SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF ROCHEES BREWERIES LIMITED – EXEMPTION FROM REGULATIONS 10, 11 & 12 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
NO. : CO/289/TO/10/2002
1.0 Mysore Breweries Ltd., (hereinafter referred to as " the Acquirer ") is a company incorporated under the Companies Act, 1956 and is having its registered office at Yeshwantpur, Bangalore. South African Breweries (India) Ltd (hereinafter referred to as "SABIL") holds 97.07% of the share capital of the Acquirer and hence is a holding company of the Acquirer.
1.1 The Acquirer proposes to acquire 95,61,400 equity shares constituting 53.54% shares of the Rochees Breweries Ltd (hereinafter referred to as the "Target company") in pursuance of Share Sale Agreement dated 6.11.01 entered into between SABIL and the promoters of the Target company together with some other shareholders (hereinafter referred to as "Share Sale Agreement").
1.2 The shares of the Target company are listed at the Mumbai Stock Exchange, Ahemedabad Stock Exchange, Delhi Stock Exchange and Jaipur Stock Excahange.
2.0 The Acquirer made an application dated August 8, 2002 under sub-regulation (2) of regulation 4 of SEBI (Substantial Acquisition of shares And Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations") to the Securities and Exchange Board of India (hereinafter referred to as SEBI) seeking exemption for making the open offer for the proposed acquisition of 95,61,400 equity shares of the Target company.
3.0 In the aforesaid application, the Acquirer submitted, inter-alia, the following:
3.1 SABIL and the promoters of the Target company had entered into a Share Sale Agreement dated 6.11.01 together with some other shareholders. As per the agreement Sellers agreed to sell 95,61,400 shares representing 53.54% of the issued and paid up capital of the Target company to SABIL.
3.2 The said sale of shares was conditional inter alia, upon -
(i) the making of a public offer to all the other shareholders of Target company in accordance with regulation 10 of the regulations.
(ii) the obtaining of approval from Foreign Investment Promotional Board (FIPB) for the contemplated downstream investment by SABIL in the Target company.
3.3 SABIL and South African Breweries Plc. and South African Breweries International (Asia) BV (hereinafter collectively referred to as "persons acting in concert") made a public announcement on 9.11.01 for acquisition of 82,95,800 fully paid up equity shares representing 46.46% of the total voting equity capital of Target company at an offer price of Rs. 10.15 per share to the shareholders of the Target company. SABIL had made public announcement on 09.11.2001, i.e., within 4 days of executing the Share Sale Agreement in terms of the said regulations.
3.4 The said public offer is conditional upon SABIL obtaining the statutory consents as required in terms of regulation 22 which includes SABIL’s obligation to obtain approval from FIPB for the proposed downstream investment in the Target company.
3.5 SABIL had filed an application with FIPB for permission to purchase his sale shares on November 9, 2001. Though, this application was made in a timely manner but, despite several efforts SABIL has still not received any written communication from the FIPB regarding the status of its application and the same is pending with FIPB for 9 months now and it has not been rejected.
3.6 The undue and unjustifiable delay caused by FIPB in approving SABIL’s application is jeopardizing the interest of the Sellers, SABIL and the public shareholders of the Target company to whom SABIL has made the offer.
3.7 Considering the fact that the FIPB is not taking any stand or decision regarding SABIL’s application, as an alternative SABIL now proposes to withdraw its application from FIPB and complete the sale and purchase of the sale shares through the Acquirer, an Indian Company. Since, Acquirer is an Indian Company, it would not be requiring any approval for investments from FIPB.
3.8 The Acquirer is a profit making company and has sufficient credit worthiness to meet the obligation under the public offer and pay to the public shareholders all amounts that were originally payable by the SABIL including the interest.
3.9 The aforesaid proposal of the Acquirer is based on following considerations :-
(i) There has been undue delay in the decision of the FIPB and is contrary to public interest. In the public offer 39,29,300 shares representing 21.98% of the paid up capital of the Target company have already been received and accepted by SABIL. Due to pendency of decision of FIPB, SABIL has been unable to pay the price for acquisition of such shares to the shareholders. Thus, the sale of a large number of shares is blocked and the shareholders are not in a position to get a return on their investments to this extent.
(ii) Time lags and additional cost involved in a fresh public offer.
(iii) The Acquirer is a subsidiary of SABIL and it is a group company and hence any acquisition of shares by the Acquirer from SABIL would in any case have been exempt from the provision of the said regulations.
(iv) The Acquirer being an Indian Company does not require any approval from the FIPB for purchasing the shares of the Target company therefore, on receipt of the exemption the Acquirer would be in a position to close the public offer without further time lags.
(v) The Target company’s shares are currently thinly traded at the stock exchange and have been quoted at Bombay Stock Exchange at an average price of Rs. 8.7/- and at a maximum price of Rs.10/- from July 2001 till July 2002. In the event that the present exemption is granted, the Acquirer would purchase the shares tendered through the public offer made by SABIL on the same terms and conditions as had been agreed to by SABIL. Hence the acquirer would purchase the shares @ Rs. 10/15 per share and would also pay interest to the public shareholders of the target company @ 15% p.a. from February 13, 2002 until the date of payment of the consideration as had been agreed by SABIL initially. Thus, the share price being offered under the public offer coupled with the interest component is actually an attractive exit opportunity for minority shareholders of Target company since, the Acquirer will then be under an obligation to offer the same terms and conditions (including payment of interest) as SABIL. As such the exemption apart from the most viable and practical way of closing the transactions contemplated by the public offer is in the interest of shareholders of Target company.
(vi) Under the Share Sale Agreement SABIL has been permitted to transfer its rights and obligations with the consent of the Sellers, which consent has been obtained by SABIL.
(vii) The Acquirer would comply with any additional requirement by the Board.
3.10 In view of the above, the Acquirer may be exempted from making another public offer to the shareholders of Target company.
4.0 The said application dated August 8, 2002 was forwarded to the Takeover Panel on August 9, 2002 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated August 19, 2002 has recommended, inter alia, as under:
"Considering the facts stated in the application, the Takeover Panel is of the view that midstream change of Public Offer from South African Breweries (India) Ltd. to the Acquirer is not permissible under the Takeover Code. The grant of exemption as sought is not recommended."
5.0 HEARING
As the Panel did not recommend grant of exemption as sought by the Acquirer, the Acquirer was given a hearing in terms of sub-regulation (6) of regulation 4 of the Regulations on 20th September, 2002. During the hearing the Acquirer reiterated the submissions made in the exemption application which have been reproduced hereinbefore.
6.0 ISSUE :
6.1 I have taken into consideration the application dated 8.8.2002, the facts of the case, the documents available on record, the submissions made by the Acquirer during the hearing and also the recommendations of Takeover Panel.
6.2 From the above the following issue arises which needs consideration :-
(i) Whether the Acquirer, a group company/subsidiary of SABIL can be allowed to acquire shares of the Target company without making an open offer since SABIL has not been able to obtain the FIPB approval.
7.0 CONSIDERATION OF ISSUE :
7.1 Whether the Acquirer, a group company/subsidiary of SABIL can be allowed to acquire shares of the Target company without making an open offer since SABIL has not been able to obtain the FIPB approval.
In the instant case it is observed that SABIL along with the persons acting in concert had made an open offer to acquire 46.46% shares of the Target company vide public announcement dated 09.11.2001. Pursuant to the aforesaid public announcement SABIL had issued letter of offer to the shareholders of the Target company. The aforesaid offer opened on 17th December, 2001 and closed on 15th January, 2002.
It is observed that in the aforesaid public announcement as well as in the letter of offer SABIL and persons acting in concert have been shown as the Acquirer and person acting in concert respectively. From the aforesaid it is clear that the instant offer to purchase the shares in the open offer is from SABIL and the person acting in concert. There is no mention of the Acquirer in the public announcement.
Further, it is observed that in the letter of offer it has been stated that the FIPB approval is required by SABIL for downstream investments, specifically so, for purchase of equity shares of Target company. It has also been stated that SABIL has applied to FIPB for approval on 9/11/01.
In response to the Public Announcement and Letter of Offer issued by SABIL, the shareholders of the Target company have tendered 39,29,300 shares representing 21.98% of the paid up capital of the Target company.
It is also observed that Strategic Capital Corporation Pvt. Ltd., the Manager to the Offer, vide letter dated 12.2.02 informed SEBI that SABIL has not received FIPB approval till date. Further, the Manager to the Offer sought extension of time period for payment of consideration (which expired on 13th February, 2002) under sub-regulation (12) of regulation 22 from SEBI and also agreed to pay interest as per the rates to be prescribed by SEBI.
The aforesaid request of the merchant banker was considered by SEBI and SEBI conveyed the grant of extension of time to the merchant banker vide letter dated 19.2.02 subject to SABIL paying interest @ 15% per annum for delay beyond 13.2.02 i.e the last date stipulated in the offer document for making of payment.
It is observed that as submitted by the Acquirer till date FIPB has neither granted the approval nor rejected the application of SABIL and the same is pending as on date.
It is also observed that as per the public announcement, the Acquirer was not party to the offer and only three companies have made the offer (i.e., SABIL and persons acting in concert). Therefore, the Acquirer now cannot acquire shares on behalf of SABIL since it was never a party to the public announcement and Letter of Offer which was made/issued to the shareholders of Target company.
If the Acquirer is allowed to acquire the shares instead of SABIL from the shareholders who participated in open offer made by SABIL, it would tantamount to change in terms of offer which is not possible since the open offer has already closed. The acceptance by the shareholders of the offer made by SABIL and persons acting in concert was on different terms and conditions and hence, cannot be treated as acceptance of the offer proposed to be made by the Acquirer for acquisition of the shares lying with SABIL/ Registrars to the Offer.
Here, it may be pertinent to mention that if SABIL fails to obtain FIPB approval, SABIL is left with no option except to withdraw the offer under regulation 27(1)(b) read with regulation 27(2). Further, in the event of withdrawal of offer, SABIL in terms of regulation 22(14) cannot make another offer for acquisition of shares of the Target company for a period of six months from the date of public announcement of withdrawal of offer.
In view of the aforesaid, permitting the Acquirer to acquire shares of the Target company sold to SABIL under the Share Sale Agreement without the requirement of making open offer to the shareholders of Target company will lead to an anomalous situation. In other words, in a situation where due to failure to obtain FIPB approval, SABIL is forced to withdraw the offer, the offer process for substantial acquisition of shares and control will be completed through a subsidiary company of SABIL, which will tantamount to circumvention of the provisions of the regulations. This may also enable SABIL to by-pass the issue of clearance of its application pending with FIPB.
In view of the above, the contention of the Acquirer that since there has been undue delay in the decision of FIPB and therefore, it may be permitted to complete the offer, originally made by SABIL and persons acting in concert , without making the fresh offer is not tenable. In this regard it may be stated that the possibility of non-receipt of FIPB approval by SABIL was always there and it also existed when the public announcement dated 09.11.2001 was made by SABIL. Therefore, before making the public announcement, SABIL should have taken this eventuality into account and now if there is delay in receipt of FIPB approval, the same cannot be by-passed by making an exemption application by one of its group companies , as is done in the instant case by the Acquirer .
The contention of the Acquirer that the interest of the shareholders is suffering as a result of non receipt of FIPB approval by SABIL is not tenable. The interest of shareholders of the Target company is protected since in terms of regulation 22(12) SABIL is under an obligation to pay the interest for the delayed period. Further, it may also be mentioned that SEBI has granted extension of time to SABIL for making the payment to the shareholders of the Target company subject to SABIL paying interest @ 15% per annum for delay beyond 13.2.02 i.e the last date stipulated in the letter of offer for making of payment.
I have also noted the recommendation of the Panel wherein it has stated that midstream change of public offer from SABIL to the Acquirer is not permissible under the Regulations.
In view of the above, the Acquirer, a group company/subsidiary of SABIL cannot be allowed to acquire shares of the Target company without making the open offer since SABIL has not been able to obtain the FIPB approval.
8.0 Taking into consideration the above, the recommendations of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992 read with sub regulation (6) of regulation 4 of the Regulations for the reasons recorded hereinabove, I hereby reject the application of the Acquirer seeking exemption from making the open offer to the shareholders of the Target company pursuant to the proposed acquisition of 95,61,400 equity shares constituting 53.54% shares of the Target company by the Acquirer from the Promoters and some shareholders of the Target company, in pursuance of the Share Sale Agreement.
Date: October 19, 2002
Place: Mumbai
G. N. BAJPAI
Chairman
Securities and Exchange Board of India