Order in the matter of ICI India Limited

WTM/TCN/ 07/CFD/JUNE/ 2008

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: DR. T.C. NAIR, WHOLE TIME MEMBER

ORDER

 

IN THE MATTER OF PROPOSED ACQUISITION OF EQUITY SHARES OF ICI INDIA LIMITED – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA  (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.

 

1.0 BACKGROUND

1.1 ICI India Ltd. (hereinafter referred to as ‘the target company’) is a company incorporated under the Companies Act, 1956, having its address at Geetanjali Apartment, 1^st Floor, 8 B Middleton Street, Kolkata 700 071. The equity shares of the target company are inter alia listed on the National Stock Exchange of India Ltd. (NSE) and the Bombay Stock Exchange Ltd. (BSE) and Calcutta Stock Exchange Association Ltd. (CSE).

1.2 Imperial Chemical Industries PLC (hereinafter referred to as the acquirer) is the promoter of the target company and is holding 50.83% of the total paid up equity capital of the target company.

2.0 APPLICATION FOR EXEMPTION

2.1 The target company announced its plan to buy-back its equity shares upto Rs.211.06 crore (equivalent to 25% of its total paid up equity capital and free reserves as on March 31, 2007) from the shareholders at a price not exceeding Rs.575/- per share in terms of the provisions of section 77A, 77AA of the Companies Act 1956 and the provisions of the Securities and Exchange Board of India (Buy– Back of Securities) Regulations, 1998 subject to the appropriate approvals. Due to the said buy-back offer, the voting rights of the acquirer would increase from the existing 50.83% and would become more than 55% of the outstanding equity share capital of the target company which would attract the provisions of Regulations 10 and 11(1) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, (hereinafter referred to as the ‘Takeover Regulations’).

2.2 The acquirer vide letter dated June 5, 2007, filed an application with Securities and Exchange Board of India (hereinafter referred to as SEBI) under regulation 4(2) read with regulation 3(1) (l) of the Takeover Regulations seeking exemption from the applicability of the provisions of Chapter III thereof. The exemption was sought inter alia on the following grounds:-

a)     The acquirer is the promoter of the Target Company and holds 50.83% of its equity share capital.

b)     The target company has announced its plan to buy-back its equity shares upto Rs.211.06 crore (equivalent to 25% of its total paid up equity capital and free reserves as on March 31, 2007) from the shareholder at a price not exceeding Rs.575/- per share.

c)      The acquirer is not participating in the buy back offer of the Target Company.

d)     In the event the buy back offer of the target company, the acquirer’s existing shareholding (2,07,76,213 shares) though remains the same in terms of the number of shares would increase beyond 55% of the outstanding share capital of the target company.

2.3             The acquirer vide letter dated June 20, 2007 inter alia stated that the proposed buy back of shares of the target company is equivalent to 25% of its total paid up equity capital and free reserves as on March 31, 2007. It also stated that the target company could buy back a maximum of upto 36,70,600 shares (assuming the buy back price is at Rs.575 per share) and the same would increase the shareholding of the acquirer in the target company from the present 50.83% to 55.85%. The acquirer further stated that if the average buy back price is less that Rs.575 per share than more shares can be bought back by the target company which would result in the acquirer’s shareholding increasing beyond 55.85%.

2.4             The shareholding pattern of the target company before and after the proposed buy back offer (as per the aforesaid letter) is as under:

 

3.0 RECOMMENDATION OF THE TAKEOVER PANEL

3.1 The aforesaid application dated June 5, 2007 and the aforesaid letter was 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 July 9, 2007 (forwarded by the Takeover Panel vide letter dated July 11, 2007) recommended for the grant of exemption as sought by the acquirer.

4.0 FURTHER SUBMISSIONS

4.1 The target company vide letter dated August 27, 2007 informed SEBI that it would limit its buy back to a maximum of 56,58,000 equity shares thereby limiting the holding of the acquirer to a maximum of 59%. Further, vide letter dated October 29, 2007, the target company undertook that it would limit its buy back to a maximum of 36,57,126 equity shares which would in turn increase the holding of the acquirer to a maximum of 55.83% of the equity capital of the target company from its current holding of 50.83%.

4.2 In the meanwhile, the application submitted by the acquirer along with another application were remitted back to the panel by SEBI for their consideration and recommendation, as it involved increase in shareholding of the promoters, pursuant to the buy back by the respective target companies. The Takeover Panel, vide report dated December 17, 2007 inter alia took note of the target company’s letter dated October 29, 2007 and observed that the proposal would remain within the overall acquisition recommended for exemption by the panel.

5.0 FINDINGS

5.1           I have carefully considered the application dated June 5, 2007, various letters sent by the acquirer / target company, the above mentioned recommendations of the Takeover Panel and other relevant materials available on record.

5.2 At the outset, I note that the increase in shareholding of the acquirer is incidental to the buy back of the shares of the target company. The acquirer has submitted that it would not participate in the said buy back offer made by the target company and that, the number of shares held by it, would not change after the proposed buy back. I also note that there would not be any change in control over the target company, as the acquirer is its promoter and also has control over the same. Further, the target company, vide letter dated October 29, 2007 inter alia stated that, it would limit its buy back to a maximum of 36,57,126 equity shares thereby increasing the acquirer’s holding in the target company to a maximum of 55.83%. I also note that the price of the proposed buy back is at Rs.575/- which is higher than the book value of Rs.212/- per share of the target company as on March 31, 2007.

5.3  I note that, the Takeover Panel in its report dated December 17, 2007 had observed that the target company had already bought back its 20,84,126 shares upto October 26, 2007. I note that the details of buy back of shares were already disclosed in the original application made by the acquirer. Subsequently, the target company also updated SEBI about the position of its purchase (in the buy back) which is having an impact on the voting rights of the acquirer. Further, even after the said buy back of shares by the target company, the incidental increase of shareholding of the acquirer was below 55%, and the provisions of regulations 10, 11 or 12 of the Takeover Regulations are not attracted, in the facts and circumstances of the present case. In terms of the letter of the target company dated October 29, 2007, I note that the maximum incidental increase in the shareholding of the acquirer in the target company, pursuant to the buy back would be 55.83% from its current holding of 50.83% i.e an increase of 0.83% beyond 55%. In effect, I note that the exemption is sought with regard to the said incidental increase (0.83%) of shareholding of the acquirers in the target company. Even after the proposed buy back, I note that, the public shareholding in the target company would be at a level more than what is required for meeting the requirements of the listing agreements with the stock exchanges where the shares of the target company are listed.

5.4 In view of the above facts and circumstances, I, consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11(1) 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 Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, Imperial Chemical Industries PLC from complying with the provisions of regulation 11(1) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the incidental increase in its voting rights from 50.83% to 55.83%, consequent to the proposed buy-back offer of ICI India Ltd., the target company.

 

 T. C. NAIR

   WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

 

Place: Mumbai

Date: 02.06.08