The Securities and Exchange Board of India (SEBI) has relaxed the takeover norms for companies in special situations. One of these relaxations is that once the entity making the takeover offer makes its decision public, it will not have to battle competitive bids from other parties.
Also, the company’s board needs to be replaced by a State or Central government body. The acquirer making the offer should get relaxation by the board and the target company’s board needs to apply to SEBI for relaxation. The new board of directors need to come up with a transparent and open plan.
SEBI has also relaxed strict compliance of Chapter III in certain cases. It said the conditions, needs of competitive process should be reasonable, and fair. Process should provide for details including the time when public offer will be made. The process also needs to provide details of time of public offer and manner in which change of control be effected.
The most important point which has been keeping the market abuzz is what will be the offer price in such a situation because when you make an exemption under this, you are going away from that 26-week open offer price. What SEBI had said is, there will have to be a competitive bid. There will have to be a comparative bid; the board of the company will have to satisfy the regulator that a completely transparent and open procedure has been adopted.
The Satyam board for instance is already talking in terms of an independent committee under a retired Supreme Court judge. SEBI is going to satisfy itself that a very transparent fair process has been adopted to arrive at a price which is going to be through competitive bids. This price becomes the price at which the deal is done. Once the acquirer has finalized this price that the company has been sold – now the percentage of stake the company wants to sell to this acquirer is something that has been left to the company. There is no mandatory provision there. However, if this entity should make an open offer or whether it should not make an open offer of 20 per cent is again going to be handled by SEBI on a case-by-case basis.
If the company can convince the regulator that there is no need for a 20 per cent offer because we have anyway given this entity a fair amount of the offer of the shares of the company, SEBI may relax it. But the 20 per cent open offer bid is something that these guidelines don’t talk about. According to sources, in most cases SEBI will insist that there should be an over and above the stake you buy through the bidding process, an open offer to all shareholders.
Now comes the point of the point you made about the acquisition and whether or not you get an exemption from any competitive bid. Once this bid has been decided, finalised, approved by the regulator nobody else can stand up and make another bid. That is what this particular beat means.
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Very interestingly SEBI stresses on the fact that it should not further the interest of any particular acquirer. If you see most of these guidelines what the regulator is saying is that it wants a very transparent open competitive bidding process through which the entire process is decided. What should be the process is left to the board. As long as the regulator is satisfied that you have gone through in a proper transparent manner giving an opportunity to every bidder to come and give the best possible price to shareholders, SEBI is fine with that.
The other thing which is likely to happen for instance is the infusion of fresh shares. If a company decides that the new acquirer needs to be given fresh shares, there is another anticipated change which is not part of these guidelines which is expected to be made by the regulator in the coming few days in its preferential allotment guidelines, which will allow a company which meets these requirements of the distress which again includes the Central government, the state government or any regulatory authority once it disbands the board i.e. when the situation comes into effect.
The minute the situation comes into effect, the 26-week rules which exists are no longer there. In case of Satyam for instance, there was this whole talk of will it be January 7 taken into account, whether that will be pre-January 7 that is irrelevant. What the regulator has clearly come out with is a very general guideline. So now it needn’t be post January 7 price, it needn’t be a pre-January 7 price. It will be the price which the bidders are willing to pay and which the board of this company is willing to accept and then go to the regulator and say this is the price we have got through competitive bidding, this is the best price we have got and this is the price at which we are going to sell it to this acquirer.
Most typically that will be the price at which the open offer will be made as well. The open offer of 20 per cent in most cases, the regulator is likely to insist that if you are an acquirer, you are picking up 15 per cent-20 per cent or 25 per cent you should logically make an open offer because you want to control the company. It is a strategic sell at the end of the day.
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What the regulator has said is that the company will go through a transparent bidding process. The price discovery will be through a transparent bidding process. There has been a lot of speculation on that, should it be bidding, should it be price decided through the market, none of that. The regulator has clarified that it will have to be a competitive bidding process and it wants to be satisfied that it has been done in a transparent fair manner.
It in fact keeps on insisting on this every change in the regulation that it will have to be transparent. The regulator is going to look at this with a microscope to see whether or not the process was fully transparent. That is where the Satyam board is thinking of appointing an independent committee because if you can satisfy the regulator saying that this is an independent process, we have got an independent committee under a retired Supreme Court judge or another person of eminence, we therefore need an exemption from the previous regulation. So once you apply for the exemption that is what you got to go on to the table with the regulator saying I adopted a fair process.
Satyam welcomes SEBI move
Kiran Karnik, Chairman, Satyam Board said, 'It is very clear that SEBI has moved fast which is in keeping with what the government has been doing so far in terms of quick decisive and positive action. We welcome this development we want to do this quickly and this will help us speed up the process. Progress is on describing the precise process and the steps. This was a necessary step in order to get this off the ground. As soon as we define the various steps that they follow in a week or so we should be able to get all these steps rolling out. Then we start the process of inviting bids in terms of the way forward.'
Experts on the other hand have a mixed view on the regulations
Managing Partner, Majmudar & Co, Akil Hirani, said, 'The main issue is on the pricing. With a transparent process that the company has to follow in terms of accepting the bid and accepting the right price so that works very well in the Satyam scenario where there are at least three or four suitors. I have one point to make which is probably a contra point. Assume that the board of Satyam calls for bids from L&T and whoever else is interested. So if the challenge the decision of the Satyam board in awarding the contract to someone. So you could have a chance of litigation if there are many suitors.'
Sandeep Parekh, Professor, IIM-A said, 'I am not very much in favour of these adhoc amendments to the regulations. The intent might be good but at the end of the day, we do not have just one company with which we have to deal with and I am not comfortable with having one regulation for each company. Having said that, since it is well intentioned and the purpose is to rehabilitate Satyam. I think the process itself seems to be reasonably fair in terms of transparency and fairness process.'
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