Expert panel suggests sweeping changes in takeover norms

MUMBAI - An expert panel Monday asked the markets regulator to hike the minimum bid for corporate takeovers from 15 percent to 25 percent, which experts say will change the game for acquisitions in the country with far-reaching implications.

The recommendations by the Takeover Regulations Advisory Committee headed by noted tax and corporate law expert C. Achuthan was submitted to Securities and Exchange Board of India (SEBI) Chairman C.B. Bhave here Monday.

The regulator has posted the report and its recommendations on the website and given time till Aug 31 for stakeholders to send their comments and suggestions on the new proposals.

The suggestions made by the commitee - set up in September 2009 - sought to completely re-write the existing law governing substantial acquisition of shares and takeovers of companies, including hostile bids for control.

“The committee has recommended that creeping acquisition be permitted only to acquirers who hold over 25 percent of the voting capital, subject to aggregate post-acquisition shareholding not exceeding the maximum permissible non-public shareholding,” the report said.

Under the existing norms, there was a tendency among the investor community to keep their holding a tad below 15 percent for acquiring strategic stake in a target company so as not to attract the mandatory open offer requirement.

“This revision of threshold limit can come as a blessing and fresh relief to investors to hike their stake to 25 percent now,” Jagannadham Thunuguntla, equity head of leading brokerage and market adivisors SMC Capital, told IANS.

“If these amendments finally become rules, it will be a defining moment in mergers, acquisitions, takeovers and private equity deal-making in India,” he said, adding: “Interesting shareholders’ activity can be expected in several listed companies.”

According to data available on the shareholding pattern in the country, at least 98 companies among the top 500 of those listed on the Bombay Stock Exchange (BSE) have a single public shareholder with a stake of between 10 percent and 14.99 percent.

“For such investors, this upward revision of takeover threshold limit can give a huge legroom to increase their holdings to 25 percent without a requirement of open offer,” Thunuguntla said.

In EIH — formerly called East India Hotels that owns and runs the Oberoi group — ITC currently holds 14.98 percent stake to avoid the open offer requirement.

Such shareholding pattern can be seen in Cairn India where Petronas holds 14.94 percent, Binani Cement in which JP Morgan holds 14.91 percent and India Bulls Securities in which HSBC Global holds 14.84 percent.

Reacting to the proposed guidelines, the Federation of Indian Chambers of Commerce and Industry (Ficci) said the increase of trigger level to 25 percent from 15 percent was significant as it signalled an alignment with international standards.

“But along with this, an increase in annual creeping acquisition limit for promoters should also have been enhanced,” said Sidharth Birla, chairman of the chamber’s corporate laws panel.

The other recommendations by the panel include:

-Open offer must for all shares of target company to ensure equal opportunity to all shareholders against 20 percent at present

-Acquirer must state intentions to de-list target company if stake falls below minimum listing threshold

-The market price for open offers be based on 12-weeks average price as against present norm of an average of 26 weeks or 2 weeks, whichever is higher

-Independent directors of target company must give recommendations on all issues.