takeover codes

7/30/2019 Takeover Codes

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TAKEOVERCODES

SUBMITTED BY:

Esha Kukreja

Ambika Gupta

Priyanka Sharma

Rimjhim Bathla


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TAKEOVER

a transaction or a series of transactions whereby aperson acquires control over the assets of acompany, either directly by becoming the ownerof those assets or indirectly by obtaining controlof the management of the company. When

shares are closely held (i.e. by small number ofpersons), a takeover will generally be affected byagreement with the holders of the majority of theshare capital of the company being acquired.When the shares are held by

the public generally the take over may beaffected:

1) by agreement between the acquirers and thecontrollers of the acquired company.

2) by purchase of shares on the stock

exchange.3 b means of a takeover bid.


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There are certain disclosures to be made in thepublic offer to acquire share. The letter ofoffer shall contain :

The offer price

Number of shares to be acquired frompublic

Identity of acquirer

Purpose of acquisition

Change in control in the target company

Plans of the acquirer regarding the targetcompany, if any.


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Substantial Acquisition Substantial acquisition as such has not been

defined under the regulations, nor has it beendefined in any other related Acts. Thefollowing for the purpose of these regulationcan be considered as substantial acquisition:

(a) Acquisition by a person or two or morepersons acting together with commonintention, 15% or more shares or voting rightsof the target company

(b) Acquisition by a person or two or morepersons acting together with common

intention, who have already acquired 15% ormore but less than 55% of share or votingrights, further acquire 5% or more of sharecapital or voting rights in the same financialyear ending on 31st March.


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OBJECTIVES To provide a transparent legal framework for

facilitating takeover activities;

To protect the interests of investors in securitiesand the securities market, taking into account thatboth the acquirer and the other shareholders or

investors and need a fair, equitable and transparentframework to protect their interests;

To balance the conflicting objectives and interestsof various stakeholders in the context of substantialacquisition of shares in, and takeovers of, listed

companies. To provide each shareholder an opportunity to exit

his investment in the target company when asubstantial acquisition of shares in, or takeover of atargetcompany takes place.


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To provide acquirers with a transparent legalframework to acquire shares in or control of thetarget company and to make an open offer;

To ensure that the affairs of the targetcompany are conducted in the ordinary coursewhen a target company is subject matter of anopen offer;

To ensure that fair and accurate disclosure ofall material information is made by personsresponsible for making them to variousstakeholders to enable them to take informeddecisions;

To regulate and provide for fair and effectivecompetition among acquirers desirous oftaking over the same target company; and

To ensure that only those acquirers who arecapable of actually fulfilling their obligations

under the Takeover Regulations make open


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Open Offer

Process andRelated

Compliances


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Offer price in case of Direct and Deemed

Acquisitions- Regulation 8(2)

Highest negotiated price per share of the target company underthe agreement that attracted the open offer

Volume-weighted average price paid or payable for acquisitions

by the acquirer or PAC during 52 weeks preceding the date of PA

Highest price paid or payable for any acquisition by the acquireror PAC during 26 weeks preceding the date of PA

Where shares are frequently traded VWAMP of the targetcompany during 60 trading days immediately preceding thedate of PA

Where shares are infrequently traded - the price determined bythe acquirer and manager to open offer taking into accountvaluation parameters


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Offer price in case of indirect

acquisitions- Regulation 8(3)

Highest negotiated price per share, if any of the target company,under the agreement attracting open offer

Volume-weighted average price paid or payable for any acquisitionby the acquirer or PAC during preceding 52 weeks immediatelypreceding the earlier of:

the date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition isannounced in public domain

Highest price paid or payable by the acquirer or PAC for anyacquisition during 26 weeks preceding the earlier of: date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition is

announced in public domain Where shares are frequently traded - volume weighted average

market price during 60 trading days immediately preceding theearlier of: the date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition is

announced in public domain


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Public Announcement Compliance

Chart: TimelinesEvent Time of compliance

Preferential issue Date on which special resolution is paasedfor the allotment of shares

Increase in Voting rights consequential tobuyback not qualifying for exemption

Not later than 19th day from date of suchincrease

Specific date on which title to such sharesbeyond the control of the acquirer

Not later than two working days form thedate of receipt of intimation of havingacquired such title.

Voluntary open offer Same date on which such an offer is made


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Public Announcement Compliance ChartEvent Time of compliance

Market purchases Prior to placement of the purchase orderwith the stock broker

Acquisition of shares/VRs/control uponconverting convertible securities without afixed date of conversion or uponconversion of depository receipts

Same day as the date of exercise of option toconvert such securities in to shares of thetarget company

Acquisition of shares/VRs/control uponconverting convertible securities with a

fixed date of conversion.

Second working day preceding thescheduled date of conversion of such

securities.

Disinvestment Same day as the date of executing theagreement for acquisition.


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Timing of public announcement for

indirect acquisitions

When none of theparameters set in

regulation 5(2) are met

(regulation 13 (2)(e)

PA may be made at any time within4 working days from the earlier of,the date on which the primaryacquisition is contracted and thedate on which the intention or thedecision to make the primaryacquisition is announced.

When any of theparameters set in

regulation 5(2) are met

(regulation 13(2)(f))

PA shall be made on the earlier, of

the date on which the primaryacquisition is contracted ,and thedate on which the intention or thedecision to make the primaryacquisition is announced.


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Appointment of Merchant Bank

(not an associate)

--------------------------------------

Prior to PA

Agreement to acquire share or

voting rights

------------------------------

X

PA to be sent to all stock

exchanges

-----------------------------

X

PA to be submitted to SEBI andtarget company

-------------------------

X+1

Acquirer to provide for the

escrow

----------------------------

X+3

Identified Date

-----------------

X+27

Letter of Offer to be

dispatched no later than

----------------------------X+32

Release of escrow

account

----------------------------

X+57+30 days

Comments to be received

from SEBI

--------------------------------

X+25

Last Date for making

competing offer

------------------------------

X+20

Draft Letter of offer to befiled with SEBI

--------------------------------

X+10

Acquirer through manager to

offer to publish DPS

----------------------------

X+5

Last Date for revision in

offer price

-------------------------------X+34

Independent directors

recommendation to be

published

-------------------------------X+35

Advertisement announcingschedule of activities

------------------------------

X+36

Offer Opening Date

--------------------------------

X+37

Submission of final report

----------------------------X+62

Payment of consideration

----------------------------

X+57

Funding of the specialaccount

---------------------------

X+52

Offer Closing Date

---------------------------

X+47

OPEN OFFER ACTIVITY CHART

---------------------------------------------------------------------------------------------

AS PER SEBI TAKEOVER CODE, 2011


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The Takeover Process


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Disclosures

Event based

disclosures

Continual

disclosures

Disclosures incase of

encumberedshares


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Regulation

Event

Disclosure by

Disclosure to

Time

29(1)

& 29(3) Acquiring 5% shares/voting rights Acquirer Target companyat its registeredoffice

Every stock

exchange where

the target

company Is listed

Within two

working days

Of receipt of

intimation of

allotment of

shares

29(2)& 29(3) Acquiring or disposing2% or more shares or

voting rights by the

acquirer already holding

5% or shares or voting

rights

AcquirerOr

SellerTarget companyand stock

exchangeWithin twoworking days

of the

acquisition of

shares

Disclosure of Acquisition and Disposal-

Event Based Disclosures

R l i N f Di l b Di l Ti


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Regulation Nature ofdisclosure Disclosure by Disclosure to Time

30(1) Aggregateshareholding andvoting rights as

of 31st day of

march every year

Every person

who togetherwith persons

acting in concert

with him -25% or

more voting

rights

Target company

and stockexchangeWithin 7 days of

end of eachfinancial year.

30(2) Aggregateshareholding andvoting rights

Promoter oftarget company Target companyand stock

exchange

Target companyand stock

exchange

Continual Disclosures


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Regulation Event

Disclosure by

Disclosure to

Time

31(1) Sharesencumbered by

the promoter

Promoter Target companyand stock

exchangeWithin 7 working

days of creation

of encumbrance

31(2) Invocation orrelease of such

encumbrancePromoter Target company

and stock

exchangeWithin 7 working

days from the

invocation/

release of

encumberance

Disclosure of encumbered shares


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Role of Merchant Bankers & Legal

Advisors

Carrying out Initial Due Diligence of the Target Company

with Legal Advisor;

Takeover Audit of the Target Company with Legal Advisor;

Advisory for the Structuring of Transaction;

Assisting in Appointment & Co-ordination with all

Intermediaries e.g. Bankers, RTA, Printers, Publishers etc;

Offer Price Determination;

Drafting ofPublic Announcement with Legal Advisor;

Drafting ofLetter of Offerand other documents as requiredunder the applicable regulations ensuring full compliance of

said regulations with Legal Advisor;


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To ensure that the contents of the PA, DPS, letter

of offerand the post offer advertisement are true, fair andadequate in all material aspects and are in compliance with the

requirements of SAST Regulations, 2011 .

To ensure with Legal Advisor 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

meet the payment obligations under the open offer

Coordination with all concerned authorities like StockExchange, Securities and Exchange Board of India etc. for

clearance of LOO and replying to their queries;

Representing the promoter / company before all concerned

authorities like Stock Exchange, Securities and Exchange Board

of India etc; Filing of documents, reports etc. with SEBI and securing their

approval in consultation with Legal Advisor;


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Checklist for Merchant Bankers

& Legal Advisor

The merchant bankers and legaladvisors have to ensure the following-

the acquirer has made the short public

announcement, detailed publicstatement, filed the letter of offer andother relevant documents within the time

prescribed.the acquirer has sufficient funds to

discharge his obligations under the offer.

provision relating to escrow accounthas been made.


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Ensure that market intermediaries engaged in the open offer are

registered with the board.

Ensure that the acquirer has complied with all the Regulations

and any other laws and rules as may be applicable.

Ensure that the contents of the public announcement, detailedpublic statement and other documents are true and adequate

and in compliance with the requirements under the regulation

and is filled with the Board, Target Company and to all the stock

exchanges where the shares of the Target company are listed.

Furnish a due diligence certificate to the Board (SEBI) along withthe draft letter of offer.

After payment for all the shares acquired under the offer, the

merchant banker shall release the balance amount lying in the

Escrow account to the acquirers.

File a report with the Board within 15 working days from the

expiry of the tendering period, confirming status of completion of

various open offer requirements.


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Restrictions on Merchant Bankers

which ensure transparency.

Merchant Banker shall not deal in the shares of thetarget company during the offer period.

Merchant Banker shall not handle an open offer, ifit is associated or related with the acquirer or the

Target Company in any manner.

Merchant Banker shall not issue the compliancecertificate unless it is fully satisfied that all the

requirements of the regulations have been fullycomplied with by the acquirer.


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CASE STUDY

C i A i iti I f l


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Creeping Acquisition-Informal

Guidance in the matter of

Khaitan ElectricalsThe promoters of the company already

hold 52.28% of the total paid up capital.

They are desirous of increasing theirholding by 5% in each financial year, by

the way of purchase from open market,

without making a any publicannouncements.

The acquisitions in question shall not be

through bulk/block deal/negotiated deal

SEBIs take on the aspect of 5%


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SEBIs take on the aspect of 5%

acquisition in any financial

year.The main question that needs to be answered iswhether the promoters of the company areallowed to acquire 5% of shares only once orthe facility is available for every financial year.

The promoters hold 52.28% shares which iswithin the maximum permissible non publicshareholding limit.

It is clarified that he language any financialyear mentioned in Regulation 3(2) of theTakeover Code,2011 should be read as everyfinancial year.

Therefore the promoters are eligible to acquireup to 5% of shares of the company every

financial year without attracting the obligation tomake a ublic announcement.


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REFERENCES

sebi.gov.in

takeovercode.com

moneycontrol.com financialexpress.com

www.pwc.com/in/en/assets/pdfs/indian-

services/m-a-takeover-book-final-lowres.pdf


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takeover codes

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