Mumbai: Usha Narayanan, executive director of market regulator Securities and Exchange Board of India (Sebi) and a member of its takeover regulation advisory committee (Trac), aired her views in an interview last week on issues of control and triggers with regard to mergers and acquisitions. Edited excerpts:
Is Trac on track to submit a report this month on the takeover code?
We are working towards it, but I find the timeline a little too short to complete the report; probably a draft could be ready...by 10 March.
Will you get more industry and legal opinions after the draft and then submit a final report?
Is August a realistic date?
I would say even earlier than that, maybe June.
Will the takeover code be comprehensively rewritten, or will there be just some minor tweaking?
I do not think it is going to be a minor tweaking.
Can you elaborate?
It’s been almost 15 years since we had a code...and many developments have taken place since; many jurisprudence case laws have come up and India today is at a much advanced stage in the global market. We cannot keep ourselves insulated from international best practices. So we do think there will be some major changes in the code and it’s not likely to be just a tweaking.
How are you looking at the concept of control and how it is defined?
...if you see the takeover offers that have taken place all along, you won’t have a single offer that was made purely only for change in control. Only in very few cases are there offers which say that I am acquiring shares, but I am not acquiring control; otherwise it could be a joint control or sole control for which we thought (the) provision is already there in the regulations.
It (the provision on defining control) was introduced because probably we did have one-two experiences where people tried to take control without acquiring shares through shareholder arrangement...but probably today people have realized that these things do not work, and, therefore, do not go in for that kind of arrangement.
Do you think there is a case for a simplified definition of control?
If I were to take you back in history, in 1997, draft regulations when it was first notified for public comments, we didn’t have a definition of control. In fact, we only went on basic threshold of 15% and more and a simpler version, but you wouldn’t believe that we had overwhelming public comments saying that you ought to define control and that is why it was introduced. So, some of it is also driven by the public perception and public requirement.
We wouldn’t know that if we were to take a decision tomorrow to knock off control from the takeover regulations and expose the draft, what kind of comments we would receive and what kind of change that we will ultimately come to.
Since it is a small minority of deals that use that part of the definition, perhaps we can do away with that part and keep it simple?
Probably in case of indirect acquisition, it has a meaning because there is no direct acquisition of shares in the target company. I acquire an overseas holding company or an unlisted investment company, and thereby acquire control over the company. If they were to escape code regulations by saying I have not acquired any shares in the company, there is no change in the transfer because the company remains the same, I am acquiring a holding company so the company continues to remain as a shareholder of the target company, and, therefore, there is no change in shareholding, (and) there is no acquisition of direct shares in the target company.
So...this kind of definition becomes handy...but today because the indirect acquisition is also spelt out very clearly, probably there is not much use of it. But if you were to remove it, there is no knowing what will happen.