India
Answer ... By way of background, the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (‘Takeover Regulations’) govern the direct and indirect acquisition of control and substantial shares or voting rights of listed companies. The Takeover Regulations require the acquirer of control over, or 25% or more of the shares/voting rights of, a listed company to make a mandatory tender offer (MTO) of minimum 26% to the public shareholders of the company.
In case of a direct acquisition, a public announcement of the MTO must be made on the date on which the acquirer agrees to acquire shares/voting rights/control over the listed company. In an indirect acquisition, the public announcement must be made within four working days of:
- execution of the agreement for the primary acquisition; and
- the date on which the intention or decision to make the primary acquisition is publicly announced.
Within five working days of the public announcement, a detailed public statement must be published; and within five working days thereafter, a draft letter of offer must be submitted to SEBI. Once SEBI has cleared the draft letter of offer, a letter of offer is sent to the public shareholders and the offer is opened for a period of 10 working days. Typically, the entire MTO process takes three to four months to complete. In an indirect acquisition, the detailed public statement can be made after closing of the primary transaction.
India
Answer ... Acquirers can purchase shares of a target in advance of triggering an MTO. However, acquirers should be mindful of disclosure requirements when purchasing shares, including the requirement to publicly disclose:
- acquisitions which take their shareholding in a target to 5% or more of the target’s voting capital; and
- subsequent acquisitions or disposals of more than 2% of the target’s share capital.
Ordinarily, an acquirer must complete a triggered MTO before consummating the underlying acquisition. However, an acquirer may consummate the underlying acquisition before completing the MTO if it deposits the entire open offer consideration in an escrow account. In this scenario, the acquirer can consummate the acquisition 21 working days after publication of the detailed public statement, to ensure that there are no competitive bids.
While acquirers can purchase shares in the target during the MTO, this is subject to specified limitations, including:
- a blackout period that precedes the tendering period until its expiry;
- requirements that such shares be deposited in an escrow account; and
- restrictions on the mode of acquisition of the shares.
Acquisitions of shares at a price higher than the offer price of the MTO will result in an automatic increase in the offer price to the higher amount.
In terms of the SEBI Takeover Regulations, an acquirer that holds 5% or more of the shares of a listed company must periodically disclose its aggregate shareholding to the company and to the stock exchanges in formats prescribed by SEBI. Similarly, listed companies must disclose details of their shareholding pattern to the stock exchanges on a quarterly basis. These disclosures include the identities of large shareholders.
India
Answer ... The protection of minority shareholders is one of the stated objectives of the Companies Act. Additionally, certain laws enacted by SEBI grant rights to minority shareholders of listed companies. These include:
- the ability to block special resolutions (ie, shareholders that hold more than 25% of voting capital can veto resolutions requiring a 75% majority of shareholder votes);
- information rights;
- inspection rights;
- remedies for oppression and mismanagement;
- class action proceedings;
- minimum prescribed corporate governance standards;
- majority of minority shareholder approval for all material related-party transactions, in addition to approval by the audit committee (for listed companies); and
- shareholder consent by special resolution for the sale, disposal or lease of more than 20% of the assets of a material subsidiary in a financial year, with some exceptions (for listed companies).
While the Indian regulatory framework does not restrict majority and minority shareholders from mutually agreeing to buyout terms and implementing the buyout, the compulsory squeeze-out of minority shareholders without their consent can be challenging.
That said, a few options are available for a squeeze-out, including:
- a delisting offer (which, as set out above, tends to be based on a minority shareholder determined price); and
- a selective reduction of capital through a National Company Law Tribunal (NCLT) process.
As both processes require confirmation by regulators (SEBI and the NCLT) and consent from shareholders, implementation of a mandatory squeeze-out can be challenging, particularly if minority shareholders raise objections.
India
Answer ... Under the SEBI Takeover Regulations, two working days before the detailed public statement is published, an acquirer must deposit the following amounts in an escrow account:
- 25% of the first INR 5 billion payable under the MTO; and
- 10% of the balance payable under the MTO.
These amounts are computed assuming full acceptance of the MTO. These amounts must be deposited regardless of the form of the escrow (ie, cash, bank guarantee or freely tradable securities). If the escrow is created by way of a bank guarantee or deposit of securities, at least 1% of the total consideration payable under the MTO (assuming full acceptance) must be in the form of a cash deposit.
India
Answer ... The SEBI (Delisting of Equity Shares) Regulations 2009 (‘Delisting Regulations’) govern the delisting of listed companies from stock exchanges. Delisting from Indian stock exchanges is by way of a reverse book-building process.
The Delisting Regulations prescribe a floor price and public shareholders are invited to offer their shares in the delisting at a price above the floor price which is determined at their discretion.
The discovered delisting price is the price quoted by the largest block of public shareholders. For the delisting to succeed, the delisting price, if accepted, should result in the acquirer holding 90% of the share capital of the company, when taken together with the pre-existing shares held by the acquirer and participation in the reverse book building from at least 25% of shareholders holding shares in dematerialised form (in certain scenarios). The acquirer is free to increase the delisting price in order to reach the 90% threshold.
If the acquirer accepts the discovered delisting price and meets the thresholds, the delisting offer is successful. The Delisting Regulations also allow the acquirer to make a counter-offer to the public shareholders. The delisting offer, at the accepted counter-price, is successful if the post-offer acquirer shareholding, taken together with the shares accepted through eligible bids at the counter-offer price, reaches 90%.
In terms of the Delisting Regulations, following completion of the delisting, minority shareholders that continue to hold shares in the company have an exit period of one year from the date of delisting to tender their shares to the acquirer (at their option) at the delisting price.
India
Answer ... ‘Bumpitrage’ is not a common feature in public takeovers. That said, there have been instances of funds which are typically associated with bumpitrage acquiring minority positions in Indian listed companies.
India
Answer ... The MTO price depends on whether the open offer is triggered by a direct or indirect acquisition. In brief, the Takeover Regulations provide for the open offer price to be the highest of:
- the price of the listed company’s shares as set out in the acquisition agreement;
- the trading price of the listed company’s shares for specified lookback periods;
- the price at which the acquirer and persons acting in concert have purchased the listed company’s shares over specified periods; and
- where none of the above applies, the price determined by the acquirer and the merchant banker taking into account prescribed parameters such as book value, comparable trading multiples and other customary valuation parameters.
In case of an indirect acquisition or deemed direct acquisition where certain parameters are met, the acquirer must compute and disclose the per share value of the listed company taken into account for the acquisition, along with a detailed description of the methodology adopted for such computation in the letter of offer. If this per share value is higher than the price identified in the bullets above, this will be the offer price.
India
Answer ... The Takeover Regulations provide for the withdrawal of an MTO only under certain circumstances. One circumstance enumerated is if “any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer”.
While it is possible to terminate/rescind the underlying transaction based on the contractual agreement between the parties, SEBI is reluctant to permit withdrawals of MTOs. It will ordinarily permit withdrawal of the MTO only if statutory/regulatory approvals are not received. Therefore, there are no significant precedents where SEBI has permitted withdrawal of an MTO because of contractual material adverse clause-related conditions.
India
Answer ... In terms of the Takeover Regulations, an MTO is made to all shareholders of the listed company, other than the acquirer, persons acting in concert with it and the parties to any underlying agreement, including persons deemed to be acting in concert with such parties, for the sale of shares of the listed company. Public shareholders choose to participate in an MTO and are not compelled to participate. Shareholder irrevocable undertakings to accept the MTO is not customary.