Mumbai: India’s mergers and acquisitions (M&A) landscape is preparing for change, with a panel of the capital market regulator set to recommend raising the threshold level for triggering an open offer in any listed firm from the current 15%.
The takeover regulations advisory committee of the Securities and Exchange Board of India, or Sebi, met on Sunday to give the final touches to its report. The panel will submit the report to Sebi on Monday, after which the regulator will put it up on its website, inviting public comment.
Set up in September, the panel is headed by former head of Sebi’s appellate tribunal, C. Achuthan.
Currently, anyone acquiring 15% or more in a listed entity needs to make an open offer for at least an additional 20%. The Sebi panel is expected to raise both the threshold level that triggers the open offer as well as the size of the offer.
New norms: Takeover regulations advisory committee head C. Achuthan. PTI
An official close to the development said the committee may not recommend the acquisition of the entire stake in a target company after an open offer is triggered—in compliance with a recent government directive that says all listed firms must have a minimum 25% public shareholding.
“Otherwise, every open offer will result in a delisting. The way could be a proportionate acceptance of shares by the acquirer, keeping in mind the minimum public shareholding norms,” a second official said. Both spoke on condition of anonymity.
The first official said the open offer threshold will be increased substantially but declined to specify by how much.
Business news channel NDTV Profit reported on Friday that the committee wants to raise the threshold for making open offer to 25%. The Economic Times newspaper also reported on Saturday that the threshold will be raised to 25%, and the acquirer will have to make an open offer to buy the remaining 75%. The Financial Express reported on Saturday that the trigger for the open offer will be raised to 26%.
The company secretary of a Mumbai-based firm said, requesting anonymity, that the threshold limit could be raised to 25% but not more than that. Anyone holding 26% enjoys the power to block special resolutions under Indian company laws.
Increasing the open offer threshold will ensure that only those who are willing to pump in a significant amount of money should be in the fray for taking control of a firm.
“If the limit is raised to 25%, it will discourage the speculators to be in the fray,” the company secretary said.
A recent takeover battle for India’s leading offshore services firm, fought by two large shipbuilders, saw one of them selling its stake in the target company to the other and making a profit.
But there are also fears that although an acquirer will not control the target company even by acquiring up to 24.99%, such high shareholding gives the acquirer enough power to influence the stock price of the target firm.
The move to raise the trigger for an open offer is aimed at bringing India’s M&A norms in line with international standards. Globally, the threshold for open offers is high. In Hong Kong, Singapore, Russia and the UK, it is 30%. In Malaysia, it is 33% and in Norway, 33.33%.
Takeover regulations were last reviewed in 1997.
Apart from the change in the threshold limit and the scope of the open offer, all anti-investor provisions, including non-compete fees, will go. The entire code is being rewritten, a member of the panel said on condition of anonymity.
The recommendations of the takeover panel will follow the recent government directive, asking all listed companies to leave at least 25% shareholding in public hands.
This means if the panel recommends the trigger for open offer to be raised to 25%, the acquirer company may be required to make an open offer for only up to 50% of the balance stake and not the entire 75%, to ensure that the public holding remains 25%.
For many large companies, the public shareholding is currently below 25%. The firms have been given time to pare promoter’s stake over years, in phases. The panel’s recommendations are expected to take this critical aspect into consideration.
A Mint analysis shows that among BSE-500, or the top 500 firms by market capitalization listed on the Bombay Stock Exchange, at least 465 firms have promoter holdings in excess of 25%.