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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.
Table of Contents
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 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:
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:
Also, Read: SEBI’s Latest Format for Compliance Report on Corporate Governance.
The public announcement shall be made
Copy of the public announcement
shall be submitted to:
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:
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
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:
Step 7: Post Offer Advertisement
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:
The provisions related to the acquisition are:
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.
Also, Read: How Corporate Governance in India affects Shareholders.
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