3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION
In the aforesaid application dated January 06, 2004, the acquirer interalia, submitted that:
a. (i) there were only 85 shareholders under the “Public” category.
(ii) pursuant to regulation 12 of the said Regulations, the shareholders of the target company resolved, through postal ballot, to change control from the existing promoters to the acquirer and to dispense with the requirement of making open offer for the purpose of the said change of control of management. The acquirer was appointed as a Director on the Board of the target company.
b. the acquirer and the persons acting in concert propose to make the offer for buying directly from the shareholders, by way of individual letters.
c. Shri A V Rao, a practicing Company Secretary, was appointed to oversee the offer and it would be ensured that all the provisions of the said Regulations and other applicable statutes will be complied with.
d. The book value of shares was Rs. 10.31 approx as on March 31, 2003. The shares of the company were infrequently traded as on the date of application.
4.0 CONSIDERATION OF THE APPLICATION
4.1 The aforesaid application dated January 06, 2004 was forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the said Regulations. The Takeover Panel vide its report dated March 25, 2004 recommended for the grant of exemption, as sought by the acquirer, considering the cost involved in public announcement vis-a-vis the number of the shareholders in the public category, subject to the following conditions:
i. individual offers to be made to each of the public shareholders by addressing individual letters to each of them by registered acknowledgement due post offering to acquire their holdings at the price to be determined in accordance with the provisions contained in the said Regulations but in any event not less than Rs. 11/- per share;
ii. payment of consideration to be made to all shareholders within 30 days from date of receipt of the letters of acceptance;
iii. Certificate from Auditor/independent Chartered Accountant to be submitted to the effect that individual offer letters to each of the other shareholders at the recorded addresses were duly sent by registered postal acknowledgement due and that all applicable provisions of the said Regulations have been complied with alongwith the report.
5.0 A copy of the report submitted by the Takeover Panel was forwarded to the acquirer by SEBI vide letter dated April 20, 2004. The acquirer was also granted an opportunity of hearing before SEBI on May 25, 2004. However, the said opportunity was not availed by the acquirer and the acquirer sent a letter dated May 25, 2004 interalia informing SEBI that he was not intending to appear for the hearing on the said date. Further, the acquirer, vide letter dated June 03, 2004, informed SEBI that he was giving up his right to appear in person before SEBI. The acquirer, vide his aforesaid letter, also informed that he shall appoint a Merchant Banker to oversee the process of sending individual letters to shareholders. The acquirer further requested SEBI to exempt him from submitting the offer letter to SEBI.
6.0 I have perused the documents on record and noted that there are only 85 shareholders in the target company under the “public” category. I have noted the submission of the acquirer that the cost for advertising the public announcement is very large and hence he proposes to make the offer for buying the shares directly to the shareholders, by way of individual letters. I have also observed that the Takeover panel has recommended exemption to the acquirer subject to the conditions that the acquirer sends the individual letters of offers to the shareholders of the target company by registered post acknowledgement due and that the offered price is fixed as per the formula prescribed under the said Regulations but in any event not less than Rs. 11/- per share. Further, I have noted that the shares of company are infrequently traded and book value per share was Rs. 10.31/- as March 31, 2003. In view of the above, I agree with the recommendations made by the Takeover panel with respect to the condition laid down while allowing the grant of exemption as mentioned at para 4.1 (i) above.
6.1 I am however, constrained to disagree with the conditions imposed by the Takeover panel at points (ii) & (iii) at para 4.1 above. There are only 85 shareholders in the “public” category in the target company, holding 83,900 shares comprising 33.70% of the paid up capital whereas the acquirer proposes to make an open offer to acquire only 20% from the public shareholders. Under the circumstances, there is a possibility of over-acceptance, in case the response to the open offer was to be more than the offer size. Therefore, in order to ensure proper disclosures in the letter of offer to be sent to the shareholders of the target company and for ensuring fair acceptance procedures in terms of the said Regulations, it is desirable that the acquirer appoints a Merchant Banker to oversee the entire process, as provided in the said Regulations.
6.2 In view of the above facts and circumstances, I conclude that it is a fit case for granting exemption from making a public announcement in terms of regulation 15(1) of the said Regulations, albeit subject to certain conditions.
7.0 ORDER
7.1 Having regard to the above, and the recommendations made by the Takeover Panel and also in the interest of the public shareholders of the target company, I, in exercise of the powers conferred upon me under 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 from making a public announcement as stated at Regulation 15(1) of the said Regulations, subject to the fulfilment of the following conditions.
i) The acquirer shall make individual offers to each of the other shareholders by addressing individual letters to each of them by registered acknowledgement due post, offering to acquire their holdings at the price to be determined in accordance with the provisions contained in the Takeover Code but in any event not less than Rs. 11/- per share.
ii) The acquirer shall appoint a Merchant Banker to oversee the entire process, as per the provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
iii) The acquirer shall comply with all the other applicable provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, with the sole exception of Regulation 15(1), as stated above.
7.2 This order shall come into force with immediate effect.