In the matter of acquisition of equity shares of ETC Networks Ltd

SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

WTMO/34/CFD/08/2006

1.0 BACKGROUND

1.1 ETC Networks Limited (hereinafter referred to as ‘the target company’) is a company limited by shares incorporated under the Companies Act, 1956, having its registered office at 135, Continental Building, Dr. Annie Besant Road, Worli, Mumbai - 400 018. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the National Stock Exchange of India Limited (NSE).

1.2 Zee Telefilms Ltd. and Asian Satellite Broadcast Pvt. Ltd. (herein after referred to as are ‘the acquirers’) are the promoters of the target company and they collectively hold 54.42% of the paid up capital of the target company.

2.0 APPLICATION FOR EXEMPTION

 2.1 Vide letter dated June 13, 2006, the acquirers filed an application with the Securities and Exchange Board of India (SEBI) under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as “the Takeover Regulations’).  

2.2 In the said letter, the acquirers have stated that the target company has announced to buy-back upto 10% of its total paid up equity capital and free reserves at a price not exceeding Rs. 62/- share in compliance with the provisions of sections 77A and 77AA of the Companies Act 1956 and provisions of SEBI (Buy-Back of Securities) Regulations, 1998. In view of the said buy back, the holding of the acquirers would increase from 54.42% to 58.73% of the total paid up capital of the target company. As the shareholding of the acquirers would increase beyond 55% of the issued capital of the target company, the acquirers have sought exemption from the provisions of Chapter III of the Takeover Regulations.

3.0              GROUND FOR SEEKING EXEMPTION

3.1 The acquirers have inter alia made the following submissions:-

 

a)  The target company has announced to buy-back approx. 10,98,919 of its equity shares equivalent to 10% of its paid up capital and free reserves at a price not exceeding Rs. 62/- per share, in compliance with provisions of Section 77A and Section 77AA of the Companies Act, 1956 and provisions of SEBI (Buyback of Securities) Regulations, 1998 subject to appropriate approvals.

 

b)  In the event, the target company buys back 10,98,919 equity shares which is equivalent to 10% of its paid up capital and free reserves, (constituting approx. 7.35% of the pre-buyback paid up equity share capital) from the open market, then the existing shareholding of the acquirers in terms of the percentage of outstanding shares held, (though in terms of number of shares remaining the same), will be at 58.73% of outstanding share capital of the target company, from the present 54.42%.

 

c)  Such an increase in the shareholding by the promoter group including the acquirers may trigger the provisions of regulations 10 and 11(1) of the Takeover Regulations.

 

d) The acquirers are already in control of the target company. The acquirers do not propose to acquire any further shares. The acquirers are not participating in the said buy back.

 

3.2 Vide letter dated June 15, 2006, the acquirers have informed SEBI that the buy-back announced by the target company would reduce the paid up share capital and it would improve Earning Per Share (EPS). The said buy-back would also be beneficial to the shareholders in the form of higher dividend pay out and increased EPS. The acquirers have also enclosed a copy of the resolution passed by the Board of Directors of the target company detailing the rational benefits of the buy-back together with the public notice issued by the target company.  

3.3 The shareholding pattern of the target company before and after the proposed buy back is as under:

Share holders’ category	Number of registered shareholders as on date of application	Shareholding before the proposed acquisition		Proposed Buy Back	Shareholding after the proposed acquisition
		Number of shares/ total voting rights held	% of shares / total voting capital held	Number of shares	Number of shares/ voting rights	% of shares voting rights
Promoter group	13	8141259	54.42	0	8141259	58.73
Acquirers	0	NA	NA	NA	NA	NA
FIs/Banks	2	527000	3.52	1098919	5720134	41.27
FIIS/NRIs/OCBs	35	19596	0.13
Public	6860	6272457	41.93
Total	6910	14960312	100.00	1098919	13861393	100.00

 

4.0              RECOMMENDATION OF THE TAKEOVER PANEL

4.1 The aforesaid application together with the subsequent letter of the acquirers were forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated June 27, 2006 recommended for the grant of exemption as sought by the acquirers.

5.0 FINDINGS

5.1      I have carefully considered the application dated June 13, 2006, the subsequent letter dated June 15, 2006, sent by the acquirers, the above mentioned recommendations of the Takeover Panel and relevant material available on record.

5.2 I note that the acquirers are already in control of the target company. I have further noted that even after the successful completion of the buy-back offer and in case of 100% response, the voting rights of the acquirers together with the other promoters, will be at a level of 58.73% of the total paid up capital of the target company and there would not be any change in control as the acquirers are the promoters of the target company and have control over the target company. I also note that even in case of 100% response in the proposed buy-back offer and successful completion of the said buy back, the public shareholding in the target company would be at level more than 40% which would meet with the requirements of the Listing Agreement with the stock exchanges where the shares of the target company are listed.

5.3 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making an open offer in terms of provisions of Chapter III of the Takeover Regulations.

6.0 ORDER

6.1  In view of the above findings, I , in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely Zee Telefilms Ltd. and Asian Satellite Broadcast Pvt. Ltd. from making a public offer in terms of the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to their increase in the shareholding from 54.42% to 58.73% of the total paid up capital of the target company, ETC Networks Ltd. consequent to the proposed buy-back offer of the  target company. 

T. C. NAIR

 MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

Place: Mumbai

Dated: August 04, 2006