4.

TAKEOVER CODE

4.1 Evolution of Takeover Code

The SEBI appointed committee on takeover code headed by Justice P.N.Bhagwati to study the effect of takeovers and mergers on securities market and to suggest the provisions to regulate takeovers and mergersstated the necessity of a takeover code on the following grounds: The confidence of retail investors in the capital market is a crucial factor for its development. Therefore, their interest needs to be protected. Any exit opportunity shall be given to the investors if they do not want to continue with the new management. Full and truthful disclosure shall be made of all material information relating to the open offer so as to take an informed decision. The acquirer shall ensure the sufficiency of financial resources for the payment of acquisition price to the investors. The process of acquisition and mergers shall be completed in a time bound manner. Disclosures shall be made of all material transactions at earliest opportunity. The objective of the Takeover code is to regulate in an organized manner the substantial acquisition of shares and takeovers of a company whose shares are quoted on a stock exchange i.e. listed company. In a limited sense these regulations also apply to certain unlisted companies including a body corporate incorporated outside India to an extent where the acquisition results in the control of a listed company by the acquirer. Substantial Acquisition The most important point to be understood is what would constitute substantial acquisition under these regulations? Substantial acquisition as such has not been defined under the regulations, nor has it been defined in any other related Acts. Nevertheless, if we read through regulations 10 and 11, the question as to what constitutes substantial acquisition is made relatively very clear. The following for the purpose of these regulations can be considered as substantial acquisition: (a) Acquisition by a person or two or more persons acting together with common

intention, 15% or more shares or voting rights of the target company (b) Acquisition by a person or two or more persons acting together with common

intention, who have already acquired 15% or more but less than 55% of share or

voting rights, further acquire 5% or more of share capital or voting rights in the same financial year ending on 31st March. An important point to be noted from the summary of regulations above is that not only the acquisition of shares but also the acquisition of voting rights would also constitute substantial acquisition. It is to be noted that voting rights of a shareholder are accompanied with the shares of the company. Until a person is a registered shareholder of a company he cannot have the voting rights, but there are cases when a person has paid the consideration for the share but an official instrument of share transfer has not been formulated, in such case a power of attorney to transfer the voting rights of the transferor can be formulated or the transferee may demand for a proxy from the transferor or he may make the transferee exercise the voting rights as he demands. Maybe this was the reason why acquisition of voting rights have been expressly mentioned in the regulations as far as substantial acquisition is concerned.

4.2 Regulations
Few regulations that need a detailed study under the guidelines are given below: REGULATION 6 It states that any person holding at the time of commencement 5% or more of the Shareholding must intimate to the Company within 2 Months of date of notification and the Company must intimate such holding to stock exchange where the Companys shares are listed within 3 months of the date of notification. This is also applicable on the Promoters of the Company. REGULATION 7 Any Acquirer who acquires shares or the Voting rights which would entitle him to More than 5% or 10% or 15% or 54% or 74% must disclose within four days to the Company and Stock Exchange where shares are listed. The four days will be from 1) Date of receipt of Intimation or 2) The acquisition of shares; as the case may be. Where the Acquirer has acquired the Shares together with persons acting in concert shall disclose purchase or sale aggregating to 2% or more of the share capital shall within four days disclose to Company and the stock exchange.

 The stock exchange must display information received on trading screen, the notice board and at website with 7 days of receipt of Information. The Company whose shares have been acquired in manner stated above must intimate such information to Stock exchange within 7days of Receipt of information. REGULATION 8 Every person who holds more than 15% shares or voting rights in any company shall within 21days from the end of Year (31st March.) must within 21 days discloses to the Company about such holding. The promoter is required to disclose not only at the end of financial year but also the record date for purpose of declaration of Dividend. Every Company whose shares are listed on the stock exchange shall within 30 days from the end of financial year or from the Record date for dividend must intimate such holding of shares to stock exchange. REGULATION 9 The stock exchange and the Company shall submit information relating to Regulation 6,7 and 8 to SEBI as and when required by the Board. REGULATION 10 No acquirer shall acquire which when acquire in single or in persons acting in concert with him entitle such acquirer to exercise 10% or more of the Voting rights in a company unless acquirer makes a public announcement. This is not required where such acquisition is on a right share basis and such acquisition does not result in holding more than 55% of the voting rights.

REGULATION 11 No acquirer shall acquire additional shares entitling him to exercise more than 10% voting rights along with the voting rights he already has in any financial year unless public announcement is made for such acquisition.

 No acquirer who holds 55% or more but less than 75% shall acquire either by himself or through the persons acting in concert unless public announcement for same has been made. Where the case involved is of disinvestment of a public sector undertaking an acquirer who together with persons acting in concert with him has made a public announcement shall not be required to make further announcement for further acquisition of shares. REGULATION 12 Control on Target Company cannot be acquired unless public announcement for same has been made. REGULATION 13 Before making public announcement for acquiring shares under regulation 10,11 and 12 an acquirer must appoint Merchant Banker holding a certificate of registration granted by Board and merchant banker must not be associated with acquirer or group of acquirer. REGULATION 14 The Public announcement shall be made by the merchant banker within four working days of entering into agreement for acquisition of shares exceeding the prescribed limits. REGULATION 15 The public announcement under regulations 10,11 and 12 must be made in all editions one English national daily, one Hindi national daily and regional language where the registered office of the target company is located and at the place where the shares are frequently traded. The copy of same must be submitted to Board through the merchant banker.

 The copy of same must be sent to all stock exchanges where the shares of the companies are listed. The copy of same must be sent to target company at its registered office. REGULATION 16 Paid up share capital of the target company, number of fully paid up and partly paid up shares. Percentage of shares proposed to be acquired. Minimum offer price for each share. Identity of persons having control over such company shall be disclosed. Existing shareholding of merchant banker in Target Company shall be disclosed. Highest and average price paid by acquirer or persons acting in concert during 12 months preceding to date of public announcement shall be disclosed. Object and purpose of acquisition shall be disclosed. Date by which the individual letters of offer would be posted to each of the shareholder shall be disclosed. Date of opening and closure of offer shall be disclosed. Date by which the payment of consideration would be made for share shall be disclosed. REGULATION 17 The public announcement must not contain any misleading information. REGULATION 18 Within 14 days from the date of public announcement acquirer shall through the merchant banker file with the Board draft of letter of offer which must be submitted to shareholders within 21days from the date of its submission to Board.

 Fees to be paid along with submission to Board depending on the issue size. REGULATION 19 The public announcement shall specify the date for determining the names of shareholders to whom the letter of offer should be sent. The specified date cannot be later than 30th day from the date of public announcement. REGULATION 20 Where the shares of the Company are frequently traded: The minimum offer price will be the highest of the following: The negotiated price as per the agreement. The highest of the price paid by the acquirer or persons acting in concert with him for any acquisition including by way of allotment or right issue during the 26 weeks period prior to date of public announcement. The price paid by the acquirer under the preferential allotment to him or the person acting in concert at any time during the 12 months period up to the date of closure of offer. The average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange during the 26 weeks,preceding to the date of public announcement. When the shares of the company are not frequently traded : The minimum offer price will be highest of the following: The first three points will be same as if the shares are frequently traded. The fourth point will be: price determined taking into consideration the factors like: Net profit of the Company, Earning per share, book value of shares of the target company. REGULATION 21

 The public offer made by the acquirer to the shareholders of the target company shall be for minimum 20% of the voting capital of the Company. REGULATION 22,23 AND 24 These three regulations deals with: Obligation of Acquirer (22) Obligation of Board of Directors of the target company.(23) Obligation of Merchant Banker(24) REGULATION 25 Any person, other than the acquirer who has made the first public announcement, can make a public announcement within 21 days from the date of first public announcement. Any competitive offer shall be for such number of shares which when taken together with the shares held by him along with person acting in concert shall be at least equal to or more than holding of first bidder. REGULATION 26 The acquirer can at any time up to 7 working days prior to date of closure of offer. The revisions can be in respect of following: Changes in original public announcement in all newspapers where the original public announcement was made. Increasing the value of Escrow account. REGULATION 27 No public offer can be withdrawn except under the following circumstances: The statutory approval(s) required have been refused.

 The sole acquirer being a natural person has died. Withdrawal must be subject to: Publish about the withdrawal in the newspapers in which the offer for public announcement was made. Intimate to stock exchange, Board and the target company about such withdrawal. REGULATION 28 The acquirer must deposit in escrow account such amount as security for performance of his obligation. Amount of Escrow: Not subject to minimum level of acceptance. Subject to Minimum level of acceptance of 20% than 50% of the consideration will be deposited. REGULATION 29 Amount of such sum payable must be deposited within 7 days from the closure of offer with a Banker to an issue registered with the Board together with 90% of the amount lying in escrow account. The regulations though not very old but have still proved to be very significant for the purpose of regulation of acquisition of shares. These regulations are a set of magnificently drafted rules. The credit for making the regulations so practical should be given to Justice P.N.Bhagwati committee.