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ECURITIES AND EXCHANGE BOARD OF INDIA ORDER IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF THOMAS COOK (INDIA) LTD – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997. WTMO/ 18 /CFD/ 12 /2005 1.0 BACKGROUND 1.1 Thomas Cook (India) Ltd. (hereinafter referred to as ‘the target company’) is a public company limited by shares incorporated under the Companies Act, 1956, having its registered office at Thomas Cook Building, Dr. D.N. Road, Mumbai – 400 001, India. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. and the National Stock Exchange Limited. 1.2 Thomas Cook AG (hereinafter referred to as ‘TCAG’), the holding company of the Thomas Cook Group, having its registered office at Zimmersmuhlenweg 55, 61440 Oberursel, Germany, has inter alia a wholly owned subsidiary by name Eurocenter Beteiligungs-und Reiservermittlung GmbH (hereinafter referred to as ‘Eurocenter’) a company incorporated as per the laws of Germany and which in turn has a wholly owned subsidiary called Thomas Cook UK (hereinafter referred to as ‘TCUK’), a company incorporated under the laws of England having its registered office at The Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England, UK. TCUK has a wholly owned subsidiary by name Thomas Cook Overseas Ltd (hereinafter referred to as ‘TCOL’), an unlisted private company incorporated under the laws of England and Wales having its registered office at The Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England, UK. TCOL owns 60% of the shares of the target company. Target company is a subsidiary of TCOL. 1.3 TCAG has another wholly owned subsidiary Thomas Cook International Markets Ltd (hereinafter referred to as ‘TCIM’) which is a company incorporated in England in August 2004 and having its registered office at The Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England, UK. TCAG and TCIM are hereinafter collectively called as the ‘acquirers’. 1.4 The proposed acquisition of 87,50,000 equity shares( i.e 60% ), of Rs.10 each, of the target company by the acquirers from TCOL leads to triggering of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’) unless exempted under regulation 3 thereof.
2.0 APPLICATION FOR EXEMPTION - 2.1 The acquirers made an application vide letter dated 29.9.2004 (forwarded by their Solicitors vide letter dated 18.10.2004) under Regulation 4(2) of the Takeover Regulations, seeking exemption from the applicability of Chapter III of Takeover Regulations on the basis of the submissions made in the said application. 2.2 The exemption with respect to the proposed indirect acquisition was sought contemplating the proposed transaction in the following three steps- (i) TCUK proposed to transfer its shareholding in TCOL to TCAG and thus, TCOL would become direct wholly owned subsidiary of TCAG. (ii) As a second step, TCAG proposed to transfer its shareholding in TCOL to TCIM in consideration of issuance of shares of TCIM to TCAG (iii) In final step TCOL proposed to transfer its 60% shareholding in target company to TCIM, thereby making target company to be direct subsidiary of TCIM. 3.0 SUBMISSIONS IN THE APPLICATION - 3.1 In the application dated 29.9.2004 the acquirers have made the following submissions – a) That TCAG is considering a proposal to restructure its subsidiaries for the reasons that it intends to achieve increased transparency by restructuring through direct allocation of all overhead costs to TCIM as the profit centre. Further TCAG is trying to dismantle certain holding costs which are generated in TCOL through current structure. TCAG also intends to assign clear responsibilities and align the legal and profit centre structure better and also to reduce the complexity during monthly and yearly closings (e.g. dual currency closing for the entity TCOL in Egypt and UK.) b) That they do not currently hold directly any shares in the target company. The acquirers propose to procure 60% of the shareholding in the target company from TCOL which amounts to 87,50,000 equity shares of Rs.10 each of the target company. At the end of the restructuring process, TCIM would acquire 60% of the equity share capital of the target company and TCAG would , indirectly through its wholly owned subsidiary TCIM, hold 60% of the paid up equity share capital and control of the target company and the proposed acquisition will not result in any change in control of the target company. c) That TCIM would not pay any money to TCOL for the transfer of the 60% shareholding in the target company. The equity shares would be paid for by inter-company accounts because the entire transaction is within the Thomas Cook group for the purpose of group restructuring with the ultimate ownership and control of 60% remaining with TCAG pursuant to the proposed transaction. . TCAG and TCOL are shown as ‘group’ in the last published Annual Report of the target company and for all practical purposes all the transfers contemplated are within the Thomas Cook group. TCIM, one of the acquirers was not mentioned in the last Annual Report of the target company since it was incorporated only in August 2004. 4.0 RECOMMENDATION OF THE TAKEOVER PANEL – 4.1 The aforesaid application dated 29.9.2004 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations on 25.10.2004. The Takeover Panel forwarded its report dated 28.10.2004 vide letter dated 1.11.2004. In the Report, the Takeover Panel has recommended as under – “On the facts stated in the application and based on information provided therein, it appears that TCIM Ltd., who is to acquire 60% shareholding in TCIL from TCOL is incorporated on 19th August, 2004 in United Kingdom as a private limited company having issued share capital of £2 divided into 2 ordinary shares with face value of £1 each and has a single shareholder, that is, TCAG. The shares of TCIM Ltd. are not listed on any Stock Exchange. The networth of TCIM Ltd. is £2. It is, however, wholly owned subsidiary of TCAG whose paid up share capital is EUR 303,710,000 divided into 60,742,000 bearer shares with face value of EUR 5 each. Though the shareholding of the 60% shares of TCIL would change from TCOL to TCIM Ltd. as consequence of proposed restructuring, in effect the ultimate ownership and/or control would continue to remain with TCAG. TCAG and TCOL are shown as ‘Group’ in the last published annual Report of TCIL and as such, are in Thomas Cook Group. Since TCIM Ltd is incorporated subsequent to last published Annual Report of TCIL, it is not shown as part of Thomas Cook Group therein and hence, being not entitled to automatic exemption from making public offer under the Takeover Code, the application for exemption as sought appears to have been made. On the basis of information provided and ultimate ownership and/or control remaining with TCAG, the grant of exemption as sought is recommended.” 5.0 FURTHER EVENTS AND SUBMISSIONS OF THE ACQUIRER- 5.1 During the pendency of the application, it was noticed that TCOL did not disclose their shareholding to the target company within the time stipulated in Regulation 8(2) of the Takeover Regulations and TCOL had not availed the SEBI Regularisation Scheme, 2002 to regularize non-compliance with said Regulation 8. 5.2 In view of the above, the matter was remitted back to the Takeover Panel on 4.3.2005. The Takeover Panel observed, vide letter dated 10.3.2005, that the implications, if any, of the belated compliance of Regulation 8 may be considered by SEBI. 5.3 Vide letter dated 27.10.2005, TCAG further submitted that it would not be following the first two steps specified under paragraph 2.2 in the proposed restructuring and that they would be taking up the final step directly i.e: TCOL will transfer its 60% shareholding in TCIL to TCIM, thereby making TCIL a direct subsidiary of TCIM. TCAG also submitted that TCIM is a wholly owned subsidiary of TCAG and is part of the Thomas Cook Group and has enclosed a certificate from their auditors in this regard. TCAG further submitted that steps have been taken to include TCIM as part of Thomas Cook Group in the next Annual Report of the target company. TCAG has also categorically submitted in the said letter that they would fully co-operate in any investigation or action that SEBI may choose to take in respect of the failure to make disclosures by TCOL as required under Chapter II of the Takeover Regulations. 5.4 Vide letter dated 14.12.2005, TCAG has submitted the following: i. That the exemption, if granted by SEBI, shall be for the specific purpose of inter se transfer of shares from TCOL to TCIM. ii. Also it was clarified that there shall be no change in control of TCIL as a result of this transfer. iii. TCAG further confirms that the Board Meeting of TCIL scheduled for December 15, 2005 shall take on record that TCIM is a group company of TCIL and the same shall be specifically stated in the Annual Report of TCIL to be published for the year ending October 31, 2005. 6.0 FINDINGS 6.1 I have carefully considered the application, the above mentioned recommendations of the Takeover Panel, submissions of acquirers and relevant material available on record. 6.2 I note that TCOL now proposes to transfer its 60% shareholding in the target company (i.e: 87, 50,000 equity shares of Rs.10 each) to TCIM, thereby making the target company a direct subsidiary of TCIM. I find that this modification in proposed transaction will not make any difference regarding applicability of Takeover Regulations. 6.3 The shareholding pattern of the target company before and after the proposed acquisition of 87, 50,000 equity shares of the target company by the acquirers would be as follows: <!--[if !supportMisalignedColumns]--> <!--[endif]-->
6.4 I find that as TCIM was not mentioned in the Group as mentioned in the last published Annual Report of the target company since it was incorporated only in August 2004, the proposed transaction does not fall under automatic exemption provided in Regulation 3(1)(e) of the Takeover Regulations and hence the present case has been referred under Regulation 3(1)(l) of the Takeover Regulations seeking exemption as mentioned hereinabove. In this connection, the acquirer has confirmed that the Board Meeting of TCIL scheduled for December 15, 2005 shall take on record that TCIM is a group company of TCIL and the same shall be specifically stated in the Annual Report of TCIL to be published for the year ending October 31, 2005. I also note that pursuant to the proposed acquisition as mentioned above, there would not be change in control of management of target company and that there would not be any change in Board of Directors of target company as a result of the proposed restructuring. 6.5 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and find that the proposed acquisition is fit for granting exemption from the applicability of Regulation 10 of the Takeover Regulations. 6.6 It is also observed that TCOL (the transferor) has not complied with the provisions of Regulation 8 of the Takeover Regulations for the financial year 2000, 2001 and 2002. Although the compliance of this Regulation is not a condition for grant of exemption under Regulation 3(1)(l) , any exemption under Regulation 3(1)(l) cannot be taken as absolving the transferor or any person who is required to comply with this Regulation , from his obligation under the Takeover Regulations. Therefore, SEBI reserves its right to take action in respect of this non-compliance by TCOL. 7.0 ORDER 7.1 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 Regulation 4(6) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, from complying with the requirements of Regulation 10 of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in the case of the proposed acquisition of 87,50,000 equity shares of the target company from TCOL. However, this exemption is granted without prejudice to the rights of SEBI to take any action for non compliance and/or delayed compliance of Chapter II of the Takeover Regulations, by any person referred to in the proposed transaction. Further, any change in control or acquisition of shares in the target company unless otherwise exempted would attract applicable provisions of Takeover Regulations. 7.2 The acquirer shall complete the transaction within 30 days from the date of the order and file a report with SEBI in the manner specified in Regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
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