GENERAL MANAGER
DIVISION OF CORPORATE RESTRUCTURING
Tel: 91-22-22823886
Fax: 91-22-22829520
Email:mdrao@sebi.gov.in
CFD/DCR/TO/MM/ /05
May 17, 2005
Apar Industries Limited
301, Panorama Complex
R.C. Dutt Road
Vadodara – 390007
Dear Sirs,
Sub.: Request for Guidance Letter under the SEBI (Informal Guidance) Scheme, 2003
Ref: Your letters dated February 04, 2005 and February 15, 2005.
1. Please refer to your letters cited above, seeking interpretive letter under SEBI (Informal Guidance) Scheme, 2003. The Interpretive letter is sought on the issue as to whether the acquisition of 3,50,000 equity shares by Apar Corporation Pvt Limited belonging to the Promoter Group of Apar Industries Ltd. (target company) whereby the voting rights of the promoters will increase by 2% will attract the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 {hereinafter referred to as “Takeover Regulations”}.
2. It is, inter-alia, informed by you that:-
(a) Prior to the amendment to the Takeover Regulations on January 3, 2005, Apar Corporation Pvt Limited (ACPL) a company of the promoter group of the target company made an optional and private offer on 24/12/2004 to small shareholders of the target company for off-market purchase of their odd-lot shares @ Rs 90 per share. The said price of Rs 90 is more than the average of weekly high and low of the closing prices of the equity shares of company in BSE.
(b) The date of closure of offer is 15/02/2005 or such further extended period at sole discretion of ACPL.
(c) The said offer is made by ACPL at the request of the target company to provide exit opportunity to the small shareholders holding shares in physical form. Consequential increase in promoters’ shareholding would be minimal. It is understood by the company that as the said offer was made before amendments on 03/01/2005 came into effect the same would not apply to the offer.
(d) The present holding of the promoters in target company is 69.905% (It was 97.78% at the time of listing at BSE in the year 1999). Remaining shares representing 30.10% is with the public. Total number of shareholders in target company is apprx. 22,694. All of such shareholding is in physical form. The shares of the company are listed at two exchanges (BSE and NSE) and traded compulsorily in demat form only.
(e) The company had received request from small shareholders for providing easy exit route to small shareholders.
(f) The details of the said offer were sent to BSE and it was made to understand that they have no objection to the said proposal/offer. The details of the said offer were also made public on the website of both the exchanges.
(g) ACPL holds 669 shares in the target company and total number of equity shares purchased under the offer shall not exceed 2% of the total share capital of the target company.
(h) In pursuance to the said offer, acceptance letters have already been received from many small shareholders submitting their willingness to sell their shares at the agreed price of Rs 90 per share. Further, a written commitment has already been made on 24/12/2004 for purchase of odd lot shares from small shareholders of the target company and therefore, ACPL is bound to accept the shares offered for sale and the said offer cannot be withdrawn. Any reversal of offer terms would amount to a breach of contract which would create lots of grievances/complaints from small shareholders/sellers.
3. ACPL belongs to the promoter group of the target company which holds 69.9% shares in the target company. They intend to acquire shares by way of a private offer dated 24/12/2004 for purchase of odd-lot shares held in physical form by shareholders of the target company. Such shares amount to less than 2% shares in the target company.
4. In the event of the ACPL/Promoters {collectively referred to as ‘Acquirers’} acquiring the abovementioned shares from odd-lot shareholders, the promoters’ shareholding would increase from 69.91% to 71.91%.
5. With regard to the query raised by you , our views are as under:
i) It may be noted that as per regulation 11(2) of Takeover Regulations any acquisition beyond 55% or more but less than 75% of the shares or voting rights in a target company can be made only after making a public announcement under the provisions of the Takeover Regulations. The relevant provision of regulation 11(2) is quoted below:
”An acquirer, who together with persons acting in concert with him has acquired, in accordance with the provisions of law, fifty five per
cent.(55%) or more but less than seventy five per cent. (75%) of the shares or voting rights in a target company, may acquire either by himself or through persons acting in concert with him any additional share or voting right, only if he makes a public announcement to acquire shares or voting rights in accordance with these regulations:
ii) In view of the aforesaid regulation, the Acquirers., who are already holding 69.91% shares in target company (i.e. more than 55% shares) may acquire additional shares upto 75% only by way of a public announcement in terms of Takeover Regulations.
iii) It is also observed that the shares offered to be acquired from the shareholders of target company under the private offer dated 24/12/2004 would amount to an off-market purchase. The same has been made to purchase shares from the shareholders of a particular category and cannot be treated as an open offer in terms of the Takeover Regulations.
6. Therefore, as stated above, unless exempted under the Regulations 3(1)(l) of Takeover Regulations, any additional acquisition of shares of ACPL by the Acquirers beyond their current shareholding of 69.91% would have to be through an open offer in compliance with regulation 11(2) of Takeover Regulations.
7. This position is based on the representation made to the Division in your letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
8. You may note that the above views are expressed only with respect to the clarification sought on SEBI (Substantial Acquisition and Takeovers) Regulations, 1997 and do not affect the applicability of any other law or requirements.
Yours faithfully,
S V MURALI DHAR RAO