Corporate RestructuringTakeover, Buy Back &

Delisting

Presented by – Manoj Kumar

Introduction

Takeovers, Buy Back & Delisting are key tools of Corporate Restructuring and Planning which

are facilitated by Company Law and in case of Listed Company also governed by SEBI Laws

What is Takeover?

Acquisition of Substantial Shares and Control over a Target Company to expand

the business in an inorganic manner.

Ensure Fair Exit Opportunity to the

public shareholders;

Provide Fair Play in exit opportunity

of the Company;

Timely Information Dissemination

about change in shareholding of

Listed companies

Purpose of Takeover Code?

In year 1991 - Announcement of Policy of

Globalisation in India;

In year 1992 - Change in India’s Capital

Market Scenario;

SEBI enacted SEBI (SAST) Regulations,

1994 initially;

Then, SEBI enacted SEBI (SAST)

Regulations, 1997;

Later, Takeover Regulations Advisory

Committee (“TRAC”) was formed under

the chairmanship of Late C. Achuthan;

SEBI notified SEBI (SAST) Regulations,

2011;

How Takeover Code evolved?

SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011

The term Company is defined under the provisions of Companies Act, 2013;

Company means a company incorporated under this Act or under any other company law;

Listed Company means a company of which any of its securities listed on any recognized stock exchange;

Takeover Code only deals with Companies of which Equity/Voting Shares are listed

Listed Company?

Means any person who directly or indirectly acquires or agrees to acquire

whether by himself or through with Person Acting in Concert shares or voting

rights or control over the Target Company.

Acquirer?

Persons who for a common objective acquire shares or voting rights or

control over Target Company, pursuant to an agreement or understanding,

formal or informal, directly or indirectly co-operate for acquisition of shares

or voting rights or control over the Target Company.

Person acting in Concert?

Acquiring or agreeing to acquire

Shares or Voting Rights in or Control

Over the Target Company

Directly or Indirectly

Acquisition?

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;

Explanation For the purpose of this clause shares will include all depository receipts carrying

entitlement to exercise voting rights in all the Target Company.

Define Shares?

Control?

It is very Subjective, inclusively defined

Right to appoint majority of the directors; or

Right to control the management; or

Right to policy decisions exercisable;

May be Direct or Indirect

Direct Acquisition

Indirect Acquisition

Type of Acquisition

Direct Acquisition

Initial Threshold

Creeping Acquisition or

Consolidation of holding

Change in Control

Direct Acquisition

Initial Threshold – 25% of the voting rights in Target Company

Creeping Acquisition or Consolidation of holdings – [if already holds 25% or more but less than 75%] in

excess of 5% of voting rights in any financial year

Acquisition of Control – irrespective of any shares or voting

Direct Acquisition

Acquisition of voting rights or control over other entity that enable the Acquirer to exercise such

percentage of voting or control over the Target Company.

Indirect Acquisition

Mandatory Offer

Voluntary Offer

Type of Offer

Mandatory Offer – Offer Size shall be 26% of the capital of Target Company

Voluntary Offer – Offer Size shall be 10% of the capital of Target Company

Size of Takeover Open Offer

Public Announcement

Publication of Detailed Public

Statement

Filing of Draft Letter of Offer

with SEBI

Observation letter from SEBI

Tendering Period –10 WD

Payment to shareholders and

completion of offer process

Completion of transaction triggered

Process of Takeover

Hostile Friendly

Type of Takeovers

Fair Play in Acquisition

Fair Offer Price

Opportunity of Competitive Bids;

No Change in Control or of Shares during Competitive Bid Period

No Negative Action by Target Company during Offer

Reg. Provisions Triggers To whom &

Duration

29(1) Acquirer along with PAC Acquires 5% of

shares

Stock

Exchange;

Target

Company

(Within two

working days)

29(2) Acquirer along with PAC

already holds 5% or more

Change in the

shareholding

exceeds 2%

30(1) Person along PAC already

holds more than 25%

As on end of

financial year

Stock

Exchange;

Target

Company

(Within seven

working days)

30(2) Promoter along with PAC

shall disclose aggregate

shareholding

As on end of

financial year

31(1)

&

31(2)

Promoter shall disclose

creation, invocation and

release of encumbered

shares

Immediately on

creation, invocation

and release

Stock

Exchange;

Target

Company

(Within seven

working days)

Fair Disclosures

Buying back of Company’s own shares from the

existing shareholders

What is Buy Back?

Companies Act, 2013

&

SEBI (Buy Back of Securities) Regulations, 1998

Governing Provisions

Rationalize the capital structure by writing off capital not

represented by available assets.

To encourage faith in the minds of shareholders at the

time of slump in the market price

To pay surplus cash not required by business

Why to Buy Back

Methods of Buy Back

Tender OfferOpen Market

Method

Book-Building Stock Exchange

Buy Back from odd-lot holders

How Buy Back is done?

Authorization in AOA

Board Resolution – In case buy back is ≤10% total paid up equity capital and free reserves

Special Resolution – In case buy back is ≤25% of the paid up capital (equity plus preference shares) and

free reserves

Debt equity ratio should not be more than the 2:1 after such buy-back

Filing of Declaration of Solvency with the Registrar and SEBI

All the shares or other specified securities for buy-back are fully paid-up

To be completed within twelve months from the date of passing the BR or SR

Minimum time gap of 365 days between two Buy Back offers

Legal Requirements

Free Reserves

Securities Premium Account

Proceeds of any shares or other specified securities

Sources of funds?

Buy-back shall not be done for delisting of securities

Buy-back shall not be done from any person through negotiated deals, spot transactions and private

arrangements

No issuance and allotment of any Equity Shares shall be done

In Market Purchase -Promoters & Controlling persons cannot participate

Promoters shall not deal in shares or other specifies securities during the Offer period

The consideration shall be paid only by way of cash

Restrictions?

Company shall not withdraw the offer of buy back after the public announcement is made

The company shall not buy back the locked in shares or other specified securities and non-transferable

shares or other specified securities

No fresh issue of Equity Shares or other specified securities from the date of closure of Buy Back upto

six months [except by way of bonus issue or in the discharge of subsisting obligations such as

conversions of warrants, stock options schemes, sweat equity or conversion of preference shares or

debentures into equity shares]

Restrictions?

Delisting

Listing

What is Delisting?

How Delisting Regulations evolved?

SEBI introduced

Delisting Guidelines

1998

Then, SEBI replaced it from

Delisting Guidelines, 2003

Later, SEBI introduced SEBI

(Delisting of Equity Shares) Regulations,

2009

SEBI (Delisting of Equity Shares) Regulations, 2009

Methods of Delisting?

Compulsory Delisting Voluntary

Delisting

Compulsory Delisting?

Due to the non-compliance of various

regulations, stock exchange may ask for

compulsory delisting for the shares of

certain companies, whose listing can be

risky for the investors.

Voluntary Delisting?

True Value not getting reflected in Market

No liquidity or very few shareholders

Promoters’ Strategic planning

Delisting

Compulsory Delisting

Voluntary Delisting

Voluntary Delisting from all exchanges

Exit opportunity

Voluntary Delisting from all exchange but remains on STX having

NTT

No exit opportunity

Small company delisting

No bidding but exit opportunity is there

How to Delisting?

Promoters willing to

delist Board approves the

Delisting

Shareholders pass SR

through PB

In principle approval of

St. Ex

Floor Price & Escrow A/c

creation

Reverse Book Building Process

Acceptance of Price by Promoters

Payment to shareholders

Approval of delisting by

St Ex

Process of Delisting

Manoj KumarPartner and Head - M&A and Transactions

D-28, South Extn. Part- I,New Delhi – 110049 M: +91 9910688433T: +91 11 40622228 (D)manoj@indiacp.com www.corporateprofessionals.com