Note: The answers given
here are general in nature. The questions and the answers have been
structured to enable the readers to gain a broad understanding of
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997. For
exact details the reader is advised to refer to the copy of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 which are
available on our website. Readers may also note that these answers do not aim
to explain the Regulations in force, since answers to questions involving
particular case / fact pattern may depend upon administrative decisions and
Court orders, if any, in respect of the same.
1. What is meant by
Takeovers & Substantial acquisition of shares?
"acquirer" takes over the control of the "target
company", it is termed as Takeover. When an acquirer acquires
"substantial quantity of shares or voting rights" of the Target
Company, it results into substantial acquisition of shares. The term
"Substantial" which is used in this context has been clarified
2. What is a Target
A Target company is a
listed company i.e. whose shares are listed on any stock exchange and whose
shares or voting rights are acquired/ being acquired or whose control is
taken over/being taken over by an acquirer.
3. Who is an Acquirer?
An Acquirer means (includes
persons acting in concert (PAC) with him) any individual/company/any other
legal entity which intends to acquire or acquires substantial quantity of
shares or voting rights of target company or acquires or agrees to acquire
control over the target company
4. What is meant by the
term "Persons Acting in Concert (PACs)"
PACs are individual(s)
/company(ies)/ any other legal entity(ies) who are acting together for a common objective or
for a purpose of substantial acquisition of shares or voting rights or
gaining control over the target company pursuant to an agreement or
understanding whether formal or informal. Acting in concert would imply
co-operation, co-ordination for acquisition of voting rights or control. This
co-operation/ co-ordinated approach may either be
direct or indirect.
The concept of PAC
assumes significance in the context of substantial acquisition of shares
since it is possible for an acquirer to acquire shares or voting rights in a
company "in concert" with any other person in such a manner that
the acquisition made by them may remain individually below the threshold
limit but may collectively exceed the threshold limit.
Unless the contrary is
established certain entities are deemed to be persons acting in concert like
companies with its holding company or subsidiary company, mutual funds with
its sponsor / trustee/ Asset management company, etc.
5. How substantial
quantity of shares or voting rights is defined?
The SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 has defined
substantial quantity of shares or voting rights distinctly for two different
I. Threshold of
disclosure to be made by acquirer(s):
1) 5% and more shares or
voting rights: A person who, alongwith PAC, if any,
(collectively referred to as " Acquirer" hereinafter) acquires
shares or voting rights (which when taken together with his existing holding)
would entitle him to more than 5% or 10% or 14% shares or voting rights of
target company, is required to disclose at every stage the aggregate of his
shareholding to the target company and the Stock Exchanges within 2 days of
acquisition or receipt of intimation of allotment of shares.
2) Any person who holds
more than 15% but less than 55% shares or voting rights of target company,
and who purchases or sells shares aggregating to 2% or more shall within 2
days disclose such purchase/ sale along with the aggregate of his
shareholding to the target company and the Stock Exchanges.
3) Any person who holds
more than 15% shares or voting rights of target company and a promoter and
person having control over the target company, shall within 21 days from the
financial year ending March 31 as well as the record date fixed for the purpose
of dividend declaration, disclose every year his aggregate shareholding to
the target company.
4) The Target company, in
turn, is required to inform all the stock exchanges where the shares of
target company are listed, every year within 30 days from the financial year
ending March 31 as well as the record date fixed for the purpose of dividend
(II) Trigger point for
making an open offer by an acquirer
1) 15% shares or voting
An acquirer who intends
to acquire shares which alongwith his existing
shareholding would entitle him to exercise 15% or more voting rights, can
acquire such additional shares only after making a public announcement (PA)
to acquire atleast additional 20% of the voting
capital of target company from the shareholders through an open offer.
2) Creeping acquisition
An acquirer who holds 15%
or more but less than 55% of shares or voting rights of a target company, can
acquire such additional shares as would entitle him to exercise more than 5%
of the voting rights in any financial year ending March 31 only after making
a public announcement to acquire atleast additional
20% shares of target company from the shareholders through an open offer.
3) Consolidation of
An acquirer who holds 55%
or more but less than 75% shares or voting rights of a target company, can
acquire further shares or voting rights only after making a public
announcement to acquire atleast additional 20%
shares of target company from the shareholders through an open offer.
6. How is
Control includes the
right to appoint directly or indirectly or by virtue of agreements or in any
other manner majority of directors on the Board of the target company or to
control management or policy decisions affecting the target company. However,
in case there are two or more persons in control over the target company the cesser of any one of such persons from such control shall
not be deemed to be a change in control of management nor shall any change in
the nature and quantum of control amongst them constitute change in control
of management provided this transfer is done in terms of Reg. 3(1)(e). Also
if consequent upon change in control of the target company in accordance with
regulation 3, the control acquired is equal to or less than the control
exercised by person (s) prior to such acquisition of control, such control
shall not be deemed to be a change in control.
7. What is a Public
A public announcement is
an announcement made in the newspapers by the acquirer primarily disclosing
his intention to acquire shares of the target company from existing
shareholders by means of an open offer.
8. What are the
disclosures required to be made under Public Announcement?
The disclosures in the
announcement include the offer price, number of shares to be acquired from
the public, identity of acquirer, purpose of acquisition, future plans of
acquirer, if any, regarding the target company, change in control over the
target company, if any, the procedure to be followed by acquirer in accepting
the shares tendered by the shareholders and the period within which all the
formalities pertaining to the offer would be completed.
9. What is the objective
of Public Announcement?
The Public Announcement
is made to ensure that the shareholders of the target company are aware of an
exit opportunity available to them.
10. Can Acquirer make an
offer for less than 20% of shares?
No, the acquirer cannot
make an offer for less than 20% of shares. The acquirer has to make an offer for
a minimum of 20% (less only in specified cases).
11. Who is required to
make a Public Announcement and when is the Public Announcement required to be
The Acquirer is required
to appoint a Merchant Banker (MB) registered with SEBI before making a PA .
PA is required to be made through the said MB. The acquirer is required to
make the P.A within four working days of the entering into an agreement to
acquire shares or deciding to acquire shares/ voting rights of target company
or after any such change or changes as would result in change in control over
the target company.
In case of indirect
acquisition or change in control, the PA shall be made by the acquirer within
three months of consummation of such acquisition or change in control or
restructuring of the parent or the company holding shares of or control over
the target company in India. The offer price in such cases
shall be determined with reference to the date of the public announcement for
the parent company and the date of the public announcement for acquisition of
shares of the target company, whichever is higher, in accordance with the
parameters mentioned in the Takeover Regulations.
12. Whether appointment
of Merchant Banker for the offer process is mandatory?
13. What documents are to
be filed with SEBI after making a P.A. and when are these documents to be
A hard and soft copy of
the PA are required to be submitted to SEBI simultaneously with the
publication of the same in the newspapers.
A draft letter of offer
is required to be filed with SEBI within 14 days from the date of Public
Announcement alongwith a filing fee of Rs.50,000/-
per letter of offer (payable by Bankerís Cheque /
Demand Draft) A due diligence certificate as well as registration details as
per SEBI circular no. RMB (G-1) series dated June 26,
also required to be filed alongwith the draft
letter of offer.
14. Does SEBI
"approve" the draft letter of offer?
Filing of draft Letter of
Offer with SEBI should not in any way be deemed or construed that the same
has been cleared, vetted or approved by SEBI. The Letter of Offer is
submitted to SEBI for a limited purpose of overseeing whether the disclosures
contained therein are generally adequate and are in conformity with the
Takeover Regulations. This requirement is to facilitate the shareholders to
take an informed decision with regard to the Offer. SEBI does not take any
responsibility either for the truthfulness or correctness of for any
statement, for financial soundness of Acquirer, or of Persons Acting in
Concert, or of Target Company, whose shares are proposed to be acquired or
for the correctness of the statements made or opinions expressed in the
Letter of Offer. It should be understood that while Acquirer is primarily
responsible for the correctness, adequacy and disclosure of all relevant
information in this Letter of Offer, the Manager to the Offer( a Merchant
Banker ) is expected to exercise due diligence to ensure that the Acquirer
duly discharges its responsibility adequately.
15. What is a letter of
A letter of offer is a
document addressed to the shareholders of the target company containing
disclosures of the acquirer/ PACs, target company, their financials,
justification of the offer price, the offer price, number of shares to be
acquired from the public, purpose of acquisition, future plans of acquirer,
if any, regarding the target company, change in control over the target
company , if any, the procedure to be followed by acquirer in accepting the
shares tendered by the shareholders and the period within which all the
formalities pertaining to the offer would be completed.
16. What happens once
SEBI gives comments on the draft letter of offer?
The MB will incorporate
in the letter of offer the comments made by SEBI and then send within 45 days
from the date of PA the letter of offer alongwith
the blank acceptance form , to all the shareholders whose names appear in the
register of the company on the Specified Date. The offer remains open for 20
days. The shareholders are required to send their Share certificate(s) /
related documents to registrar or Merchant banker as specified in PA and
letter of offer. The acquirer is required to pay consideration to all those
shareholders whose shares are accepted under the offer, within 15 days from
the closure of offer.
In their own interest,
the shareholders are advised to send such documents under registered post.
Further, the shareholders may also note that under no circumstances such
documents should be sent to the acquirer.
17. How is the price
determined in an open offer?
SEBI does not approve the
offer price. The acquirer/ Merchant Banker is required to ensure that all the
relevant parameters are taken in to consideration while determining the offer
price and that justification for the same is disclosed in the letter of offer
The relevant parameters
(a) negotiated price
under the agreement which triggered the open offer.
(b) price paid by the
acquirer or persons acting in concert with him for acquisition, if any,
including by way of allotment in a public or rights or preferential issue
during the twenty six week period prior to the date of public announcement,
whichever is higher;
(c) the average of the
weekly high and low of the closing prices of the shares of the target company
as quoted on the stock exchange where the shares of the company are most
frequently traded during the twenty six weeks or the average of the daily
high and low prices of the shares as quoted on the stock exchange where the
shares of the company are most frequently traded during the two weeks
preceding the date of public announcement, whichever is higher.
In case the shares of
Target Company are not frequently traded then instead of point (c) above,
parameters based on the fundamentals of the company such as return on networth of the company, book value per share, EPS etc.
are required to be considered and disclosed.
In case of non-compete
agreement for payment to any person other than the target company, if the
payment is more than 25% of the offer price arrived in temrs
of the Regulations, the same has to be factored into the offer price.
18. What are the criteria
for determining whether the shares of the Target Company are frequently or
The shares of the target
company will be deemed to be infrequently traded if the annualised
trading turnover in that share during the preceeding
6 calendar months prior to the month in which the PA is made is less than 5%
(by number of shares) of the listed shares. If the said turnover is 5% or more,
it will be deemed to be frequently traded.
19. Are only those
shareholders whose names appear in the register of target company on a
specified date, eligible to tender their shares in the open offer?
No. Any shareholder who
holds the shares on or before the date of closure of the offer is eligible to
participate in the offer.
20. What is a competitive
Competitive bid is an
offer made by a person, other than the acquirer who has made the first public
21. What happens if there
is a competitive offer and a person had availed the first offer at a lower
price? Can the person switch his acceptance to a better offer?
Yes, switching of
acceptances between different offers is possible. The shareholder has the
option to withdraw acceptance tendered by him upto
three working days prior to the date of closure of the offer
To enable the
shareholders to be in a better position to decide as to which of the
subsisting offers is better and also not to cause last minute decisions /
confusions, the offer price and size are effectively frozen for the last 7
working days prior to the closing date of the offers. Shareholders may wait
till the commencement of that period to be aware of upward revisions in the
offer price and size of the offers, if any.
22. Can an acquirer
withdraw the offer once made?
No, the offer once made
can not be withdrawn except in the following circumstances:
∑ Statutory approval(s)
required have been refused;
∑ The sole acquirer being
a natural person has died;
∑ Such circumstances as
in the opinion of the Board merits withdrawal.
23. How can a person
avail the offer if he/she has not received the letter of offer?
The Public Announcement
contains procedure for such cases i.e. where the shareholders do not receive
the letter of offer or do not receive the letter of offer in time. The
shareholders are usually advised to send their consent to Registrar to offer,
if any or to MB on plain paper stating the name, address, number of shares
held, Distinctive Folio No, number of shares offered and bank details alongwith the documents mentioned in the Public
Announcement, before closure of the offer. The public announcement and the
letter of offer along with the form of acceptance is available on the SEBI
website at www.sebi.gov.in.
24. Is there any
compensation to a shareholder for delayed receipt of payment under the offer?
Acquirers are required to
complete the payment of consideration to shareholders who have accepted the
offer within 15 days from the date of closure of the offer. In case the delay
in payment is on account of non receipt of statutory approvals and if the
same is not due to wilful default or neglect on
part of the acquirer, the acquirers would be liable to pay interest to the
shareholders for the delayed period in accordance with Regulations.
If the delay in payment
of consideration is not due to the above reasons, it would be treated as a
violation of the Regulations and therefore, also liable for other action in
terms of the Regulations.
25. Is the acquirer
required to accept all the shares under the open offer?
No, if the shares
received by the acquirer are more than the shares agreed to be acquired by
him, the acceptance would be on proportionate basis.
26. What are the
safeguards incorporated in the takeover process so as to ensure that
shareholders get their payments under the offer/ receive back their share
Before making the Public
Announcement, the acquirer has to open an escrow account in the form of cash
deposited with a scheduled commercial bank or bank guarantee in favour of the Merchant Banker or deposit of acceptable
securities with appropriate margin with the Merchant Banker. The Merchant
Banker is also required to confirm that firm financial arrangements are in
place for fulfilling the offer obligations. In case, the acquirer fails to
make the payment, MB has a right to forfeit the escrow account and distribute
the proceeds in the following way.
a) 1/3 of amount to
b) 1/3 to regional SEs, for credit to investor protection fund etc.
c) 1/3 to be distributed
on pro rata basis among the shareholders who have accepted the offer.
The Merchant Banker is
required to ensure that the rejected documents which are kept in the custody
of the Registrar / Merchant Banker are sent back to the shareholder through
Besides forfeiture of
escrow account, SEBI can initiate separate action against the acquirer which
may include prosecution / barring the acquirer from entering the capital
market for a specified period etc.
27. Whether all types of
acquisitions of shares or voting rights over and above the limits specified
in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997, necessarily require acquirer to make a public announcement followed up
by an open offer?
No. Certain type of
acquisitions as stipulated under regulation 3 of Chapter I of the
Regulations, are specifically exempted from the open offer process subject to
the acquirer complying with the requirements/conditions, as may be
applicable, for such acquisitions. Such exemptions include acquisitions
arising out of firm allotment in public issues, rights issues, inter-se
transfer amongst group companies, relatives, promoters, acquirer and PACs,
Indian promoters and foreign collaborators and transfer of shares from state
level Financial Institutions to co-promoters of company pursuant to the
28. Which are those
acquisitions/ transactions where reporting to SEBI is mandatory?
Reporting is mandatory
under Regulation 3(4) in respect of acquisitions arising out of firm
allotment in public issues, rights issues, inter-se transfer amongst group
companies, relatives, promoters, acquirer and PACs, Indian promoters and
foreign collaborators and transfer of shares from state level Financial
Institutions to co-promoters of company pursuant to the agreement.
29. What is the time
frame to submit such report and procedure fee thereof?
The report is required to
be submitted to SEBI within 21 days from the date of acquisition / allotment alongwith a fee of Rs.10,000/- per report.
30. Is there any
prescribed form of application for various reports/ documents mentioned
YES, SEBI has specified
the format, which is available on the SEBI webite
31. What information is
required to be furnished to Stock Exchanges in compliance of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and when
is it required to be furnished?
For transactions, which
entail reporting requirements, details of the proposed acquisition need to be
filed with SEs where shares of target company are
listed, atleast four working days before the date
of actual acquisition/ allotment.
A person who, alongwith PAC, if any, (collectively referred to as
" Acquirer" hereinafter) acquires shares or voting rights (which
when taken together with his existing holding) would entitle him to more than
5% or 10% or 14% shares or voting rights of target company, is required to
disclose at every stage the aggregate of his shareholding to the target company
and the Stock Exchanges within 2 days of acquisition or receipt of intimation
of allotment of shares.
Any person who holds more
than 15% but less than 55% shares or voting rights of target company, and who
purchases or sells shares aggregating to 2% or more shall within 2 days
disclose such purchase/ sale along with the aggregate of his shareholding to
the target company and the Stock Exchanges
disclosures have to be given regarding holding of promoters, persons in
control and persons holding more than 15% shares or voting rights of the
Target company. Further , a copy of the Public Announcement to acquire shares
from public is to be given to the Stock Exchanges simultaneously with the
publication in the newspapers.. Subsequently, upward revisions in offer,
withdrawal of offer has also to be intimated to the Stock Exchanges
32. What happens if the
acquirer / target company /Merchant Banker violates the provisions of the
The Regulations have laid
down the general obligations of acquirer, target company and the Merchant
Banker. For failure to carry out these obligations as well as for failure /
non compliance of other provisions of the Regulations, the Regulations have
laid down the penalties for non compliance. These penalties include
a) forfeiture of the
b) directing the person
concerned to sell the shares acquired in violation of the regulations,
c) directing the person
concerned not to further deal in securities,
d) levy monetary penalties,
e) initiate prosecution
f) directing appointment
of a merchant banker for the purpose of causing disinvestment of shares
acquired in breach of regulations 10, 11 or 12
g) directing transfer of
any proceeds or securities to the Investors Protection Fund of a recognised stock exchange;
h) directing the target
company or depository to cancel the shares where an acquisition of shares
pursuant to an allotment is in breach of regulations 10,11 or 12;
i) directing the target company or
the depository not to give effect to transfer or further freeze the transfer
of any such shares and not to permit the acquirer or any nominee or any proxy
of the acquirer to exercise any voting or other rights attached to such
shares acquired in violation of regulations 10, 11 or 12;
j) debarring any person
concerned from accessing the capital market or dealing in securities for such
period as may be determined by the Board;
k) directing the person
concerned to make public offer to the shareholders of the target company to
acquire such number of shares at such offer price as determined by the Board;
disinvestment of such shares as are in excess of the percentage of the
shareholding or voting rights specified for disclosure requirement under the
regulations 6,7 or 8;
m) directing the person
concerned not to dispose of assets of the target company contrary to the
undertaking given in the letter of offer;
n) directing the person
concerned, who has failed to make a public offer or delayed the making of a
public offer in terms of these Regulations, to the shareholders, whose shares
have been accepted in the public offer made after the delay, the
consideration amount along with interest at the rate not less than the
applicable rate of interest payable by banks on fixed deposits.
Further, the Board of
Directors of the target company would also be liable for action in terms of
the Regulations and the SEBI Act for failure to carry out their obligations
specified in the Regulations.
Action can also be
initiated for suspension, cancellation of certificate of registration against
an intermediary such as the Merchant Banker to the offer.
33. Are mergers and
amalgamations of companies also covered under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997?
No, only takeovers and
substantial acquisition of shares of a listed company fall within purview of
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Mergers and Amalgamations are outside the purview of SEBI as they are a
subject matter of the Companies Act, 1956.
34. What is the
Takeover Panel ?
An acquirer who proposes
to acquire shares through a mode which is not specifically covered under
regulation 3 may seek exemption from the applicability of the provisions of the
offer process by making an application. SEBI has constituted a panel consisting
of independent persons to examine such applications which is called the
The present composition
of the Takeover Panel is as follows:
SEBI TAKEOVER PANEL MEMBERS(WITH EFFECT FROM NOVEMBER 02, 2007)
Name of member
Shri K Kannan
Former Chairman, Bank of Baroda
Shri C R Mehta
Former Member, Company Law Board
Shri P N Shah
Shri R S Loona
Former Executive Director , SEBI
35. What is the procedure
for making an application to the Takeover Panel for seeking exemption ?
The acquirer shall make
an application in the standard format specified by SEBI giving all the relevant
details of the proposed acquisition along with a fee of Rs
25,000/- .The standard format is available on the SEBI website www.sebi.gov.in.
36. How does SEBI process
SEBI forwards the
application to the Takeover Panel within 4-5 days of its receipt. The
Takeover Panel would make a recommendation on the application to SEBI within
15 days of receipt of the application from SEBI. SEBI, after affording
reasonable opportunity to the concerned parties, wherever necessary, would
pass a reasoned order on the application within 30 days thereof and publish
37. Are there any
specific provisions for disinvestment of government shareholding in listed
Public Sector Undertakings (PSUs)?
To facilitate acquisition
of shares or voting rights or control by strategic partner from the Central
Government in a listed PSU and to harmonise the
process of disinvestment and investor protection.
The said amendments
include the following:
Transfer of shares and
control to the strategic partner/ acquirer even before completing the open
offer formalities in terms of the Regulations;
The date of entering into
the share purchase agreement would be the reference date for making the
The date on which the
Central Government opens the financial bids would be the reference date for
classifying the shares of the company as frequently or infrequently traded
and for determination of the offer price. Non-applicability of requirement of
second offer for subsequent stage of acquisition subject to certain
conditions Prohibition from making a competitive bid. It may be noted that
these amendments were made only for the purpose of PSU disinvestment and are
not available to other acquisitions.
38. Where can an investor
get more information related to the SEBI Takeover Regulations?
Committee report, the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 and subsequent amendments, public announcements and letter
of offer are available at SEBIís website
For any other information
regarding Substantial Acquisition of Shares and Takeovers, you may address
your query to SEBI, Division of Corporate Restructuring at SEBI Bhavan, Plot No.C4-A, 'G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051.