SEBI Takeover Regulations: Voluntary Open Offer & Delisting

A company intending to acquire a Main Board listed entity must consider the implications under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) and, if delisting is contemplated, also the SEBI (Delisting of Equity Shares) Regulations, 2021 (“Delisting Regulations”). Key regulatory provisions applicable are summarized below:

1.Mandatory Open Offer (Regulation 3) 

An open offer of at least 26% of the voting rights is mandatory in the following cases:

• Initial Threshold Acquisition:

When an acquirer, along with persons acting in concert (PAC), acquires shares or voting rights which entitle them to exercise 25% or more of the voting rights in the target company.

• Creeping Acquisition Beyond 25%:

If the acquirer already holds 25% or more of the voting rights, any further acquisition of more than 5% in a financial year triggers a mandatory open offer.

Note: The total acquisition, including the open offer, shall not exceed 75%, being the maximum permissible non-public shareholding.

2. Acquisition of Control (Regulation 4)

An open offer is compulsory for acquiring control over the target company, regardless of the percentage of shareholding acquired or held.

3. Voluntary Open Offer (Regulation 6)

An acquirer (together with PAC) holding 25% or more but less than 75% of the shares or voting rights may make a voluntary open offer for at least 10%, provided:

• No shares have been acquired during the preceding 52 weeks that would have triggered a mandatory open offer under Regulation 3.
• After completion of the voluntary open offer, the acquirer is prohibited from acquiring additional shares in the target company for a period of 6 months, except via another voluntary open offer.

4. Restrictions on Voluntary Delisting Offer post Open Offer

If, post open offer, the acquirer’s shareholding exceeds 75%, the acquirer is not eligible to make a voluntary delisting offer under the Delisting Regulations until 12 months have elapsed from the completion of the offer period.

5. Delisting Attempt Post-Failed Delisting Under SAST

Where the target company fails to get delisted pursuant to a delisting offer made under the SAST Regulations, but the open offer results in the acquirer’s shareholding exceeding 75%, the acquirer may make another delisting attempt in accordance with the SEBI Delisting Regulations, within 12 months from the date of completion of the open offer.

This is subject to the condition that the acquirer continues to hold more than 75% of the shareholding in the target company during such period.

Upon failure of the further delisting attempt, the acquirer shall ensure compliance of the minimum public shareholding requirement of the target company within 12 months.

6. Delisting Offer Declaration

If the acquisition is intended to result in delisting of the target company, such intention must be clearly disclosed:

• At the time of public announcement of the open offer, and
• At the time of detailed public statement.

7. Restrictions for Delisting Eligibility

An acquirer shall not be eligible to make a delisting offer if, during the preceding 2 years from the date of public announcement, the acquirer has been:

• A promoter, part of promoter group, or a person in control of the target company; or
• Directly or indirectly associated with the promoter or persons in control; or
• A holder of more than 25% of shares or voting rights in the target company.

VOLUNTARY OFFER PROCESS – INDICATIVE TIMELINES

‘X’ – Date on which the acquirer takes the decision to voluntarily make open offer