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New Takeover Regulations Approved


With the objective of undertaking a comprehensive review of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Existing TOC"), SEBI had constituted a Takeover Regulations Advisory Committee ("TRAC") in September 2009, to suggest suitable amendments to the regulations. TRAC proposed significant changes to the Existing TOC and a new draft of the regulations ("Proposed TOC") was released on 19 July 2010. Taxand India looks at the implications of the new regulations.

Proposed TOC was being debated in detail by SEBI over the past few months. Click here Taxand India's analysis of the Proposed TOC.

SEBI, at its recent Board meeting finally accepted many recommendations made in the proposed TOC, with certain modifications based on public feedback.

The amended text of the New TOC has not been released as yet and is expected to be notified by SEBI shortly. More clarity on amendments will emerge once the New TOC is released.

Click here for the full article and a summary of the key amendments proposed.

Taxand's Take

The New TOC is a step in the right direction, wherein most recommendations of TRAC have been accepted, keeping in line with the existing banking norms and other regulations.

Increase in open offer trigger limit from 15% to 25% would enable Target Companies to raise more funds through capital instruments and provide private equity/ institutional investors an opportunity to hold higher equity stakes in listed companies. This move is expected to provide an impetus to capital markets.

Acquirers would benefit from an open offer size of 26%, since this would allow for ownership of majority stake, post open offer. It was felt that Indian capital markets are not ready for increasing open offer size to 100% and "automatic delisting" given the funding constraints faced by Acquirers for open offers, as also the prevailing Delisting Regulations, which are a separate legislation and subject to different compliance requirements.

Scrapping of separate non-compete fee provisions would be welcomed by public shareholders, since there would now be uniform pricing for promoters and public in an acquisition. However, promoters may feel short-changed, given the belief that a significant stake sale by a promoter should ordinarily carry a control premium, or non-compete premium for additional efforts of the promoter to drive the company vis-?-vis public shareholders. This could also potentially increase the cost of acquisition for Acquirers.

Your Taxand contacts for further queries are:
Nitin Savara
T. + 91 124 339 5015

Pankaj Jain
T. +91 124 339 5010

Taxand's Take Author