SEBI Takeover Regulations, 2011

What are they

On 23rd September, 2011, the SEBI issued revised SEBI Takeover Regulations, 2011 by repealing the erstwhile SEBI Takeover Regulations, 1997.

The Takeover Regulations apply when there is a direct/indirect acquisition of equity shares / voting power/control of a listed company in excess of the specified limits. Based on the limits, the Acquirer has to comply with reporting requirements or acquire shares from the public. The person acquiring the shares / voting power/ control is an Acquirer and the company whose shares are being acquired is the Target Company.

Disclosure on Acquisition

If an Acquirer acquires (+ shares already held by him and his PACs) > 5% shares / voting power in a listed company then he must make a disclosure
If he holds together with PACs > 5% shares / voting power in a listed company, then he must disclose every acquisition or disposal of shares representing 2% or more shares or voting rights
He must make the disclosure to the Target Company and stock exchanges within 2 working days of acquisition

Continual Disclosures

Disclosure to be made by	Due Date
Every person who together with PACs holds > 25% shares / voting power in the target company shall make disclosure	Holding as on 31st March of each year by 7th April
Promoters of the Company

Disclosure of Encumbered Shares

The promoter of a target company shall inform the company the details of the shares of the company encumbered by them
They shall disclose details of invocation/release of such encumbrance
The disclosure should be made within 7 working days from the creation / invocation / release of pledge
The disclosure should be made to the Target Company and the stock exchange(s)

What is a Public Announcement (“PA”)

Any Acquirer who acquires shares /voting in excess of the limits have to make a Public Announcement (i.e., an advertisement) through a Merchant Banker specifying that he desires to acquire a minimum of 26% of the voting capital of the company from the public.

When is a PA required to be made

Acquisition (+ shares already held) of shares /voting rights > 25% by an Acquirer /Persons Acting in Concert (“PACs”)
Acquisition of shares /voting rights > 5% in any Financial Year by an Acquirer /PACs already holding > 25% but < 75% (popularly known as “Creeping Acquisition”)
Acquisition of Control over a Target Company (with or without shares/voting)

Indirect Acquisition

It means acquisition of shares/voting rights/control over a company/entity enabling a person and its PACs to exercise such percentage of voting rights/control over a Target Company, the acquisition of which would otherwise attract obligation to make PA of an open offer. (R.5(1))

R.5(2)

In case of Indirect Acquisition under R.5(1) where –

The proportionate NAV of Target Company as a % of consolidated NAV of the entity/business being acquired;
The proportionate sales turnover of Target Company as a % of consolidated sales turnover of the entity/business being acquired; or
The proportionate market capitalisation of Target Company as a % of consolidated enterprise value for the entity/business being acquired;

is in excess of 80%, such Indirect Acquisition shall be regarded as Direct Acquisition of Target Company for the purposes of TOR Regulations.

It may be noted that a Public Announcement for an acquisition of shares from the public is not required if the acquisition falls within the exemptions contained in R.10 and fulfils the conditions mentioned therein.

Exemptions

The Regulations contain various scenarios under which an exemption is available from making an Open Offer.
SEBI also has powers to give relaxation from some of the provisions of the Regulations on an application made by the Target Company

Timing of the PA

Type of Acquisition	Due Date
Acquisitions referred to in (i) to (ii)	On Date of entering into Agreement or Deciding to Acquire shares /voting If the acquisition is a combination of an agreement and any of the below-mentioned modes except the last mode or a combination of any of the below-mentioned modes except the last two modes, then the PA shall be made on the date of first such acquisition provided the details of proposed subsequent acquisition is disclosed in PA
By market purchase	Prior to placement of Purchase Order with the Stock Broker to acquire shares
On conversion of convertible securities (without fixed date of conversion or on conversion of depository receipts)	Same day as the date of exercise of conversion option
On conversion of convertible securities (with fixed date of conversion)	2nd working day preceding the scheduled conversion date
On Disinvestment	Same day on execution of agreement
Indirect Acquisition (parameters of R.5(2) are not met)	Within 4 working days from the earlier of • Date on which primary acquisition is contracted; and • Date on which intention/decision to make primary acquisition is announced in public domain
Indirect Acquisition (parameters of R.5(2) are met)	Within 4 working days from the earlier of • Date on which primary acquisition is contracted; and • Date on which intention/decision to make primary acquisition is announced in public domain
Under Preferential Issue	Date on which board of directors of Target Company authorises such preferential issue
Buy-back not qualifying for exemption	Not later than 90th day from the date of closure of the buy-back offer by the Target Company
Date of Acquisition is beyond the control of Acquirer	Not later than 2 working days from the date of receipt of intimation of having acquired title
On Voluntary Offer under R.6	Same day on which decision to make voluntary PA of an open offer is taken

If acquisition is by a combination of modes, then PA must be made on the date of the 1st of such acquisitions.

Pursuant to PA, a detailed public statement shall be published through the manager to the open offer not later than 5 working days of the PA

What must the PA contain

The PA must be made in 1 English, 1 Hindi and 1 regional language daily newspaper (all 3 having wide circulations) circulating in the State where the Target Company’s Registered Office is located and the Stock Exchange where the shares are most frequently traded
1 copy of the PA must be given to the Target Company, stock exchanges where it is listed and to SEBI through the Merchant Banker
The PA must contain the prescribed particulars and be in a form as near to the one specified by the Regulations.

Letter of Offer

Within 5 working days of the detailed public statement, the Acquirer must file the draft Letter of Offer (“LO”) with SEBI
The LO must be despatched to the share holders not later than 7 working days from the date of receipt of comments from SEBI or where there are no comments, within 21 working days after it has been filed with SEBI
The LO must be in a form as near to the Standard LO prescribed by the Regulations
It must contain the Minimum Offer Price calculated as under:

Frequently Traded Shares

The shares of a company are frequently traded if the trading turnover in such shares during the 12 calendar months prior to the month in which the PA is made is at least 10% (by number of shares) of the target company. The open offer shall be made at a price not lower than –

For direct acquisition and indirect acquisition (parameters of R.5(2) are met), the offer price shall be the highest of,—

The highest negotiated price per share of the target company for any acquisition under the agreement attracting PA;

The volume-weighted average price paid/payable, by the acquirer or its PACs, during the 52 weeks immediately preceding the date of the PA;

The highest price paid/payable, by the acquirer or its PACs, during the 26 weeks immediately preceding the date of the PA;

The volume-weighted average market price of such shares for 60 trading days immediately preceding the date of the PA as traded on the stock exchange where the maximum volume of trading in the shares of the Target Company are recorded during such period, provided such shares are frequently traded;

Infrequently Traded Shares

In the case of infrequently traded shares, in addition to those factors provided for frequently traded shares, the offer price has to be determined by taking into account the following factors:

Highest price for any acquisition by the acquirer or the PAC between the date on which the primary acquisition is made / the date on which intention to make the PA is announced and the date of the PA is made

Other parameters including return on networth, book value of the shares of the Target Company, earning per share, comparable multiples, etc.

If any payment is made in respect of non-compete fees, control premium then the offer price (as calculated above) has to be increased by such excess amount. Further, if any shares are acquired after the date of PA at a price higher than the offer price stated in the LO, then the highest price paid for such acquisition has to be paid under the open offer.

The price must be adjusted for any corporate actions, such as rights, bonus, stock splits, etc. if the record date for the same is within three days prior to the commencement of the open offer.

The offer price may be paid in cash, listed equity shares / listed secured debt instruments / convertible debt securities or a combination

Other Conditions

Every Acquirer must provide for an Escrow Account of 25% of the consideration for offer sizes ≤ ` 500 crores and 10% for the excess consideration above ` 500 crores
The Escrow may consist of cash with a bank, bank guarantee, securities with margin.
Various obligations are cast upon the Acquirer, Target Company and the Merchant Banker
An offer once made can only be withdrawn if any statutory approval has been refused, the sole Acquirer has died, condition stipulated in agreement for acquisition attracting PA is not met or special circumstances exist which SEBI deems fit.
If the offer results in public shareholding falling below the minimum threshold, then the Acquirer shall bring down the public shareholding to the level specified within the time permitted under SCR Rules, 1957. Further, it will not be eligible to make a voluntary delisting unless 12 months have elapsed from completion of offer period.

Competitive Bids

Any other person can make a competitive PA within 15 working days of the first PA
This Bid must be equal to the present + proposed shareholding of the first Acquirer
The first Acquirer can revise his offer pursuant to the competitive bid within 3 working days.