Market regulator the Securities and Exchange Board of India (SEBI) seems to be waking up to the idea of complete takeovers. The thought here is that anyone making an open offer should be made to buy out every outstanding shareholder. This writer has been a votary of the idea. This will ensure that we are not faced with ridiculous situations like the Ranbaxy promoter sell-out, where the promoters got a fancy price and the same price was on offer only to the statutory limit of 20% of the shareholders. Most of the minority shareholders were left in the lurch in the bargain. I only hope that this time the talk is serious and that SEBI does not give in to the usual lobby of 'merchant bankers' who will see their business potential reducing and the scope for manipulations coming down.
Once this is made into law, greenmail activities also will come down, since anyone getting in with 15% stake will now have to be prepared to make a bid for acquiring the entire company. This kind of legislation will benefit small shareholders. The proposed change should be welcomed by all shareholders, as this proposed law will ensure equal treatment. Of course, in a takeover, a shareholder always has the option of saying "no, thanks" if he prefers to continue being a shareholder.
Under the current guidelines, the acquirer has to make an 'open offer' to buy out only an additional 20% shareholding. This means that when the 'non-promoter' shareholding is more than 20%, only some of them can exit. Furious calculations are made as to how many shares would get accepted, etc.
This is patently unfair and unjust. Further, it creates ridiculous situations (like in Great Eastern Shipping) where the acquirer can actually make a hostile bid, without having money to buy out the full company! One does not know whether the intent was actually to acquire the company or just plain old-fashioned greenmail. In any case, one of the two parties made a good pile of money in the whole process. If there was a legal compulsion to buy the entire company, maybe one of the players may have had to stay away. Maybe both would have had to stay away.
According to a PTI report, SEBI has set up a Takeover Regulatory Advisory Committee, with former Securities Appellate Tribunal (SAT) presiding officer C Achuthan as chairman, which is looking into suitable changes in the existing takeover regulations.
While any changes are expected to take effect from the next fiscal only, the committee is said to be seriously looking at increasing the open offer size from 20% to as high as 100%, while it might also increase the open offer trigger limit from 15%, the report had said. — R Balakrishnan
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