The Securities and Exchange Board of India’s (Sebi) committee on takeovers headed by C Achuthan is seriously considering making it mandatory for boards of target companies to guide shareholders in the event of competitive bids in line with global best practice.
Currently, company boards in India leave it to shareholders to take a call on which bid to accept.
Globally, company boards have a fiduciary responsibility to objectively consider open offers. Shareholders benefit because they get guidance on the offer that is in the best interests of the company.
The issue has arisen after a recent spate of competitive bids. The current one is the counter-offer by Anil Dhirubhai Ambani Group (ADAG) company Reliance Media Works for multiplex operator Fame India at Rs 80 per share. Before this, rival INOX Leisure had already made an open offer to Fame promoters at Rs 51 per share.
Last year, there were two bidding wars. One was between offshore service provider Great Offshore by ship makers Bharati Shipyard and ABG Shipyard (the former won). The other was a three-way battle to acquire steel and mining firm Orissa Sponge Iron & Steel from Bhushan Steel, Bhushan Energy and Monnet Ispat & Energy (Bhushan Energy won).
“It makes sense to have something like this in India because the average investor is not sophisticated enough or have access to the necessary information to take a call on which offer is best. In such a situation, it becomes extremely important that the board gives unbiased recommendation on which offer is suited best for the target company,” said Akil Hirani, Managing Partner, Majmudar & Company.
“Apart from a few knowledgeable investors, retail investors generally follow a herd mentality, which means that they tender shares for the higher price, irrespective of whether the offer is good for the company’s long-term interests,” added Saurabh Mukherjea, head of Indian equities at Executive Noble, a London-based research firm. Globally acquirers sometimes meet and make presentations to three or four large shareholders to make their case.