Saturday, December 17, 2011

SEBI’s FAQs on Takeover Regulations

SEBI recently put out a set of FAQs relating to the Takeover Regulations, 2011 that came into effect on October 22, 2011. While a substantial part of the FAQs relate to either explanation of matters or elaboration of certain aspects of process and mechanics, they also address substantive issues on a few counts.
We had earlier discussed the issue as to whether hostile takeovers are permissible under the Takeover Regulations, 2011. SEBI has now clarified the position in the FAQs:
15. Whether hostile offers/bids are permitted under the new regulations?
There is no such term as hostile bid in the regulations. The hostile bid is generally understood to be an unsolicited bid by a person, without any arrangement or MOU with persons currently in control.
Any person with or without holding any shares in a target company, can make an offer to acquire shares of a listed company subject to minimum offer size of 26%.
This is also incidental to a distinction made for voluntary offers by persons holding less than 25% of the voting rights and those made by persons holding greater than 25% (please see FAQs no. 17 to 20). In the latter case, various conditions apply that make voluntary offers somewhat more difficult to effectuate.
A notable omission in the FAQs pertains to the concept of “control” and whether negative control through veto rights would qualify for the purpose. The issue continues to remain open given the lack of a decision from the Supreme Court in the Subhkam case, and it is not surprising that SEBI has chosen to keep its cards close to the chest.
Finally, the manner of addressing some of the substantive issues through FAQs (which are expressly stated to be non-binding) rather than through appropriate regulatory mechanisms such as a circular (as Sandeep Parekh suggests) is less than desirable.

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