Acquisition

 
An acquisition, also known as buyout, is the buying of one
company (the ‘target’) by another. An acquisition may be
friendly or hostile. In the former case, the companies
cooperate in negotiations; in the latter case, the takeover target
is unwilling to be bought or the target's board has no prior
knowledge of the offer. Acquisition usually refers to a purchase
of a smaller firm by a larger one. Sometimes, however, a smaller
firm will acquire management control of a larger or longer
established company and keep its name for the combined
entity. This is known as a reverse takeover.
⚫Another type of acquisition is reverse merger a deal
that enables a private company to get publicly listed in
a short time period. A reverse merger occurs when a
private company that has strong prospects and is eager
to raise financing buys a publicly listed shell company,
usually one with no business and limited assets.
Acquisition Process
 
⚫ Appointment of merchant banker: The acquirer shall
appoint a merchant banker registered as category – I with
SEBI to advise on the acquisition and to make a public
announcement of offer on its behalf.
⚫ Use of media for announcement: Public announcement
shall be made at least in one national English daily one
Hindi daily and one regional language daily newspaper of
that place where the shares of that company are listed and
traded.
⚫ Timings of announcement: Public announcement
should be made within four days of finalization of
negotiations or entering into any agreement or
memorandum of understanding to acquire the shares or
the voting rights.
⚫Contents of announcement: Public announcement
of offer is mandatory as required under the SEBI
Regulations. Therefore, it is required that it should be
prepared showing therein the following information:

⚫Paid up share capital of the target company, the number

of fully paid up and partially paid up shares.
⚫Total number and percentage of shares proposed to be
acquired from public subject to minimum as specified in
the sub-regulation (1) of Regulation 21
⚫The minimum offer price for each fully paid up or partly
paid up share;
⚫Mode of payment of consideration;
⚫ The identity of the acquirer and in case the acquirer is a
company, the identity of the promoters and, or the persons
having control over such company and the group, if any, to
which the company belong;
⚫ The existing holding, if any, of the acquirer in the shares of
the target company, including holding of persons acting in
concert with him;
⚫ Salient features of the agreement, if any, such as the date,
the name of the seller, the price at which the shares are
being acquired, the manner of payment of the
consideration and the number and percentage of shares in
respect of which the acquirer has entered into the
agreement to acquire the shares or the consideration,
monetary or otherwise, for the acquisition of control over
the target company, as the case may be;
⚫The highest and the average paid by the acquirer or
persons acting in concert with him for acquisition, if
any, of shares of the target company made by him
during the twelve month period prior to the date of
the public announcement;
⚫Objects and purpose of the acquisition of the
shares and the future plans of the acquirer for the
target company, including disclosures whether the
acquirer proposes to dispose of or otherwise encumber
any assets of the target company:
⚫ Provided that where the future plans are set out, the public
announcement shall also set out how the acquirers propose to
implement such future plans;
⚫ The date by which individual letters of offer would be posted to
each of the shareholders;
⚫ The date of opening and closure of the offer and the manner in
which and the date by which the acceptance or rejection of the
offer would be communicated to the share holders;
⚫ The date by which the payment of consideration would be made
for the shares in respect of which the offer has been accepted;
⚫ Disclosure to the effect that firm arrangement for financial
resources required to implement the offer is already in
place, including the details regarding the sources of the funds
whether domestic i.e. from banks, financial institutions, or
otherwise or foreign i.e. from Non-resident Indians or otherwise;
⚫ Provision for acceptance of the offer by person who own the
shares but are not the registered holders of such shares;
⚫Statutory approvals required to obtained for the
purpose of acquiring the shares under the Companies
Act, 1956, the Monopolies and Restrictive Trade
Practices Act, 1973, and/or any other applicable laws;
⚫Approvals of banks or financial institutions required,
if any;
⚫Whether the offer is subject to a minimum level of
acceptances from the shareholders; and
⚫Such other information as is essential for the
shareholders to make an informed design in regard to
the offer.
⚫ What is a public announcement?
⚫ A public announcement is one made in newspapers by the
acquirer primarily disclosing his intention to acquire shares
of the target company from existing shareholders by means
of an open offer.

⚫ What are the disclosures required to be made under

public announcement?
⚫ The disclosures in the announcement include the offer price,
the number of shares to be acquired from the public, the
identity of acquirer, the purpose of acquisition, the future
plans of acquirer, if any, regarding the target company, the
change in control over the target company, if any, the
procedure to be followed by acquirer in accepting the shares
tendered by the shareholders and the period within which all
the formalities pertaining to the offer would be completed.
⚫What is the objective of a public announcement? 
⚫The public announcement is made to ensure that the
shareholders of the target company are aware of an exit
opportunity available to them.
⚫ Who is required to make a public announcement and
when is it required to be made?
⚫ The acquirer is required to appoint a merchant banker (MB)
registered with SEBI before making a public announcement.
⚫ The announcement is required to be made through the MB.
⚫ The acquirer is required to make the announcement within
four working days of entering into an agreement to acquire
shares or deciding to acquire shares/voting rights of the
target company or after any such change(s) as would result in
change in control over the target company.
⚫ In case of indirect acquisition or change in control, the public
announcement shall be made by the acquirer within three
months of consummation of such acquisition or change in
control or restructuring of the parent or the company
holding shares of or control over the target company in India.
⚫ Whether appointment of merchant banker for the
offer process is mandatory?
⚫ Yes
⚫ What documents are to be filed with SEBI after
making a public announcement and when are these
documents to be filed?
⚫  A hard and soft copy of the public announcement are
required to be submitted to SEBI simultaneously with the
publication of the same in the newspapers.
⚫ A draft letter of offer is required to be filed with SEBI within
14 days from the date of public announcement along with a
filing fee of Rs 50,000 per letter of offer (payable by Banker's
Cheque / Demand Draft).
⚫ A due diligence certificate as well as registration details also
required to be filed along with the draft letter of offer.
⚫ Competitive offer
⚫ Competitive offer is an offer made by a person, other than the acquirer who has
made the first public announcement. A competitive offer shall be made within
15 working days of the date of the Detailed Public Statement (DPS) made by the
acquirer who has made the first PA.

⚫ If there is a competitive offer, the acquirer who has made the original public
announcement can revise the terms of his open offer provided the revised terms
are favorable to the shareholders of the target company. Further, the bidders are
entitled to make revision in the offer price up to 3 working days prior to the
opening of the offer. The schedule of activities and the offer opening and closing
of all competing offers shall be carried out with identical timelines.

⚫ Conditional offer
⚫  An offer in which the acquirer has stipulated a minimum level of acceptance is
known as a ‘conditional offer’.

⚫ Minimum level of acceptance

⚫ ‘Minimum level of acceptance’ implies minimum number of shares which the
acquirer desires under the said conditional offer. If the number of shares validly
tendered in the conditional offer, are less than the minimum level of acceptance
stipulated by the acquirer, then the acquirer is not bound to accept any shares
under the offer.
⚫ Frequently traded or Infrequently traded shares of the target company
⚫ The shares of the target company will be deemed to be frequently traded if
the traded turnover on any stock exchange during the 12 calendar months
preceding the calendar month, in which the PA is made, is at least 10% of the
total number of shares of the target company. If the said turnover is less than
10%, it will be deemed to be infrequently traded.

⚫ Calculation of open offer price in case shares are frequently traded on

the stock exchange Shall be highest of the following:
⚫ Highest negotiated price per share under the share purchase agreement
(“SPA”) triggering the offer;

⚫ Volume weighted average price of shares acquired by the acquirer during 52

weeks preceding the public announcement (“PA”);

⚫ Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA;

⚫ Volume weighted average market price for sixty trading days preceding the
PA. 
⚫ Calculation of offer price in case shares are infrequently traded on the
stock exchange shall be highest of the following:

⚫ Highest negotiated price per share under the share purchase

agreement(“SPA”) triggering the offer;

⚫ Volume weighted average price of shares acquired by the acquirer during 52

weeks preceding the public announcement (“PA”);

⚫ Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA;

⚫ The price determined by the acquirer and the manager to the open offer after
taking into account valuation parameters including book value, comparable
trading multiples, and such other parameters that are customary for valuation
of shares of such companies.

⚫ It may be noted that the Board may at the expense of the acquirer, require
valuation of shares by an independent merchant banker other than the
manager to the offer or any independent chartered accountant in practice
having a minimum experience of 10 years.