Download - 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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