Overview of SEBI

(Substantial Acquisition of
Shares and Takeover)
Regulations, 2011
Overview of Regulations
BASIC CONCEPT
• The Takeover Regulations are applicable on the acquisition of Voting Rights or Control over
the Listed Company
• When an “acquirer” takes over the control of the “target company”, it is termed as
“Takeover”.
• When an acquirer acquires “substantial quantity of shares or voting rights” of the Target
Company, it results into “Substantial acquisition of shares”.

Shares

Voting Control
Rights
KEY DEFINITIONS
ACQUIRER:
Acquirer means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with
persons acting in concert with him, shares or voting rights in, or control over a target company.

ACQUISITION:
Acquisition means, directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target
company.

CONTROL:
Control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by
a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or
management rights.

SHARES:
Shares means equity capital of a target company carrying voting rights, and includes any security which entitles the holder
thereof to exercise voting rights.

TARGET COMPANY:
A Target Company means a company and includes a body corporate or corporation established under a Central legislation,
State legislation or Provincial legislation for the time being in force, whose shares are listed on a stock exchange.
KEY DEFINITIONS
PERSON ACTING IN CONCERT:
Persons who for a common objective acquire shares or voting rights or control over Target Company,
pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition
of shares or voting rights or control over the Target Company.

PROMOTER:
The person or persons who are in control of the issuer. The person or persons who are instrumental in the
formulation of a plan or programme pursuant to which specified securities are offered to public.

VOLUME WEIGHTED AVERAGE MARKET PRICE:

Volume weighted average price means the product of the number of equity shares bought and price of each
such equity share divided by the total number of equity shares bought.

Number of shares traded on the Stock Exchange on a particular day: X

Market Price: Y

X1*Y1+X2*Y2+X3*Y3………
Volume weighted Average Market Price =
X1+X2+X3……………..
KEY DEFINITIONS
OFFER PERIOD:
Offer Period

Identified Te n d e r i n g
Date Period

Date of Date of payment

acquisition of 10 working days to shareholders
shares/control 10 working day
th
within which
prior to or withdrawal
triggering PA shareholders
commencement of tender their
tendering Period shares

ENTERPRISE VALUE:

Market Capitalization of a Company Debt + Minority Interest + Preferred

shares
Total Cash + Cash Equivalents

*Minority Interest-A significant but non-controlling ownership of less than 50%

*Cash equivalent-Investment securities that are short-term, have high credit quality and are highly liquid.
*Preferred stock-Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock
holders
TYPES OF OFFER

OPEN OFFER

MANDATORY/ VOLUNTARY OFFER

TRIGGERED OFFER

Initial Threshold Creeping Acquisition Indirect

Acquisition of Control acquisition
TYPES OF OFFER
OPEN OFFER:
An invitation to shareholders of a Target company to sell their shares to the acquirer at a specified price before
closure of the offer period.

CONDITIONAL OFFER:
An open offer to shareholders where acquirer keeps a condition that he will accept shares only if response is
beyond a certain limit.

COMPETING OFFER:
Open Offer by any other person (Competitor Acquirer) after an offer has already been given by an acquirer to
the shareholders of the Target Company.

VOLUNTARY OFFER:
An acquirer, who together with persons acting in concert with him, holds shares or voting rights in a target
company entitling them to exercise twenty-five per cent or more but less than the maximum permissible non-
public shareholding, shall be entitled to voluntarily make a public announcement of an open offer for acquiring
shares in accordance with these regulations.
TYPES OF OFFER
Initial Threshold:

When the Acquirer after his acquisition along with his initial shareholding is entitled to have more than 25% or
more of the voting rights in the target company.

Creeping Acquisition:

• Holding more than 25% but less than 75% shares or voting rights in the Target Company.
• Acquire further upto 5% shares or voting rights in the financial year .
• Allowable acquisition of 5% is popularly known as 'Creeping Acquisition‘.

Acquisition of control:

Any acquirer including PAC acquires control over the Target Company irrespective of the fact whether there has
been any acquisition of shares or not, then he has to give public announcement to acquire shares from
shareholders of the Target Company
TYPES OF OFFER

Indirect acquisition:

Acquisition of Voting Rights or control over other entity that enable the Acquirer to exercise of such percentage of
voting or control over Target Company

Global
Control
Acquirer Offer
ABC Ltd. Target Company
72.93%
100%

Indirect acquistion of 72.93% of the

Target Company

Trigger Open Offer

TYPES OF OFFER
VOLUNTARY OPEN OFFER:

Eligibility

• Prior holding of at least 25% or more shares

• No acquisition during the preceding 52 weeks except by way of Open Offer.

Offer size

• Minimum of 10% of the total shares of the Target company

Condition

• The aggregate share holding not to exceed the maximum permissible non-public shareholding

Restriction

• No further acquisition of shares for a period of six months after completion of the open offer except by way of
• voluntary open offer or
• competing offer.
OPEN OFFER AND ITS RELATED CONCEPTS
PUBLIC ANNOUNCEMENT (PA):
A public announcement is an announcement made in the newspapers by the acquirer primarily disclosing his intention to
acquire shares of the target company from existing shareholders by means of an open offer
Objective: To ensure that the shareholders of the target company are aware of an exit opportunity available to them
through ensuing open offer.

TIMMINGS OF PA:
A Detailed Public Statement(DPS) shall be published by the acquirer in newspaper and one copy to be submitted to SEBI
through the Manager to the Open Offer within 5 working days from the date of Public Announcement.

CONTENTS OF PUBLIC ANNOUNCEMENT:

The public announcement shall contain—
• Name and identity of the acquirer and Persons Acting In Concert with him,
• Name and identity of the sellers, if any,
• Nature of the proposed acquisition such as purchase of shares or allotment of shares,
• The consideration for the proposed acquisition and the price per share.
OPEN OFFER AND ITS RELATED CONCEPTS
MINIMUM OFFER SIZE:

Mandatory Voluntary

Offer -26% Offer -10%

OFFER PRICE:
MINIMUM OFFER PRICE FREQUENTLY TRADED SHARES

The offer price is the highest of the following:

• Highest negotiated price per share under the share purchase agreement (SPA) triggering the offer.
• Volume weighted average price of shares acquired by the acquirer during 52 weeks preceding the public
announcement (PA).
• Highest price paid for any acquisition by the acquirer during 26 weeks immediately preceding the PA.
• Volume weighted average market price for 60 days preceding the PA
OPEN OFFER AND ITS RELATED CONCEPTS
MINIMUM OFFER PRICE INFREQUENTLY TRADED SHARES
The offer price is the highest of the following:
• Highest negotiated price per share under the share purchase agreement (SPA) triggering the offer.
• Volume weighted average price of shares acquired by the acquirer during 52 weeks preceding the public announcement (PA).
• Highest price paid for any acquisition by the acquirer during 26 weeks immediately preceding the PA.
• The price determined by the acquirer and the manager to the open offer after taking into account valuation parameters
including book value, comparable trading multiples, and such other parameters that are customary for valuation of shares of
such companies.

NON COMPETE FEES:

• Non-compete fee is paid to selling promoters, so that they do not re-enter the business and pose competition to the acquired
company.
• Example - acquisition of controlling stake in Cairn India by Vedanta Resources in 2010, a non-compete fee of Rs. 50 has been
added to the acquisition price (Rs 355) to be paid to the selling promoters — Cairn Energy Plc.
• As per SEBI Guideline 2011 - Any Non Compete fee to be paid should be included in the offer price paid to Public Shareholders
also.
 OPEN OFFER AND ITS RELATED CONCEPTS
MODE OF PAYMENT:

1. By Cash
2. By way of Issue, exchange or transfer of Equity share capital of the acquirer or any PAC.
3. By way of Issue, exchange or transfer of Secured debt instruments issued by the acquirer or PAC.
4. By way of Issue, exchange or transfer of Convertible Debt Securities entitling the holder to acquire shares in the
Equity share capital of the Acquirer or PAC.
5. A combination of all of the above.

ESCROW ACCOUNT:
Opening of Escrow Account – Not later than two working days prior to the date of DPS
Amount of Escrow Deposit

Forms of Escrow Account- Cash, Bank Guarantee, Freely transferable equity shares or securities .
OPEN OFFER AND ITS RELATED CONCEPTS
WITHDRAWAL OF OPEN OFFER:
Offer once made cannot be withdrawn EXCEPT in the following circumstances

Statutory Approvals required have been refused.

Acquirer, being natural person, has died.

Any condition in the agreement is not met for reasons outside

the reasonable control of the acquirer

Circumstances as in the opinion of the Board, merit

withdrawal
OBLIGATION
OBLIGATION OF ACQUIRER:

• Must ensure availability of financial arrangements to pay of any obligations under the open offer
• Alienation of assets: debarred for 2 years
• Must ensure that PA, DPS, letter of offer,& post Offer advertisement are fair and true and not misleading
• The Acquirer and PAC with him shall not sell shares of the target company held by them, during the offer period

OBLIGATION OF TARGET COMPANY:

• After PA has been made, during the offer period the BOD should ensure that the business is conducted in the ordinary
and usual manner
• During the offer BOD of target company & its subsidiaries ,without special resolution by postal ballot cannot (a)
alienate material assets (b) take any material borrowings from outside (c) Issue or allot any new security bearing
voting rights
• The target company shall furnish to the acquirer within 2 working days from the identified date, a list of shareholders
DISCLOSURES
DISCLOSURE OF ACQUISITION AND DISPOSAL:
TRIGGERING EVENT DISCLOSURE BY DISCLOSURE TO TIME PERIOD

Acquisition of 5% or more shares or voting rights Within 2 working days of:

• receipt of intimation of
Acquirer & PACs Target c/o & stock allotment of shares; or
Acquisition or disposal of 2% or more shares or voting exchange (s)
rights by the acquirer already holding 5% or more • acquisition of shares or
shares or voting rights voting rights
Creation or invocation or release of encumbrance* on Target c/o & stock Within 7 working days from
Promoter & PACs
the shares held by promoter or PACs exchange (s) the event

CONTINUAL DISCLOSURES:
DISCLOSURE BY DISCLOSURE TO TIME PERIOD
Acquirer holding 25% or more shares or Promoter and PACs Within 7 working days from the end of
voting rights financial year.
Promoter and PACs
IMPACT
• Beneficial for Private Equity Players and Investors.
• More protection for the small shareholders.
• Simplification in the provisions.
• More transparency and removal of ambiguity.
• At par with Global Practices prevalent for M&As.
Thank You