Securities and Exchange Board of India (SEBI), the market regulator of India, in January 2017 tightened the norms for mergers and amalgamation of an unlisted company with a listed entity.
The step is SEBI’s effort to make a listing process more transparent and provide a big say to public shareholders in consolidations of companies.
Objective: The norms were released with an aim to prevent the large unlisted company to get listed by merging with small company/ies and to have a wider public shareholding.
Highlights of the norms
• The unlisted company will have to disclose all the material information in form of an abridged prospectus, similar to what companies file before launching initial public offering (IPO).
• In a case of merger or amalgamations, the holdings of public shareholders post the merger should not be less than 25 per cent, which is similar to norms available in case of mergers in the case of listed entities.
• The unlisted company can be merged with a listed company only if the listed company is listed on a stock exchange and have nationwide trading terminals.
• It also facilitates e-voting system mandatory in cases where the stake of shareholders reduces by more than 5 per cent in the merged entity. It was done to ensure larger say for the public shareholders.
• The pricing formula for stocks for merger and acquisitions will be based on the SEBI’s Issue of Capital and Disclosure Requirements (ICDR) norms. This will help in providing an equitable treatment to shareholders by stopping companies from issuing shares to select group of shareholders.
• The stock exchanges were empowered and this empowerment will allow them to act against listed firms through suspension of trading, the imposition of fines and more for violation of certain sections of ICDR norms.
Cause behind new norms on merger
As per reports, the norms were needed to stop the misuse of the existing policies under which route of the merger was used to get an indirect listing for an unlisted company.