share value of the target company computed (In case of Deemed Direct Acquisition where net assets value or sales turnover or market capitalization of the target company is more than 15% of consolidated net asset or sales turnover or the enterprise value of the entity or business being acquired as per latest audited annual financial statements, the per share value of the target company computed by the acquirer )
5)The per share value of the target company computed (Where net assets value or sales turnover or market capitalization of the target company is more than 15% of consolidated net asset or sales turnover or the enterprise value of the entity or business being acquired as per latest audited annual financial statements, the per share value of the target company computed by the acquirer
# Cut-off date: Date on which PA is made
*Cut-off date: Earlier of, the date on which the primary acquisition is contracted and the date on which intention or decision to make primary acquisition is announced
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Date of Acquisition
Price per share (1)
No. of shares acquired (2)
Consideration (3=1*2)
15.10.2013 150 200 3000025.11.2013 140 100 1400005.1.2014 155 250 3875006.1.2014 145 50 72506.4.2014 160 150 240006.5.2014 150 200 300006.7.2014 140 100 1400016.9.2014 155 50 7750
Total 1100 165750Volume weighted average price (Total of 3/Total of 2)
150.68
Suppose the date of public announcement is 30th September 2014
Volume weighted average price paid or payable by the acquirer or PAC during the preceding 52 weeks
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Date of Acquisition
Price per share
No. of shares acquired
6.4.2014 160 1506.5.2014 150 2006.7.2014 140 10016.9.2014 155 50
Highest Price Paid
160
The highest price paid or payable for any acquisition by the acquirer or PAC during
the preceding 26 weeks preceding date of PA
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Date price Price per share(1)
No. of shares Traded(2)
Consideration (3=1*2)
01.08.2014 154 12542 1931468
15.09.2014 153 9751 1491903
29.09.2014 157 7220 1133540
Total 42181 4556911
Volume weighted average market price(Total of 3/Total of 2)
108.03
Volume-weighted average market price of such shares for a period of 60 trading
days preceding date of PA
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Minimum Offer Price shall be highest of Price (Rs)
Highest Price paid per share under the Agreement 162
Volume weighted average price paid or payable by the acquirer or PAC during the preceding 52 weeks
150.68
The highest price paid or payable for any acquisition by the acquirer or PAC during the preceding 26 weeks preceding date of PA
160
volume-weighted average market price of such shares for a period of 60 trading days preceding date of PA
108.03
Minimum Offer Price 162
Minimum Offer Price
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NON COMPETE FEES
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Non compete fees - Regulation8(7)
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• SEBI takeover regulations, 1997
Non compete fees up to 25% of the offer price (Not to be included in the Offer Price)
• SEBI takeover regulations, 2011
Non compete fees to be included in the Offer Price
MODE OF PAYMENT
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Mode of payment Regulation 9
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The offer price may be paid:
(a) in cash
(b) by issue, exchange or transfer of listed shares in the equity share capital of the acquirer or of any person acting in concert
(c) by issue, exchange or transfer of listed secured debt instruments issued by the acquirer or any person acting in concert with a rating not inferior to investment grade as rated by a credit rating agency registered with the Board
(d) by issue, exchange or transfer of convertible debt securities entitling the holder thereof to acquire listed shares in the equity share capital of the acquirer or of any person acting in concert; or
(e) a combination of the mode of payment of consideration stated inclause (a), clause (b), clause (c) and clause (d)
PROVIDED THAT -
• Where any shares have been acquired or agreed to be acquired by the acquirer and PAC with him
• during 52 weeks immediately preceding the date of public announcement constitute more than 10% of the voting rights in the target company and has been paid for in cash,
• the open offer shall entail an option to the shareholder to require payment of the offer price in cash, and
• a shareholder who has not exercised an option in his acceptance shall be deemed to have opted for receiving the offer price in cash
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Mode of payment
Mode of payment
In case of revision in offer price
• The mode of payment of consideration may be altered subject to condition
• that the component of the offer price to be paid in cash prior to such revision is not reduced
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Shares to be issued or exchanged or transferred or the shares to be issued upon conversion of other securities, shall conform to the following requirements:
• such class of shares are listed on a stock exchange and frequently traded at the time of the public announcement;
• such class of shares have been listed for a period of at least two years preceding the date of the public announcement;
• the issuer of such class of shares has redressed at least ninety five percent of the complaints received from investors by the end of the calendar quarter immediately preceding the calendar month in which the public announcement is made;
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(d) the issuer of such class of shares has been in material compliance with the listing agreement for a period of at least two years immediately preceding the date of the public announcement:
Provided that in case where the Board is of the view that a company has not been materially compliant with the provisions of the listing agreement, the offer price shall be paid in cash only;
(e) the impact of auditors’ qualifications, if any, on the audited accounts of the issuer of such shares for three immediately preceding financial years does not exceed five percent of the net profit or loss after tax of such issuer for the respective years; and
(f) the Board has not issued any direction against the issuer of such shares not to access the capital market or to issue fresh shares
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Where listed securities are offered as consideration, the value of such securities shall be higher of :
1. the average of the weekly high and low of the closing prices of such securities quoted on the stock exchange during the six months preceding the relevant date;
2. the average of the weekly high and low of the closing prices of such securities quoted on the stock exchange during the two weeks preceding the relevant date;
3. the volume-weighted average market price for a period of sixty trading days preceding the date of the public announcement are recorded during the six-month period prior to relevant date
30 th day prior to the shareholders meeting
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LETTER OF OFFER
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Filing of letter of offer with the Board. Regulation 16
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LOF to be filled with SEBI within 5 working days from the date of detailed public announcement through manager to the open offer:
Consideration payable under open offer
Fee (Rs)
Up to 10 crore Rs. 1,25,000
> 10 crore but <= 1,000 crore Rs. 1,25,000 + 0.025% of the offer size in excess of Rs. 10 crore
> 1,000 crore but <= 5,000 crore Rs. 1,25,000 + 0.03125% of the offer size in excess of Rs. 1,000 crore
> 5,000 crore Rs. 2,50,00,000 + 0.01% of the offer size in excess of Rs. 5,000 crore subject to maximum of Rs. 3,00,00,000
Reg. 16 Filing of letter of offer with the Board
• SEBI shall give its comments on the draft LOF within 15 working days of the receipt of the draft LOF. If no comments being issued within such period, it shall be deemed that SEBI does not have comments to offer
• If SEBI has sought clarifications or additional information from the Merchant Banker, the period for issuance of comments shall be extended to the 5th working day from the date of receipt of satisfactory reply to the clarification or additional information sought
• Changes specified shall be carried out by the Merchant banker and the acquirer in the letter of offer before it is dispatched to the shareholders
• In the case of competing offers, SEBI shall provide its comments on the draft LOF in respect of each competing offer on the same day.
• If the disclosures in the draft LoF are inadequate, SEBI may call for a revised LOF
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ESCROW ACCOUNT
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Escrow accountReg. 17
• the acquirer shall create an escrow account towards security for performance of his obligations under these regulations
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SL. No Consideration payable under the open offer
Escrow Amount
1. Up to Rs. 500 crores 25% of consideration
2. On the balance consideration An additional amount equal to 10%of the balance consideration
Conditional open offer, 100% of the consideration payable in respect of minimum level of acceptance
or 50% of the consideration payable under the open offer,
whichever is higher, shall be deposited in cash in the escrow account
Acquirer may make an offer conditional as to minimum level of acceptance
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The escrow account may be in the form of:
• cash deposited with any scheduled commercial bank
• bank guarantee issued in favour of the Merchant banker by any scheduled commercial bank
• deposit of frequently traded and freely transferable equity shares or other freely transferable securities
The manager to the open offer shall not release the escrow account until the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer
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• The escrow account deposited with the bank in cash shall be released only in the following manner:
• the entire amount to the acquirer upon withdrawal of offer (regulation 23)
• for transfer of an amount not exceeding ninety per cent of the escrow account, to the special escrow account in accordance with regulation 21
• to the acquirer, the balance of the escrow account after transfer of cash to the special escrow account, on the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, as certified by the manager to the open offer;
• the entire amount to the acquirer upon the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, upon certification by the manager to the open offer, where the open offer is for exchange of shares or other secured instruments
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Failure of Payment
• In case of non-fulfillment of any of the obligations under these regulations, Merchant Banker has a right to forfeit the escrow account and distribute the proceeds in the following way:-
1. 1/3rd of the escrow account to the target company
2. 1/3rd of the escrow account to the Investor Protection and Education Fund established under the Securities and Exchange Board of India Regulations, 2009
3. 1/3 to be distributed on pro rata basis among the shareholders who have accepted the open offer.
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Reg. 20Competing Offer:
• Offer made by the person, other than the acquirer who has made the first public announcement: within 15 working days from the date of detailed public statement.
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Existing
holding of 1st acquir
er
No. of shares proposed to
be acquir
ed under the 1st Offer
Underlying
agreement for
sale of shares of the Target Compa
ny
Existing
holding of
Competitive acquir
er +PAC+No.
of shares to be acquir
ed throug
h competitive offer
Reg. 20Competing Offer:
• Unless the 1st open offer made is a conditional offer, no acquirer making a competing offer may be made conditional as to the minimum level of acceptances.
• The 1st acquirer has a right to revise its offer up to 3 working days prior to the opening of the offer.
• Schedule of activities and the offer opening and closing of all competing offers shall be carried out with identical timelines.
• No person can make a PA of an open offer for acquiring shares, or enter into any transaction that would trigger the Takeover Code requiring a mandatory open offer, after fifteen working days from the date of PA of an open offer under the Takeover Code till the expiry of the offer period for such open offer.
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Reg. 21Payment of Consideration:
• For the amount of consideration payable in cash, the acquirer shall open a special escrow account with a banker to an issue registered with SEBI.
• Payment consideration together with 90% of the amount lying in the escrow account transferred, make up the entire sum due and payable to the shareholders as consideration for acceptances.
• The acquirer shall complete payment of consideration, whether in the form of cash, or issue or exchange or transfer of securities, to all shareholders who have tendered shares in acceptance of the open offer, within 10 working days of the expiry of the tendering period.
• Unclaimed balances, if any, lying to the credit of the special escrow account, at the end of 7 years from the date of deposit thereof, shall be transferred to the Investor Protection and Education Fund.
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Appoint a Merchant Banker
Public Announceme
nt
Detailed Public Announcemen
t (DPA)
‘Identified date’ to determine the name of the shareholders to whom
the letter of offer should be sent
Dispatch of Letter of offer to
shareholders
Pre Offer Advertisem
ent
Comments from BOD of Target
company
Filing Draft Offer
Document with SEBI
Escrow Account
Receipt of comments from SEBI
Revision of Offer Price
Opening of the Issue
Post Offer Advertisem
ent
Payment of Considerati
on
Final Report from Merchant
Bank
Closing of the Issue
Within 4 working days Copy to SEBI, SE & Target Co.
Within 2 working days prior to DPA
Within 5 working days from the PA
Within 5 working days from the date of DPA
Within 15 days of the receipt of draft offer
Last day of
Competitive bid
Within 15 working days from the date of DPA
Within 7 working days from the receipt of
comments from SEBI
Within 12 working days from date of receipt of comments from SEBI
Before the last 3 working days prior to the commencement of
the tendering period
1 working days before the commencement of the
tendering period
10 days from the opening of issue
Within 5 working days after the offer period
Within 10 working days from the expiry of the
tendering period
Within 15 working days from the expiry of the
tendering period
At least 2 working days before the commencement of the
tendering period
10th working day prior to the commencement of tendering period
Open Offer Process:
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• An open offer once made cannot be withdrawn except:– Statutory approvals required for the open offer have been refused– The acquirer, being a natural person, has died– any condition stipulated in the agreement is not met for reasons outside
the reasonable control of the acquirer, and such agreement is rescinded (subject to such conditions having been specifically disclosed in the DPS and the letter of offer); or
– Circumstances which in the opinion of SEBI merit withdrawal of open offer
• In the event of withdrawal, the acquirer shall through the Merchant banker, within 2 working days, provide grounds and reasons for withdrawal of Open Offer:– make an announcement in the newspapers (same as in case of PA)– Inform in writing to SEBI, SE & Target company– the stock exchange shall disseminate such information
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Reg. 23Withdrawal of Open Offer:
OBLIGATIONS
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• The acquirer shall ensure that firm financial arrangements have been made for fulfilling the payment obligations under the open offer.
• If the acquirer has not declared an intention in the Detailed public statement and the letter of offer to alienate any material assets of the target company or of any of its subsidiaries whether by way of sale, lease, encumbrance or otherwise outside the ordinary course of business, the acquirer shall be debarred from causing such alienation for a period of two years after the offer period.
-Provision: Special resolution by shareholders of the Target company by way of a postal ballot
• Ensure that the contents of the Public announcement, the Detailed public statement, the letter of offer and the post-offer advertisement are true, fair and adequate in all material aspects and not misleading and are based on reliable sources.
• The acquirer and PAC with him shall not sell shares of the target company held by them, during the offer period.
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Reg. 25Obligation of Acquirer
• The BOD’s of the target company shall ensure that during the offer period, the business of the target company is conducted in the ordinary course consistent with past practice.
• Unless approval of shareholders of the target company, by way of a special resolution through postal ballot is obtained, the BOD’s of either the target company or any of its subsidiaries shall not,—
-Alienate any material assets of the company except in the ordinary course of business
-Not to effect any material borrowings outside the ordinary course of business
-Not to issue or allot any authorised but unissued securities carrying voting rights
-Implement any buy back or effect any change to the Capital structure
-Enter into, amend or terminate any material contracts
• Furnish to the acquirer within 2 working days from the identified date, a list of shareholders as per the register of members of the target company containing names, addresses, shareholding, etc.
• Committee of independent directors to provide reasoned recommendations on such open offer, at least 2 working days before the commencement of tendering period, and publish such recommendations in newspaper (same as PA) and a copy to SEBI, SE, Merchant Banker.
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Reg. 26Obligation of Target Company:
• Prior to PA being made, it has to ensure that:– the acquirer is able to implement the open offer; and
– firm arrangements for funds through verifiable means have been made by the acquirer
• To ensure that the contents of the Public Announcement, the DPS and the letter of offer and the post offer advertisement are true, fair and not misleading.
• Provide to SEBI a due diligence certificate along with the draft letter of offer.
• To ensure compliance with these regulations.
• It shall not deal on his own account in the shares of the target company during the offer period.
• File a report to SEBI within 15 working days from the expiry of the tendering period.
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Reg. 27Obligation of Merchant Banker:
DISCLOSURES OF SHAREHOLDING AND CONTROL
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Reg. 28Disclosure-related provisions:
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• Aggregate shareholding or• Voting rightsDisclosure of:
• Acquirer• Promoter of Target Company• PAC of Promoter of Target Company
by whom:
• Convertible security = regarded as sharesAcquisition & holding of ‘Convertible security’:
• Disseminate such information on receiptRole of Stock Exchange:
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Disclosures
Disclosures under Chapter V
Reg. 29Disclosure of acquisition
and disposal
Reg. 30Continual
Disclosures
Reg.31Disclosure of
Encumbered Securities
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Reg. 29Disclosure of acquisition and disposal
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Reg. Triggering Event Disclose Disclosure by
Disclosure to Time Period
29 (1)
Acquisition + Held shares or voting rights: aggregating to 5% or more shares or voting rights
Aggregate Shareholding and voting rights
Acquirer & PAC
• Stock Exchange
•Target company
Within 2 working days of:
• receipt of intimation of allotment of shares; or
• acquisition of sharesor voting rights in the Target Company
29 (2)
Acquisition or disposal of 2% or more shares or voting rights by the acquirer already holding 5% or more shares or voting rights
Every acquisition and disposal of 2% or more shares
Reg. 30Continual disclosure
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Reg. Disclose Disclosure by Disclosure to Time Period
30 (1)Acquirer holding shares or voting rights entitling 25% or more voting rights in Target Company as of 31st March
Person (holding shares) and PAC
• Stock Exchange
•Target company
Within 7 working days from the end of financial year i.e. 31st March
30 (2)Aggregate shareholding and voting rights in Target Company as of 31st March
Promoter of Target company and PAC of Promoter
Reg. 31Disclosure of encumbered shares
• Reg. 28(3): Meaning of encumbrance: shall include pledge, lien or any other transaction, by whatever name called.
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Regulation Triggering Event Disclosure by Disclosure to Time Period
31(1) and 31(2)
Creation or invocation or release of encumbrance on the shares held by Promoter or PAC
Promoter & PAC
• Stock Exchange
•Target company
Within 7 working days from the event
• Stock Exchange site where the disclosures are available.
91
• Disclosure of Reg. 31(1) and 31(2) by United Breweries Holding Ltd.
92
TAKEOVER CODE
EXEMPTIONS
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Exemptions
Regulation 10Automatic Exemptions
Regulation 11Exemptions by Board
Immediate Relative
Means
Person's Spouse
IncludesPerson Parents /
Spouse Parent
s
Person Brother/
Spouse Brothe
r
Person Sister/ Spouse Sister
Person and Spouse Chil
d
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Regulation 10(1)(a)(i)
Regulation 10(1) (a)(ii)
• If there is any transfer of shares between persons shown as promoters in the shareholding pattern filed by the Target Company as per
• Listing Agreement or
• SEBI Takeover Regulations
For at least 3 years prior to the proposed acquisition
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Regulation 10(1) (a)(iii)
Acquisition pursuant to inter se transfer of shares amongst qualifying parties being:
• A company,
• Its subsidiaries,
• Its holding company,
• Other subsidiaries of such holding company,
• Persons holding not less than 50% of the equity shares of such company,
Regulation 10(1)(a)(iv)
Amongst PACs for not less than three years prior to the proposed acquisition, and disclosed under the listing agreement.
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• The exemption is available subject to the compliance of the following conditions:
• Pricing for the transfer:
• If the shares of the Target Company are frequently traded
The acquisition price per share shall not be higher by more than 25% of the VWAMP for a period of 60 trading days preceding the date of issuance of notice for the proposed inter se transfer, as traded on the stock exchange where the maximum volume of trading in the shares of the target company are recorded during such period.
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• If the shares of the Target Company are infrequently traded - The acquisition price shall not be more than 25% of the price determined under Regulation 8(2)(e) of the Regulations.
And
• The transferor and transferee shall have complied with applicable disclosure requirements
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Taking into account the valuation parameters
Regulation 10(1)(b)
Acquisition in the ordinary course of business by:
• Underwriter registered
• Stock broker registered on behalf of his client
• Merchant banker registered with Board or a nominated investor in the process of market making or subscription to unsubscribed portion of issue
• SCBs acting as escrow agent
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Regulation 10(1)(C)
• Acquisition at subsequent stages, by an acquirer who has made a public announcement of an open offer for acquiring shares pursuant to an agreement of disinvestment, as contemplated in such agreement
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Regulation 10(1)(d)
• Acquisition pursuant to a scheme
• Sick Industrial Companies(Special Provisions)Act, 1985
• Target company as a transferor company or as a transferee company, or reconstruction of the target company, including amalgamation, merger demerger or
• Of agreement involving the target company as a transferor company or as a transferee company or reconstruction not involving the target Company’s undertaking including amalgamation, merger demerger
Subject to-
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1. The component of cash and cash equivalents in consideration paid being less than 25% of consideration paid under the scheme
2. Where after implementation of the scheme of arrangement, persons directly or indirectly holding at least thirty three percent of the voting rights in the combined entity are same as the persons who held the entire voting rights before the implementation of the scheme
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• Acquisition pursuant to provisions of SARFAESI ACT, 2002
• Acquisition pursuant to provisions of SEBI Delisting Regulations, 2009
• Acquisition of voting rights or preference shares carrying voting rights arising out of the operation of 87(2) of Companies Act, 1956
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Regulation10(3)
• An increase in voting rights in a target company of any shareholder pursuant to buy-back of shares provided
• Such shareholder reduces his shareholding such that his voting rights fall to below the threshold referred to in regulation 3(1) within 90 days from the date on which the voting rights so increase.
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Regulation10(4)
• Acquisition of shares by any shareholder of a target company, up to his entitlement, pursuant to a rights issue; Subject to fulfillment of the following conditions
• The acquirer has not renounced any of his entitlements in such rights issue; and
• The price at which the rights issue is made is not higher than the ex-rights price of the shares of the target company
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• Acquisition of shares in a target company by any person in exchange for shares of another target company tendered pursuant to an open offer for acquiring shares under these regulations
• Acquisition of shares in a target company from state-level financial institutions or their subsidiaries or companies promoted by them, by promoters of the target company pursuant to an agreement between such transferors and such promoter;
• Acquisition of shares in a target company from a venture capital fund or a foreign venture capital investor registered with the Board, by promoters of the target company pursuant to an agreement between such venture capital fund or foreign venture capital investor and such promoters.
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• The acquirer shall intimate the stock exchange, the details of the proposed acquisition in such form as may be specified, at least four working days prior to the proposed acquisition, and the stock exchange shall forthwith disseminate such information to the public
• In respect of any acquisition made pursuant to exemption provided for in this regulation, the acquirer shall file a report with the stock not later than four working days from the acquisition, and the stock exchange shall forthwith disseminate such information to the public
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• In respect of any acquisition of or increase in voting rights pursuant to exemption provided the acquirer shall, within 21 working days of the date of acquisition, submit a report to the Board giving all details in respect of acquisitions, along with a nonrefundable fee of rupees 25 thousand
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Exemptions by the Board(Regulation 11)• Regulation 11(2): SEBI may for reasons recorded in writing,
grant exemption - subject to conditions as the Board deems fit to impose in the interests of investors
• Regulation 11(2): The Board may grant a relaxation subject to such conditions as the Board deems fit to impose in the interests of investors being satisfied that,—
The target company is a company in respect of which the Central Government or State Government or any other regulatory authority has superseded the board of directors of the target company and has appointed new directors under any law for the time being in force, if—
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1. Such board of directors has formulated a plan which provides for transparent, open, and competitive process for acquisition of shares or voting rights in, or control over the target company to secure the smooth and continued operation of the target company in the interests of all stakeholders of the target company
2. The process adopted by the board of directors of the target company provides for details including the time when the open offer for acquiring shares would be made, completed and the manner in which the change in control would be effected
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For seeking exemption under
Regulation11 (1) -> The acquirer
For seeking relaxation under
Regulation 11(2) -> Target company shall file an application with the Board, supported by a duly sworn affidavit, and giving details of the grounds on which the exemption has been sought and pay a non-refundable fee of rupees fifty thousand
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Regulation 11 (3) & 11(4)
PENALTIES UNDER TAKEOVER REGULATIONS
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Regulation 32Power of the board
• Divesting the shares acquired in violation of the regulations and directing appointment of Merchant Banker for such divestiture
• Transfer of shares or any proceeds of a directed sale of shares acquired in violation of the regulations to Investor Protection and Education Fund
• Not to give effect to any transfer of shares acquired or exercise voting rights attached to the shares acquired in violation of these regulations
• Debarring the person from accessing the capital market or dealing in securities
• Initiate enquiry proceedings against the intermediary registered for failure to carry out the requirement of these regulations and others.
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Sec. 15H. Penalty for non-disclosure of acquisition of shares and takeovers
If a person fails to
• Disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate
• Make a public announcement to acquire shares at a minimum price
• Make a public offer by sending letter of offer to the shareholders of the concerned
• Make payment of consideration to the shareholders who sold their shares pursuant to letter of offer
PenaltyHe shall be liable to a penalty twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.
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Criminal prosecution under section 24 of the SEBI Act.
In addition to any award of penalty by the Adjudicating Officer under the Act, if any person attempts to contravene any rules or regulations thereof and further, for the non compliance of the directions of the Adjudicating Officer, the person shall be
• Punishable with imprisonment for a term which shall not be less than one month, but which may extend to ten years or with fine which may extend to twenty-five crore rupees or with both.
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Section 11B of the SEBI Act
The Board may, in the interest of securities market, give directions, without prejudice to its right to prosecute under section 24 of the SEBI Act including:
a) Directing the person concerned not to further deal in securities.b) Prohibiting disposal of securities acquired in violation of these regulations.c) Direct sale of securities acquired in violation of these regulations.
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Sec. 11(4) of the SEBI Act: The authority may give the directions to the person in
default & the directions may include the following:
• Suspend the trading of any security in a recognized stock exchange
• Restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities
• Suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position
• Impound and retain the proceeds or securities in respect of any transaction which is under investigation
• Attach bank accounts of persons involved in violation for a period not exceeding one month
• Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation
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Cease and desist order in proceedings under section 11D of the Act
A Cease and desist order can be passed under this section from committing or causing any violation of the SEBI Takeover Regulations.
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Adjudication proceedings under section 15HB of the Act.
A residual clause :
Liable to a penalty which may extend to one crore
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USL: “King of Good Times” Hands Over Crown Jewel to Diageo
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Parties involved in the deal
I. Target (United Spirits limited)
• United Spirits Limited, is an Indian alcoholic beverages company, and the world's second-largest spirits company in terms of volume. It is a subsidiary of the United Breweries Group. USL exports its products to over 37 countries.
II. Sellers
A. UBHL
• UBHL – principal holding company for UB group
• Post the deal it holds 7% of the share capital of the target
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B. KFIL
• KFIL- wholly owned subsidiary of UBHL
• Post the deal it holds 4.09% stake in the target
C. SWEW
• Was incorporated as a co. ltd. By guarantee
• Post the deal it holds 0.10% of the share capital of the target (was not classified as part of the promoter group)
D. United Spirits Limited Benefits Trust
• Was formed as private trust
• USL benefits trust holds the equity shares of the target as treasury stock
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E. PIGL
• Was incorporated as a wholly owned subsidiary of the target
• Prior to the deal it held 3.35% (not classified as part of the promoter group)
• Post the deal it ceased to be a shareholder in the target
F. UB Sports
• Was incorporated as a wholly owned subsidiary of PIGL in Jersey
• Prior to the deal it held 0.42%
• Post the deal it ceased to be a shareholder in the target
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III. Acquirer
• Diageo plc is a multinational alcoholic beverages company headquartered in London. It is the world's largest producer of spirits and a major producer of beer and wine
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Timetable of the deal
Sept 21 ‘12 • DIAGEO Group holds talk with to buy stake in the target
Nov 9 ‘12• Execution of PAA, SHA and the SPA• Target board approval for allotment of subscription shares pursuant to PAA • Public announcement was made for open offer
Nov 20 ‘12 • Publication of detailed public statement
Nov 27 ‘12• Acquirer files draft letter of offer with SEBI, Target and relevant stock exchange
formally committing to open offer
Dec 14 ‘13• SHs of the target approve the allotment of the subscription shares to the
acquirer
Jan 31 ‘13 • SEBI conditionally clears DIAGEO’s open offer
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Timetable of the deal
Feb 4 ‘13 • Acquirer sends a letter through the manager of open offer to SEBI to permit the commencement of tendering period no later than 12 working days from the receipt of all statutory approvals required for the deal
Feb 7 ’13 • SEBI allows extension of commencement of tendering period for open offer subject to acquirer paying 10% interest p.a. to public shareholding who tender their equity shares in the open offer
Feb 27 ‘13 • CCI clears the deal conditionally
April 2 ‘13• Date of publication of recommendation by the committee of independent
directors of target
April 3 ‘13 • Letter of offer dispatched to public shareholding by acquirer for open offer
April 10 ‘13 • Commencement of tendering period for open offer
April 26 ‘13 • Date of expiry of tendering period
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Timetable of the deal
May 13 ’13• Open offer is completed pursuant to which the acquirer purchases
58,688 shares in the target representing 0.04% of the emerging voting capital of the target
May 24 ‘13• HC allowed UBHL to sell its shares in the target to the acquirer group
subject to UBHL depositing INR 2,500,000,000 as security immediately after completion of transaction
May 27 ‘13• PAA is consummated as target board allots
1,45,32,775 equity shares to acquirer
July 4 ‘13• Acquirer completes the acquisition of the sale of shares. However the acquirer was unable to acquire 2.38% from
USL Benefit Trust as shares were charged as security toward certain lenders and the same was not released• SHA becomes effective and the acquirer, UBHL and KFIL are classified collectively as promoters or promoter
group as per takeover code
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Timetable of the deal
Nov 7 ‘13• Acquirer provides an update on the post open offer status regarding equity
shares of target held by USL• Acquirer states the 26 week deadline within which sale shares were required
to be acquired which is to expire on Nov 11 ‘13 will be missed
Nov 13 ’13• The 26 week deadline is missed as Diageo group/ Promoter group is unable to
release the charge on remaining 2.38% shares held by UBL Benefit trust• Final shareholding of Diageo group stood at 25.02% of the emerging voting
capital of the target
Dec 20 ‘13• HC delivered its judgement which annuls the sale
of stake by UBHL to the Diageo Group
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Deal structure (Prior to the deal)
Target
Seller (classified as
promoter) 27.78%
Sellers (not classified as promoter)
6.51%
Others 14.71%
Institutional investors 51%
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Preferred deal structure
Acquirer
Target
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Fall back option 1
Acquirer < 50.1%
Preferential allotment
10%
Sellers 17.36%
Open offer (public
shareholding) < 22.66%
Target
Voting arrangement
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Fall back option 2
Acquirer < 50.1%
TargetSellers 17.36%
Targe
t
Voting arrangement 17.36% +7.74% = 25.1%
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Final deal structure
Shareholders Pre deal
Preferred deal outcome (% of
emerging voting rights)
Post deal (% of emerging voting rights)
New promoter
Acquirer Nil 53.36% 25.02%
Existing and continuing promoters
UBHL 18.03% 10% 7%
KFIL 9.69% 3.50% 4.41%Other promoter companies 0.06% 0.04% -
Total (UBHL + KFIL+ Others) 27.78% 13.54%
11.14% (during the offer period lenders of UBHL had
involved the pledge over the shares of the target
Others SWEW, USL Benefit Trust, PIGL and UB Sports 6.51% negligible
2.38% (held by USL benefit trust)
Public Shareholders 65.71% 33.10% 61.46%04/13/202
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Key deal terms
• PAA
• At least INR 16 billion to be used solely for the purpose of repaying debt of the Target and/or its subsidiaries;
• The remaining to be used solely in the ordinary course of the Target’s business, including as working capital.
• The subscription of Subscription Shares was subject certain customary condition precedents such as:
o Statutory approvals including from CCI and GATA.
o Approval from the stock exchanges;
o Approval from the shareholders of the Target;
o Consent from the lenders of the Target;
o No material adverse change;
o No breach of the warranties by the Target;
• SPA
• Approval of the RBI for the acquisition of Sale Shares from PIGL, UB Sports and USL Benefit Trust.
• Execution of escrow agreement between Acquirer, Sellers and lenders and approval from RBI to enable the Acquirer to directly pay the lenders.
• Order of Kar HC allowing the transfer of the Sale Shares or dismissing the winding up petitions against UNHL, KFIL and SWEW
• SHA
Board Rights –
• The Promoter Group had the right to appoint one Director so long as it held approximately 1% of the shares of the Target.
• The Promoter Group also had the right to recommend independent non-executive director so long as it held approximately 4.5% of the shares of the Target.
• The remaining directors would all be appointed by the Diageo Group. To constitute a valid quorum for the board meeting, the presence of at least 1 director appointed by the Diageo Group was required.
Management –
• The Acquirer has the right to appoint the chief executive officer, the chief financial officer and head of internal audit of the Target.
• Further, the Acquirer also has the right through the Target to appoint a majority of the directors to the boards of each of the subsidiaries of the Target.
Veto Rights –
• The Promoter Group have retained veto rights in respect of certain matters such as
• (a) preferential issuance of equity shares of the Target at a discount of the volume weighted average price for 30 trading days prior to such issuance
• (b) change of terms of the shares held by UBHL and
• (c) any voluntary winding up of the Target. The items over which veto rights has been given to UBHL do not seem to indicate that UBHL would even have negative control over the Target.
Voting Arrangements-
• The Sellers agreed to exercise all their voting rights in respect of the shares held by them in the Target in accordance with the instructions of the Acquirer, till the earlier of the following events occurred:
• (a) the date on which the Acquirer acquires not less than 50.1% of the voting rights in the Target; and
• (b) the fourth anniversary of the first day of the first full annual accounting period of PAC 1 after the completion of the acquisition of the Sale Shares under the SPA.
Right of First Offer -The Acquirer has a right of first offer against any sale of shares by the Promoter Group.
Acquisition Restrictions-
• The Promoter Group was provided a claw back right i.e. if the Sellers were required to sell Additional Shares (then for one year after the completion of the acquisition of the Additional Shares by the Acquirer, the Sellers would have priority in purchasing shares of the Target to replace the sold Additional Shares.
Tag Rights –
• Promoter Group has the right to sell their shares (tag along right) in the event there is material disposal of shares by the Acquirer.
• The Promoter Group would have to sell the shares at the same price and on the same terms as the Acquirer.
Non-Compete-
• The Sellers are restrained from carrying a business similar to that of the Target during the term of the SHA and two years post the termination of the SHA.
• Interestingly, the letter of offer does not specific if the non-compete is territory specific or not.
• The Letter of Offer provides that that the consideration for the Deal was to be paid in cash.
• The maximum consideration that was payable under the Open Offer, assuming full acceptance represented 26% of the Emerging Voting Capital of the Target, was INR 54,410,708,160 (Rupees fifty four billion four hundred ten million seven hundred eight thousand one hundred sixty only) in cash.
• In accordance with Regulation 17(3)of the Takeover Code, Diageo Group issued a bank guarantee in favour of JM Financial Institutional Securities Private Limited (the Open Offer Manager) for an amount of INR 6,191,070,816 (Rupees six billion one hundred ninety one million seventy thousand eight hundred sixteen only).
• Escrow account was being created through a Bank Guarantee, as per Regulation 17(4) of the Takeover Code, 1% of the consideration amount also had to be deposited in the escrow account amounting to approx. INR 544,107,082.
Financial Obligations Proposed to be met for the Transaction
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Reg. 13(g)
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Regulation 13(g) of the SAST states that the PA in case of acquirer
acquiring shares or voting rights in, or control over the target
company, under preferential issue, shall be made on the date on
which special resolution is passed for allotment of shares under
sub-section (1A) of section 81 of the Companies Act, 1956.
Controversy
• The main contention regarding USL-Diageo deal revolves around the
interpretation of the relevant date for making the public
announcement (PA) and hence the open offer price.
• The public announcement date should have been the date of
shareholder approval (i.e. December 13/14, 2012) and hence the
open offer price should have been calculated taking December 13/14,
2012 as relevant date. This would have increased the open offer price
to be greater than INR 1,440 given the recent rise in stock prices.
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• Takeover Code now requires any acquirer acquiring control or 25% of
the shares or voting rights in a listed company pursuant to a
preferential allotment, to make a public announcement of an open
offer on the date of execution of such preferential allotment
agreement.
• An acquirer acquiring control or 25% of the shares or voting rights in a
listed company pursuant to a preferential allotment can only
withdraw the open offer if requisite statutory approvals are not
obtained.
Impact of deal on takeover code
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• Diageo launched the Tender Offer through Relay B.V. (“Relay”), a wholly-owned indirect subsidiary of Diageo
• Relay currently holds 28.78% of the issued share capital of USL
• Diageo plc launched a tender offer to the public shareholders of United Spirits Limited to acquire up to 37,785,214 shares in USL, which represents 26% of USL's fully diluted issued share capital as at 15 April 2014.
Open offer 2014
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Open offer 2014
• The Tender Offer was INR 3,030 per share.
• Price represents a premium of:
i. 22.5% to the price at which Diageo last acquired USL shares on 31 January 2014; and
ii. 20.0% to the 60 day VWAP for USL (SEBI regulatory floor price).
• Diageo funded the consideration payable under the Tender Offer through existing cash resources and debt.
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Thank You
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