Accepting TRAC Recommendation SEBI okayed all-important Takeover Code

The Securities and Exchange Board of India (SEBI) board on 28 July 2011 okayed the all-important Takeover Code accepting the recommendations of the Takeover Regulations Advisory Committee (TRAC).

According to the Takeover Code passed by SEBI, mandatory open offer size was raised to 26% from 20% and the trigger point for buyout was made to stand at 25% as against 15% in the past. With the passing of the Takeover Code, companies will now need to make mandatory open offer for further 26% stake from public shareholders after buying 25% in takeovers.

SEBI however, abolished non-compete fees to be paid by acquirers in takeover deals.
It asked merchant banks to disclose track record to IPO investors and initiated a process to make IPO forms shorter and simpler. The form will from now on carry track record of the merchant banker and pricing information. The new format was aimed at reducing size of IPO application.

SEBI panel on new takeover regulations recommended an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent. While the recommendation on trigger was accepted, the same for offer size has been kept lower due to intense opposition from industry and other market participants. The panel mentioned that all the public shareholders were required to be given an exit opportunity when promoters of target company sell out their stake to acquirers.

SEBI highlighted that voluntary offers would be allowed subject to certain conditions, while a recommendation on the offer by the Board of Target Company was made mandatory.
Regarding control and offer size, the Sebi board decided that the existing definition of control would be retained as it is and the minimum offer size will be increased to 26 per cent of the target company.

The board did not accept the recommendation of TRAC to provide delisting pursuant to an offer and proportionate acceptance.

Apart from the Takeover Code, the other matters that were discussed included the much talked-about know-your-customer (KYC) norms for all SEBI-regulated entities. The SEBI board approved uniform KYC norms for all stock market transactions.

Highlights of Takeover Code:

•    Mandatory open offer size was raised to 26% from 20% and the trigger point for buyout was made to stand at 25%.
•    Merchant banks to disclose track record to IPO investors
•    IPO forms to be made shorter and simpler.
•    Non-compete fees to be paid by acquirers in takeover deals abolished.
•    Public shareholders were required to be given an exit opportunity when promoters of target company sell out their stake to acquirers.
•    SEBI did not accept the recommendation of TRAC to provide delisting pursuant to an offer and proportionate acceptance.
•    Sebi board decided that the existing definition of control of offers would be retained as it is.
•    The SEBI board approved uniform KYC norms for all stock market transactions.