takeover panorama august issue year iii vol viii - 200-08-13

Takeover

A Monthly Publication by Corporate Professionals Year III Vol. VIII- August 2009

Panorama

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Content Page No.

Legal Update

-SAT order in the matter of Eight Capital Master Fund Limited and PACs

-SAT order in the matter of Meena Shah

-SAT order in the matter of Shingar Limited

-SAT order in the matter of Wealth Sea Pvt. Ltd. and Manali Properties &

Finance Pvt. Ltd.

-SAT order in the matter of Weizmann Ltd. and PACs

-Adjudicating Order in the matter of Vertex Securities Limited

-Adjudicating Order in the matter of Rishab Financial Services Limited

-Takeover Panel Exemption in the matter of Deccan Chronicle Holdings

Limited

-Consent Orders

- SEBI simplifies new creeping acquisition norms

3

Latest Open Offers 16

Hint of the Month 19

Regular Section

- An analysis of automatic exemption available in regulation 3(1)(f) of SEBI

Takeover Code

20

Case Study

- An Analysis of Takeover Offer of Disa India Limited 23

Market Update 26

Our Team 27

Insight

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SAT Order in the matter of Eight Capital Master Fund Limited and PACs

Facts:

On March 3, 2006 the Board of Directors of Pennar

Industries Limited (Target Company) passed a

resolution to convene an EGM for seeking the approval

of its shareholders for allotting convertible debentures

to Eight Capital Master Fund Ltd., Spinnakar Global

Opportunity Fund Ltd., Spinnakar Global Emerging

Markets Fund Ltd. and Spinnakar Global Strategic Fund

Ltd. (appellants) on preferential basis. Accordingly, on

March 27, 2006, the shareholders of the Target

Company approve the preferential allotment and on

July 21, 2006, the Debenture Committee of the BoD

allotted the debentures to the appellants.

The currency of debenture is 18 month from the date of their allotment. Consequently, on December

24, 2007, 2329851 debentures were converted into 15795600 equity shares constituting 14.6% of the

Expanded Capital of the Target Company and on January 26, 2008, remaining debentures were

converted into equity shares increasing the shareholding the appellant from 14.6% to 26%. As the

shareholding of the appellant has increased beyond 15%, therefore, on January 22, 2008 (4 days before

the conversion on January 26, 2008), the appellant made the public announcement in terms of

regulation 10 of the SEBI (SAST) Regulations, 1997 at a price of Rs.14.75 per share taking the date of

Board meeting i.e. March 03, 2006 as reference date. However, on examining the letter of offer, SEBI

directed the appellants to revise the offer price taking the date of public announcement as reference

date. This is against this order of SEBI, that the present appeal has been filed.

In case of conversion of

debentures, the date on which

BODs of the company allotted the

shares on conversion, should be

taken as the reference date for

determination of offer price.

Legal Update

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Issues:

Which date should be considered as the reference date for determination of offer price in terms of SEBI

(SAST) Regulations, 1997 where the public announcement has been made pursuant to the conversion of

convertible debentures into Equity Shares?

Decision:

It is held that for the purpose of determination of offer price, the date on which the BODs allotted the

equity shares on the conversion of debentures, should be considered as reference date and not the date

of BODs meeting on which they approve the allotment of debentures as no voting rights accrued on that

date.

Similar Judgment was passed in case of Sohel Malik v. Securities and Exchange Board of India.

SAT Order in the matter of Meena Shah

Facts:

Meena Shah (appellant) is the shareholder of DISA India Ltd.(Target Company). On December 17, 2008,

Hamlet Holding II APS and PACs (the acquirers) made an open offer to the shareholders of the Target

Company.

However, SEBI directed the acquirers to calculate the offer

price taking March 9, 2008 as the date of public

announcement of parent company. According to the

appellant, March 11, 2008 was the date on which the public

was made aware of the acquisition through the Bombay

Stock Exchange and that the offer price should be calculated

with reference to this date.

Issues:

Whether the appeal filed by the appellant is maintainable?

The appeal was dismissed where

a shareholder had filed an appeal

against direction given by SEBI

without making the acquirers as

a party to appeal.

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Decision:

The appeal was dismissed on the ground that besides making the SEBI as respondent, the acquirers

should also have been made the party to the appeal.

SAT Order in the matter of Shingar Limited

Facts:

Paramount Cosmetics India Ltd. (Target Company)

made the preferential allotment of 30 lacs shares

constituting 61.77% of the paid up capital of the Target

Company in favour of the appllant which has resulted

into triggering regulation 11(1) of the SEBI (SAST)

Regulations, 1997. Therefore, it is decided to initiate

the adjudication proceedings against the appellant in

terms of SEBI (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules, 1995

and accordingly, a show cause notice was issued to the

appellant alleging the violation of regulation 11(1) of

the said regulations.

In response to the notice, the appellant submitted the detailed reply. However, without considering the

reply of the appellant, the adjudicating officer by his letter dated August 22, 2007 communicated to the

appellant his decision to hold an inquiry in the matter which is clearly a violation of sub-rule (3) of Rule 4

of the Rules. Against this order of adjudicating officer, the appellant has filed this appeal.

Issues:

Whether, in view of the above facts, the appeal filed by the appellant is maintainable?

Decision:

In view of the above facts, the appeal is allowed and the order passed by the adjudicating officer is set

aside.

SAT held that it is the duty of the

Adjudicating officer to issue a show

cause notice and to consider the

reply before initiating the

adjudication proceedings.

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SAT Order in the matter of Wealth Sea Pvt. Ltd. and Manali Properties & Finance Pvt. Ltd.

Facts:

On November 28, 2005, Wealth Sea Pvt. Ltd. and Manali

Properties & Finance Pvt. Ltd (appellant) acquired the

entire shareholding of Jumbo World Holdings Ltd. in DIL

RIM & Wheel Corporation Ltd (DIL) which in turn was

holding 74.5% shares in Dunlop India Ltd (Dunlop) and

68.98% shares and voting rights in Falcon Tyres Ltd.

With the acquisition in DIL, the appellants indirectly

acquire 74.5 % shares in Dunlop (Target Company)

which resulted into triggering the SEBI (SAST)

Regulations, 1997.

Therefore, in terms of SEBI (SAST) Regulations, 1997, the appellants made the public announcement at

an offer price of Rs.10 per share which was further increased to Rs.17.50 per share. However, the Board

is not satisfied with the offer price and therefore appointed M/s. Bansi S. Mehta &Co., to evaluate the

equity shares of the Target Company for the purpose of SEBI (SAST) Regulations, 1997. The Chartered

accountant in its report dated March 28, 2008 determined Rs.43.73 as the offer price and ordered the

appellants to revise their offer price. Against the order of SEBI, the present appeal is filed.

Contentions

1. Appellants contented that the valuation report of M/s. Bansi S. Mehta &Co., suffers from several

infirmities and it would not be safe to rely upon it.

2. Independent valuer appointed by the SEBI has not exercised due diligence required in determining

the value of the sick company.

3. They further requested to appoint an independent accounting firm to reassess the value of Target

Company which at the time of acquisition was a sick company.

The appellant are justified in

appointing the independent

chartered accountant where the

valuation report of the Chartered

accountant appointed by SEBI

suffers from several defects.

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Issues:

Whether the appellants are justified is requiring the SEBI to appoint an independent accounting firm to

reassess the value of the Target Company?

Decision:

Since the valuation report of M/s. Bansi S. Mehta &Co. suffers from several defect, therefore, the

appellants are justified in requiring the SEBI to appoint an independent Valuer for the purpose of

determination of offer price. In view of the above facts, M/s. Deloitte Touche Tohmatsu India Pvt. Ltd.

was appointed to value the equity shares of the Target Company and submit its report to SEBI within

one month of the receipt of the order.

SAT order in the matter of Weizmann Ltd. and PACs

Facts:

Weizmann Ltd. and PACs (appellants) holds 4,75,000

cumulative preference shares and 65.67% Equity Shares

of Weizmann Fincorp Limited (Target Company). In

accordance with Section 87 of Companies Act, 1956,

acquirer along with PAC had acquired voting rights on

these preference shares as the dividend on these shares

has remained unpaid for the last 2 years, thereby,

resulting into regulation 11 (1) of the SEBI (SAST)

Regulations, 1997 requiring the public announcement be

made to the shareholders of the Target Company.

However, the acquirer failed to make the required public

announcement and thus violated the provisions of

regulation 11(1) of SEBI (SAST) Regulations, 1997.

Therefore, a show cause notice was issued to appellant on 27.04.07, in response to which the appellant

submitted the detailed replies on 15.05.07 and 19.06.07. In the reply, the appellant contended that the

voting rights have been accrued on these preference shares on 31.12.2002, the date of the annual

SAT held that there is no requirement

of making the open offer where the

voting rights have been accrued on the

preference shares for nonpayment of

dividend after the amendment which

excluded the preference shares from

the purview of the SEBI Takeover

Code.

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general meeting, as it was on that date the dividend due on their preference shares remained unpaid for

an aggregate period of two years preceding the date of the meeting. However, as the preference shares

had been excluded from the purview of the SEBI (SAST) Regulations, 1997 with effect from 9.9.2002,

therefore, the appellants were not required to come out with a public announcement. On consideration

of the reply, Adjudicating officer held that the voting rights have been accrued on these preference

shares on July 1, 2002 as the company has last declared the dividend in its AGM held on January 31,

2001 for the financial year ended June 2000 and therefore, imposed the monetary penalty of

Rs.1,30,000 on the appellants. this is against this order of Adjudicating officer that the present appeal

has been filed.

Issues:

What is the date on which the voting rights accrue on the above cumulative preference shares and

whether there has been any violation of the SEBI (SAST) Regulations, 1997.

Decision:

It was inferred from Section 87 of Companies Act, 1956 that the right to vote does not get attached to

the preference shares nor they take the colour of equity shares unless their dividend remains due for

the period of 2 years. Thus, it was concluded that if no date is specified in the article then the voting

rights shall accrue from the date when dividend is deemed to be due i.e. on the EGM which held on

31.12.02 and not on the day immediately following the expiry of the year end i.e 01.07.02. Since, the

appellant acquired the voting rights on 31.12.02 i.e after the amendment dated Sep 09, 2002 came into

force, which excluded the preference shares from the ambit of SEBI (SAST) regulations, 1997, therefore,

the appellants were not required to make any public announcement. Hence the impugned order is set

aside and the appeal is allowed.

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Adjudicating Order in the matter of Vertex Securities Limited

Facts:

On examination of letter of offer filed by

Transwarranty Finance Limited (acquirer) for the

acquisition of shares of Vertex Securities Limited(

VSL), it was observed by SEBI, that Mr. Ranjan

Verghese, the promoter and Managing Director of

VSL, and Mr. Dilip Verghese, Mrs. Kunjumol Philip, Mr.

George Varkey Thalody, Mr. Thomas Alappat, Mrs.

Luciyamma Thalody, Mrs. Thressiyamma Nemri and

Mr. Ivan J Coelho (Noticees), have acquired additional

475000 shares(5.33%) on Oct 30, 1999 and 630250

shares (12.17%) on April 08, 2006 which has resulted

into triggering regulation 11 (1) and 11(2) of the SEBI

(SAST) Regulations,1997 requiring the open offer be

made to the shareholders of VSL.

However, the Noticees failed to make any public announcement and accordingly, adjudication

proceeding were initiated against them for the above violation of regulation 11(1) and 11(2) of SEBI

(SAST) Regulations, 1997. Prior to the above acquisition, the total holding of the promoter group was

69.99% of the paid up share capital of VSL.

Contention:

1. The Noticees contended that as regard the acquisition of 475000 shares is concerned, it is an

inter se transfer among the promoters which qualifies for exemption under regulation 3(1) (e)

(iv), but due to failure of compliance of necessary disclosures under Regulation 6, 7 and 8 of the

SEBI (SAST) Regulations, Noticees have become ineligible to avail benefit of said exemption.

2. No change is control.

Adjudicating officer imposed the

penalty of Rs.48,00,000 when there is

violation of regulation 11(1) and

regulation 11(2) and contention of the

Noticee that the Violation is

unintentional is rejected.

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3. Violation was done unintentionally and the investors have been adequately compensated by

making an open offer at price of Rs.31 per share.

Issues:

Whether there has been a violation of regulation 11 of SEBI (SAST) Regulations, 1997 by the Noticee and

whether the non compliance, if any, on the part of the Noticees attracts the monetary penalty.

Decision:

On the basis of above facts and circumstances of the case, Adjudicating officer impose the penalty of Rs.

48,00,000 on all the Noticees for their violation of provisions of Regulation 11 (1) and 11(2) of SEBI

(SAST) Regulations, 1997.

Adjudicating Order in the matter of Rishab Financial Services Limited

Facts:

On March 12, 2007, Mangal Kiran Securities Limited

(acquirer) made a public announcement for the acquisition of

shares of Rishab Financial Services Ltd. (Target

Company/Noticee) and thereafter filed the letter of offer. On

examination of the letter of offer, SEBI found that the

Noticee has delayed in making the disclosures under

regulation 6(2) & 6(4) of the SEBI (SAST) Regulations, 1997 for

the year 1997 and regulation 8(3) of the said regulations for

the year 2000 and has, thus, violated the provisions of SEBI

(SAST) Regulations, 1997.

Accordingly a show cause notice was issued to the Noticee, but, no response was received. Therefore,

many opportunities of personal hearing were granted to the acquirers. However, the Noticee did not

avail any of them. Therefore, adjudicating officer decided to proceed with the matter in accordance with

the information available on record.

Issues:

It has been decided that penalties

unless specifically made

retrospective must be applicable

from the date of amendment.

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What should be amount of penalty where the Noticee has violated the provisions of regulation 6 and 8

of SEBI (SAST) Regulations, 1997 and has not responded to the Noticees issued by Adjudicating Officer in

the said matter?

Decision:

As the violation has taken place before 29.10.2002 i.e. before the SEBI amendment increasing the

penalty from Rs. Five thousand to Rs. One lakh for each day during which such failure continues or

Rs.One crore whichever is less, therefore, penalty as applicable at that time should be imposed. It has

also been decided by Hon’ble Securities Appellate Tribunal in Rameshchandra Mansukahni vs SEBI

(Appeal No.151/2004) to the effect that penalties unless specifically made retrospective must inevitably

be only with effect from the date of amendment.

Thus, on the basis of above facts and circumstances of the case, Adjudicating officer impose the penalty

of Rs. 5,00,000 on the Noticee for the non compliance Regulations 6(2), 6(4) & 8(3) of the SEBI (SAST)

Regulations,1997 and for the continuing non-cooperative attitude of the Noticee towards the

proceedings.

Takeover Panel Exemption in the matter of Deccan Chronicle Holdings Limited

Facts:

Mr. T. Venkattram Reddy, Mr. T. Vinayak Ravi Reddy,

Mr. P.K Iyer and Mrs. T. Urmila Reddy (acquirers) are

the promoters of the Deccan Chronicle Holdings

Limited (Target Company) and hold 63% shares of the

target company. The target company has announced

its plan to buy-back its shares from its shareholders. As

the acquirer shall not tender any share held by it in the

target company in the proposed buy-back, in case of

100% response to the buy-back offer from other

shareholders of the target company, the voting rights

of the acquirer in the target company would increase

from 63% to 73.51% resulted into triggering the

Takeover Panel granted the exemption

where the increase in the promoter

shareholding is pursuant to the Buy

Back by the Target Company and there

is no active acquisition by the promoter

group.

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Regulation 11(2) of SEBI (SAST) Regulation, 1997 for

which the acquirer has filed the application seeking the

exemption on the following submission:

Grounds of Exemption:

1. No change in control;

2. There will be no active acquisition by the acquirers;

3. Increase in shareholding is incidental to buy back;

4. Minimum public shareholding will be maintained.

Decision:

On the basis of above facts, SEBI granted the exemption to the acquirers from the applicability of

regulation 11(2) of SEBI (SAST) Regulations, 1997.

Consent Order in the matter of Anand Lease and Finance Limited

M/s Anand Lease and Finance Limited (applicant) failed to make the requisite disclosures under

regulation 6(2), 6(4) and 8(3) of the SEBI (SAST) Regulations, 1997 and thus violated the provisions of the

said regulations. Therefore, vide letter dated March 10, 2009, the applicant has filed the consent

application seeking the settlement of the enforcement action that may be initiated by the SEBI and

proposed to pay Rs.3,00,000 towards the consent terms. The terms proposed by the applicant were

placed before the High Powered Advisory Committee (HPAC) and on the recommendation of HPAC, SEBI

settle the above violations of the applicant.

Consent Order in the matter of Restile Ceramics Limited

While making the disclosure under regulation 8(3) of the SEBI (SAST) Regulations, 1997, Restile Ceramics

Limited (applicant) failed to include the shareholding of certain person acting in concert and thus,

violated the provisions of the said regulations. Therefore, vide letter dated October 04, 2007, the

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applicant has filed the consent application seeking the settlement of enforcement action that may be

initiated by SEBi and proposed to pay Rs.1,25,000 towards the consent terms. The terms as proposed by

the applicant were placed before the High Powered Advisory Committee and on the recommendation of

HPAC, SEBI settle the above violations of the applicant.

Consent Order in the matter of Joy Reality Limited

M/s Joy Reality Limited (applicant) failed to make the disclosures under Regulations 6(2), 6(4), 7(3) and

8(3) of the SEBI (SAST) Regulations, 1997 within the prescribed time and thus violated the provisions of

SEBI (SAST) Regulations, 1997. Therefore, vide letter dated March 25, 2009, the applicant has filed

consent application for the settlement of the above violations and proposed to pay Rs.3,25,000 as

settlement charges towards the consent terms. The terms as proposed by the applicant were placed

before the High Powered Advisory Committee (HPAC) and on the recommendation of the HPAC, SEBI

settled the above violations done by the applicant.

Consent Order in the matter of Purshottam Investofin Limited

Purshottam Investofin Limited (applicant) failed to make the disclosure under Regulation 8(3) of the SEBI

(SAST) Regulations, 1997 for the years 2004,2005,2006,2007 and 2008, and thus violated provisions of

the said regulations. Therefore, vide letter dated April 11, 2009, the applicant has filed consent

application for the settlement of the violations done under SEBI (SAST) Regulations, 1997 and proposed

to pay Rs.1,00,000 as settlement charges towards the consent terms. The terms as proposed by the

applicant were placed before the High Powered Advisory Committee (HPAC) and on the

recommendation of the HPAC, SEBI settled the above violations done by the applicant.

Consent Order in the matter of Winmore Leasing & Holdings Limited

Winmore Leasing & Holdings Limited (applicant) failed to make the disclosures under Regulation 6(2)

and 6(4) of the SEBI (SAST) Regulations, 1997 for the year 1997 and under Regulation 8(3) of the said

regulations for the years 1998 & 1999 and thus violated the provisions of SEBI (SAST) Regulations, 1997.

Therefore, vide letter dated March 30, 2009, the applicant has filed consent application for the

settlement of the above violations and proposed to pay Rs.1,00,000 as settlement charges towards the

consent terms. The terms as proposed by the applicant were placed before the High Powered Advisory

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Committee (HPAC) and on the recommendation of the HPAC, SEBI settled the above violations done by

the applicant.

Consent Order in the matter of BOC India Limited

On September 22, 1997, BOC Group Limited acquired 1,29,91,132 Equity Shares pursuant to the right

issue by BOC India Limited (Target Company) which were transferred to BOC Holdings (applicant)

consequent to the trust deed dated September 30, 1997 executed in favor of BOC Holdings by BOC

Group Limited. The above acquisition of shares is eligible for exemption in terms of regulation 3 of SEBI

(SAST) Regulations, 1997 provided that the conditions specified under the said regulations are complied

with. However, the applicant filed the report under regulation 3(4) read with regulation 3(5) with

considerable delay. Therefore, vide letter dated June 03, 2008, the applicant has filed this consent

application seeking the settlement of enforcement action that may be initiated by the SEBI for the

aforesaid failure and proposed to pay Rs.2,00,000 towards the consent terms. The terms as proposed by

the applicant were placed before the High Powered Advisory Committee (HPAC) and on the

recommendation of HPAC, SEBI settle the above violations of the applicant

Consent Order in the matter of Madan Financial Services Limited

Shri Madan Chand Darda (applicant) made the disclosure under Regulation 6(3) of the SEBI (SAST)

Regulations, 1997 for the year 1997 and under Regulation 8(2) of the said regulations for the year 2000

with considerable delay. Therefore, vide letter dated November 05, 2009, the applicant has filed

consent application for the settlement of the violations done under SEBI (SAST) Regulations, 1997 and

proposed to pay Rs.50,000 as settlement charges and Rs.25,000 as administrative charges towards the

consent terms. The terms as proposed by the applicant were placed before the High Powered Advisory

Committee (HPAC) and on the recommendation of the HPAC, SEBI settled the above violations done by

the applicant

Consent Order in the matter of Ahluwalia Contracts (India) Limited

Adjudication proceedings were initiated against M/s. Tidal Securities Private Limited, Mr. Bikramjit

Ahluwalia and Mr. Vikas Ahluwalia (‘Noticees’) for the violation of regulation 11(2) of the SEBI Takeover

Code in the matter of acquisition of shares of Ahluwalia Contracts (India) Ltd. Pending the adjudication

proceeding, the Noticees have filed the consent application dated November 24, 2008 for the

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settlement of the above violations and proposed to pay Rs.5,00,000 as settlement charges and

Rs.25,000 as administrative charges towards consent terms. The terms as proposed by Noticees were

placed before the High Powered Advisory Committee (HPAC) and on the recommendation of HPAC, SEBI

disposes of said proceedings against the Noticees.

SEBI simplifies new creeping acquisition norms

On 30th October 2008, SEBI came out with an amendment in SEBI (SAST) Regulations whereby an extra

creeping acquisition limit of 5% was allowed to the shareholders holding 55%-75% shares. However, it

was not clarified that whether such 5% acquisition limit is available in one financial year, as allowed

under regulation 11 (1) for shareholders holding 15%-55% shares. Therefore, on August 06, 2009, SEBI

came out with a clarification circular amplifying the provision of regulation 11(2) as contained in the

amendment dated October 30, 2008.

Analysis of the circular

1. The creeping acquisition is allowed only to the acquirer who together with the PACs with him

holds 55% or more shares in the Target Company:

2. The creeping acquisition as allowed under second proviso to sub-regulation (2) of regulation 11

is not at par with the creeping acquisition allowed under regulation 11(1) of the SEBI (SAST)

Regulations, 1997.

3. The creeping acquisition limit of 5% as prescribed under the said proviso is allowed once during

the entire life time of the Target Company and can be made in one or more trenches without

any restriction on the time frame;

4. The limit of 5% shall be calculated by aggregating all the purchases without netting the sales;

5. Irrespective of the level of minimum public shareholding to be maintained in terms of clause

40A of the listing agreement, the total shareholding of the acquirer along with the

PACs consequent to the creeping acquisition as allowed under second proviso to sub-regulation

(2) of regulation 11 should not increased beyond 75%.

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Name of the

Target Company

Name of the

Acquirer and PAC

Details of the

offer

Reason of the offer Concerned Parties

Indo Zinc Limited

Regd. Office

Mumbai

Paid up capital

Rs 4.5 crore

Listed At

BSE, DSE, ASE and

MPSE

ICL Financial

Services along

with The India

Cements Limited

(PAC)

Offer to acquire

9,00,000 (20%)

Equity Shares at a

price of Rs.22.50

per share payable

in cash.

Regulations

10 and 12

SPA to acquire

17,87,700 (39.73%)

Equity Shares of Rs.

10/- each at a price

of Rs.22.50 per share

payable in cash.

Merchant Banker

MAPE Advisory

Group Private

Limited

Registrar to the

Offer

Integrated

Enterprises (India)

Ltd

Kolmak Chemicals

Limited

Regd. Office

Kolkata

Paid up capital

Rs. 1.99 Crore

Listed At

CSE

S. Sukumar & S.

Kalaiyarasi

Offer to acquire

3,99,985 Equity

Shares

representing 20%

of the paid up

capital at a price

of Rs.15/- per

share payable in

cash.

Regulations

10 and 12

SPA to acquire

8,90,105 (44.51%)

Equity Shares

at a price of Rs. 15/-

per share and off

market acquisition of

3,09,895 (15.49%)

Equity Shares at a

price of Rs.15

aggregating the

Merchant Banker

VC Corporate

Advisors Private

Limited (Formerly

Eccentric Capital

Private Limited)

Registrar to the

Offer

Maheshwari

Datamatics Private

Latest Open Offers

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shareholding of the

acquirer to 12,00,000

(60%) Equity shares.

Limited

IAG Company

Limited

Regd. Office

Kolkata

Paid up capital

Rs. 6.43 Crores

Listed At

BSE and CSE

Anjaniputra Ispat

Limited

Offer to acquire

26,87,880 Equity

Shares

representing 20%

of the Expanded

Capital at a price

of Rs.12/- each

plus interest of Rs.

0.75/- per share

payable in cash.

Regulations

10 , 11 and 12

Acquisition of

26,89,592 (41.77%)

Equity Shares at a

price of Rs.11.33 and

Preferential

allotment of

70,00,000 Equity

Shares representing

72.10% of the

expanded capital at a

price of Rs. 12/- per

share.

Merchant Banker

MICROSEC Capital

Limited

Registrar to the

Offer

CB MGMT Services

(P) Limited

Anukaran

Commercial

Enterprises

Limited

Regd. Office

Mumbai

Paid up capital

Rs. 96 Lacs

Listed At

BSE

Premal S Parekh,

Neha P Parekh,

Paras K Mehta,

Parag K Mehta,

Hansa P Shah,

Kushal P Shah,

Alpesh K Dedhia,

Krishna C Birmole

and Anuradha K

Birmole along with

the PACs

Offer to acquire

1,92,000 (20%)

Equity Shares at a

price of Rs.20/-

per share payable

in cash.

Regulations

10 and 12

SPA to acquire

2,91,010 (30.31%)

Equity Shares


per share increasing

the shareholding of

the acquirers along

with PACs from

14.46% to 44.77%.

Merchant Banker

SMC Capitals

Limited

Registrar to the

Offer

Purva Sharegistry

Pvt. Limited

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Vybra Automet

Limited

Regd. Office

Andhra Pradesh

Paid up capital

Rs.7.12 Crores

Listed At

BSE

Mandakini

Holdings Private

Limited

Offer to acquire

up to 14,25,800

(20%)

at a price of

Rs.10/- per share

payable in cash.

Regulations

10 and 12

SPA to acquire

17,37,375 (24.37%)

Equity Shares


per share payable in

cash.

Merchant Banker

VC Corporate

Advisors Private

Limited

Registrar to the

Offer

Niche

Technologies

Private Limited

Man Aluminium

Limited

Regd. Office

Mumbai

Paid up capital

Rs.3.38 crore

Listed At

NSE and BSE

Ravinder Nath

Jain, Mohinder

Jain and PACs

Offer to acquire

676,061 (20%)

Equity Shares at a

price of Rs.45 each

payable in cash.

Regulations

10 and 12

SPA to acquire

1,559,888 (46.15%)

Equity Shares at a

price of Rs.45 per

share payable in

cash.

Merchant Banker

SPA Merchant

Bankers Limited

Registrar to the

Offer

Beetal Financial &

Computer Services

Private Limited

Essen

Supplements India

Limited

Ganesh Kumar

Singhania and

Anita Singhania

Offer to acquire

12,00,000 Equity

Shares

representing

Regulations

10 and 12

Preferential

Merchant Banker

VC Corporate

Advisors Private

Limited

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Regd. Office

Andhra Pradesh

Paid up capital

Rs.5.78 crore

Listed At

BSE, ASE and HSE

20.66% of the

expanded voting

Equity Share

capital and 20.88%

of expanded

voting share

capital at a price

of Rs.10 payable in

cash.

allotment of 20, 00,

000 Equity Shares

and SPA to acquire

10,54,588 Equity

Shares increasing the

shareholding of the

acquirers from Nil to

30,54,588 Equity

Shares representing

52.58% of expanded

subscribed Equity

Share capital and

53.14% of expanded

voting share capital.

Registrar to the

Offer

Maheshwari

Datamatics Private

Limited

Hint of the Month

The minimum offer price in case of disinvestment of a Public Sector Undertaking, whose

shares are infrequently traded, shall be the price paid by the successful bidder to the Central

Government or the State Government, arrived at after the process of competitive bidding of

the Central Government or the State Government for the purpose of disinvestment and other

criteria’s as mention in regulation 20(5) of the SEBI (SAST) Regulations, 1997 will not be

considered.

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An analysis of automatic exemption available in regulation 3(1)(f) of SEBI Takeover Code

Regulation 3 of the SEBI Takeover Code deals with the provisions relating to the automatic exemption to

the acquirer from complying with provision of regulation 10, 11 and 12 of the SEBI Takeover Code

requiring the open offer be made to the shareholders of the Target Company when the acquirer has

crossed the limit prescribed under the said regulations. However, the exemption as provided under

regulation 3 is subject to the compliance with the conditions as prescribed under the said regulation. It

is noteworthy to mention here is that regulation3 provides the exemption only from the requirement of

making the open offer as required under regulation 10, 11 and 12 and not the from the requirement of

making the disclosure as requisite under regulation 6, 7 and 8. An analysis of the provision contained in

regulation 3(1)(f) is detailed below:

Nothing contained in Regulations 10, Regulation11 and Regulation 12 of these regulations shall apply

to acquisition of shares in the ordinary course of business by,-

i. a registered stock-broker of a stock exchange on behalf of clients;

Shares acquired by a registered stock broker on behalf of its clients in the ordinary course of

business are excluded while calculating the individual shareholding of the stock broker as the

beneficial ownership in those shares is with the client and he has no ownership interest in those

shares.

This has also been decided in a proceeding against Angel Broking Limited. In this case,

Adjudicating officer held that where the Broker acquires the shares on behalf of the client, then

he will not be treated as the acquirer in respect of those shares and as such, those shares will

not be included in his own shareholding for the purpose of calculating the limit as prescribed

under regulation 10, 11 and 12 of SEBI Takeover Code.

ii. a registered market maker of a stock exchange in respect of shares for which he is the market

maker, during the course of market making;

Regular Section

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Similarly, the acquisition of shares by the registered market makers in the ordinary course of

their business in excess of the limit as prescribed under regulation 10, 11 and 12 of the SEBI

Takeover Code are also exempted from the applicability of the said regulation.

iii. by Public Financial Institutions on their own account;

Public financial institutions on their own account can also acquire shares in the ordinary course

of business without triggering the SEBI Takeover Code.

iv. by banks and public financial institutions as pledgees;

Shares acquired by the banks and financial institutions as pledgees in consideration of the loan

advanced are excluded from the purview of the SEBI Takeover Code. A detailed analysis of the

above provision is given below:

When the shares are pledged:

As regards the applicability of regulation 10 and 11 of SEBI (SAST) Regulations, 1997 is

concerned, it is noteworthy to mention here is that when the shares are pledged with the banks

as security for availing the loan in excess of the limit specified under the said regulations, then

the banks are not required to comply with regulation 10 and 11 of the SEBI (SAST) Regulations,

1997 as the beneficial interest in the shares remain with the pledgor even after the pledge and

the banks have not acquired any ownership in the shares. Further regulation3(1)(f)(iv) of the

SEBI (SAST) Regulations, 1997 exempt the acquisition of shares by the banks and public financial

institution as pledgees in the ordinary course of their business from the applicability of

regulation 10, 11 and 12.

On the invocation of pledge by the pledgee:

When pledge have been invoked by the bank and the shares were transferred to them, then,

the beneficial rights in those pledged shares was also transferred to them and pledgors have no

right in those shares. On the invocation of pledge, it will be treated as sale of shares by the

pledgors and they are required to make the disclosures, if any, applicable on them in terms of

SEBI (SAST) Regulations, 1997 and SEBI (PIT) Regulations, 1992.

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The similar facts have also been decided by the adjudicating officer in K Koteswara Rao . In this

case, Adjudicating officer held that when the pledge have been invoked and the pledged shares

are transferred, then it will be treated as the sale of shares by the pledgors.

As regards the compliance by the banks is concerned, it is noteworthy to mention here is that

regulation 3(1)(f)(iv) of the SEBI (SAST) Regulations, 1997 exempt the acquisition of shares by

the banks and public financial institution as pledgees in the ordinary course of their business

from the applicability of regulation 10, 11 and 12.

However, the said regulation has mention the acquisition of shares as pledgees, thus, it is not

clear whether the exemption is with respect to event when the shares have been pledged or

even for the acquisition of shares by the banks when the pledge have been invoked.

Since the invocation of pledge and acquisition of shares consequent to the invocation, is a part

of their ordinary business, therefore, it seems that it would also be exempted from the

applicability of regulation 10, 11 and 12 of the said regulations.

On the acquisition of shares from the pledgee after the pledge has been invoked and the

shares have been transferred to the pledgee:

When the shares transferred consequent to the invocation of pledge to the pledgee are to

repurchased, then, it will be considered as the fresh acquisition and SEBI (SAST) Regulations,

1997 will be applicable on the transferee in the same way as it would have been, had the said

shares have been acquired otherwise.

This interpretation has been taken from the judgment given by the Adjudicating Officer in K

Koteswara Rao wherein it was held that when the shares have been transferred to the pledgee

consequent to the invocation of pledge, then, it will be treated as the sale of shares by the

pledgors. Therefore, the said transfer is considered as the sale, accordingly the acquisition of

those sold shares by the pledgors will be considered as the fresh acquisition and will require the

compliance of SEBI(SAST) Regulations, 997 if any applicable on them.

v. the International Finance Corporation, Asian Development Bank, International Bank for

Reconstruction and Development, Commonwealth Development Corporation and such other

international financial institutions;

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vi. a merchant banker or a promoter of the target company pursuant to a scheme of safety net

under the provisions of the Securities and Exchange Board of India (Disclosure and Investor

Protection) Guidelines, 2000 in excess of limit specified in sub-regulation (1) of Regulation 11.

Thus, it is clear that the shares acquired in the ordinary course of business by the intermediaries

are exempted from the category of making public offer.

AN ANALYSIS OF TAKEOVER OFFER OF DISA INDIA LIMITED

ABOUT DISA INDIA LIMITED (“TARGET COMPANY”)

DISA offers a complete range of ferrous and aluminum castings

production solutions for the international foundry industry together

with metal surface finishing solutions. DISA serves international

industrial manufacturers, foundries and metalworking industries

with leading edge technology solutions, tailored to their specific

needs

DISA II A/S is the holding of DISA group of Companies worldwide with subsidiaries in China, Switzerland,

Japan, Denmark, Germany, United Kingdom, India and in various other countries.

HAMLET HOLDING II APS (“ACQUIRER”)

Hamlet Holding II APS is an Unlisted Limited Liability Company, incorporated in Denmark. The ultimate

controlling ownership of Hamlet Holding II APS is with the Emerging Europe Convergence Fund II LP, a

limited liability partnership which is managed by Mid Europe Partners and their affiliates.

ANALYSIS OF INDIRECT ACQUISITION OF DISA INDIA LIMITED

As on the date of public announcement for the Target Company i.e. December 17, 2008, the acquirer

holds 100% shares of DISA II A/S which has been acquired from Procuritas Group vide Share Sale and

Case Study

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Purchase Agreement dated March 09, 2008. However, it does not hold directly any shares in the Target

Company. DISA II A/S holds 100% shares of DISA A/S which in turn holds 100% shares of DISA AG. DISA

A/S owns 3,02,749 Equity Shares and DISA AG holds 8,18,902 Equity Shares in the Target Company

constituting 20.05% and 54.22% of the paid up capital of the Target Company.

Thus, pursuant to the acquisition in DISA II A/S, the acquirer has indirectly acquired 74.27% stake in the

Target Company which has resulted into triggering SEBI (SAST) Regulations, 1997 requiring the open offer

be made to the shareholders of the Target Company.

OPEN OFFER TO THE SHAREHOLDERS OF THE TARGET COMPANY

Consequent to the above acquisition, on December 17, 2008, the acquirer has made the open offer to

acquire 3,02,041 Shares representing 20% of the paid-up and voting equity share capital of the Target

Company, at a price of Rs. 1,657/- per Share payable in cash. Further, in accordance with regulation 18 of

the SEBI (SAST) Regulations, 1997, on December 31, 2008, the acquirer submitted the detailed letter of

offer with the SEBI on which the SEBI issued its observation vide its letter dated February 06, 2009 which

is stated as follows:

“The offer price may be calculated in terms of regulation 20(4) read with 20(12) and the date of PA for

the parent company may be treated as the date of Share Sale and Purchase Agreement i.e. March 09,

2008. Accordingly the consequent changes may be made in the revised offer document.”

APPEAL TO SAT

However, the acquirer being aggrieved by the order of SEBI, has preferred an appeal before Securities

Appellate Tribunal (SAT). The tribunal has directed the acquirer and PACs that during the time when the

Acquirer DISA II A/S

100%

DISA A/S DISA AG

100% 100%

Target Company

20.05% 54.22%

Indirect acquisition of 74.27% (20.05% plus 54.22%)

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appeal is pending before it, they shall not come out with the open offer in pursuance of the public

announcement already made and will pay the interest to the shareholders for the period during which

the appeal remains pending before the tribunal in case where they fail in appeal.

APPEAL BY A SHAREHOLDER AGAINST THE SEBI ORDER

Further, Meena Shah (appellant), one of the shareholders of Target Company has also filed an appeal

before the SAT against the above order of SEBI requiring the appellant to re calculate the offer price

taking March 09, 2008 as date of PA of the parent company. According to the appellant, March 11, 2008

was the date on which the public was made aware of the acquisition through the Bombay Stock Exchange

and therefore, the offer price should be calculated with reference to this date. However, the said appeal

was dismissed by the SAT.

DECISION OF THE APPELLATE TRIBUNAL

Regulation 20(12) of the SEBI (SAST) Regulations, 1997 provides that the offer price for indirect acquisition

or control shall be determined with reference to the date of the public announcement for the parent

company and the date of the public announcement for acquisition of shares of the target company,

whichever is higher, in accordance with sub-regulation (4) or sub-regulation (5) of regulation 20 of the

SEBI (SAST) Regulations, 1997.

A public announcement is an announcement is an announcement made in the newspaper by the acquirer

primarily disclosing his intention to acquire further shares of the Target Company from the existing

shareholder by means of an open offer and the offer is said to have been made only on the date when

the public announcement appears in the newspaper.

Thus, regulation 20(12) pre-supposes that when the parent company get acquired, the takeover code get

triggered and a public announcement is made. However, in the instant case no public announcement was

made for the acquisition of parent company as the acquisition was made outside India.

Since no public announcement was made when the parent company was acquired by the acquirer,

therefore, the date on which share and stock Purchase Agreement was executed i.e. March 09, 2008,

cannot be taken as the public announcement of the Parent Company and the order of the Board was set

aside.

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Reliance Infra acquires majority stake in Reliance Cementation

Reliance Infrastructure, India’s largest infrastructure company on ownership of assets basis, has

acquired a 51% stake of Reliance Cementation from it’s another Group firm Reliance Natural

Resources. As a result of the above acquisition, Reliance Cementation has become the 100%

subsidiary of Reliance Infrastructure.

NOBLE GROUP Sells 51% stake in Noble Grain India To GP Group

Asia’s largest diversified commodities trading company Noble Group has exited from Indian

edible oil market by selling its majority stake in Noble Grain India to GP Group of Thailand – a

150 year old group having interest in shipping, trading and hospitality. With this, GP Group along

with its partner Mansingka family now owns 100% of Noble Grain India to be renamed as

Geepee Agri Pvt. Ltd.

TTSL proposes to buy stake in Matrix

TATA Teleservices (TTSL) is in talks to buy majority Stake in Matrix Cellular Services by picking up

around 15% stake in Matrix in the first year and gradually increase the stake to about 75% by

the end of third year. The Mobile store (TMS), the telecom retail chain of Essar group is also in

the tussle for Matrix. The deal with Matrix will help TTSL to offer extremely low call rates to its

subscribers travelling abroad

SC approval for Zenotech Open Offer

Supreme Court of India has given its approval to Daiichi to go ahead with its open offer to the

shareholders of Zenotech at a price of Rs. 113.62 per share. Earlier Daiichi has been restrained by

the Madras High Court on a complaint filed by the Minority shareholders on the ground that

Price of Rs.113.62 Per share is not justified and It should pay a price of Rs.160 per share being the

price paid by the Ranbaxy in January 2008 for the acquisition of stake in Zenotech.

Market Update

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Ruchi Hans

Associate [email protected]

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Swati Jain

Analyst [email protected]

Disclaimer:

This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this

paper have been developed on the basis of latest prevailing SEBI (Substantial Acquisition of Shares

and Takeover) Regulations, 1997 in India. The author and the company expressly disclaim all and

any liability to any person who has read this paper, or otherwise, in respect of anything, and of

consequences of anything done, or omitted to be done by any such person in reliance upon the

contents of this paper.

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takeover panorama august issue year iii vol viii - 200-08-13

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