On July 28, 2011, the Securities and Exchange Board of India ("SEBI") proposed new Takeover Regulations based on recommendations of the Takeover Regulations Advisory Committee ("TRAC"). While a takeover code in India has been in place since 1997 (revised and amended from time to time), SEBI constituted the TRAC in September 2009 to review the existing regulations and make them more relevant for present day transactions. While TRAC submitted its report in 2010, SEBI proposed the new Takeover Regulations subsequent to its internal deliberations. The major changes to the existing Takeover Regulations, inter alia, include:
- The initial trigger threshold to be increased to 25% from the existing 15%. Currently, an acquisition of 15% or more of an Indian listed company triggers the requirement of an open offer by the acquirer. This threshold has now been increased to 25%. This change will help Indian listed companies attract strategic investors who would now be able to influence significant decisions of the Indian listed company without having to make an open offer.
- The minimum size of the open offer to be increased from the existing 20% of the total issued capital to 26% of the total issued capital. Investors will now have the opportunity to acquire a controlling stake in an Indian listed company by acquiring an initial 25% and then an additional 26% through a successful open offer to reach a 51% shareholding in an Indian listed company.
- In an open offer, all shareholders are to be given an exit at the same price. No separate provision is made for non-compete fees. It was common for promoters (sellers) of Indian listed companies to get a higher price compared to the ordinary shareholder by virtue of a 'non-compete' fee. This non-compete fee arrangement is now abolished.
- Voluntary offers subject to certain conditions (which will be detailed in the new Takeover Regulations) have been introduced. This will allow existing shareholders in an Indian listed company to increase their shareholding through an open offer.
We will be sending out a detailed analysis on the amended/new Takeover Regulations once these are notified and issued by SEBI.