Meaning of Takeover
Takeover implies acquisition of control of a company which is already registered through the purchase or exchange of shares. Takeover takes place usually by acquisition or purchase from the shareholders of a company their shares at a specified price to the extent of at least controlling interest in order to gain control of the company.
Old takeover code v/s New takeover code
| BASIS | OLD TAKEOVER CODE | NEW TAKEOVER CODE | IMPACT |
|---|---|---|---|
| Threshold limit (initial acquisition) | When an acquirer’s shareholding in a listed firm reaches 15%, the acquirer has to bring a public offer to the existing shareholder’s. | In the new takeover rules, the triggering limit for making the public offer has been increased to 25%. | As a result, an acquirer can buy up to 24.99% in a listed company without being required to bring a pubic offer. |
| Minimum offer size | As soon as the 15% limit is reached, the acquirer has to bring a public offer to acquire another 20% of the voting share capital of the target company. | The offer size, too, has been changed to 26%. | The revised offer size will provide an exit option to more investors who do not wish to be associated with the new acquirer. |
| Non Compete fees | As per the present takeover rules, the acquirer can make a payment up to 25% of the offer price to the seller promoters to prevent the latter from entering the same business and compete. | No such payment in the nature of non compete fees is allowed under the new rules. | The payment of non compete fees to the seller promoters results in differential pricing, which is against the principle of equity. Recently, in the Cairn-Vedanta deal, it was seen that the seller promoters were being paid Rs.50 more than the remaining shareholders representing a non compete fee. Abolishing this will mean that the price premium will be distributed over a wider base of shareholders. |
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