SEBI notifies new Takeover code effective 22nd October 2011

SEBI on Friday the 23rd of September has notified the new takeover code and informed that the same would become effective from the 22nd of October 2011.

There are three major changes in the takeover code which are different from the earlier takeover code. These changes are as follows: -

1.  The point at which the open offer is triggered has been changed from the earlier 15% to 26%.
2.  The size of the open offer has been increased from 20% to 25%.
3.  Non-compete fees which were paid earlier to promoters is now not permitted.

The offer price shall be the highest of the four prices. The four prices would be the negotiated price, volume weighted average price over the last 52 weeks prior to the public announcement, the highest price payable or paid in the last 26 weeks before the public announcement, or the volume weighted average price of 60 trading days prior to the public announcement.

The takeover code also specifies that companies cannot breach the maximum promoter shareholding limit of 75%. In case it happens, the acquirer has to shed the portion that is above 75%. If one were to take the theoretical example of a company where the promoter holds 51% and sells 25% to another person. The combined holding of the new promoter and the erstwhile promoter would be 51% with an open offer of 26%, which if fully subscribed would make the promoter holding 77%. The excess holding of 2% would have to be divested by the new promoter.

SEBI has alos disallowed automatic delisting and acquirers whose stake exceeds 75% are ineligible to voluntarily delist before 12 months of completion of the open offer.

The takeover code has also defined indirect acquisition or control. This is defined as the ability to exercise or direct the exercise of voting rights which would otherwise attract the obligation of making a public announcement of an open offer. The threshold point for this control or ability is 80% of assets or net sales or market capitalization of the target company, it would be deemed to be a direct acquisition.

SEBI has also clarified that any open offer for which a public announcement has already been made would be governed by the old regulations and would be completed under the earlier norms.

This last point means that the public announcement made by Varkey to acquire 20% in Everonn would continue under the old norms and as per the announcement would open on the 16th of November and close on the 5th of December.

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