SEBI has recently, on March 24, 2015, amended the Takeover Code to allow promoters / acquirers to take companies “private” by way of a takeover. SEBI has introduced Regulation 5A which allows acquirers to potentially acquire all of the company’s shares from its public shareholders through a voluntary / compulsory open offer made under Regulations 3, 4 and 5 of the Takeover Code.
Prior to this amendment, the Takeover Code required acquirers / promoters to comply with minimum public shareholding norms when their holdings crossed 75% of the total equity capital of the target within a year of such increase, through an offer for sale or a rights issue. Acquirers / promoters who wished to take their companies private were required to wait for a year after the completion of the open offer to begin the process of delisting. This amendment has ended the wait and now, acquisition and delisting of public companies can both happen simultaneously.
However, the delisting offers under the Takeover Code are still subject to the SEBI Delisting Regulations, which takes the sheen off the new amendment. The acquirer will still have to obtain the prior approval of the board of directors of the target company as well as the approval of the shareholders through a special resolution and comply with other requirements of the Delisting Regulations. It is important to remember that open offers, whether voluntary or compulsory, under Regulations 3, 4 and 5 do not necessarily require the acquirer to take the prior approval of the board or the company’s shareholders to complete the acquisition or the open offer.
It seems that SEBI feels that corporate India is still not ready for hostile takeovers, as it would be procedurally impossible for a rival to take a company private using this route. Further, if there is a competitive offer made under the Takeover Code after the announcement of the delisting offer, none of the parties will be able to take the company private. In the event that the acquirer fails to make a successful delisting offer, as per the Delisting Regulations, they will still have to make the open offer for the minimum size of offer as determined under Regulation 7 of the Takeover Code; further, if the shareholding of the acquirer exceeds 75%, they will then have to make an offer for sale or a rights issue in terms of the equity listing agreement and the SCRR and bring their shareholding down to 75% and observe a cooling-off period of one year before making another attempt at taking the company private.