Friday, February 13, 2009

SEBI amends Takeover Regulations - but on a narrow, Satyam-type cases, compass

SEBI has amended the Takeover Regulations today, Friday, 13th February 2009 (see here) and the subject is what we had all been expecting and that it is an enabling provision to exempt open offer requirements in Satyam-like cases.

The amendment empowers SEBI to exempt from one or more provisiions of the Chapter III of the SEBI Act, mainly thus from the requirement of making an open offer and certain other requirements, in cases where certain circumstances are present. The very first of this circumstance all but narrows down the possible eligible companies today to just one - and that is Satyam. This requirement is that the Central Government, etc. should have removed the Board of Directors and have appointed other persons as directors. The other conditions are intended to ensure that the Target Company has ensured, obviously under the new Board, that there is a competitive process in place for invite potential acquirers. Thus, the Board of the Target Company would be expected to shortlist acquirers and probably select one through a transparent and unbiased process and having selected one, should approach SEBI for exemption. SEBI would then grant exemption at its discretion.

In essence, therefore, these amendments are for companies in trouble where persons in control have been removed and a new set of Promoters are desired.

A related amendment bars competitive bids where a public announcement has been made after SEBI grants amendment under the amended provisions. The logic is obvious. If an acquirer desires to participate, he should give his bid at the first instance when the Company is transparently shortlisting bids. I had wondered why the new provisions were needed and why the existing provisions of Regulation 4 were not found sufficient for granting exemption. This was more so since a Takeover Panel is already in place for this purpose. Probably this specific exemption from competitive bids is part of the answer.

Curiously, there is no specific provision for making the detailed order granting such exemption public but it is hoped SEBI will publish such order on its own, an approach it has been taking in many other areas.

The application for exemption is to be made by the target company.

had started this post by saying that it is almost a Satyam-specific amendment - probably it will be used just once in its lifetime ! - but that is good news also. A general amendment giving wider powers would have had scope for misuse.

A few more thoughts in a later post.

- Jayant Thakur

p.s.:_- I would have missed this amendment today - the amendment was published just after I left my office for the day but Mr. Umakanth's email was in my inbox by the time I reached home! Thanks, Mr. Umakanth.

2 comments:

Anonymous said...

To reiterate, the amendment was not at all required.

The provisions of SEBI (SAST) Regulations("the Regulations"), prior to the amendment were sufficient enough to deal with Satyam kind of cases.

An acquirer could very well acquire control of a company like Satyam and can still avoid making an open offer under chapter III of the Regulations. This would have ensured that the company gets the much needed cash rather than the acquirer making an open offer to the shareholders, who anyways have an option to exit through stock exchange.

At the most SEBI should have amended Regulation 3 of the Regulations only, instead of the amendment which is suffering from various flaws.

Kind regards,
Yogesh

Anonymous said...

The amendment was not at all required.

The provisions of SEBI (SAST) Regulations("the Regulations"), prior to the amendment were sufficient enough to deal with Satyam kind of cases.

To reiterate, an acquirer could very well acquire control of a company like Satyam and can still avoid making an open offer under chapter III of the Regulations. This would have ensured that the company gets the much needed cash rather than the acquirer making an open offer to the shareholders, who anyways have an option to exit through stock exchange.

At the most SEBI should have amended Regulation 3 of the Regulations only, instead of the amendment which is suffering from various flaws.

Kind regards,
Yogesh Chande