Understanding Takeover with FAQs

Narendra Kumar

06 Sep, 2019

When an “acquirer” takes over the control of a “Target Company”, it is called Takeover. When an acquirer acquires “considerable or substantial quantity of shares or voting rights” of the Target Company, it is to be the substantial acquisition of shares.

Who is an “Acquirer‟?

Acquirer means any person who, whether by himself, or through, or with persons acting in concert with him, directly or indirectly, acquires or agrees to acquire shares or voting rights in, or control over a target company. An acquirer can be a natural person, a corporate entity or any other legal entity

What is known as “Target Company‟?

The company/body corporate or corporation whose equity shares are listed in a Stock Exchange and in which a change of shareholding or control is proposed by an acquirer is referred to as the “Target Company‟.

What is an open offer under the SAST Regulations, 2011?

An open offer is an offer made by the acquirer to shareholders of the target company inviting those shareholders to tender their shares in the target company at a specific price. The chief purpose of an open offer is to make available an exit option to the shareholders of the target company on account of change in control or substantial acquisition of shares, occurring in Target Company.

Under which situations is an open offer required to be made by an acquirer?

If an acquirer has agreed to acquire or acquired control over a target company or shares or voting rights in a target company which would be in excess of the threshold limits, then the acquirer is required to make an open offer to shareholders of the target company.

What is “offer price‟ and can the acquirer revise the offer price?

The offer price is the price at which the acquirer announces to acquire shares from the public shareholders under the open offer. The offer price shall be the minimum price which is calculated according to the SAST Regulations^[1] as applicable for frequently or infrequently traded shares.

The acquirer can make an upward revision to the offer price at any time up to 3 working days prior to the opening of the offer.

What is the difference between “offer period” and “tendering period”?

The term “offer period‟ pertains to the period starting from the date of the event triggering open offer till completion of payment of consideration to shareholders by the acquirer or withdrawal of the offer by the acquirer as the case may be. The term “tendering period‟ refers to the 10 working days period falling within the offer period, during which the eligible shareholders who wish to accept the open offer can tender their shares in the open offer.

Also, Read: Company Share Transfer Procedure for Private Limited Company.

Who are Eligible Shareholders?

Each and every shareholder of the target company except the acquirer, persons acting in concert with him and the parties to the underlying agreement which triggered open offer comprising persons deemed to be acting in concert with such parties, regardless of whether they are the shareholders as on an identified date or not.

What is the purpose of the escrow account in the open offer process?

The acquirer is required to deposit some percentage of the offer price, in an escrow account before issuing a Detailed Public Statement. This serves as a security for the performance of acquirer‟s obligations under the open offer.

What is a letter of offer?

The letter of offer is a document which is dispatched to all shareholders of the target company as an identified date. This is also made available on the website of SEBI.

What is a Public Announcement (“PA”)?

Any Acquirer who acquires shares /voting in excess of the limits has to make a Public Announcement (i.e., an advertisement) through a Merchant Banker specifying that he desires to acquire a minimum of 26% of the voting capital of the company from the public.

Can an acquirer withdraw the open offer once made?

An open offer once made cannot be withdrawn except in the following circumstances: · Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer have been refused subject to such requirement for approvals having been specifically disclosed in the DPS and the letter of offer; · Any condition stipulated in the SPA attracting the obligation to make the open offer is not met for reasons beyond the reasonable control of the acquirer, subject to such conditions having been specifically disclosed in the DPS and the letter of offer; · Sole acquirer being a natural person has died; · Such circumstances which in the opinion of SEBI merit withdrawal of open offer.

For how many days is an open offer required to be kept open?

The offer is required to be kept open for ten working days.

Also, Read: Sample Minutes of Special Meeting of the Shareholders.