The Achuthan Committee has submitted its draft recommendations and has invited the public to send comments to the proposed Takeovers Regulations..Sebi Chairman C.B. Bhave had in September 2009 announced that a Takeover Regulations Advisory Committee (TRAC) will be set up to review the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, popularly known as the Takeover Code. “These rules keep evolving, and we are forming a committee to review the entire takeover rules,” Bhave had told the reporters. .Former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan was appointed as the chairperson of the committee. Lawyers Somasekhar Sundaresan, the Capital Markets Partner at J. Sagar Associates, Mumbai, and Kumar Desai, Advocate, were also part of the TRAC (Achuthan Committee). The Achuthan Committee has submitted the draft regulations, (Substantial Acquisition of Shares And Takeovers) Regulations, 2010 (Draft Regulations) and has invited the public to send comments to trac@sebi.gov.in by August 31, 2010..The 138-page report mentions some interesting facts and statistics..In November 1995, SEBI appointed a committee to review the Takeover Regulations of 1994 under the chairmanship of Justice P.N. Bhagwati (the Bhagwati Committee). The Bhagwati Committee submitted its report in January 1997. Takeover Regulations of 1997 were notified by SEBI on February 20, 1997, repealing the Takeover Regulations of 1994.The Takeover Regulations of 1997 have been amended 23 times.An annual average of 69 takeovers between 1997 and 2005 has increased steadily to an annual average of 99 between 2006 and 2010.Achuthan Committee held 21 meetings and has taken into consideration the prevailing practices and relating to takeovers in several other jurisdictions such as Australia, Brazil, Canada, European Union, Germany, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Africa, Switzerland, UK and USA before compiling this report..This Report is in three parts:-.a. b. c..Part I contains the salient features of the Proposed Takeover Regulations; Part II contains the Committee deliberations and key recommendations; Part III contains the draft text of the Proposed Takeover Regulations..The Achuthan Committee Report is divided in three parts:.Part I contains the salient features of the Proposed Takeover Regulations;.Part II contains the Committee deliberations and key recommendations;.Part III contains the draft text of the Proposed Takeover Regulations..Salient features of the Draft Regulations.The recommendations of the Achuthan Committee include raising the public offer trigger to 25% from the existing 15%, obligation on any acquirer to buy out 100% of the shareholders instead of making an open offer for the 20%, doing away with non-compete fees, and improving the definition of indirect control of companies. .Bar & Bench has extracted the relevant portions of the Draft Regulations and comments of the experts including the Chairman of the Committee. The important portions of the Draft Regulations are:.1) Initial Trigger: Acquisitions of an aggregate of 25 % or more voting rights in a target company would require the acquirer to make an open offer. [Regulation 3(1)].Currently, open offer is triggered after a company acquires more than 15% in the target company. Speaking to Money Control on why 25 percent and not 30% or 40%, the Chairman, Achuthan said the following..Q: Why was 25% set as the open offer trigger? A: If we had gone for 30%, you would have asked me why not 40%. So here we have a rationale for that because as you rightly said under company law special resolution can be passed. if you are having 75 + 1 , so if a person is having 25, I am not going with actual percentage, you take 25 + 1 then you can stop that resolution that can be treated as a substantial shareholding because the entire legal framework is for regulating substantial acquisition of shares.Mohit Saraf, Senior Partner of Luthra & Luthra, in a video interview to ET Now said that increasing the trigger from 15 percent to 25 percent protects common investors and argues that this action does not impede corporate M & A activity..2) Creeping Acquisition Trigger: An acquirer holding 25% or more voting rights in a target company is allowed to acquire additional voting rights in the target company up to 5 % within a financial year, without making an open offer. [Regulation 3(2)].3) Offer Size: Any open offer under the Proposed Takeover Regulations would be for 100%, i.e., for all the shares held by all the other shareholders of the target company [Regulation 7(1)].As an exception to the 100 % offer rule, a voluntary open offer can be made for the acquisition of shares representing at least 10 % but shall not exceed such number of shares which will take the holding of the acquirer and persons acting in concert with him to beyond maximum non-public shareholding permitted under the listing agreement..On the issue of 100 percent offer rule, Achuthan speaking to Money Control said: Q: I will come to the most contentious part and this is the one part that your committee is going to face a lot of very violent response from corporate India and that is the minimum mandatory open offer for having triggered the control or substantial acquisition bit of 100%. Now the big fear in this country is that because of the capital market limits on bank financing and the limits on their exposure to capital market, M&A financing for 100% offer is going to be very tough to come by – so what is the kind of debate that you went through internally because I know you had two investment bankers on your committee, were they in favour of 100%?A: We had examined this aspect also but then you have to look at the advantages and disadvantages. When you are acquiring a company and if you are giving only 20% or take the case where ‘A’ is having 30% shares he gets a full exit, he is selling to ‘B’ and ‘B’ is making a public offer only for a minimum of 20%, then what sort of equity is there.Q: I understand this from a minority shareholder point of view that a 100% is very fair.A: We are more concerned about the investors protection, investors interest and if somebody wants to acquire a company he has to be ready with the finance..Shardul Shroff, Managing Partner of Amarchand Mangaldas, New Delhi in his Livemint column has highlighted the missed opportunity, which he believes could have initiated greater transparency levels. In his Expert View column to quote, “Given market realities, we have to recognize that it is impractical for large billon dollar transactions to be undertaken on the basis of limited public information filed by the promoters and persons acting in control with the stock exchange. It is in the interest of the market, and the interest of the acquirer, that the US model, which provides transparency in scrutiny of business data be brought in use even in India. We must encourage a change in law which debunks the “sham” that most merchant bankers, accountants and law firms engage in, especially when a negotiated purchase of controlling interest in a listed company is being developed. The Achuthan committee had been given suggestions for introducing transparency in negotiated acquisitions of public listed companies and due diligence concerning public listed companies, (for scrutiny of information not available in the public domain), however, there is no change forthcoming in this space so far.”.Several reactions have been flowing on the takeover code on the proposed amendments. Undoubtedly, this is one of the most important legislations for corporate lawyers and as it envisages to change the M & A game. Bar & Bench will speak to the experts in the industry and bring a detailed analysis in the coming days..A copy of the Achuthan Committee report can be downloaded here.
The Achuthan Committee has submitted its draft recommendations and has invited the public to send comments to the proposed Takeovers Regulations..Sebi Chairman C.B. Bhave had in September 2009 announced that a Takeover Regulations Advisory Committee (TRAC) will be set up to review the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, popularly known as the Takeover Code. “These rules keep evolving, and we are forming a committee to review the entire takeover rules,” Bhave had told the reporters. .Former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan was appointed as the chairperson of the committee. Lawyers Somasekhar Sundaresan, the Capital Markets Partner at J. Sagar Associates, Mumbai, and Kumar Desai, Advocate, were also part of the TRAC (Achuthan Committee). The Achuthan Committee has submitted the draft regulations, (Substantial Acquisition of Shares And Takeovers) Regulations, 2010 (Draft Regulations) and has invited the public to send comments to trac@sebi.gov.in by August 31, 2010..The 138-page report mentions some interesting facts and statistics..In November 1995, SEBI appointed a committee to review the Takeover Regulations of 1994 under the chairmanship of Justice P.N. Bhagwati (the Bhagwati Committee). The Bhagwati Committee submitted its report in January 1997. Takeover Regulations of 1997 were notified by SEBI on February 20, 1997, repealing the Takeover Regulations of 1994.The Takeover Regulations of 1997 have been amended 23 times.An annual average of 69 takeovers between 1997 and 2005 has increased steadily to an annual average of 99 between 2006 and 2010.Achuthan Committee held 21 meetings and has taken into consideration the prevailing practices and relating to takeovers in several other jurisdictions such as Australia, Brazil, Canada, European Union, Germany, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Africa, Switzerland, UK and USA before compiling this report..This Report is in three parts:-.a. b. c..Part I contains the salient features of the Proposed Takeover Regulations; Part II contains the Committee deliberations and key recommendations; Part III contains the draft text of the Proposed Takeover Regulations..The Achuthan Committee Report is divided in three parts:.Part I contains the salient features of the Proposed Takeover Regulations;.Part II contains the Committee deliberations and key recommendations;.Part III contains the draft text of the Proposed Takeover Regulations..Salient features of the Draft Regulations.The recommendations of the Achuthan Committee include raising the public offer trigger to 25% from the existing 15%, obligation on any acquirer to buy out 100% of the shareholders instead of making an open offer for the 20%, doing away with non-compete fees, and improving the definition of indirect control of companies. .Bar & Bench has extracted the relevant portions of the Draft Regulations and comments of the experts including the Chairman of the Committee. The important portions of the Draft Regulations are:.1) Initial Trigger: Acquisitions of an aggregate of 25 % or more voting rights in a target company would require the acquirer to make an open offer. [Regulation 3(1)].Currently, open offer is triggered after a company acquires more than 15% in the target company. Speaking to Money Control on why 25 percent and not 30% or 40%, the Chairman, Achuthan said the following..Q: Why was 25% set as the open offer trigger? A: If we had gone for 30%, you would have asked me why not 40%. So here we have a rationale for that because as you rightly said under company law special resolution can be passed. if you are having 75 + 1 , so if a person is having 25, I am not going with actual percentage, you take 25 + 1 then you can stop that resolution that can be treated as a substantial shareholding because the entire legal framework is for regulating substantial acquisition of shares.Mohit Saraf, Senior Partner of Luthra & Luthra, in a video interview to ET Now said that increasing the trigger from 15 percent to 25 percent protects common investors and argues that this action does not impede corporate M & A activity..2) Creeping Acquisition Trigger: An acquirer holding 25% or more voting rights in a target company is allowed to acquire additional voting rights in the target company up to 5 % within a financial year, without making an open offer. [Regulation 3(2)].3) Offer Size: Any open offer under the Proposed Takeover Regulations would be for 100%, i.e., for all the shares held by all the other shareholders of the target company [Regulation 7(1)].As an exception to the 100 % offer rule, a voluntary open offer can be made for the acquisition of shares representing at least 10 % but shall not exceed such number of shares which will take the holding of the acquirer and persons acting in concert with him to beyond maximum non-public shareholding permitted under the listing agreement..On the issue of 100 percent offer rule, Achuthan speaking to Money Control said: Q: I will come to the most contentious part and this is the one part that your committee is going to face a lot of very violent response from corporate India and that is the minimum mandatory open offer for having triggered the control or substantial acquisition bit of 100%. Now the big fear in this country is that because of the capital market limits on bank financing and the limits on their exposure to capital market, M&A financing for 100% offer is going to be very tough to come by – so what is the kind of debate that you went through internally because I know you had two investment bankers on your committee, were they in favour of 100%?A: We had examined this aspect also but then you have to look at the advantages and disadvantages. When you are acquiring a company and if you are giving only 20% or take the case where ‘A’ is having 30% shares he gets a full exit, he is selling to ‘B’ and ‘B’ is making a public offer only for a minimum of 20%, then what sort of equity is there.Q: I understand this from a minority shareholder point of view that a 100% is very fair.A: We are more concerned about the investors protection, investors interest and if somebody wants to acquire a company he has to be ready with the finance..Shardul Shroff, Managing Partner of Amarchand Mangaldas, New Delhi in his Livemint column has highlighted the missed opportunity, which he believes could have initiated greater transparency levels. In his Expert View column to quote, “Given market realities, we have to recognize that it is impractical for large billon dollar transactions to be undertaken on the basis of limited public information filed by the promoters and persons acting in control with the stock exchange. It is in the interest of the market, and the interest of the acquirer, that the US model, which provides transparency in scrutiny of business data be brought in use even in India. We must encourage a change in law which debunks the “sham” that most merchant bankers, accountants and law firms engage in, especially when a negotiated purchase of controlling interest in a listed company is being developed. The Achuthan committee had been given suggestions for introducing transparency in negotiated acquisitions of public listed companies and due diligence concerning public listed companies, (for scrutiny of information not available in the public domain), however, there is no change forthcoming in this space so far.”.Several reactions have been flowing on the takeover code on the proposed amendments. Undoubtedly, this is one of the most important legislations for corporate lawyers and as it envisages to change the M & A game. Bar & Bench will speak to the experts in the industry and bring a detailed analysis in the coming days..A copy of the Achuthan Committee report can be downloaded here.