Tuesday, February 23, 2016

Exit Offer to Dissenting Shareholders

[The following guest post is contributed by Yogesh Chande, who is a Partner at Shardul Amarchand Mangaldas, Advocates & Solicitors. Views of the author are personal. Yogesh can be reached at yogesh.chande@amsshardul.com]

Subsequent to my guest post dated 30 March 2014 in connection with section 13(8) and section 27(2) of the Companies Act, 2013, SEBI issued a discussion paper on 1 December 2015 for providing exit to dissenting shareholders. Public comments were invited by SEBI on the discussion paper by 23 December 2015. The norms were finally notified by SEBI on 17 February 2016 by inserting chapter VI-A to the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009. As pointed out in my guest post, correspondingly, SEBI also amended the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 by providing an exemption to the promoter/shareholder in control of the listed company from making an open offer, if the acquisition is pursuant to the provisions of chapter VI-A.

In terms of the provisions of chapter VI-A, only those dissenting shareholders of the issuer who are holding shares as on the relevant date are eligible to avail the exit offer. “Relevant date” means date of the board meeting in which the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is approved, before seeking shareholders’ approval. Thus, investors who invested in the company through secondary market will also be eligible to participate in the exit offer, apart from the shareholders who were the original allottees at the time of listing.

As regards the level of response by the dissenting shareholders in the exit offer, it is quite possible that, if the prevailing market price of the shares of the company traded on the stock exchanges during the tendering period is higher than the exit offer price, the dissenting shareholder may not participate in the exit offer. Chapter VI-A does not make it binding on the dissenting shareholders to participate in the exit offer, even if they have voted against the resolution for change in objects or variation in terms of a contract, referred to in the prospectus of the issuer. Therefore, in such a situation, it is possible that, no shares will be tendered in the exit offer, and the exit offer turns out to be an academic exercise.

In terms of chapter VI-A, the dissenting shareholders who have tendered their shares in acceptance of the exit offer, even have an option to withdraw their acceptance till the date of closure of the tendering period.

It is mandatory for promoter/shareholder in control of a listed company to  provide an exit offer in terms of chapter VI-A, if there is any change in objects or variation in the terms of contract referred to in the prospectus. In other words, there is no provision that the exit opportunity should only be provided, if the amount utilized is higher than a specified percentage of the total amount raised for the objects of the issue.

- Yogesh Chande

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