The Hindu Business Line : Price of the open offer

Neither the Legislature nor SEBI might have even remotely contemplated a company’s management falsifying the books on a scale as alleged in the Satyam case.

Any company that seeks to take over the management of Satyam Computer Services—there are said to be at least four suitors—will be up against a rather stiff stipulation under the Takeover Code. Current market prices, a fraction of what they were months ago, are no doubt attractive for buyers but not what they will need to pay in the open offer to acquire shares from the public. The legal requirement that the ‘public offer’ price be aligned, among oth er things, to an average of the market prices that prevailed over the last six months would mean a much higher payout than warranted by the current circumstances, where doubts over the quality of corporate governance have dented the company’s share price and the financial affairs are in utter disarray. The passage of time would, of course, set things right as the unrealistic historical prices make way for more current and realistic ones, but that would delay any acquisition and do nothing to restore employee morale or customer confidence shaken by the turn of events.

The options before the capital markets regulator, SEBI, are two: One, it can leave it to the sense of better judgement of the committee of experts appointed by SEBI under the Takeover Code to rule on an application from the prospective investor seeking exemption from the requirement of having to make an open offer at the market-determined price. That would be unfair to the expert committee as it is supposed to interpret legislative intentions that are not explicit. Neither the Legislature nor the delegated authority, in this case, SEBI, might have even remotely contemplated a company’s management cynically falsifying the books on a scale as alleged in the Satyam case. Alternatively, SEBI could take the initiative to get the Government to notify an amendment to the clause on the ‘offer’ price to permit an acquirer to buy shares from the public at a price lower than the six-month average.

Such a clause could be invoked in situations where the Board of Directors of the target company declares its published financial statements are false and simultaneously orders a fresh audit to be undertaken by a new and independent auditor. Since such a declaration amounts to self-indictment, which itself can trigger intervention by the Government as in the case of Satyam, the scope for the amended provision being misused is limited. Once the audit throws up the reality of an altered financial situation, the new numbers could be used to moderate the six-month average price.

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