Gatekeeper of Takeovers: Cracking Open Offer Code

In India’s fast-evolving mergers and acquisitions (M&A) environment, where multi-billion-dollar deals can reshape entire industries, SEBI’s open offer code serves as a vital gatekeeper. It governs who can enter, who must exit, and how—safeguarding the rights of those with the least influence at the table: retail and minority investors

This article explores the concept of an open offer—its purpose, the conditions under which it is triggered, and provides a detailed step-by-step guide to the process, in accordance with SEBI’s (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

1.  What is an open offer?

An open offer is a mandatory public offer made by an acquirer, inviting the existing public shareholders of a listed company to sell their shares—typically at a predetermined price that reflects regulatory valuation norms. This mechanism is not voluntary; it becomes obligatory when the acquirer—either individually or along with Persons Acting in Concert (PACs)—crosses certain thresholds of shareholding (such as 25%) or acquires control over the company, as defined under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

According to Regulation 2(1)(a) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, “Acquirer” means:

any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company.

According to Regulation 2(1)(q) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, “Persons Acting in Concert” means:

Persons who, for a common objective or purpose of substantial acquisition of shares or voting rights, or gaining control over a target company, co-operate or collaborate by virtue of an agreement or understanding (whether formal or informal) to acquire shares or voting rights in such target company.

The primary objective of an open offer is shareholder protection. When there’s a potential change in control or a significant increase in ownership, minority shareholders—who often lack the influence or insider information that large investors possess—are given a fair, transparent, and regulated exit opportunity. This ensures that such shareholders are not involuntarily subjected to new management or strategic directions that may not align with their investment expectations.

In essence, the open offer mechanism serves as a regulatory safeguard, maintaining market fairness, and investor confidence by compelling acquirers and their PACs to publicly disclose their intentions and provide a route for shareholders to make informed decisions.

The Legal Framework: SEBI (SAST) Regulations, 2011

The open offer mechanism is governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which replaced the earlier 1997 code. The 2011 regulations aim to bring greater clarity, flexibility, and investor protection in acquisition scenarios.

2. When is an open offer triggered?

• Mandatory Open offer { Regulations 3 and 4}

This is the most common type of open offer and is triggered by specific acquisition thresholds and control changes as per Regulations 3 and 4 of the SEBI SAST Regulations:

Triggering Conditions:

• When an acquirer (alone or with PACs) acquires 25% or more of the voting rights in a listed company.
• When an acquirer holding between 25% and 75% acquires additional shares beyond 5% in a financial year (creeping acquisition).
• When the acquirer acquires control over the company, irrespective of the shareholding percentage.

In all these cases, the acquirer must make a mandatory public offer to the remaining shareholders, offering to buy shares at a fair and regulated price.

 Key Features:

• The acquirer must offer to buy at least 26% of the target company’s shares from public shareholders.
• The offer is non-optional and must comply with timelines and pricing guidelines specified by SEBI.
• Aims to protect minority shareholders from being sidelined during significant ownership changes.

 Example:

When an acquirer purchases 25% of a listed company, they must extend an open offer to buy at least another 26% from the public shareholders.

• Open Offer under Regulation 5 (Indirect Acquisition)

An indirect open offer arises when a company acquires another entity that holds shares or control in the target listed company.

Triggering Conditions:

• The acquirer gains control over the target not directly, but through another company or entity.

Key Features:

• Treated the same as a direct acquisition for open offer purposes.
• Ensures transparency in complex M&A transactions.

Example:

Company X acquires 100% of Holding Co. Y, which owns 51% of listed Company Z. Even though Company X didn’t directly buy Company Y’s shares, it now controls Z through Y — triggering an open offer for Z’s shareholders.

• Voluntary Open Offer [Regulation6]

A voluntary open offer is made when an acquirer chooses to acquire additional shares even though they are not required to by regulation.

Triggering Conditions:

• A voluntary open offer is made when the acquirer already holds 25% or more but less than 75% of the shares and wishes to consolidate or increase their stake by offering to purchase additional shares from the public shareholders.
• The acquirer must not have acquired any shares in the preceding 52 weeks without an open offer.

Key Features:

• Acquirer can make a voluntary offer for at least 10% of the shares.
• Cannot acquire further shares (other than through the offer) during the offer period.

  Example:

An acquirer holding 40% of shares may voluntarily seek to increase their holding by 10% without any regulatory trigger requiring it.

3. Step-by-step procedure for making an open offer under SEBI( SAST) Regulations, 2011

Under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, the open offer process is governed by Chapter III, which prescribes a structured and time-bound framework to ensure transparency, regulatory compliance, and the protection of shareholder interests.

The following outlines the step-by-step procedure to be followed:

Step 1: Appointment of a Merchant Banker {Regulation 12(1)}:

• Before making any public announcement about an open offer, the acquirer must appoint a merchant banker who is registered with SEBI and is not an associate of the acquirer, to act as the manager for the open offer.

Note: The term “associate” here has the same meaning as defined in the SEBI (Merchant Bankers) Regulations, 1992.

• The acquirer must make the public announcement of the open offer only through this appointed merchant banker.

Step 2: Public Announcement (Regulation 13):

The Public Announcement (PA) is a formal disclosure made immediately when a triggering event occurs that requires the acquirer to make an open offer. Such events typically include:

• Acquisition of shares or voting rights crossing the prescribed threshold (usually 25%),
• Agreements or arrangements that lead to acquisition of control,
• Any other transaction or event that triggers the obligation under SEBI’s SAST Regulations.

The PA must be made on the very same date the triggering event occurs to ensure timely disclosure to the market and shareholders.

Contents of the Public Announcement {Regulation 15}

The PA typically contains essential information such as:

• Details of the acquirer(s) and persons acting in concert (PACs),
• The nature and extent of the proposed acquisition,
• The offer price or price band (if decided),
• The size of the open offer (number of shares to be acquired),
• The timeline for the offer
• A statement confirming compliance with SEBI regulations,
• Disclosure of any existing shareholding or agreements,
• The purpose of acquisition and future plans for the target company.
• The PA shall be sent to all stock exchanges where the target company’s shares are listed.
• Copy of PA shall be sent to SEBI and Target Company within 1(One) working days of the date of PA

Step 3: Escrow Account Setup – Regulation 17

• The acquirer must create an escrow account atleast 2 working days before the DPS is issued.
• Minimum deposit:
  • 25% of offer size (up to ₹500 crore),
  • +10% of the amount exceeding ₹500 crore.
• The acquirer may provide the escrow in any one or a combination of the following forms:
• Cash deposit with a scheduled commercial bank
• Bank guarantee from a scheduled commercial bank (irrevocable and unconditional),
• Deposit of frequently traded and freely transferable equity shares or other freely transferable securities with appropriate margin
• Minimum of 1% of the consideration has to be kept in the form of cash with the schedule commercial bank as part of Escrow Account
• In case of :
  • cash deposit, empower the manager to the open offer to instruct the bank to issue a banker’s cheque or demand draft or to make payment of the amounts lying to the credit of the escrow account
  • Bank guarantee, it shall be issued in favour of the manager to the open offer and shall remain valid throughout the offer period and for an additional 30 days after the payment has been made to shareholders who have tendered their shares
  • Securities, the manager to the open offer shall be empowered to realise the value of the escrow account, whether by sale or through any other means. In the event of a shortfall in the escrow account, the manager shall be responsible for making good such shortfall.
• The entire amount is returned to the acquirer on the expiry of 30 days from the completion of payment of consideration to shareholders, where the open offer is for exchange of shares or other secured instruments.

Step 4: Detailed Public Statement (DPS) – Regulation 14

Within 5 working days from the date of the Public Announcement (PA), the DPS must be published.

• The DPS must be published in the following newspapers:
• One English national daily,
• One Hindi national daily, and
• One regional language newspaper where the target company’s registered office is located.
• One regional language daily in place where the stock exchange having maximum trading of target company’s share in the preceding 60 days.
• The DPS must be promptly and simultaneously sent to:

1.All stock exchanges where the target company’s shares are listed

2. SEBI

3. The target company

Contents of the DPS:

The Detailed Public Statement must contain the following key details:

1.Offer Price and Offer Size

• • The number and percentage of shares being acquired
  • The price per share offered

2. Background of the Acquirer(s)

• • Identity and details of the acquirer and PACs (persons acting in concert)
  • Financial information and previous transactions, if any

3. Terms and Conditions of the Offer

4. Offer Timeline and Detailed Procedure

• • Key dates for the open offer process
  • Process for tendering shares by shareholders
  • Payment schedule and mechanisms

5. Funding Arrangements

• • Details of how the acquirer will fund the offer (e.g., escrow account, financial backing)

6. Other Disclosures

• • Shareholding pattern of the target
  • Future plans regarding the target company

Step 5: Filing of Draft Letter of Offer (DLOF) – Regulation 16

The acquirer (along with the Manager to the Offer) must file the Draft Letter of Offer (DLOF) with SEBI within 5 working days from the date of publication of the Detailed Public Statement (DPS).

The DLOF is also submitted to all stock exchanges, where the shares of the target company are listed and the target company.

• Contents of the DLOF:

The DLOF must contain comprehensive and material information, including:

1.Background of the Offer:

• • Circumstances leading to the open offer (e.g., acquisition, control change)
  • Type of offer

2. Details of the Acquirer and PACs (if any):

• • Identity, business background, and shareholding pattern
  • Financials and net worth

3. Information about the Target Company:

• • Corporate profile
  • Share capital structure
  • Financial statements and material developments

5. Offer Details:

• • Number and percentage of shares to be acquired
  • Offer price and its justification
  • Mode of payment

6. Financial Arrangements:

• • Source of funds for the offer
  • Escrow account details as per Regulation 17

7. Terms and Conditions of the Offer

8. Procedure for Shareholders

• • How to tender shares
  • Settlement and payment mechanism

9. Disclosures and Declarations:

• • Disclosures under SEBI (SAST) and other regulations
  • Responsibility statement by acquirer and merchant banker

Step 6: SEBI’s Comments – Regulation 16(4)

After the Draft Letter of Offer (DLOF) is submitted to SEBI by the Manager to the Offer on behalf of the Acquirer and PAC (if any), SEBI initiates a detailed review process.

• Under Regulation 16(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI is required to provide its comments on the DLOF within 15 working days from the later of:
• The date of receipt of the DLOF by SEBI, or
• The date of receipt of any additional information sought by SEBI from the Manager to the Offer.
• Once SEBI issues its observations, the acquirer (through the Manager to the Offer) must incorporate all required changes into the DLOF. The revised version, reflecting SEBI’s comments, is then finalized as the Letter of Offer (LOF).

Step 7: Dispatch of Letter of Offer (Regulation 18(2))

After incorporating SEBI’s comments into the Draft Letter of Offer (DLOF), the Acquirer (through the Manager to the Offer) finalizes the Letter of Offer (LOF) and the final LOF must be dispatched to all public shareholders of the target company whose names appear in the register of members or as beneficial owners in the depositories, not later than 7 working days from the receipt of comments from the Board or where no comments offered by Board within 7 working days from the expiry of 15  working days from the date of receipt of the DLOF by SEBI.

The LOF can be dispatched either physically or electronically, depending on shareholder communication preferences and regulatory permissions.

Step 8: Advertisement Prior to Commencement of Tendering Period (Regulation 18(7))

An advertisement must be published at least one working day prior to the commencement of the tendering period. This advertisement should announce:

• The schedule of activities related to the open offer,
• The status of statutory approvals and other required approvals (if any).
• This advertisement shall be published in the same newspapers in which the Detailed Public Statement (DPS) was issued.
• The advertisement must be promptly and simultaneously sent to:

1.All stock exchanges where the shares of the target company are listed;

2. The Securities and Exchange Board of India (SEBI);

3. The target company.

Step 9: Tendering Period (Regulation 18(8))

As per Regulation 18(6), the tendering period must commence within 12 working days from the receipt of SEBI’s comments on the Draft Letter of Offer (DLOF), or from the expiry of 15 working days from the date on which the DLOF was submitted to SEBI—whichever is earlier.

The tendering period must remain open for at least 10 working days.

Step 10: Post Offer Advertisement (Regulation 18(12))

• The acquirer shall issue post offer advertisement within 5 working days after the offer period, giving details including aggregate number of shares tendered, accepted, date of payment of consideration
• This advertisement shall be published in the same newspapers in which the Detailed Public Statement (DPS) was issued.
• The advertisement must be promptly and simultaneously sent to:

1.All stock exchanges where the shares of the target company are listed;

2. The Securities and Exchange Board of India (SEBI);

3. The target company.

Step 11: Payment of Consideration and other requirements {Regulation 18(10) and 21}

The acquirer shall complete all the requirements including the payment of consideration within 10 working days from the date of closure of the tendering period.

1.Opening of Special Escrow Account (for Cash Consideration){Regulation 21(1)} :

• If the open offer involves payment in cash, the acquirer must open a special escrow account with a SEBI-registered banker to the issue.
• The acquirer must deposit such amount in the special escrow account which, together with 90% of the amount transferred from the main escrow account under Regulation 17(10)(b), shall be sufficient to cover the entire consideration payable to shareholders under the open offer. [** Regulation 17(10)(b) The amount deposited in escrow account is transferred to special bank account opened with Banker to an Issue; however, the amount so transferred shall not exceed the 90 % of the cash deposit]
• The manager to the offer is authorised to operate this account on behalf of the acquirer for the purpose of making these payments.
• The acquirer must complete the payment (whether in cash or through issue/exchange/transfer of securities) to all shareholders who validly tendered their shares in the open offer within 10 working days from the end of the tendering period {Regulation 21(2)}

Step 12: Post-Offer Filing and Disclosures (Reg. 27)

The acquirer, through the Manager to the Offer (Merchant Banker), must file a final report with the Securities and Exchange Board of India (SEBI).

This report must be submitted within 15 working days from the expiry of tendering period.

4. CASE STUDY OF NDTV + ADANI

On August 23, the Adani group announced the acquisition of a 29.18% stake indirectly in NDTV through the acquisition of VCPL.

Background:

In 2009–10, NDTV founders Prannoy and Radhika Roy borrowed ₹403.85 crore from Vishvapradhan Commercial Pvt Ltd (VCPL) via RRPR Holding Pvt Ltd, their promoter entity.

The interest-free loan was backed by warrants that allowed VCPL to convert the debt into a 99.99% stake in RRPR in case of non-repayment.

The Takeover Process

Stage 1: Acquisition of RRPR

• In August 2022, the Adani Group acquired VCPL and exercised the warrants.
• This gave Adani indirect control of 29.18% stake in NDTV (through RRPR), triggering a mandatory open offer under SEBI rules.

Stage 2: Open Offer to Public Shareholders

• On August 23, 2022, Adani announced a ₹493 crore open offer to acquire an additional 26% stake (1.67 crore shares) in NDTV.
• This was in compliance with SEBI’s Takeover Regulations (crossing 25% stake or gaining control triggers an open offer).

Key Timeline & Events:

5. Conclusion: The Gatekeeper Is Here to Stay

At its core, SEBI’s open offer mechanism isn’t just a compliance requirement- it’s a reflection of the balance between corporate ambition and investor protection. As acquisitions grow more complex, involving layered ownership, legacy contracts, and financial arrangements, the aims of open offer to protect minority shareholders from being sidelined in boardroom deals.

The NDTV-Adani case highlighted how strategic control can be pursued quietly, legally and effectively- but also how SEBI’s open offer norms ensure that public shareholders are not left in dark.

In an era where information is power and ownership is influence, the open offer acts as both gatekeeper and safeguard-protecting not just investments, but the integrity of markets itself.