An Analysis of SEBI Takeover Code

Regulation 3(3)Regulation 3(4)Regulation 3(5)Regulation 6Regulation 7Regulation 8

Regulation 10, 11 & 12Regulation 20(4) & 20(5)Clause 40A of Listing Agreement

Disclosures & Compliances

Open Offer Provisions Pricing Provisions

Minimum Public Shareholding

Regulation 3 (1) Exemptions under Takeover CodeRegulation 4 Takeover Panel Exemptions

Key Regulations

Definitions

Regulation 2

Key Regulations- Contd……

Determination of Offer Price:•In case of Direct Acquisition•In case of Indirect Acquisition

Escrow Account

Competitive Bid

Relaxation from the strict provisions of Chapter III

Regulation 20

Regulation 28

Regulation 25

Regulation 29A

Definitions-Acquirer

“Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer.

Query

Whether a person agreeing to acquire shares is an acquirer under SEBI Takeover Regulations?

Yes

The scope of SEBI Takeover Regulations takes in its ambit not only a person directly or indirectly acquiring the shares or voting rights in the target company or acquiring control over the target company, but one agreeing to acquire shares/voting rights or control is also an acquirer and it is not necessary that one should actually acquire shares/voting

rights or control to consider him as an acquirer.

B.P. Amoco Plc & Castrol Limited Vs. SEBI

Definition-Shares

“Shares" means shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights but shall not include preference shares.

Query

Whether partly paid-up shares which do not carry any voting rights shall be covered in the definition of shares?

If the partly paid up shares are excluded from voting, then they will not be covered in Takeover Code. However, in case of absence of any such condition, the partly paid up shares will be covered under the definition

of shares as voting rights are embedded in such type of shares.

Shri Ch.Kiron Margadarsi Financiers Vs SEBI 

QueryWhether SEBI Takeover Regulations are applicable on

preference shares where voting rights have been arise on them due to the non payment of dividend?

No.

Since vide amendment dated Sep 09, 2002, Preference Shares have been excluded from purview of SEBI Takeover Regulations, therefore, when voting rights have been arise on the preference shares due to the non payment of dividend, SEBI Takeover Regulations will not be applicable.

Weizmann Ltd. and PACs Vs Adjudicating Officer

Definition- Person Acting In Concert

Persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal),directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company.

Query

Whether shares held by all persons acting in concert with acquirer have to be taken into account for determining

whether regulation 7 gets triggered?

Yes

The shares held by all the persons, who act in concert with him, are to be taken into account for determining whether regulation 7 gets triggered.

Radheshyam Tulsian –SAT.

Query

Where a promoter who is interested in selling off his shareholding, can he be treated as person acting in

concert with another co-promoter who is interested in acquiring shares?

No.Where a promoter does not share common objective or purpose of

acquirers in as much as it is not interested in acquiring further shares but, on the contrary, is interested in selling off its

shareholding in Target Company with a view to meet its financial obligations, it must be held that such promoter was not acting in

concert with acquirers.

K.K. Modi-Supreme Court

Disclosures Requirements

Acquisition of more than 5%, 10%, 14%, 54% & 74% [Regulation 7 (1)]

Persons, who are holding between 15% - 55%, acquisition/ sale aggregating 2% or more share capital/ voting rights [Regulation 7(1A)]

Person holding more than 5% shares and Promoter or any person having control over the company.(Transitional Provisions) [Regulation 6]

Thresholds Defined

Compliance Chart – Regulation 6

Regulation No.

By whom To whom Time limit (from date of

notification)6(1) Any person holding

More than 5% shares or voting

rights

Target Company within 2 months

6(2) Target Company All Stock Exchanges

where shares are listed

within 3 months

6(3) Promoter or any person having

control over the company

Target Company within 2 months

6(4) Target Company All Stock Exchanges

where shares are listed

within 3 months

Compliance Chart – Regulation 7

Regulation No.

By whom To whom Time limit

7(1) Any person who acquires more than

5%, 10%, 14%, 54%, 74%

Target Company & Stock Exchanges where shares are

listed

Within 2 Days of Acquisition

7 (1A) Any person who holds 15%-55%

shares and purchases/sells 2% or more of shares

Target Company & Stock Exchanges where shares are

listed

Within 2 Days of

purchase/sale

7 (3) Target Company All Stock Exchanges where shares are listed

Within 7 Days of receipt of information

Disclosures by Promoters or Person having control over a company [Regulation 8 (2)]

Disclosure by Person holding more than 15% shares [Regulation 8(1)]

Thresholds Defined

Disclosures by Target Company [Regulation 8 (3)]

Compliance Chart – Regulation 8

Regulation No.

By whom To whom When Time limit

8(1) Any person who holds more than 15% shares

Company As on 31st March

21 Days

8 (2) Promoters or person having

control over a company

Company As on 31st March

Record Date

21 Days

8 (3) Target Company

Stock Exchange

As on 31st March

Record Date

30 Days

8 (4) Maintenance of Register of Holdings

QueryWhether an unlisted Company is also required to make

disclosure under regulation 6, 7 & 8?

Yes

If an unlisted Company acquirers or holds shares/voting rights of a Listed Company beyond the limits specified under regulation 6, 7 & 8, then it is also required to make disclosures as any other acquirer.

DALP Tradepool Pvt. Ltd – Informal Guidance

Query

Whether dispatch of disclosures is sufficient to ensure compliance?

No

The proof of dispatch is not sufficient to prove compliance. The obligation is to ensure delivery to the stock exchange.

Therefore, proof of delivery should be produced.

Sudeep Chitlangia vs. AO

Thresholds Defined

Disclosure by Promoters or Person forming part of promoter group about the shares pledged before notification [Regulation 8A(1)]

Disclosures by Promoters or Person forming part of promoter group on pledge of share.[Regulation 8A (2)]

Disclosures by Promoters or Person forming part of promoter group on invocation of pledge .[Regulation 8A (3)]Disclosures by Company when shares pledged exceeds 25000 or 1% of share capital .[Regulation 8A (4)]

Compliance Chart – Regulation 8A

Regulation No.

By whom To whom When (Event)

Time limit

8A(1) Promoter or person forming part of the promoter group

Company Details of shares

pledged before

notification

Within 7 working Days of notification

8A (2) Promoter or person forming part of the promoter group

Company On pledge of single shares

Within 7 working days of pledge

8A(3) Promoter or person forming part of the promoter group

Company On invocation of pledge

Within 7 working days of invocation of pledge

Compliance Chart – Regulation 8A, Cont’d

Regulation No.

By whom To whom When Time limit

8A (4) Company Stock Exchange

On receipt of information under regulation 8A (1), (2) and (3) if the total number of shares pledged during the quarter exceeds 25000 or 1% of the total paid up capital of the company

Within 7 working days of receipt of information

Acquisition of 15% or more voting rights [Regulation 10]

Persons, who are holding between 15% - 55%, acquisition more than 5% or more voting rights in a financial year.[Regulation 11(1)]Persons, who are holding between 55% - 75%, acquisition of any additional single share or voting right [Regulation 11(2)]

Thresholds Defined

Acquisition of Control or Change in Control with or without acquisition of shares [Regulation 12]

Compliance Chart – Regulation 10, 11& 12

Regulation No.

By whom To whom When (Event)

Time limit

10 Acquirer or by his PAC

Shareholders of Target

Company

Acquisition of 15% or

more voting rights

Within 4 working Days of entering in to agreement for acquisition of share/voting rights

11(1) Acquirer or along with PAC holding equal or more than 15% but less than 55% of shares/ voting rights

Shareholders of Target

Company

Acquisition of 5% or

more shares or voting rights in Financial

Year

Within 4 working Days of entering in to agreement for acquisition of share/voting rights

Regulation No.

By whom To whom When (Event)

Time limit

11(2) Acquirer or along with PAC holding equal or more than 55% but less than 75% of shares/ voting rights

Shareholders of Target

Company

Acquisition of any

additional single share

or voting right

Within 4 working Days of entering in to agreement for acquisition of share/voting

rights

12 Acquirer or by his PAC

Shareholders of Target

Company

Acquisition of control

irrespective of with or

without acquisition of

shares

Within 4 working Days of occurring

the event

Compliance Chart – Regulation 10, 11& 12

Regulation 12“Control” must be taken to mean de facto control also and not de jure control alone.While determining control for the purpose of regulation 12, following points must be remembered:• A pure assessment of numerical composition of Board by itself would lead one too far to identify seat of control. • The fact that a company is professionally managed does not mean that nobody is in control over Company. • Even majority holding of shares is not a decisive factor in determining effective control. • On the other hands, sometimes a person not holding majority shares, say even less than 15%, can be said to have control over the Company if he has effective de facto control over the Company.

Ashwin K. Doshi -SAT

QueryWhether exemption from making public announcement under

regulation 12 will also exempt the acquirer from making public announcement under regulation 11(1)?

No

No, only because regulation 12 also speaks of public announcement, same by itself would not exempt acquirer from making a public

announcement in terms of clause (1) of regulation 11. Moreover, merely because in a case where acquisition of additional shares may result in change of control over company, same by itself would not

exempt acquirer from complying with statutory requirement of making public announcement under section 11.

Swedish Match AB-Supreme Court

Amendment in Regulation 11 (2)

w.e.f. October 31, 2008

Proviso to Regulation 11 (2)

Extra limit of 5% is allowed to persons holding 55%-75% shares

Routes Allowed

Purchase through Open market

Buy-back

Routes Dis-allowed

Bulk DealBlock DealOff-market

Preferential Allotment

Issues in Amendment

• Whether the limit of 5% is allowed for one-time acquisition or it is allowed for one financial year?

• Whether a person holding 53% shares can acquire 5% shares?

Clarification Circular August 06, 2009

• Minimum 55% shareholdingIt is allowed only to the acquirer who together with the PACs with him

holds 55% or more shares in the Target Company

• Not at par with regulation 11(1)Creeping Acquisition is not allowed in each financial year.

• One time acquisitionIt 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.

• No netting off allowedThe limit of 5% shall be calculated by aggregating all the purchases without

netting the sales

• Maximum 75% shareholdingIrrespective of the level of minimum public shareholding to be maintained in terms of clause 40A of the listing agreement, the shareholding cannot exceed 75%

Unanswered Questions

What is the applicability of the SEBI (SAST) Regulations, 1997 on the acquirer who has acquired 5% shares before March 31, 2009 and another 5% shares after March 31, 2009 in terms of the second proviso to sub-regulation (2) of regulation 11 on

the assumption that the creeping acquisition as allowed under said regulation is for each financial year.

QueryWhether the acquirer belonging to promoter group is

required to make open offer if the aggregate shareholding of promoter group exceeds beyond the creeping acquisition

limit pursuant to the acquisition of shares by acquirer, irrespective of the fact that his individual shareholding is

within the limit?

Yes.

The term acquirer includes the acquirer and other persons acting in concert with the acquirer. Since, the acquirer admittedly belongs to the promoter group

therefore can be treated as persons acting in concert for the purpose of determining the triggering of the provisions of Regulation 11 (1) of Takeover

Regulations and would be required to give open offer if his shareholding exceeded beyond the creeping acquisition.

Shingar Ltd-SEBI

Query

Whether for applying regulation 11 of the SEBI Takeover Regulations the comparative percentage of holdings in the

pre acquisition and post acquisition equity share capital should be applied?

For the purpose of regulation 11, the incremental voting right acquired by the acquirer would be considered.

Jain Irrigation Systems Ltd. –Informal Guidance

Controversial Issues

• Whether a person holding shares between 15%-55%, can acquire further shares increasing his shareholding equal to or more than 55% in terms of regulation 11(1).

• Whether in terms of regulation 11(2), the acquirer can increase his shareholding to 75%/90%.

• In regulation 11(2), the acquirer is restricted from acquiring a single shares without giving the public announcement whereas Takeover Regulations are applicable only on the acquisition of voting rights.

Exemptions under Takeover Code

Key Exemptions

Exemptions

Whether exemption is available from SEBI Takeover Code?

No.

Exemption is available only from the provisions of Regulation 10, 11 & 12.

The provisions of regulation 7 are nevertheless required to be complied.

Key Exemptions – Inter-se Exemption

Compliance Chart under Inter Se Transfer

Particulars Inter se transfer

among MRTP group

Inter se transfer among

relatives

Inter se transfer among

Qualifying promoters

Inter se transfer between

Acquirer and PACs

Compliance with the regulation 6, 7 and 8

√ √ √ √

Advance Intimation under regulation 3(3)

√ √ √ √

Report to SEBI under regulation 3(4)

√ √ √ √

Pricing Norms i.e. Inter se transfer cannot be at a price exceeding 25% of the price determined under regulation 20(4) or 20(5).

Χ Χ √ √

Prior holding of three years

Χ Χ √ Χ

Query

How the limit of 5% is calculated under regulation 3 (3) in case of acquisition of shares through fresh allotment?

 In case of acquisition of shares by way of fresh allotment, such percentage shall be calculating after taking the post-allotment capital as denominator

Query

If a person is already holding more than 15%, whether he is required to file the report under Regulation 3(4)?

Yes.

The compliance under regulation 3(4) is not a one-time compliance.

Naagraj Ganeshmal Jain- SAT

Query

For claiming exemption on inter-se transfer, whether prior holding of 3 years is required by all transferors

and transferees?

No

The collective holding of transferor and transferee is required, therefore if there are more than one transferors and

transferees and one of them does not hold shares for 3 years, the transfer will be eligible for exemption.

Pudumjee Agro Industries Limited

•What is the relevant date for deciding the eligibility for availing exemption??

Regulation 3 comes into play only if a violation of the substantive clauses 10, 11 or 12 is first established. Therefore, the date of claiming exemption under regulation 3 cannot be prior to the date when regulation 10, 11 or 12 is attracted.

•Whether acquisition of shares pursuant to conversion of warrants is an involuntary acquisition and hence eligible for exemption??

The acquisition of shares and consequent voting rights is out of a voluntary action on the part of the Acquirers and it is not due to compulsion under or operation of any law. Hence, such acquisition is not exempt.

SEBI Judgment

Determination of Offer Price

Frequently Traded Shares

Regulation 20(4)

In Case of Direct Acquisition

Infrequently Traded Shares

Regulation 20 (5)

Determination of Offer PriceIn Case of Indirect Acquisition

Frequently Traded Shares

Regulation 20(4)

Infrequently Traded Shares

Regulation 20 (5)

•Date of public announcement for parent Company

•Date of Public announcement for Target Company

Regulation 20(12)

QueryWhether the date on which share purchase agreement was executed for acquisition of parent company can be taken as the relevant date where no public announcement has been

made for the parent company?

NO

Where no public announcement has been made for the acquisition of shares of the parent company, the date when the share purchase agreement was entered into for the acquisition of shares of parent company cannot be taken as the date of its PA for the purpose of

regulation 20(12) of the SEBI Takeover Code.

Hamlet Holdings II ApS and Others-SAT

Payment of Non-Compete Consideration

Issue Involved

Issue involved …

What SEBI held …

Competitive Bid

When an acquirer has made an offer to acquire a Company, and subsequently, some other acquirer also makes an offer to acquire the same Company, that subsequent offer by other person is called Competitive Bid.

Competitive Offer

Competitive Offer to the shareholders of Orissa Sponge Iron and Steel Limited

Competitive Offer

Competitive Offer to the shareholders of Great Offshore Limited

Regulation 29ARelaxation from the strict compliance of provisions of Chapter

III in certain cases

In the background of recent fiddles discovered in the corporate sector, whereby the interest of investors has been bigoted to a great extent, Securities and Exchange Board of India has come out with regulatory changes to help the investors who are interested in reviving the victim companies so that any further prejudice to the interest of investors could be avoided.

Analysis of Regulation 29A

• Where BODs of the Company has been removed by Central Government or State Government or any other authority due to the serious mismanagement of operations and other person has been nominated to hold the office;

• For the orderly conduct of the affairs of Target Company or to revive its operations, such new directors have devised a plan;

• There has been a competitive process;

• Provisions relating to open offer cannot be complied with.

Issue

Why separate Regulation 29A has been inserted when Bail Out Takeover is there?

Practical Issues…

• Applicability of SEBI Takeover Code on Warrants

• Valuation of shares in case of swapping

• Inter Se transfer of shares among MRTP Group: The Group should be shown in the Balance Sheet of Target Company

• Increase in shareholding pursuant to Corporate Actions such Buyback or forfeiture

• Calculation of acquisition limits when shares are acquired through preferential allotment

• Relationship between Promoter and Control

• Actual Acquisition Vs Agree to Acquire

• Netting off Vs Gross Acquisition

Practical Issues…

Acquisition of shares but no increase in

voting rights in terms of Voting Rights …

Thank You …