The New Takeover Code, 2011 PDF

14th MSOP Batch: Project Presentation
The New Takeover Code, 2011
Group Members
Hiral Patel
Sharmin Patel
Uday Sohoni
Ganesh Ithape
Ashwini Vartak
Contents:

Introduction Background of Takeover Regulations SEBI (Substantial Acquisition of Shares and Takeover) Guidelines, 1997 Transition to the New Takeover Code, 2011 SEBI (Substantial Acquisition of Shares and Takeover) Guidelines, 2011 (The New Takeover Code, 2011) Impact on Industry
Introduction
What is Takeover? Takeover signifies 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. What does Code mean? A set of rules outlining the responsibilities of or proper practices for an individual, party or organization
Background

Except for certain provisions of the Companies Act, 1956 (Section 372, regarding inter-corporate loans by Companies and Section 395, regarding acquisition of the shares of dissentient shareholders) there was hardly anything solid enough to be called as organized takeover laws. The guidelines of the Securities and Exchange board of India (Substantial acquisition of shares and takeover), 1994 was a maiden Indian attempt towards an organized set of laws for regulating takeovers in India. A need was certain changes in the regulation had been felt and so a committee under the chairmanship of Justice P.N. Bhagwati was constituted to review the regulations and suggest the necessary changes required under the act. The regulations were amended in 1997 and they finally were implemented. Since then the regulations have been known as the TAKEOVER CODE.
The laws relating to takeovers in India where not very organized until the year 1994.
SEBI (Substantial Acquisition of Shares and Takeover) Guidelines, 1997
Important Provisions of the Takeover Code, 1997: Substantial Acquisition: Substantial acquisition as such has not been defined under the regulations, nor has it been defined in any other related Acts. Nevertheless, if we read through regulations 10 and 11 of the code, the question as to what constitutes substantial acquisition is made relatively very clear.
The objective of the Takeover Code, 1997 was to regulate in an organized manner the substantial acquisition of shares and takeovers of a company whose shares are quoted on a stock exchange i.e. a listed company.
(a) Regulation 10:

(b) Regulation 11 (Creeping Acquisition):
From 15% to 55% - additional acquisition by 5% in a financial year without making a public announcement From 55% to 75% - Public announcement required in case of additional acquisition 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 offer.
(c) Regulation 12:
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 General Meeting.
Threshold limit of 15% To make a public announcement for an open offer if shares acquired beyond the threshold limit
Transition to the New Takeover Code, 2011
The SEBI (SAST) Guidelines, 1997 formed under the guidance of the Justice P. N. Bhagwati remained in force for a period of almost 13 years.
The New Takeover Code was the brainchild of the Takeover Regulations Advisory Committee (TRAC) constituted under the Chairmanship of Shri. C. Achuthan, Former Presiding Officer, Securities Appellate Tribunal Chairman, who submitted its report to SEBI Chairman Shri. C. B. Bhave on July 19, 2010. These Regulations had then been released by SEBI for Public comments from July 19, 2010 to August 31, 2010. SEBI at their Board Meeting held on July 28, 2011, had considered the report of TRAC and had then, on 23 September 2011, notified SEBI (SAST) Regulations, 2011; also known as the New Takeover Code. Finally, the New Code came into force on October 22, 2011.
The New Takeover Code, 2011
HIGHLIGHTS
Increase in Initial Threshold Limit from 15% to 25% Creeping Acquisition Limit raised from 15%-55% to 25%-75% Increase in Offer Size from 20% to 26% Abolition of Non-compete fees Definition of Control modified Deletion of Regulation 12 of the Old Takeover Code, 1997 Voluntary Open Offer
Eligibility Conditions Restrictions
Detailed provisions relating to Indirect Acquisitions Provisions introduced relating to Recommendation on Open Offer by the Board of Target Company Reduction in timeline for completion of open offer (95 calendar days to 57 business days)
Impact on Industry & the way forward !
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 negative comments as offered by eminent professionals on the same describing its features and its effects on the field of commerce and industry.
Lesser number of Hostile Takeover Attempts. Balance Interest of all stakeholders. Increase in the Offer size which means exit opportunity to all the
...
shareholders.
More Stringent and frequent disclosure requirement on the part of the
... acquirer.
Clarity in Provisions. a level playing field created for Indian acquirers by fixing the open offer size
... at 26 per cent
Too Expensive for Indian Promoters due to insufficient bank funds for
...acquisitions.
Effect on Promoter Holdings in the Company. Disruptive Shareholders intention to block substantial shareholding in
...the Company.
Evidently, SEBI has carefully ... attempted to juggle the interest of all stakeholders and strike a balance that is not very easy to achieve. As always, the market reaction seems to be mixed ranging from excitement to displeasure. But what is certain is that the Indian takeovers scene is set to see a lot of action - good, bad and ugly.
Impact on Industry & the way forward !

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14th MSOP Batch: Project Presentation