The SEBI Takeover code prescribes a systematic framework for acquisition of stake in listed companies. By these laws the regulatory system ensures that the interests of the shareholders of listed companies are not compromised in case of an acquisition or takeover.

It also protects the interests of minority shareholders, which is also a fundamental attribute of corporate governance principle. 

Important Definitions

• Acquirer: "Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company.
   
• Frequently Traded Shares: Frequently traded shares means shares of a target company, in which the traded turnover on any stock exchange during the twelve calendar months preceding the calendar month in which the public announcement is made, is at least ten percent of the total number of shares of such class of the target company. However, where the share capital of a particular class of shares of the target company is not identical throughout such period, the weighted average number of total shares of such class of the target company shall represent the total number of shares.
   
• Target Company: Target company means a company and includes a body corporate or corporation established under a Central legislation, State legislation or Provincial legislation for the time being in force, whose shares are listed on a stock exchange.
   

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

These regulations shall apply to direct and indirect acquisition of shares or voting rights, in or control over target company. However, these regulations shall not apply to direct and indirect acquisition of shares or voting rights in or control over a company listed without making a public issue on the Innovators Growth Platform of a recognized stock exchange. These regulations require the acquirer to give an open offer to the shareholders of the target company so as to give them an opportunity to sell their shares.

Mandatory Open Offer

• Trigger Point For Making An Open Offer By An Acquirer: An acquirer, along with persons acting in concert (PAC), if any, who intends to acquire shares which along with his existing shareholding would entitle him to exercise 25% or more voting rights, can acquire such additional shares only after making a public announcement (PA) to acquire a minimum twenty-six percent shares of the target company from the shareholders through an open offer.
• A person who already holds 25% or more shares in the target company and intends to acquire more than 5% of the shares in the target company in any financial year also has to give an open offer.
• Creeping Acquisition: (Meaning any acquirer who holds shares between 25%-75%, together with person acting in concert, can acquire further 5% shares as creeping acquisition without giving an open offer to the shareholders of the target company up to a maximum of 75%).
• Basis Of Computation: For computing acquisition limits for creeping acquisition specified under regulation 3(2), gross acquisitions/purchases shall be taken into account, ignoring any intermittent fall in shareholding or voting rights, whether owing to the disposal of shares or dilution of voting rights on account of fresh issue of shares by the target company.
   

Voluntary Open Offer

• Voluntary Open Offer: Means the open offer given by the acquirer voluntarily without triggering the mandatory open offer obligations as envisaged under the regulations.
• Conditions For Voluntary Open Offer:
  • Eligibility: Prior holding of at least 25% shares by the acquirer along with the person acting in concert.
  • For an entity listed on Innovators Growth Platform, the "25%" shall be read as "49%".
• Prohibition On Acquisition During Offer Period: SEBI Takeover Regulations, 2011 prohibits the acquirer from further acquiring shares during the offer period otherwise than under the open offer.
• Restriction Post Completion: Acquirer and PACs shall not acquire shares for 6 months after the open offer, except:
  • (a) Another voluntary open offer
  • (b) Competing open offer to that made by another person for the target company
• Offer Size: The voluntary open offer shall be for at least 10% voting rights and shall not exceed the maximum permissible non-public shareholding.
   

Other Important Concepts Under Takeover Code

• Conditional Offer: An offer in which the acquirer has stipulated a minimum level of acceptance is known as a conditional offer.
  • Minimum level of acceptance implies the minimum number of shares which the acquirer desires under the said conditional offer.
  • If this level is not reached, the acquirer shall not acquire any shares under the open offer or the share purchase agreement that triggered the offer.

Publication of Public Announcement and Detailed Public Statement:

Particular	Time Limit	To Whom
Public announcement	On the same day	All the stock exchanges on which the shares of the target company are listed. The stock exchanges shall forthwith disseminate such information to the public.
Public announcement	Within one working day from the date of public announcement	The acquirer shall send a copy of Public announcement to SEBI and to the target company at its registered office.
Detailed Public announcement	Within five working days from the date of public announcement	Publication in the following newspaper: # One Hindi national language daily # One English national language daily # One regional national language daily # One regional language daily with wide circulation at the place of the stock exchange where the maximum volume of trading in the shares of the target company is recorded during the sixty trading days preceding the date of the public announcement.
Detailed Public announcement	Immediately	A copy of Detailed Public Statement shall be sent to: SEBI; All the stock exchanges in which the shares of the target company are listed; and The target company at its registered office.

Escrow Account

Not later than two working days before the date of the detailed public statement of the open offer for acquiring shares, the acquirer shall create an escrow account towards security for performance of his obligations under these regulations and deposit in the escrow account such aggregate amount as per the following scale:

Consideration payable under the Open Offer Escrow amount
On the first five hundred crore rupees	25%
On the balance consideration	10%

 

Procedure under Takeover Code

Submission of Draft Letter of Offer

• The Acquirer shall submit a draft letter of offer to SEBI within 5 working days from the date of detailed public announcement along with a non-refundable fee as applicable.
• Simultaneously, a copy of the draft letter of offer shall be sent to the Target Company at its registered office and to all the Stock Exchanges where the shares of the Company are listed.

Dispatch of Letter of Offer

• The Acquirer shall ensure that the letter of offer is dispatched to the shareholders whose names appear on the register of members of the Target Company as of the identified date.
• This shall be done not later than 7 working days from the date of receipt of communication of comments from SEBI or where no comments are offered by SEBI, within 7 working days from the expiry of 15 working days from the date of receipt of draft letter of offer by SEBI.

Opening of the Offer

• The offer shall remain open for 10 working days.

Completion of Requirements

• Within 10 working days from the last date of the tendering period, the acquirer shall complete all requirements as prescribed under these regulations and other applicable law relating to the Open Offer.
• This includes payment of consideration to the shareholders who have accepted the open offer.
   

Disclosures under Takeover Code

Event-Based

• Event Based Disclosures

Regulation	Trigger	Time Period	Made to
29(1)	Acquirer + PAC acquiring 5% or more shares of the target company.	2 working days of the receipt of allotment of shares, or the acquisition or disposal of shares or voting rights	SEBI and stock exchanges where the shares are listed
29(2)	Acquirer + PAC holding 5% or more shares, changes in shareholding or voting rights exceeding 2%	2 working days of the receipt of intimation of allotment or disposal	SEBI and stock exchanges where the shares are listed

Continual Disclosures:

Regulation	Trigger	Time Period	Made to
30(1)	Any Person + PAC holding more than 25% shares or voting rights in the target company	Within 7 working days from the financial year ending 31st March every year	SEBI and stock exchanges where the shares are listed
30(2)	Promoter + PAC disclose their aggregate shareholding and voting rights irrespective of their holding	Within 7 working days from the financial year ending 31st March every year	SEBI and stock exchanges where the shares are listed

Disclosures Of Pledged/Encumbered Shares

Regulation	Trigger	Time Period	Made to
31(1)	Promoter + PAC pledging or creating encumbrance on the shares of the target company	Within 7 working days from the creation, invocation or release of pledge	Stock exchange where the shares are listed and target company
31(2)	Acquirer invoking or releasing pledge or encumbrance on shares of target company	Within 7 working days from the creation, invocation or release of pledge	Stock exchange where the shares are listed and target company
31(4)	Promoter + PAC declare that no encumbrance has been made except already disclosed	Within 7 working days from the financial year ending 31st March every year	Stock exchange where the shares are listed and Audit Committee of target company