Change in Control SEBI Regulation 2023 regulates the conditions under which the sale and transfer of control of a listed Indian company can be made without any explicit approval from the stock exchange and Securities and Exchange Board of India (SEBI). The objective of this regulation is to protect investors and ensure transparency in such transactions.
The regulation requires the acquirer of assets, shareholders or debenture holders to offer to acquire the entire shareholding or debenture holding of the company either (i) from and through the stock exchange, or (ii) from the shareholders of the company. In either case, the acquirer must make a public announcement to inform the stock exchange, shareholders and debenture holders of the intended acquisition.
The acquirer must also give written offers along with full particulars of such proposed sale or transfer, including the terms and conditions to the shareholders or debenture holders either sending e-mail individually or by displaying the same on the website of the stock exchange where the shares of the company are listed.
SEBI also regulates the payment of consideration. The acquirer may pay consideration only in cash or in securities as prescribed under the Companies Act 2013. Moreover, the acquirer shall not make any payment for acquisition of securities of the target company without prior approval from the stock exchange or the SEBI.
The regulator also has the power to suspend trading of the company’s securities in the event of any violation of the regulation. The acquired company shall issue a public notice within seven days from the date of signing of the agreement mentioning the details of the acquisition and terms of consideration.
The SEBI also requires the acquirer to make an open offer for purchase of shares to public shareholders within two months from the date of signing of the agreement. The consideration offered under the open offer also has to be disclosed in the public notice.
SEBI also regulates the pricing of the offer made under the open offer. The open offer has to be at a price which is not less than the highest price paid or the consideration paid or the value at which the acquirer acquired the stake according to Schedule I of the Companies Act 2013.
1. Introduction: In recent years, technology has changed the way humans interact with the world and with each other. From connected homes to connected cars, our lives and experiences are increasingly being reshaped to become more efficient and smarter, using automated processes and platforms such as the Internet of Things (IoT). An integral part of this is the concept of “change in control”, where people no longer need to manually operate an appliance, but instead can do so remotely and automatically.
2. Definition: The SEBI (Securities and Exchange Board of India) defines “change in control” as “any change in the control or ownership of a listed company, which results in change in the effective control of its management” inclusive of all forms of indirect control such as through a company or trust and other similar mechanisms.
3. Benefits of change in control: Changing control has multiple benefits for both the firm and its stakeholders. It helps in improving the efficiency of the organization and helps to manage risks. It promotes corporate restructuring and consolidation which minimizes competition, encourages economies of scale and helps to optimize resources and talent. It also helps in unlocking of value by unlocking capital, and grants access to new markets, ideas and opportunities. The change in control also encourages innovation, helps to attract and retain talent, and facilitates dealing with regulatory and legal changes.
4. Impact of change in control on the financial markets: Change in control can lead to a transformation in the overall financial situation of the organization and its stakeholders. The move could lead to changes in the company’s stock price, impacting both short-term and long-term financial security. It can also lead to a shift in the ownership structure, with a change of leadership, as well as strategic direction, increasing transparency and accountability.
5. Potential risks associated with change in control: In spite of the benefits, there are some risks associated with changes in control. It can result in disruptions to the existing strategy and operations due to the new leadership, and could also lead to lawsuits and disputes if the change in control is not conducted properly. Additionally, changes in control can lead to different levels of disclosure and may not necessarily be beneficial to the interests of existing stakeholders.
6. Conclusion: Change in control is an integral part of transitioning to a digital and automated future. The process comes with a number of benefits and risks, which need to be carefully managed to help firms get the best out of their circumstances. Any organization going through a change in control should ensure that it is conducted to the highest standards, with the interests of all stakeholders in mind.