SCM on Takeover code -Prakash Pandya.ppt

8/17/2019 SCM on Takeover code -Prakash Pandya.ppt

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SEBI SASTRegulations 2011

By P K Pandya & Co.

Practising Company Secretaries


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SEBI SAST 1994 Quic !i"

SEBI SAST 199# Transition

SEBI SAST $%11 Transormation

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'e(nitions“Convertible Security” means a security which is convertible

into or exchangeable with equity shares of the issuer at a laterdate, with or without the option of the holder of the security,

and includes convertible debt instruments and convertiblepreference shares.

“Enterprise alue” means the value calculated as mar!etcapitali"ation of a company plus debt, minority interest andpreferred shares, minus total cash and cash equivalents

“#dentified date” means the date falling on the tenth wor!ingday prior to the commencement of the tendering period, for thepurposes of determining the shareholders to whom the letter ofoffer shall be sent

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“$requently traded shares” means shares of a target companyin which the traded turnover on any stoc! exchange during the

twelve calendar months preceding the calendar month in whichthe public announcement is made, is at least ten per cent ofthe total number of shares of such class of such targetcompany%

&rovided that where the total share capital of the target

company is not identical throughout such period, the weightedaverage number of total shares of the target company shallrepresent the total number of shares.

“#mmediate 'elative” means any spouse of a person, and

includes parent, brother, sister or child of such person or of thespouse.

“(endering &eriod” means the period within which shareholdersmay tender their shares in acceptance of an open offer toacquire shares made under these regulations)

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“*ffer &eriod” means the period between the date of enteringinto an agreement, formal or informal, to acquire shares,

voting rights in, or control over a target company requiring apublic announcement, or the date of the publicannouncement, as the case may be, and the date on whichthe payment of consideration to shareholders who haveaccepted the open offer is made, or the date on which openoffer is withdrawn, as the case may be.

“Shares” means shares in the equity share capital of a targetcompany carrying voting rights, and includes any securitywhich entitles the holder thereof to exercise voting rights)

Explanation.+ $or the purpose of this clause shares willinclude all depository receipts carrying an entitlement toexercise voting rights in the target company)

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dditions to &ersons cting in Concert%-

&romoters and members of the promoter group.#mmediate relatives.

collective investment scheme and its collective investmentmanagement company, trustees and trustee company.

ssociate eans%-

any immediate relative of such person)

trusts of which such person or his immediate relative is atrustee)

partnership firm in which such person or his immediate relative

is a partner) and members of /indu undivided families ofwhich such)

person is a coparcener)

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“&romoter” has the same meaning as in the Securities and

Exchange 0oard of #ndia 1#ssue of Capital and 2isclosure'equirements3 'egulations, 4556 and includes a member ofthe promoter group.

“&romoter 7roup” has the same meaning as in the Securitiesand Exchange 0oard of #ndia 1#ssue of Capital and 2isclosure

'equirements3 'egulations, 4556.“olume 8eighted verage ar!et &rice” means the product of

the number of equity shares traded on a stoc! exchange andthe price of each equity share divided by the total number ofequity shares traded on the stoc! exchange.

“olume 8eighted verage &rice” means the product of thenumber of equity shares bought and price of each such equityshare divided by the total number of equity shares bought.

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E"amp)e *o)ume +eig,ted A-erage aret price

Sr. No No. of shares

traded(A)

Market Price per

share (B)

Product of (A)

and (B)

9 455 :55 9,55,555

4 ;55 ?,?6,555

? =55 ?:5 ;,9:,555

:


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“8eighted verage umber *f (otal Shares” means thenumber of shares at the beginning of a period, adDusted forshares cancelled, bought bac! or issued during the aforesaidperiod, multiplied by a time-weighing factor.

Example 8eighted verage o. of Shares

455,555 shares of @imited were outstanding as 9st pril, 4599.(he Company issued 955,555 equity shares on 9st *ct, 4599.

8eighted verage o. of shares outstanding during the yearA F94 x 455,555G H F955,555 x


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odes / Ac0uisition2irect cquisition of Shares.

#ndirect cquisition of Shares

2irect cquisition of Control.#ndirect cquisition of Control.

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'irect Ac0uisition o S,ares andContro)

#nitial (rigger limits have been raised from 9:J to 4:J

ultiple triggers at ::J K =:J have been done away

Creeping acquisition limit has been retained at :J

Creeping acquisition can be done at the rate of :Jevery year till the holdings reach =:J

*pen offer has been made mandatory when there ischange in control.

Exemption by passing a special resolution has beendone away

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$ollowing Explanations have been added%-

7ross acquisitions alone shall be ta!en into account regardlessof any intermittent fall in shareholding or voting rights whetherowing to disposal of shares held or dilution of voting rights owingto fresh issue of shares by the target company.

Exampler. holds 45J and his wife holds 95 J of Equity Share capitalof 0C @td as on ;9st arch 4595. r. acquires additional 4 Jon 9st September, 4595 and another ; J on ;9st 2ecember,4595. /e sold ? J of his shares on ;9st Lanuary, 4599 in openmar!et. /e wants to acquire another 4J on 9st arch, 4599. Canhe do the sameM

Nes, 0ut he will have to ma!e an open offer.

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#n the case of acquisition of shares by way of issue of new sharesby the target company or where the target company has made anissue of new shares in any given financial year, the differencebetween the pre-allotment and the post-allotment percentagevoting rights shall be regarded as the quantum of additionalacquisition .

Case 9

ONP @td has 9,55,555 shares outstanding in the mar!et. r.

holds ;5,555 shares. (he company ma!es a further issue of95,555 shares. r. is allotted :555 Shares and remaining :555are allotted to a $##. Calculate the J of additional acquisition byr. .

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&re llotment /olding -;5J

&ost llotment /olding - ;9.>9J 1;:,555B995,5553Q955I

dditional cquisition - 9.>9J

Case 4

Suppose in Case 4 above r. acquires ;555 shares prior toabove allotment. Calculate the J of additional acquisition by r. .

&re llotment /olding - ;;J

&ost llotment /olding - ;?.:?J 1;>,555B995,5553Q955I dditional cquisition - 9.:?J

So total additional cquisition during the year is ;J1;,555B955,5553Q955I H9.:?J A ?.:?J

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#t has been further stated in 'egulation ;1;3 that%-

$or the purposes of sub-regulation 193 and sub-regulation 143,acquisition of shares by any person, such that the individualshareholding of such person acquiring shares exceeds thestipulated thresholds, shall also be attracting the obligation toma!e an open offer for acquiring shares of the target company

irrespective of whether there is a change in the aggregateshareholding with persons acting in concert.

Case 9

rs. holds 95J and r. holds 44J of Equity Share capital of 0C @td as on ;9st arch 4595. /e acquires additional ? J fromrs. . 8hether he will have to ma!e an open offerM

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r. will have to ma!e a & as his individual holding increasesbeyond 4:J.

Case 4

Suppose r. has 9> J Shares of 0C @td instead of 44J. /eacquires additional :.9 J from rs. . 8hether he will have to

ma!e an open offerM

r. will have to ma!e a & as his individual holding increasesbeyond :J creeping acquisition limit during the year.

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INDIRECT ACQISITI!N !" S#ARES!R C!NTR!$

:. 193 $or the purposes of regulation ; and regulation ?,acquisition of shares or voting rights in, or controlover, any company or other entity, that wouldenable any person and persons acting in concert

with him to exercise or direct the exercise of suchpercentage of oting rights in! or control oer! a

target company, the acquisition of which wouldotherwise attract the obligation to ma!e a public

announcement of an open offer for acquiring sharesunder these regulations, shall be considered as anindirect acquisition of shares or voting rights in, orcontrol over the target company

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Case 9

/ @td owns


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: 143 otwithstanding anything contained in these regulations, in thecase of an indirect acquisition attracting the provisions of sub-regulation 193 where,+

the proportionate net asset value of the target company as apercentage of the consolidated net asset value of the entity orbusiness being acquired)

the proportionate sales turnover of the target company as apercentage of the consolidated sales turnover of the entity orbusiness being acquired) or

the proportionate mar!et capitalisation of the target company asa percentage of the enterprise value for the entity or businessbeing acquired) is in excess of eighty per cent, on the basis of

the most recent audited annual financial statements, suchindirect acquisition shall be regarded as a direct acquisition of thetarget company for all purposes of these regulations includingwithout limitation, the obligations relating to timing, pricing andother compliance requirements for the open offer.

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ONP is an unlisted company. #ts owns :9J in @td a @isted

Company1(arget3. (he Consolidated (urnover of ONP @td is 's.;555 Crores and the Consolidated is 's. 9555 Crores. (heStandalone Sales turnover of @td is 4:55 and its standalone is >:5 Crores.

&roportionate of @td as a percentage of the consolidated of ONP @td is >:.55J1>:5B9555 x 9553.

&roportionate Sales of @td as a percentage of the consolidatedsales of ONP @td is >;.;;J 14:55B;555 x 9553.

/ence this acquisition shall be 2eemed as direct acquisition of @td and hence all the requirement for direct acquisition shall beapplicable.

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*o)untary /2er(he acquirer together with &C must hold 4:J or more equity shares orvoting rights.

(he acquirer or &C should not have acquired any shares by creepingacquisition or by any mode which is exempted during the :4 wee!s

preceding the &. /owever he can acquire shares by way of 0onus orStoc! Split or an open offer.

(he open offer shall be for minimum of 95J of outstanding shares.

Compliances to be made if a voluntary open offer is made%-

9.(he acquirer shall not acquire any shares during the open offer

otherwise than under the open offer.4.(he acquirer cannot acquire any shares for a period of six months after

completion of open offer. /owever he can ma!e another oluntary offeror ma!e a competing offer during the said period.

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'isc)osure 3e0uirements"egulation #$ %

9. (he disclosures under this Chapter shall be of the aggregatedshareholding and voting rights of the acquirer or promoter of thetarget company or every person acting in concert with him.

4.$or the purposes of this Chapter, the ac&uisition and holdingof any conertible security shall also be regarded as shares,and disclosures of such acquisitions and holdings shall be madeaccordingly.

;. $or the purposes of this Chapter, the term “encumbrance” shall

include a pledge, lien or any such transaction, by whatever namecalled.

?. Rpon receipt of the disclosures required under this Chapter, thestoc! exchange shall forthwith disseminate the information soreceived.

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E-ent Based 'isc)osures

#nitial disclosure shall be made when aggregate shareholdingof acquirer along with &Cs reaches :J.

*nce the holding crosses :J every purchase and sale ofaggregating to 4J shall have to be disclosed.

2isclosure is to be made within 4 wor!ing days to the stoc!

exchange and the target company.Creation of pledge or any other encumbrance shall be treated

as acquisition and release of such pledge or encumbranceshall be treated as disposal and disclosures shall have to be

made accordingly./owever Scheduled Commercial 0an!s and &$#s are exemptform disclosure requirements if they act as as pledgee inconnection with a pledge of shares for securing indebtednessin the ordinary course of business.

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'ase r. acquires 4J shares or voting rights of ( @imited on 59B99B4599which ta!en together with ?J shares or voting rights already held by him *"

in association with r. &, aggregates to more than :J shares of ( @imited.

(hen r. and r. & needs to disclose their aggregate shareholding andvoting rights to ( @imited and 0SE 1where it is listed3 on or before 5;B99B4599in the format Annexure A given by SE0# in Circular no.

SE0#BC$2B2C'BSS(B 4B4599B95B45 dated 45B95B4599.

'ase # r. along with r. & holds


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'ase + *n 59B99B4599 r. O holding 95J shares in ( @imitedpledges ;J of his shares 1shares ta!en by way of encumbranceshall be treated as an acquisition3 to r. already holding


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Continua) 'isc)osures

(hese disclosures to be made by every person which togetherwith &Cs hold more than 4:J of shares or voting rights in thetarget company and also the promoters of target company.

(hey have to disclose their aggregate shareholding and votingrights as of the thirty%first day of March, in the (arget

Company.2isclosure to be made within = wor!ing days from the end of

$inancial Near to every stoc! Exchange where the shares ofthe Company are listed and to the Company.

'ase

s on ;9B5;B4599 r. together with r. & holds shares of (@imited which entitles them to exercise more than 4:J votingright in ( @imited.

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(hey shall disclose their aggregate shareholding and votingrights within seven wor!ing days from ;9B5;B4599 to 0SE and (

@imited.

'ase #

r. ONP, is a &romoter of ( @td.

/e and members of promoter 7roup and &Cs, shall disclosetheir aggregate shareholding and voting rights as on ;9B5;B4599to 0SE and ( @imited within seven wor!ing days from ;9B5;B4599.

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'isc)osure o s,ares encumered yPromoters

Every encumbrance of shares of target company by &romotersand &Cs shall have to be disclosed.

2isclosure shall be made at the time of creation, invocation or

release of encumbrance.2isclosure to be made within = wor!ing days from creation,

invocation or release of encumbrance to every stoc! Exchangewhere the shares of the Company are listed and to the

Company.

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3o)e o Company Secretary o a 5istedCompany#dentify and Categorise%-

o &romoter o &romoter groupo &erson in control

o &ersons acting in concerto ssociateso #mmediate 'elatives

Ensure that timely disclosures are made by your promoters,

members of &romoter 7roup and &Cs.onitor the holdings of promoters, members of &romoter 7roup

and &Cs and ta!e necessary action as required.

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Ensure that timely intimation is sent to stoc! exchanges inrespects of transfers exempt under regulation 95.

Ensure that timely reports are filed in respect of transfersexempt under 'egulation 95 with Stoc! Exchanges and SE0#,if applicable.

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3o)e o Company Secretary o an Ac0uirer

Conduct due diligence on the target company.Chec! if provisions of Competition ct would apply and if

applicable ta!e action accordingly.

Consider all modes of acquisition permissible and advise themanagement accordingly on the best way to execute thetransaction.

(horoughly examine the ta!eover regulations and ma!e achec!list and timeline for compliances.

ssist the management in appointment of competent erchant

0an!ers and other intermediaries.Ensure that requisite approvals under Sec ;=4 and 46; and

other applicable provisions of the Companies ct, 96:< are inplace.

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Ensure that the pricing guidelines are complied with.

Ensure that the requisite funds are !ept ready and bac! upfunding options are also in place.

Ensure that the obligations of the acquirer as specified in theregulations are complied with.

Since a lot of information such as pricing etc will become

available at the last moment, its is li!ely to be a very highpressure exercise. /ence it is very important for the CS tomaintain his cool and ensure that none of the requirements aremissed.

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3o)e o Company Secretary o a Target

Ensure that the obligations of the target as specified in theregulations are complied with.

(o advise the directors not to sell, transfer, encumber, orotherwise dispose off substantial assets of the company or itssubsidiaries or issue or allot shares during the offer periodunless a special resolution by postal ballot is passed.

&lace the copy of & and @etter of offer before the board.

(o furnish the list of shareholders to the acquirer

/elp the 0oard in sending the recommendation on open offer

/elp the acquirer in verification of shares tendered inacceptance of open offer.

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/2er Si6e

(he offer si"e under regulation ; and regulation ? shall be for atleast twenty six per cent of total shares of the target company,as of tenth wor!ing day from the closure of the tendering period.

*bligation has been placed on the acquire to ta!e into accountall potential increases in the number of outstanding sharesduring the offer period contemplated as of the date of the publicannouncement.

#f there is an increase in total number of shares, after the publicannouncement, which is not contemplated on the date of the

public announcement then the offer si"e shall be proportionatelyincreased.

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Example%-

r. wants to acquire 4:J of equity share capital of ( @td. /ehas made a public announcement on 9st *ctober, 4599. (hetendering period is from 9st ovember to 9


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(he Si"e of the voluntary shall be minimum 95J and shall notexceed such amount as would result in the post-acquisition

holding of the acquirer and &Cs exceeding the maximumpermissible nonpublic shareholding.

#f an competing offer is made against the oluntary offer thenthe si"e of oluntary offer can be increased to such amount as

the first acquirer deems fit.(his increase in the si"e of offer has to be made within 9:

wor!ing days from the & of competing offer, failing to which hecannot increase the si"e.

*nce the si"e of voluntary offer is increased it will cease to be

a voluntary offer and be considered a open offer underregulation ;143.

the acquirer, &Cs and the parties to any underlyingagreement including deemed &Cs of such parties cannottender their shares in any open offer.

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inimum Price or 'irect Ac0uisition

>193(he inimum offer price shall be the highest of following%- the highest negotiated price per share of the target company for any

acquisition under the agreement attracting the obligation to ma!e a publicannouncement of an open offer)

the volume-weighted average price paid or payable for acquisitions,whether by the acquirer or by any person acting in concert with him, during

the fifty-two wee!s immediately preceding the date of the publicannouncement)

the highest price paid or payable for any acquisition, whether by theacquirer or by any person acting in concert with him, during the twenty sixwee!s immediately preceding the date of the public announcement)

the volume-weighted average mar!et price of such shares for a period ofsixty trading days immediately preceding the date of the publicannouncement as traded on the stoc! exchange where the maximumvolume of trading in the shares of the target company are recorded duringsuch period, provided such shares are frequently traded)

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where the shares are not frequently traded, the pricedetermined by the acquirer and the manager to the open

offer ta!ing into account valuation parameters including,boo! value, comparable trading multiples, and such otherparameters as are customary for valuation of shares ofsuch companies) and

the per share value computed under sub-regulation 1:3, ifapplicable.

Example

r wants to ta!e over C00 @td a @isted Company. C00 @td has95,55,55,555 shares outstanding. /e purchased shares of C00

@td on as per details presented in the table given below. Somepurchases were made on stoc! exchange and some of themwere made on privately form other shareholders

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,ate of

Ac&uisition

Price Paid per share No of Shares

Ac&uired

-/+#// :55 9:,55,555

-/0#// ::5 :,55,555

-/-#//


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/e enters in to an agreement with r. / who holds 9:5 per share. (he shares of C00 ltd are frequently traded.(he public announcement was made on 9st pril, 4599. Calculate theminimum price payable in the open offer.

(he inimum open offer price shall be the /ighest of following%-

's.>:5 agreed to be paid to r. /.

's. 655 being the highest price paid for any acquisition during thetwenty six wee!s immediately preceding the date of the publicannouncement. 1Since 59B95B45953

's. =:5 being the volume-weighted average mar!et price of such

shares for a period of sixty trading days immediately preceding thedate of the public announcement.

's.=


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,ate of

Ac&uisition

Price Paid

per

share(A)

No of Shares

Ac&uired (B)

Product (A x B)

-/0#// ::5 :,55,555 4=,:5,55,555-/-#//


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8& A 9>,>4,55,55,555B4,?:,55,555 A =


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>1:3 #n the case of an indirect acquisition and open offers under sub-regulation 143 of regulation : where,+

the proportionate net asset value of the target company as apercentage of the consolidated net asset value of the entity orbusiness being acquired)

the proportionate sales turnover of the target company as apercentage of the consolidated sales turnover of the entity or

business being acquired) or the proportionate mar!et capitali"ation of the target company as

a percentage of the enterprise value for the entity or businessbeing acquired) is in excess of fifteen per cent, on the basis ofthe most recent audited annual financial statements, the acquirershall, notwithstanding anything contained in sub-regulation 143 orsub-regulation 1;3, be required to compute and disclose, in theletter of offer, the per share value of the target company ta!eninto account for the acquisition, along with a detailed descriptionof the methodology adopted for such computation.

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Example.

stra #nc is a company incorporated in RS, #t has a Subsidiary in #ndia by

the name of stra #ndia @imited which is listed on 0SE and SE. ertigo#nc. acquires :9J in stra #nc for 555 croresand ar!etCapitali"ation is 95,555 Crores. of stra #ndia is 9,555 Crores,Sales are ;555 Crores and ar!et Capitali"ation is ;,555 Crores.

Since there is an indirect acquisition of stra #ndia, ertigo will have toma!e a open offer in #ndia. Since the &roportionate , sales and ar!etCap of stra #ndia as a percentage of the consolidated , sales andar!et Cap of stra #C is 4:J, ;=.:J and ;5J respectively the

provisions of this sub regulation are attracted. /ence ertigo #nc isrequired to compute and disclose, in the letter of offer, the per share valueascribed to stra #ndia when determining the price for acquisition of stra#nc, along with a detailed description of the methodology adopted for suchcomputation.

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Additiona) Pricing Pro-isions>11=3 (he price paid for shares of the target company shall includecontrol premium or as non-compete fees or any other fee.

>1>3 8here the acquirer has acquired or agreed to acquire whetherby himself or through or with &Cs any shares or voting rightsin the target company during the offer period, whether bysubscription or purchase, at a price higher than the offer price,the offer price shall stand revised to the highest price paid or

payable for any such acquisition%

Proided that no such acquisition shall be made after the thirdwor!ing day prior to the commencement of the tendering periodand until the expiry of the tendering period.

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>1953 8here the acquirer or persons acting in concert with himacquires shares of the target company during the period of

twenty-six wee!s after the tendering period at a price higherthan the offer price under these regulations, the acquirer andpersons acting in concert shall pay the difference between thehighest acquisition price and the offer price, to all theshareholders whose shares were accepted in the open offer,

within sixty days from the date of such acquisition%Proided that this provision shall not be applicable toacquisitions under another open offer under these regulationsor pursuant to the Securities and Exchange 0oard of #ndia12elisting of Equity Shares3 'egulations, 4556, or openmar!et purchases made in the ordinary course on the stoc!exchanges, not being negotiated acquisition of shares of thetarget company whether by way of bul! deals, bloc! deals orin any other form.

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>1993 8here the open offer is subDect to a minimum level of acceptances,the acquirer may, subDect to the other provisions of this regulation,

indicate a lower price, which will not be less than the price determinedunder this regulation, for acquiring all the acceptances despite theacceptance falling short of the indicated minimum level of acceptance,in the event the open offer does not receive the minimum acceptance.

>1943 #n the case of any indirect acquisition, other than the indirectacquisition referred in sub-regulation 143 of regulation :, the offer priceshall stand enhanced by an amount equal to a sum determined at therate of ten per cent per annum for the period between the earlier ofthe date on which the primary acquisition is contracted or the date onwhich the intention or the decision to ma!e the primary acquisition isannounced in the public domain, and the date of the detailed public

statement, provided such period is more than five wor!ing days.>19;3 (he offer price for partly paid up shares shall be computed as the

difference between the offer price and the amount due towards calls-in-arrears including calls remaining unpaid with interest, if any,thereon.

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>19?3 (he offer price for equity shares carrying differential votingrights shall be determined by the acquirer and the manager

to the open offer with full disclosure of Dustification for theprice so determined, being set out in the detailed publicstatement and the letter of offer%

Proided that such price shall not be lower than the amountdetermined by applying the percentage rate of premium, if

any, that the offer price for the equity shares carrying fullvoting rights represents to the price parameter computedunder clause 1d3 of sub-regulation 4, or as the case may be,clause 1e3 of sub-regulation ;, to the volume-weightedaverage mar!et price of the shares carrying differential

voting rights for a period of sixty trading days computed onthe same terms as specified in the aforesaid provisions,subDect to shares carrying full voting rights and the sharescarrying differential voting rights, both being frequentlytraded shares.

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Example

0C @imited has 4 classes of Equity shares namely *rdinaryEquity Shares and 2's. (he open offer price of *rdinary sharesin 's. 9;5 per share. (he


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SCM on Takeover code -Prakash Pandya.ppt

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