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What is the Step by Step Procedure to be followed by the Acquirer when Open offer is Triggered?

Open offer

The open offer is an all-time favorite takeover code in the acquisition world. Acquiring of listed companies is a long and complicated process. It is usually done under large teams of legal and corporate professionals due to the application of numerous business laws. Multiple compliances are required to be when one company acquires another company since the shareholding pattern and voting rights of the shareholder’s change. Therefore, the acquirer has to follow appropriate steps when the open offer of acquisition is triggered. Let’s begin with understanding the meaning of an open offer.

What is an Open offer?

The open offer is a part of the takeover code which has been defined by the SEBI. An open offer is said to have triggered when a company acquires up to 15% shares in another listed company. Therefore, the acquiring company has to make an offer to existing shareholders to purchase an additional 20% shares of the company. The offer is made to all the shareholders of the company and is kept open for a month. The shareholders are also given an exit option by selling off their shares to the acquirer.

Step-by-Step Procedure to be followed by the Acquirer

Step 1: Appointing a Merchant Banker

Category-I Merchant Bank, who holds a certificate of registration as granted by SEBI, has to be appointed by the acquirer as required under Regulation 12(1) of the Takeover Code. The Merchant Banker is appointed to act as a manager to the open offer, whereby he/she takes the entire responsibility of the transaction and has to complete the assigned duties with complete integrity. Below conditions have to be fulfilled by the merchant banker:

  • A Merchant Banker has to be appointed before the public announcement of the open offer is made.
  • The Merchant Banker cannot act as an associate of the acquirer and target company simultaneously.
  • The Merchant Banker should be certain that he/she can implement the open offer an appropriate arrangement in regards to the same has been made by him/her.
  • The Merchant Banker is required to ensure the reliability and genuineness of the contents of the public announcement. The Merchant Banker also has to confirm that the intermediaries involved in the open offer are registered with the Board.
  • The Merchant Banker is required to provide the due diligence certificate to the Board.
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Step 2: Public Announcement

A public announcement has to be made by the Merchant Banker on the day when the parties involved agree on the acquirement of shares/voting rights between themselves. The contents of the public announcement will have the following information:

  • Nature of the planned acquisition
  • The identity of the Persons acting in the concert (PACs)
  • Offer Price and a total consideration of takeover
  • Price per share
  • Mode of payment of consideration
  • Offer size
  • The minimum level of acceptance

The public announcement shall be made in:

  • English newspaper with wide circulation
  • Hindi newspaper with wide circulation
  • Regional language newspaper with wide circulation

Copy of the public announcement shall be submitted to:

  • Securities and Exchange Board of India (SEBI);
  • The registered office of the target company
  • All stock exchanges where shares of the company are listed.

Step 3: Opening an Escrow Account

An escrow arrangement is a contractual commitment whereby a third party is made responsible for receiving and disbursing money, on behalf of the parties to the transaction. The appointed Merchant Banker

The acquirer is required to open an escrow account as security for performing his obligations attached with the takeover, as mentioned under Regulation 17 of the takeover code. This account has to be opened before the DPS (Detailed Public Statement) is published.

Step 4: DPS Regarding Open offer

A DPS has to be published by the acquirer via the appointed Merchant Banker within 5 days of the public announcement. The DPS should be:

  • published in newspapers that have a wide circulation and have recorded maximum volume of trading in shares of the target company, 60 days prior to the public announcement;
  • contain information that would aid the shareholders in making a reasonable decision regarding the open offer.
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Step 5: Suggestions by the Board of Directors of the Target Company

Pursuant to the release of DPS, the BOD that consists independent directors committee of the target company has to make recommendations on open offer, backed by reasons, to the shareholders of the target company. The recommendations made shall be published similarly like a public announcement.

Step 6: Filing the letter of offer with the Board

A letter of offer consists of details regarding the acquisition, specific disclosures and forthcoming plans of the acquirer. It is addressed to the shareholders of the target company.

The provisions relating to a letter of offer are:

  • As per Regulation 16(1) of the takeover code, the acquirer has to file a draft of the letter of offer to the BOD through the Merchant Banker along with a non-refundable fee.
  • The BOD can pass its observations on the submitted draft. If no recommendations are suggested by the BOD within 15 days of submission of the draft, it shall be assumed that no modifications are desired by the BOD.
  • Once the Merchant Banker makes submission of the relevant documents, the DPS, public announcement and the draft letter of offer are uploaded by the BOD.
  • The shareholders, having its name in the register of names of the target company, have to be sent the copy of the letter of offer.

Step 7: Post Offer Advertisement

  • Within 5 working days of the day when an offer is made, the acquirer has to issue a post-offer advertisement, as stated in Regulation 18(12) of the Takeover Code.
  • The advertisement is required to be published in every newspaper in which DPS was published. It is also required to be sent to SEBI, stock exchanges[1] where shares of the company are listed and the registered office of the target company.
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 Step 8: Special Escrow Account

A special escrow account is required to be opened by the acquirer for payment to shareholders. The requisite amount shall be deposited by the acquirer in the special escrow account and the Merchant Banker shall be given the power to operate this account. Within 10 working days of the expiry of the tendering period, the payment of consideration to shareholders and the exchange or transfer of shares has to be completed.

Step 9: Acquisition of Shares

The shares of the target company can be acquired by the acquirer in the following manner:

  • Bulk Deal/Block Deal
  • Preferential Issue of Shares
  • Stock Exchange Settlement Process

The provisions related to the acquisition are:

  • As per Regulation 22 (2A) of the takeover code, the acquirer is not allowed to exercise voting rights on shares held in an escrow account.
  • The acquisition of shares should be done within 26 weeks from the expiration of the offer period. It should, however, be noted that until the expiry of the offer period, the procedure of acquisition cannot be completed.
  • Upon deposition of the amount in an escrow account, the acquirer has been permitted to complete the acquisition of shares after the time period of 21 days has expired from the date of DPS.


Acquisitions are complicated legal procedures and require numerous compliances with applicable laws. It involves changes in shareholding patterns and voting rights. The procedure has to be undertaken very carefully under the scrutiny of appropriate professionals so that no compliance is omitted and the acquisition is done well under the purview of corporate governance.

For more information on takeover code or procedural and regulatory aspects of a takeover, contact us Enterslice.

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