PPT on New SEBI takeover code

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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Name: CS YOGESH GUPTA

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CS YOGESH GUPTA is founder of Yogesh Gupta & Associates, Company Secretaries & Co- founder of IURIS Consultants LLP & E & A Consultants LLP and Corporate & IPR Law Professionals. He is a Commerce Graduate and an Associate Member of the Institute of Company Secretaries of India ( View Full Profile