TAKEOVER CODES

SUBMITTED BY:
Esha Kukreja Ambika Gupta Priyanka Sharma Rimjhim Bathla

TAKEOVER
a transaction or a series of transactions whereby a person acquires control over the assets of a company, either directly by becoming the owner of those assets or indirectly by obtaining control of the management of the company. When shares are closely held (i.e. by small number of persons), a takeover will generally be affected by agreement with the holders of the majority of the share capital of the company being acquired. When the shares are held by the public generally the take over may be affected: 1) by agreement between the acquirers and the controllers of the acquired company. 2) by purchase of shares on the stock exchange. 3) by means of a takeover bid.

There are certain disclosures to be made in the public offer to acquire share. The letter of offer shall contain : The offer price Number of shares to be acquired from public Identity of acquirer Purpose of acquisition Change in control in the target company Plans of the acquirer regarding the target company, if any.

Substantial Acquisition
Substantial acquisition as such has not been defined under the regulations, nor has it been defined in any other related Acts. The following for the purpose of these regulation can be considered as substantial acquisition: (a) Acquisition by a person or two or more persons acting together with common intention, 15% or more shares or voting rights of the target company (b) Acquisition by a person or two or more persons acting together with common intention, who have already acquired 15% or more but less than 55% of share or voting rights, further acquire 5% or more of share capital or voting rights in the same financial year ending on 31st March.

OBJECTIVES
To provide a transparent legal framework for facilitating takeover activities; To protect the interests of investors in securities and the securities market, taking into account that both the acquirer and the other shareholders or investors and need a fair, equitable and transparent framework to protect their interests; To balance the conflicting objectives and interests of various stakeholders in the context of substantial acquisition of shares in, and takeovers of, listed companies. To provide each shareholder an opportunity to exit his investment in the target company when a substantial acquisition of shares in, or takeover of a target company takes place.

To provide acquirers with a transparent legal framework to acquire shares in or control of the target company and to make an open offer; To ensure that the affairs of the target company are conducted in the ordinary course when a target company is subject matter of an open offer; To ensure that fair and accurate disclosure of all material information is made by persons responsible for making them to various stakeholders to enable them to take informed decisions; To regulate and provide for fair and effective competition among acquirers desirous of taking over the same target company; and To ensure that only those acquirers who are capable of actually fulfilling their obligations under the Takeover Regulations make open

Open Offer Process and Related Compliances

Offer price in case of Direct and Deemed Acquisitions- Regulation 8(2)

Highest negotiated price per share of the target company under the agreement that attracted the open offer
Volume-weighted average price paid or payable for acquisitions by the acquirer or PAC during 52 weeks preceding the date of PA Highest price paid or payable for any acquisition by the acquirer or PAC during 26 weeks preceding the date of PA Where shares are frequently traded VWAMP of the target company during 60 trading days immediately preceding the date of PA Where shares are infrequently traded - the price determined by the acquirer and manager to open offer taking into account valuation parameters

Offer price in case of indirect acquisitions- Regulation 8(3)

Highest negotiated price per share, if any of the target company, under the agreement attracting open offer Volume-weighted average price paid or payable for any acquisition by the acquirer or PAC during preceding 52 weeks immediately preceding the earlier of: the date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition is announced in public domain Highest price paid or payable by the acquirer or PAC for any acquisition during 26 weeks preceding the earlier of: date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition is announced in public domain Where shares are frequently traded - volume weighted average market price during 60 trading days immediately preceding the earlier of: the date on which the primary acquisition is contracted, and date on which intention or decision to make primary acquisition is announced in public domain

Public Announcement Compliance Chart: Timelines

Event Preferential issue Time of compliance Date on which special resolution is paased for the allotment of shares

Increase in Voting rights consequential to buyback not qualifying for exemption

Not later than 19th day from date of such increase

Specific date on which title to such shares beyond the control of the acquirer Voluntary open offer

Not later than two working days form the date of receipt of intimation of having acquired such title. Same date on which such an offer is made

Event

Time of compliance

Market purchases

Public Announcement Compliance Chart

Prior to placement of the purchase order with the stock broker

Acquisition of shares/VRs/control upon Same day as the date of exercise of option to converting convertible securities without a convert such securities in to shares of the fixed date of conversion or upon target company conversion of depository receipts

Acquisition of shares/VRs/control upon converting convertible securities with a fixed date of conversion.

Second working day preceding the scheduled date of conversion of such securities.

Disinvestment

Same day as the date of executing the agreement for acquisition.

Timing of public announcement for indirect acquisitions

When none of the parameters set in regulation 5(2) are met (regulation 13 (2)(e) When any of the parameters set in regulation 5(2) are met (regulation 13(2)(f))

PA may be made at any time within 4 working days from the earlier of, the date on which the primary acquisition is contracted and the date on which the intention or the decision to make the primary acquisition is announced.

PA shall be made on the earlier, of the date on which the primary acquisition is contracted ,and the date on which the intention or the decision to make the primary acquisition is announced.

OPEN OFFER ACTIVITY CHART --------------------------------------------------------------------------------------------AS PER SEBI TAKEOVER CODE, 2011
Appointment of Merchant Bank (not an associate) -------------------------------------Prior to PA Identified Date ----------------X+27 Letter of Offer to be dispatched no later than ----------------------------X+32 Release of escrow account ---------------------------X+57+30 days

Agreement to acquire share or voting rights -----------------------------X

Comments to be received from SEBI -------------------------------X+25

Last Date for revision in offer price -------------------------------X+34

Submission of final report ----------------------------X+62

PA to be sent to all stock exchanges ----------------------------X

Last Date for making competing offer -----------------------------X+20

Independent directors recommendation to be published -------------------------------X+35

Payment of consideration ---------------------------X+57

PA to be submitted to SEBI and target company ------------------------X+1

Draft Letter of offer to be filed with SEBI -------------------------------X+10

Advertisement announcing schedule of activities -----------------------------X+36

Funding of the special account --------------------------X+52

Acquirer to provide for the escrow ---------------------------X+3

Acquirer through manager to offer to publish DPS ---------------------------X+5

Offer Opening Date -------------------------------X+37

Offer Closing Date --------------------------X+47

The Takeover Process

Continual disclosures Event based disclosures Disclosures in case of encumbered shares

Disclosures

Disclosure of Acquisition and DisposalEvent Based Disclosures

Regulation 29(1) & 29(3) Event Acquiring 5% shares/ voting rights Disclosure by Acquirer Disclosure to Target company at its registered office Every stock exchange where the target company Is listed Time Within two working days Of receipt of intimation of allotment of shares

29(2) & 29(3)

Acquiring or disposing 2% or more shares or voting rights by the acquirer already holding 5% or shares or voting rights

Acquirer Or Seller

Target company and stock exchange

Within two working days of the acquisition of shares

Regulation

Nature of disclosure

Disclosure by

Disclosure to

Time

Continual Disclosures
30(1) Aggregate shareholding and voting rights as of 31st day of march every year Every person who together with persons acting in concert with him -25% or more voting rights Target company and stock exchange Within 7 days of end of each financial year.

30(2)

Aggregate Promoter of shareholding and target company voting rights

Target company and stock exchange

Target company and stock exchange

Disclosure of encumbered shares

Regulation 31(1) Event Shares encumbered by the promoter Disclosure by Promoter Disclosure to Target company and stock exchange Time Within 7 working days of creation of encumbrance

31(2)

Invocation or release of such encumbrance

Promoter

Target company and stock exchange

Within 7 working days from the invocation/ release of encumberance

Role of Merchant Bankers & Legal Advisors

Carrying out Initial Due Diligence of the Target Company with Legal Advisor; Takeover Audit of the Target Company with Legal Advisor; Advisory for the Structuring of Transaction; Assisting in Appointment & Co-ordination with all Intermediaries e.g. Bankers, RTA, Printers, Publishers etc; Offer Price Determination; Drafting of Public Announcement with Legal Advisor; Drafting of Letter of Offer and other documents as required under the applicable regulations ensuring full compliance of said regulations with Legal Advisor;

 To

ensure that the contents of the PA, DPS, letter of offer and the post offer advertisement are true, fair and
adequate in all material aspects and are in compliance with the requirements of SAST Regulations, 2011 . To ensure with Legal Advisor that the acquirer is able to implement the open offer and firm arrangements for funds through verifiable means have been made by the acquirer to meet the payment obligations under the open offer Coordination with all concerned authorities like Stock Exchange, Securities and Exchange Board of India etc. for clearance of LOO and replying to their queries; Representing the promoter / company before all concerned authorities like Stock Exchange, Securities and Exchange Board of India etc; Filing of documents, reports etc. with SEBI and securing their approval in consultation with Legal Advisor;

Checklist for Merchant Bankers & Legal Advisor

The merchant bankers and legal advisors have to ensure the following the acquirer has made the short public announcement, detailed public statement, filed the letter of offer and other relevant documents within the time prescribed. the acquirer has sufficient funds to discharge his obligations under the offer. provision relating to escrow account has been made.

Ensure that market intermediaries engaged in the open offer are registered with the board. Ensure that the acquirer has complied with all the Regulations and any other laws and rules as may be applicable. Ensure that the contents of the public announcement, detailed public statement and other documents are true and adequate and in compliance with the requirements under the regulation and is filled with the Board, Target Company and to all the stock exchanges where the shares of the Target company are listed. Furnish a due diligence certificate to the Board (SEBI) along with the draft letter of offer. After payment for all the shares acquired under the offer, the merchant banker shall release the balance amount lying in the Escrow account to the acquirers. File a report with the Board within 15 working days from the expiry of the tendering period, confirming status of completion of various open offer requirements.

Restrictions on Merchant Bankers which ensure transparency.

Merchant Banker shall not deal in the shares of the target company during the offer period.

Merchant Banker shall not handle an open offer, if it is associated or related with the acquirer or the Target Company in any manner.
Merchant Banker shall not issue the compliance certificate unless it is fully satisfied that all the requirements of the regulations have been fully complied with by the acquirer.

CASE STUDY

Creeping Acquisition-Informal Guidance in the matter of Khaitan Electricals

The promoters of the company already hold 52.28% of the total paid up capital. They are desirous of increasing their holding by 5% in each financial year, by the way of purchase from open market, without making a any public announcements. The acquisitions in question shall not be through bulk/block deal/negotiated deal

SEBIs take on the aspect of 5% acquisition in any financial year.

The main question that needs to be answered is whether the promoters of the company are allowed to acquire 5% of shares only once or the facility is available for every financial year. The promoters hold 52.28% shares which is within the maximum permissible non public shareholding limit. It is clarified that he language any financial year mentioned in Regulation 3(2) of the Takeover Code,2011 should be read as every financial year. Therefore the promoters are eligible to acquire up to 5% of shares of the company every financial year without attracting the obligation to make a public announcement.

REFERENCES
sebi.gov.in takeovercode.com moneycontrol.com financialexpress.com www.pwc.com/in/en/assets/pdfs/indianservices/m-a-takeover-book-finallowres.pdf