With the current Takeover Regulations (that came into effect in October 2011) being fairly recent, they are being subjected to interpretation during the course of their functioning. SEBI this week issued two sets of informal guidance in the context of one takeover.
The first pertains to whether an acquirer holding less than 25% can make a voluntary offer and then acquire shares in the market during the course of the offer so as to cross that limit. SEBI’s response is in the affirmative, as Reg. 22(1) (which prevents completion of acquisitions before completion of the public offer) applies only to acquisitions under an “agreement” and not through open-market purchases. While this approach is consistent with the scheme of the regulations, it could be subjected to abuse by acquirers in the manner detailed in the company’s letter to SEBI.
The second relates to the size of a competing offer, and whether that ought to have a minimum of 26% similar to an original offer. SEBI confirmed that this was not necessary in view of the specific provisions of Reg. 20(2).Although the two sets of informal guidance deal with technical (and somewhat minor) details, they can make a significant difference in a takeover scenario, particularly one where there is an element of hostility between and acquirer and promoters, or between competing acquirers. The previous versions of the Takeover Regulations had built up a significant body of interpretation through orders of the court, the Securities Appellate Tribunal and SEBI. That looks set to continue under the new dispensation as well. Since litigation during the course of a takeover can result in considerable delays that may be disastrous to investors due to adverse price movements in the interim, speedy decision-making is of the essence.