14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

The New Takeover Code, 2011The New Takeover Code, 2011

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Group MembersGroup Members

Hiral Sharmin Uday Ganesh Ashwini

Patel Patel Sohoni Ithape Vartak

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Contents:Contents:

IntroductionIntroduction Background of Takeover RegulationsBackground of Takeover Regulations SEBI (Substantial Acquisition of Shares and SEBI (Substantial Acquisition of Shares and

Takeover) Guidelines, 1997Takeover) Guidelines, 1997 Transition to the New Takeover Code, 2011Transition to the New Takeover Code, 2011 SEBI (Substantial Acquisition of Shares and SEBI (Substantial Acquisition of Shares and

Takeover) Guidelines, 2011 Takeover) Guidelines, 2011 (The New Takeover Code, 2011)(The New Takeover Code, 2011)

Impact on IndustryImpact on Industry

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

IntroductionIntroduction What is Takeover?What is Takeover?

Takeover signifies a transaction or a series of Takeover signifies a transaction or a series of transactions whereby a person acquires control transactions whereby a person acquires control over the assets of a company, either directly by over the assets of a company, either directly by becoming the owner of those assets or indirectly becoming the owner of those assets or indirectly by obtaining control of the management of the by obtaining control of the management of the company.company.

What does “Code” mean?What does “Code” mean?A set of rules outlining the responsibilities of or A set of rules outlining the responsibilities of or proper practices for an individual, party or proper practices for an individual, party or organization organization

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

BackgroundBackground The laws relating to takeovers in India where not very organized The laws relating to takeovers in India where not very organized

until the year 1994.until the year 1994. Except for certain provisions of the Companies Act, 1956 (Section Except for certain provisions of the Companies Act, 1956 (Section

372, regarding inter-corporate loans by Companies and Section 395, 372, regarding inter-corporate loans by Companies and Section 395, regarding acquisition of the shares of dissentient shareholders) regarding acquisition of the shares of dissentient shareholders) there was hardly anything solid enough to be called as organized there was hardly anything solid enough to be called as organized takeover laws.takeover laws.

The guidelines of the Securities and Exchange board of India The guidelines of the Securities and Exchange board of India (Substantial acquisition of shares and takeover), 1994 was a maiden (Substantial acquisition of shares and takeover), 1994 was a maiden Indian attempt towards an organized set of laws for regulating Indian attempt towards an organized set of laws for regulating takeovers in India.takeovers in India.

A need was certain changes in the regulation had been felt and so a A need was certain changes in the regulation had been felt and so a committee under the chairmanship of Justice P.N. Bhagwati was committee under the chairmanship of Justice P.N. Bhagwati was constituted to review the regulations and suggest the necessary constituted to review the regulations and suggest the necessary changes required under the act. The regulations were amended in changes required under the act. The regulations were amended in 1997 and they finally were implemented. Since then the regulations 1997 and they finally were implemented. Since then the regulations have been known as the TAKEOVER CODE. have been known as the TAKEOVER CODE.

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

SEBI (Substantial Acquisition SEBI (Substantial Acquisition of Shares and Takeover) of Shares and Takeover)

Guidelines, 1997Guidelines, 1997

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

The objective of the Takeover Code, 1997 was to regulate in an The objective of the Takeover Code, 1997 was to regulate in an organized manner the substantial acquisition of shares and takeovers organized manner the substantial acquisition of shares and takeovers of a company whose shares are quoted on a stock exchange i.e. a of a company whose shares are quoted on a stock exchange i.e. a listed company.listed company.

Important Provisions of the Takeover Code, 1997:Important Provisions of the Takeover Code, 1997:

Substantial Acquisition:Substantial Acquisition:

Substantial acquisition as such has not been defined under the Substantial acquisition as such has not been defined under the regulations, nor has it been defined in any other related Acts. regulations, nor has it been defined in any other related Acts. Nevertheless, if we read through regulations 10 and 11 of the code, Nevertheless, if we read through regulations 10 and 11 of the code, the question as to what constitutes substantial acquisition is made the question as to what constitutes substantial acquisition is made relatively very clear.relatively very clear.

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

(a) Regulation 10:(a) Regulation 10:

Threshold limit of 15%Threshold limit of 15% To make a public announcement for an open offer if shares acquired To make a public announcement for an open offer if shares acquired

beyond the threshold limitbeyond the threshold limit

(b) Regulation 11 (Creeping Acquisition):(b) Regulation 11 (Creeping Acquisition):

From 15% to 55% - additional acquisition by 5% in a financial year without From 15% to 55% - additional acquisition by 5% in a financial year without making a public announcementmaking a public announcement

From 55% to 75% - Public announcement required in case of additional From 55% to 75% - Public announcement required in case of additional acquisitionacquisition

Public Announcement: To acquire a minimum of 20% of the voting capital of Public Announcement: To acquire a minimum of 20% of the voting capital of the target company from the existing shareholders by means of an open the target company from the existing shareholders by means of an open offer.offer.

(c) Regulation 12:(c) Regulation 12:

No requirement to make an open offer to any change in control which takes No requirement to make an open offer to any change in control which takes place pursuant to a special resolution passed by the shareholders in a place pursuant to a special resolution passed by the shareholders in a General Meeting.General Meeting.

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Transition to the Transition to the New Takeover Code, 2011New Takeover Code, 2011

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

The SEBI (SAST) Guidelines, 1997 formed under the guidance of the The SEBI (SAST) Guidelines, 1997 formed under the guidance of the

Justice P. N. Bhagwati remained in force for a period of almost 13 Justice P. N. Bhagwati remained in force for a period of almost 13 years.years.

The New Takeover Code was the brainchild of the Takeover The New Takeover Code was the brainchild of the Takeover Regulations Advisory Committee (TRAC) constituted under the Regulations Advisory Committee (TRAC) constituted under the Chairmanship of Shri. C. Achuthan, Former Presiding Officer, Chairmanship of Shri. C. Achuthan, Former Presiding Officer, Securities Appellate Tribunal – Chairman, who submitted its report Securities Appellate Tribunal – Chairman, who submitted its report to SEBI Chairman Shri. C. B. Bhave on July 19, 2010.to SEBI Chairman Shri. C. B. Bhave on July 19, 2010.

These Regulations had then been released by SEBI for Public These Regulations had then been released by SEBI for Public comments from July 19, 2010 to August 31, 2010.comments from July 19, 2010 to August 31, 2010.

SEBI at their Board Meeting held on July 28, 2011, had considered SEBI at their Board Meeting held on July 28, 2011, had considered the report of TRAC and had then, on 23 September 2011, notified the report of TRAC and had then, on 23 September 2011, notified SEBI (SAST) Regulations, 2011; also known as the New Takeover SEBI (SAST) Regulations, 2011; also known as the New Takeover Code.Code.

Finally, the New Code came into force on October 22, 2011. Finally, the New Code came into force on October 22, 2011.

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

The The New Takeover Code, 2011New Takeover Code, 2011

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

HIGHLIGHTSHIGHLIGHTS

Increase in Initial Threshold Limit from 15% to 25%Increase in Initial Threshold Limit from 15% to 25%

Creeping Acquisition Limit raised from 15%-55% to 25%-75%Creeping Acquisition Limit raised from 15%-55% to 25%-75%

Increase in Offer Size from 20% to 26%Increase in Offer Size from 20% to 26%

Abolition of Non-compete feesAbolition of Non-compete fees

Definition of “Control” modifiedDefinition of “Control” modified

Deletion of Regulation 12 of the Old Takeover Code, 1997Deletion of Regulation 12 of the Old Takeover Code, 1997

Voluntary Open OfferVoluntary Open Offer•• EligibilityEligibility•• ConditionsConditions•• RestrictionsRestrictions

Detailed provisions relating to Indirect AcquisitionsDetailed provisions relating to Indirect Acquisitions

Provisions introduced relating to Recommendation on Open Offer by the Provisions introduced relating to Recommendation on Open Offer by the Board of Target CompanyBoard of Target Company

Reduction in timeline for completion of open offer (95 calendar days to Reduction in timeline for completion of open offer (95 calendar days to 57 business days)57 business days)

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Impact on Industry & the way Impact on Industry & the way forward !forward !

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

The impact of the New Takeover Code, which came into force on October 22, The impact of the New Takeover Code, which came into force on October 22, 2011, on the Indian industry can be analysed by evaluating the positive and 2011, on the Indian industry can be analysed by evaluating the positive and negative comments as offered by eminent professionals on the same negative comments as offered by eminent professionals on the same describing its features and its effects on the field of commerce and industry.describing its features and its effects on the field of commerce and industry.

Lesser number of Hostile Takeover Attempts. Lesser number of Hostile Takeover Attempts.

Balance Interest of all stakeholders. Balance Interest of all stakeholders.

Increase in the Offer size which means exit opportunity to all the Increase in the Offer size which means exit opportunity to all the ......shareholders.shareholders.

More Stringent and frequent disclosure requirement on the part of the More Stringent and frequent disclosure requirement on the part of the ...... acquirer. acquirer.

Clarity in Provisions. Clarity in Provisions.

a level playing field created for Indian acquirers by fixing the open offer size a level playing field created for Indian acquirers by fixing the open offer size ...... at 26 per cent at 26 per cent

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Too Expensive for Indian Promoters due to insufficient bank funds for Too Expensive for Indian Promoters due to insufficient bank funds for ......acquisitions.acquisitions.

Effect on Promoter Holdings in the Company. Effect on Promoter Holdings in the Company.

Disruptive Shareholders intention to block substantial shareholding in Disruptive Shareholders intention to block substantial shareholding in ......the Company.the Company.

Evidently, SEBI has carefully attempted to juggle the Evidently, SEBI has carefully attempted to juggle the interest of all stakeholders and strike a balance that is interest of all stakeholders and strike a balance that is not very easy to achieve. As always, the market reaction not very easy to achieve. As always, the market reaction seems to be mixed ranging from excitement to seems to be mixed ranging from excitement to displeasure. displeasure. But what is certain is that the Indian takeovers But what is certain is that the Indian takeovers scene is set to see a lot of action - good, bad and scene is set to see a lot of action - good, bad and ugly.ugly.

......

14th

MS

OP

Bat

ch: P

roje

ct P

rese

ntat

ion

Impact on Industry & the way Impact on Industry & the way forward !forward !