The Hindu Business Line : Safeguards in a takeover

What are the safeguards incorporated in the takeover process so as to ensure that shareholders get their payments under the offer/ receive back their share certificates?

Before making the Public Announcement, the acquirer has to open an escrow account in the form of cash deposited with a scheduled commercial bank or bank guarantee in favour of the Merchant Banker or deposit of acceptable securities with appropriate margin with the Merchant Banker. The Merchant Banker is also required to confirm that firm financial arrangements are in place for fulfilling the offer obligations. In case, the acquirer fails to make the payment, MB has a right to forfeit the escrow account and distribute the proceeds in the following way.

* * 1/3 of amount to target company

* * 1/3 to regional SEs, for credit to investor protection fund etc.

* * 1/3 to be distributed on pro rata basis among the shareholders who have accepted the offer.

The Merchant Banker is required to ensure that the rejected documents which are kept in the custody of the Registrar/Merchant Banker are sent back to the shareholder through Registered Post.

Besides forfeiture of escrow account, SEBI can initiate separate action against the acquirer, which may include prosecution/barring the acquirer from entering the capital market for a specified period etc.

Whether all types of acquisitions of shares or voting rights over and above the limits specified in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, necessarily require acquirer to make a public announcement followed up by an open offer?

No. Certain type of acquisitions as stipulated under regulation 3 of Chapter I of the Regulations, are specifically exempted from the open offer process subject to the acquirer complying with the requirements/conditions, as may be applicable, for such acquisitions. Such exemptions include acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from state level financial institutions to co-promoters of company pursuant to the agreement etc.

Which are those acquisitions/ transactions where reporting to SEBI is mandatory?

Reporting is mandatory in respect of acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from State level financial institutions to co-promoters of company pursuant to the agreement.

What is the timeframe to submit such report and procedure fee thereof?

The report is required to be submitted to SEBI within 21 days from the date of acquisition/allotment along with a fee of Rs 10,000/- per report.

Is there any prescribed form of application for various reports/documents mentioned above?

Yes, SEBI has specified the format, which is available on the SEBI Web site at www.sebi.gov.in

What information is required to be furnished to stock exchanges in compliance of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and when is it required to be furnished?

For transactions, which entail reporting requirements, details of the proposed acquisition need to be filed with SEs where shares of target company are listed, at least four working days before the date of actual acquisition/ allotment.

A person who, along with PAC, if any, (collectively referred to as "Acquirer" hereinafter) acquires shares or voting rights (which when taken together with his existing holding) would entitle him to more than 5 per cent or 10 per cent or 14 per cent shares or voting rights of target company, is required to disclose at every stage the aggregate of his shareholding to the target company and the stock exchanges within two days of acquisition or receipt of intimation of allotment of shares.

Any person who holds more than 15 per cent but less than 55 per cent shares or voting rights of target company, and who purchases or sells shares aggregating to 2 per cent or more shall within two days disclose such purchase/sale along with the aggregate of his shareholding to the target company and the stock exchanges.

Further, annual disclosures have to be given regarding holding of promoters, persons in control and persons holding more than 15 per cent shares or voting rights of the target company.

Further, a copy of the Public Announcement to acquire shares from public is to be given to the stock exchanges simultaneously with the publication in the newspapers. Subsequently, upward revisions in offer, withdrawal of offer have also to be intimated to the stock exchanges simultaneously.

Where can an investor get more information related to the SEBI takeover regulations?

The Bhagwati Committee report, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and subsequent amendments, public announcements and letter of offer are available at SEBI's Web site http://www.sebi.gov.in.

For any other information regarding Substantial Acquisition of shares and takeovers, you may address your query to SEBI, Division of Corporate Restructuring at Mittal Court, B. Wing, First Floor, Nariman Point, Mumbai - 400021.

Source: www.sebi.gov.in

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