Takeover Code

The mergers and acquisition space in India just got a makeover with the country's market regulator Sebi formalising the takeover code trigger at 25 percent, up from 15 percent earlier. Following a board meeting on Thursday, the Securities and Exchange Board of India has now allowed firms to acquire 25 percent in a company without making an open offer.[caption id="attachment_50749" align="alignleft" width="380" caption="Reuters"][/caption]Sebi has also raised the open offer size to 26 percent from 20 percent earlier, thus offering an easy exit for investors.Under the existing norms, if an investor acquires more than 15 percent of a listed company’s shares, the takeover code rule meant that an open offer should be made to all shareholders to acquire a minimum 20 percent in the company.The main objective of a takeover code is to regulate in an organised manner the substantial acquisition of shares and take overs of a company whose shares are quoted on a stock exchange i.e. listed company.Take over code: A game changerGood news for minority shareholders: Earlier, private equity investors and venture capitalists were unable to raise their stake in a company without requiring to take control of the management through an open offer. Now that the proposal has been accepted, minority shareholders are protected, PE players can easily grow their capital requirements and companies where PE players had reached their ceiling could now see investors increasing their stake in a small or medium-sized company without having to make an open offer.Not so good for promoters: However, now that the open offer trigger has been raised to 25 percent, acquisitions could get costlier and could also induce a certain sense of complacency in existing managements. Moreover, if a promoter wants to increase his stake in a company where a minority shareholder already owns 25 percent, strategic sale is likely to get diluted. Hence the promoter is going to be on guard because the smaller shareholder can now assert himself by holding a sizable stake in a firm.BackgroundIn July 2010, a panel headed by former chief  the Securities Appellate Tribunal C Achuthan had submitted its recommendations to change the existing regulations for takeover that were originally framed in 1994. However, it took Sebi a year to finally accepted the committee's recommendations.