The Hindu Business Line : Letter of offer and pricing

The shares of the target company will be deemed to be infrequently traded if the annualised trading turnover in that share during the preceding six calendar months prior to the month in which the Public Announcement is made is less than 5 per cent (by number of shares) of the listed shares.

Does SEBI "approve" the draft letter of offer?

Filing of draft Letter of Offer with SEBI should not in any way be deemed or construed that the same has been cleared, vetted or approved by SEBI. The Letter of Offer is submitted to SEBI for a limited purpose of over seeing whether the disclosures contained therein are generally adequate and are inconformity with the Takeover Regulations.

This requirement is to facilitate the shareholders to take an informed decision with regard to the offer.

SEBI does not take any responsibility either for the truthfulness or correctness of for any statement, for financial soundness of Acquirer, or of Persons Acting in Concert, or of Target Company, whose shares are proposed to be acquired or for the correctness of the statements made or opinions expressed in the Letter of Offer.

It should be understood that while Acquirer is primarily responsible for the correctness, adequacy and disclosure of all relevant information in this Letter of Offer, the Manager to the Offer (a Merchant Banker) is expected to exercise due diligence to ensure that the Acquirer duly discharges its responsibility adequately.

What is a letter of offer?

A letter of offer is a document addressed to the shareholders of the target company containing disclosures of the acquirer/ PACs, target company, their financials, justification of the offer price, the offer price, number of shares to be acquired from the public, purpose of acquisition, future plans of acquirer, if any, regarding the target company, 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.

How is the price determined in an open offer?

SEBI does not approve the offer price. The acquirer/ Merchant Banker is required to ensure that all the relevant parameters are taken into consideration while determining the offer price and that justification for the same is disclosed in the letter of offer. The relevant parameters are:

* negotiated price under the agreement, which triggered the open offer.

* * price paid by the acquirer or persons acting in concert with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of public announcement, whichever is higher;

* * the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the twenty six weeks or the average of the daily high and low prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher.

In case the shares of Target Company are not frequently traded then instead of point (c) above, parameters based on the fundamentals of the company such as return on net worth of the company, book value per share, EPS etc. are required to be considered and disclosed.

In case of non-compete agreement for payment to any person other than the target company, if the payment is more than 25 per cent of the offer price arrived in terms of the Regulations, the same has to be factored into the offer price.

Source: www.sebi.gov.in

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