Public Announcement of Takeover

National Law University Odisha, Cuttack Corporate Law II Project, 21102014

NATIONAL LAW UNIVERSITY ODISHA

CUTTACK 753015

PREPARED UNDER THE GUIDANCE OF:

M L SHANKAR KAARMUKILAN

ASSISTANT PROFESSOR OF LAW

SCHOOL OF LAW

NATIONAL LAW UNIVERSITY ODISHA, CUTTACK

SUBMITTED BY :

AVILASH KUMBHAR

2012/ B.B.A.LL.B.(HONS.)/015

B.B.A.LL.B.(HONS.)

SEMSETER V, 2012 BATCH

COPRORATE LAW II : PROJECT

TAKEOVER : PUBLIC ANNOUNCEMENT, TIME LIMIT AND WITHDRAWAL

OF OFFER.

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Contents INTRODUCTION: ....................................................................................................................................... 2

STATEMENT OF PROBLEMS:.................................................................................................................. 3

SCOPE, OBJECTIVE & SIGNIFICANCE: ................................................................................................. 3

RESEARCH QUESTION:- .......................................................................................................................... 3

PUBLIC ANNOUNCEMENT ...................................................................................................................... 4

TIMING FOR MAKING A PUBLIC ANNOUNCEMENT ........................................................................ 5

PREFERENTIAL ALLOTMENT OF SHARES: ..................................................................................... 5

ANALYSIS: .......................................................................................................................................... 5

MORE THAN ONE MODE OF ACQUISITION OF SHARES: ............................................................. 6

ANALYSIS: .......................................................................................................................................... 6

PHASES OF ANNOUNCEMNT: ................................................................................................................ 7

PUBLIC ANNOUNCEMENT:- ............................................................................................................... 7

DETAILED PUBLIC STATEMENT ..................................................................................................... 10

COMPETING OFFER ................................................................................................................................ 12

TIMING OF COMPETING OFFER: ..................................................................................................... 13

ANALYSIS: ............................................................................................................................................ 13

WITHDRAWAL OF OFFER: .................................................................................................................... 13

CONCLUSION: .......................................................................................................................................... 15

BIBLIOGRAPHY: ...................................................................................................................................... 16

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INTRODUCTION:

In the few years since its origin in 1989, the Securities Exchange Board of India (SEBI) has

come in for more fire than credit. Its original order was to ensure the protection of interest of

investors securities. For this reason, various rules and regulations have been published. In

attempting to reconcile the demand of economic development with investors protection, the

takeover code misses the mark in specific zones. Certain conceivable outcomes of going around

the provisions of the code while not explicitly violating them exist. Particularly, there are some

hazy areas regarding the mandatory open offer necessity. Covert acquisitions through indirect

methods are still conceivable in various ways. This paper will concentrate on method set down in

Substantial Acquisition of Share and Takeover Regulation 2011 which orders public

announcement of takeover of Target Company.

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STATEMENT OF PROBLEMS:

It is well accepted that no legislator can plug every loophole in the law. In case of public

announcement, its significance should be noted. The right to withdraw offer is another key area

to put emphasis on. In the Takeover code the term such circumstances need wide interpretation

in order to ascertain what could be that such circumstances in the absence of which it will

serve as stool for strong acquirer to use such mechanism in a unfair manner.

SCOPE, OBJECTIVE & SIGNIFICANCE:

In this paper the author has taken the task to review some of the legal aspects and procedure laid

down in the Takeover code in the areas of public announcement and timing & withdrawal of

offer. In will look into some of the landmark judgments of SAT in order to determine the various

interpretations given in the case.

RESEARCH QUESTION:-

What is significance of Public announcement of takeover?

What is the time limit for various offer of takeover?

Legality of withdrawal of offer made by public announcement

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PUBLIC ANNOUNCEMENT

The takeover offer procedure might likewise begin in different ways. For instance, a hostile offer

can start because of the production of 'concrete data'. The provision of concrete data is regardless

considered to have happened if the acquirer publishes the name of the target company in

consolidation with a proposed offer cost or a preparatory timetable for the behavior of the

proposed offer. This concrete data does not need to be published by the acquirer as a press

discharge. In any case, a target company may keep an open takeover offer from being affirmed

under the standards identifying with open takeover offers.

This requires a public statement from the target coming stating that the acquirer and the target

company are in consultation concerning the intended public takeover offer. Such statement must

be published immediately after the acquirer statement containing concrete information has been

published. The acquirer statement then no longer qualifies as the formal announcement of a

public takeover bid under the rules relating to public takeover bids. This means that the

regulatory periods set out in the rules relating to public takeover bids will not yet commence. A

third possibility is that the bid process starts with the announcement of a mandatory bid.

The above does not affect the obligation of both the acquirer and the target company to publish

price-sensitive information without delay. For instance, this obligation applies in the event that

information on preparations for a public takeover bid has been leaked.

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TIMING FOR MAKING A PUBLIC ANNOUNCEMENT

Regulation 13 of the SAST 2011 provides for the timing of making a public announcement for

different modes of acquisition of shares of a target company. SEBI has made certain changes

while amending Takeover code 2011 in respect of timing of making a public announcement in

case of:

preferential allotment of shares; and

Acquisition of shares of a target company by more than one mode of acquisition of

shares.

PREFERENTIAL ALLOTMENT OF SHARES:

In case acquisition of shares is under preferential issue which triggers an open offer requirement

an acquirer is required to make a public announcement on the date on which a special resolution

is passed by the target company under Section 62(1A) of the Companies Act, 1956 for the

acquisition of shares or voting rights in or control over the target company.1

Amendment has been made to Regulation 13(2) pursuant to which an acquirer is required to

make a public announcement on the date when the board of directors of the target company

authorizes such preferential allotment of shares as opposed to the earlier case wherein the

announcement was to be made on date on which a special resolution is passed.

ANALYSIS:

The rationale for this amendment is that the day Board approves the preferential allotment, the

market comes to know about the same and the share price becomes volatile on account of the

knowledge about the preferential allotment in spite of the fact that the shareholders have not

approved the preferential allotment. To plug this loophole resulting in volatility in share price,

SEBI has changed the date for making a public announcement from date of passing of

shareholders resolution to date of passing of Board resolution

1 Regulation 13(2) of SAST 2011

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MORE THAN ONE MODE OF ACQUISITION OF SHARES:

Currently, Takeover Codes provides for the timing of making a public announcement for the

different modes of acquisition of shares. However, Takeover Code is silent about timing of

making a public announcement in case an acquirer intends to acquire shares of a target company

by way of more than one mode of acquisition of shares as provided under Regulation 13 of the

Takeover Code.

In order to address the aforesaid issue, a new Regulation 13(2A) has been inserted2 . With this

amendment, in case of more than one mode of acquisition of shares either by way of an

agreement and the one or more modes of acquisition of shares as provided under Regulation

13(2) of the Takeover Code or only through one or more modes of acquisition as provided under

Regulation 13(2) of the Takeover Code, an acquirer is required to make a public announcement

on the date of first such acquisition giving the details of the proposed subsequent acquisition.

ANALYSIS:

The above change is welcome since there was always an ambiguity on the timing for making a

public announcement in a situation where the acquirer was proposing to acquire the shares

through a combination of purchase from an existing shareholder and purchase through

preferential allotment since the timing for making a public announcement was different in case

of secondary purchase and preferential allotment, This change will bring the much needed clarity

with respect to such cases where more than one mode of acquisition is used by the acquirer to

purchase the shares of the target company.

2 (2A) Notwithstanding anything contained in sub-regulation (2), a public announcement referred to in regulation 3

and regulation 4 for a proposed acquisition of shares or voting rights in or control over the target company through a combination of,- (i) an agreement and any one or more modes of acquisition referred to in sub-regulation (2) of regulation 13, or (ii) any one or more modes of acquisition referred in clause (a) to (i) of sub-regulation (2) of regulation 13, shall be made on the date of first such acquisition, provided the acquirer discloses in the public announcement the details of the proposed subsequent acquisitio

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PHASES OF ANNOUNCEMNT:

The regulations have prescribed the separate timeline for Public Announcement as well as for

Detailed Public Statement.

PUBLIC ANNOUNCEMENT:-

The Public Announcement shall be sent to all the stock exchanges on which the shares of the

target company are listed. Further, a copy of the same shall also be sent to the Board and to the

target company at its registered office within one working day of the date of the public

announcement. The time within which the Public Announcement is required to be made to the

Stock Exchanges under different circumstances are tabulated below:

Applicable Regulation Particular Time of making Public

Announcement to Stock

Exchange

13(1) Agreement to Acquire

Shares or Voting Rights or

Control Over The Target

Company

On the same day of entering

into agreement to acquire

share, voting rights or

control over the Target

Company.

13(2)(a) Market Purchase of shares Prior to the placement of

purchase order with the

stock broker.

13(2)(b) Acquisition pursuant to

conversion of Convertible

Securities without a fixed

date of conversion or upon

conversion of depository

receipts for the underlying

shares

On the same day when the

option to convert such

securities into shares is

exercised.

13(2)(c) Acquiring shares or voting On the second working day

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rights or control pursuant to

conversion of Convertible

Securities with a fixed date

of conversion

preceding the scheduled

date of conversion of such

securities into shares.

13(2)(d) In case of disinvestment

On the date of execution of

agreement for acquisition of

shares or voting rights or

control over the Target

Company.

13(2)(e) In case of Indirect

Acquisition where the

parameters mentioned in

Regulation 5(2) are not met

Within four working days of

the following dates,

whichever is earlier:

a. When the primary

acquisition is contracted;

And

b. Date on which the

intention or decision to

make the primary

acquisition is announced in

the public domain.

13(2)(f) In case of Indirect

Acquisition where the

parameters mentioned in

Regulation 5(2) are met

On the same day of the

following dates, whichever

is earlier:

a. a. When the primary

acquisition is contracted;

And

b. Date on which the

intention or decision to

make the primary

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acquisition is announced in

the public domain.

13(2)(g) Acquisition of shares,

voting rights or control over

the Target Company

pursuant to Preferential

Issue

On the date when the

Special Resolution is passed

for allotment of shares

under Section 81(1A) of

Companies Act 1956.

13(2)(h) Increase in voting rights

pursuant to a buy-back not

qualifying for exemption

under Regulation 10

Not later than 90th day from

the date of increase in

voting rights.

13(2)(i) Acquisition of shares,

voting rights or control over

the Target Company where

the such acquisition is

beyond the control of

acquirer

Not later than two working

days from the date of receipt

of such intimation.

13(3) Voluntary Offer

On the same day when the

Acquirer decides to make

Voluntary Offer

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DETAILED PUBLIC STATEMENT

Timing of Detailed Public Statement

In terms of Regulation 13(4) of SEBI (SAST) Regulations, 2011, a Detailed Public Statement

shall be published by the acquirer through the Manager to the Open Offer within maximum 5

working days from the date of Public Announcement.

However in case of Indirect Acquisition where none of condition specified in Regulation 5(2) are

satisfied, the Detailed Public Statement shall be published not later than five working days of the

completion of the primary acquisition of shares or voting rights in or control over the company

or entity holding shares or voting rights in, or control over the target company. After the

publication of Detailed Public Statement, the acquirer is further required to file with the Board a

Draft of Letter of Offer within five working days from the date of Detailed Public Statement

containing such information as may be specified along with non-refundable fees as prescribed by

way of bankers cheque or demand draft payable in Mumbai in favor of the Board.

Regulation

Particulars

Time

To whom

14(1)

Public Announcement

On the same day

All the stock

exchanges on which

the shares of the target

company are listed.

The stock exchanges

shall forthwith

disseminate such

information to the

public.

14(2)

Public Announcement

One working day of

the date of the public

announcement

Board and to the

target company at its

registered office

14(3) Detailed Public 5 working days from Publication in the

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Statement

the date of Public

Announcement.

following newspaper:

(a) One Hindi national

language daily with

wide circulation

(b) One English national

language daily with

wide circulation

(c) One regional national

language daily with

wide circulation

language at a place

where registered

office of the company

is situated.

(d) One regional

language daily with

wide circulation at the

place of the stock

exchange where the

maximum volume of

trading in the shares

of the target company

is recorded during the

sixty trading days

preceding the date of

the public

announcement.

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COMPETING OFFER

Any person other than the original acquirer who has made the subsisting open offer can make the

competing offer. Interestingly, the Takeover Code permits all persons other than the original

acquirer to make a competing offer and does not restrict even the PACs of the acquirer from

making a competing offer. This omission could be an oversight by the regulators but even if the

PAC of an acquirer makes a competing offer, the offers of the acquirer and the PAC shall be

consolidated as a single offer for the purposes of the Takeover Code.

The Takeover Code does not impose any restriction on the number of competing offers provided

all the offers are made within the timeframe prescribed.

Competing offer can be conditional as to the minimum level of acceptances only if the original

open offer conditional as to the minimum level of acceptances.

Though a competing offer under the Takeover Code is made by the acquirer voluntarily, a

competing offer shall not constitute voluntary offer under the Takeover Code. Therefore, the

conditions applicable to a voluntary offer under the Takeover Code shall not be applicable to a

competing offer.

The schedule of activities and the tendering period for all competing offers shall be identical and

the last date for tendering shares in acceptance of the every competing offer shall stand revised

to the last date for tendering shares in acceptance of the competing offer last made.

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TIMING OF COMPETING OFFER:

Competing offer has to be made within fifteen working days from the public announcement of

the original open offer.

No person can make a public announcement of an open offer for acquiring shares, or enter into

any transaction that would trigger the Takeover Code requiring a mandatory open offer, after

fifteen working days from the date of public announcement of an open offer under the Takeover

Code (voluntary or mandatory) till the expiry of the offer period for such open offer.

ANALYSIS:

This provision is meant to ensure that there are no overlapping or simultaneous open offers in a

target company except as competing offers which are made within fifteen days of public

announcement of first open offer. However, the question what if exists convertible securities are

converted into equity shares pursuant to Regulation 26(2)(c)(i) of the Takeover Code during that

period resulting in trigger of an open offer.

WITHDRAWAL OF OFFER:

Case of Pranidhi Holding Pvt. Ltd

A voluntary offer once made under the takeover code can only be withdrawn under exceptional

circumstances and a mere delay in the public offer coupled with fall in market price or

devaluation of Earning Per Share (EPS) cannot be reasons to permit the withdrawal of a public

offer.3 This case notices the nature of public and mandatory offer in relation to public

announcement. The court held that public offer will be governed by the same provision as a

mandatory and not by contract law simply being an offer to public. SAST Regulations is a

special law and all public offers such as the one in this case are to be governed by the SAST and

not the Indian Contact Act. If the argument of the acquirer were to be accepted that the public

offer has to be governed by the provisions of the Indian Contract Act, 1872 and since the offer

has not been accepted by the shareholders of the target company which leads to no conclusion of

the contract due to no acceptance and it can be withdrawn then then it would lead to a peculiar

situation wherein the acquirers would withdraw the public offer even when only some of the

shareholders would have tendered their shares and others would have not. Hence once public

3 Pramod Jain V SEBI

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announcement is made; there is no difference between these two offers. It is in this regard that an

acquirer should only make an offer when he can implement it4. The term such circumstances in

23(1)(d) of the Takeover code has been given wide interpretation in this case the court held that,

the term such circumstances5 should be ejusdem generis in that SEBI has the power to permit

withdrawal of open offer when the circumstances demands for it i.e. there has to be an element

of impossibility in implementing the offer.6

An acquirer who wishes to invest a substantial sum of money and acquire control of the target

company ought to have exercised proper due diligence before making the public announcement.7

This case demonstrates albeit indirectly one of the issues relating to hostile takeovers in India

under the old takeover code8. Although under the new takeover code the situation has not

improved greatly, on the contrary it has made hostile takeovers nearly impossible. But based on

the background of the new takeover code i.e. TRAC Report it is possible to argue that this was

not the intended consequence. However ruling(s) such as the present one will create more

difficulty to an already hostile climate for hostile takeovers.

4 Nirma Industries V SEBI MANU/SC/0536/2013

5 See 23(1)(d) of Substantial Acquisition of Shares and Takeover , 2011

6 Nirma Industries V SEBI MANU/SC/0536/2013

7 Id.

8 Substantial Acquisition of Shares and Takeover , 1997

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CONCLUSION:

The Bhagwati Committeee noted that mere acquisition of securities that would confer voting

rights on a later date should not trigger the application of the code at the time of acquisition,

before such voting rights are attracted. The ambit of the code is focused on "change in control"

of the target company. There is not much of a debate in requirement of Public announcement in

takeover but this done in order to give the investor an opportunity to exit or stay. The major

finding of this paper was the scope of withdrawal of offer where is noticed that it is not an

exclusive right or neither the acquirer has to option to revoke. In the Takeover code, though it

has scope for withdrawal only is such circumstances which means that the offers becomes

impossible

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BIBLIOGRAPHY:

SEBIS TAKEOVER REGULATIONS EDITION 2010 LEXIS NEXIS.

TAKEOVER STRATEGIES, COMPETITIVE BIDDING ANDDEFENSIVE TACTICS-

HANDBOOK OF MERGERS AND ACQUISITIONS, OXFORDUNIVERSITY PRESS

(IN PRESS)

ACQUISITION ACTIVITIES OF INITIAL PUBLIC OFFERINGS BY WOLFGANG

BESSLER AND JAN ZIMMERMANN, CENTER FOR FINANCE AND BANKING,

JUSTUS-LIEBIG UNIVERSITY.

INDIRECT TAKEOVER CONTROVERSIES BY CHAITANYA G. S AND SUJATA

IYENGAR.

RIGHT OF MINORITY OPPOSING TAKEOVER IN A TARGET COMPANY [2008]

84 CLA (MAG.) 45

TAKEOVER REGULATIONS ACHUTAN COMMITTEE REPORT A MISSED

OPPORTUNITY

Documents

Public Announcement of Takeover