Securities market regulator SEBI wants to bring in more clarity to the concept of ‘control’ under the takeover code to give a fillip to merger and acquisitions (M&A) activity in the country.
Jet-Etihad debate In the past, debates arose on the issue of ‘control’ on many cases, including the famous Jet-Etihad deal, urging the regulator to come out with more clarity on the issue.
Towards this end, SEBI has now proposed to introduce ‘bright line’ tests that would include both adoption of a numerical threshold and also qualitative aspects, such as protective rights.
SEBI’s first option outlines a list of protective rights, which if exercised would not amount to exercise of control. This includes appointment of chairman/ vice-chairman/observer, covenants by lenders, commercial agreements, veto/affirmative rights besides quorum rights.
The second option provides for 25 per cent shareholding as the threshold level for trigger of control in Indian companies.
Under the current rule, open offer will trigger only if buyers’ holding crosses 26 per cent in the target company.
Tejesh Chitlangi , Partner, IC Legal, said: “The choice of the first option is a good move, since it may be best to leave it to the wish of public shareholders if they want to stay invested in the company or whether they want the acquirer to give them an exit by making an open offer.”
Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG India, said this was a welcome step and would help sort out the ‘grey areas’ in the definition of ‘control’.
Beneficial to PE investors too Archana Khosla Burman, Founder Partner, Vertices Partners, a law firm, told BusinessLine that this is a welcome proposition.
“This is not only beneficial for M&A transactions but also private equity investors, as this will allow the ability to negotiate certain investor protection rights within the contract without coming under the ambit of the takeover regulations,” she said.