The recent changes made by the SEBI in the Takeover Code to insulate transactions from price volatility and minimise scope for open offer price manipulation, have evoked mixed response from experts.
While most welcomed the move, some raised doubts about its utility if shareholders were to later reject the special resolution.
Interpretation on date
The Securities and Exchange Board of India last Friday said ‘relevant date’ for determining the open offer price — in the case of a preferential allotment triggering an open offer obligation — will be the date of board resolution.
Currently, it is the date of passage of special resolution by shareholders at a general meeting that is reckoned as the ‘relevant date’ for determination of offer price. SEBI is of the view that information about the impending preferential allotment comes into the public domain on the date of the board resolution, which authorises the preferential allotment.
The market price gets adjusted or may even rise, which exposes the transaction to market risks, it has said.
Where the open offer obligations are triggered due to a combination of modes of acquisition, the ‘relevant date’ for making the public announcement and determination of offer price will be the earliest date on which obligations are triggered, SEBI has said.
Diageo deal
This will, however, not be applicable if the subsequent trigger is on account of wilful and deliberate act on the part of the acquirer, according to the SEBI Board decision.
This will clear the ambiguous surrounding the price, said market experts. Take for instance the case of United Spirits-Diageo deal. JM Financial Institutional Securities, on behalf of Diageo, on November 9 said Diageo would acquire 19.3 per cent in United Spirits at Rs 1,440 a share, as against the then prevailing price of Rs 1,360.
Diageo also intended to buy another 10 per cent through preferential allotment of new shares, at the same price.
The preferential allotment, which required United Spirits’ shareholder approval, would result in Diageo owning 27.4 per cent, triggering an open offer.
But, by the time United Spirits shareholders on December 19 approved the resolution, the stock price surged to Rs 1,925.
This raises a question whether the open offer price should be based on the December 19 price of Rs 1,925 or Rs 1,440 as announced on November 9.
Reacting to the SEBI Board’s decision, Amrish Shah, Partner, Ernst & Young, said that the decision to realign the trigger date to the board resolution date, where preferential allotment (either along with other modes of acquisitions or otherwise) triggers an open offer, is a welcome move.
“This would lead to insulating such transactions from price volatility (which can happen as the current regulation fixes the trigger date to the shareholder resolution date of preferential allotment),” Shah said.
90-day period
However, some securities law experts felt that the decision may not prove useful if the shareholders were to later reject a special resolution seeking approval for preferential allotment.
SEBI has also clarified that the period of 90 days — in case of increase of voting rights due to buy-back by target company — will be reckoned from the date of closure of the buy-back offer.
Currently, if the voting rights of a shareholder, who is not party to the buy-back arrangement, go beyond the prescribed threshold limit on account of buy-back by the target company, the open offer requirement will not be triggered if voting rights are brought below the threshold limit within 90 days from the date on which the voting rights so increase.
Shah said the clarification relating to the period in which shareholding needs to be clawed back pursuant to buy-back is also a welcome step. This would remove the ambiguity for such shareholders (who do not participate in the buy-back) for reducing their shareholding below the trigger thresholds, he said.
srivats.kr@thehindu.co.in