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Competing Offers

Current Provisions:

The Takeover Regulations currently provide the opportunity to any person other thanthe acquirer to make a competing offer within 21 days of the public announcement ofThe first offer. The Takeover Regulations also provide that any competitive offer by an

Acquirer shall be for such number of shares which, when taken together with sharesHeld by him shall be at least equal to the holding of the first bidder including theNumber of shares for which the present offer by the first bidder has been made.

Committee Recommendation:

With a view to rationalize the time lines for making a competing offer, the Committee

recommended that a competing offer may be made within 15 business days from the

date of the original detailed public statement instead of 21 calendar days from the dateof the original public announcement. No further offer should be allowed to be made after

the expiry of the said period of 15 business days until the completion of all the

competing offers.

Obligations of the Target Company

This part deals with the material actions dealt by the company.

Current Provisions:

The Takeover Regulations currently provide that the target company shall not, duringthe offer period sell, transfer, encumber or otherwise dispose of assets of the companyor its subsidiaries or enter into any material contracts.

The Committee desired to achieve a balance between the conflicting requirements ofcurbing a target company from carrying out material transaction without the consentof shareholders to make the company unattractive for an acquirer even while ensuringthat the target companys freedom to carry out its day-to-day affairs is not curtailed.

Committee Recommendation:

The Committee, therefore, recommends retaining restrictions on the target companyduring the offer period from carrying out material transactions outside the ordinarycourse of business except with the consent of the shareholders through a specialresolution. The Committee recommends that such restrictions would also cover thesubsidiaries of the target company, and such actions in respect of subsidiaries wouldalso require approval of the shareholders of the target company.

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Composition of the Board

The committee recommended that the acquirer or persons acting in concert with himmay be represented on the board only after the expiry of a period of 15 business daysfrom the date of the detailed public statement and provided the entire considerationpayable under the open offer is deposited in cash in the escrow account.

The Committee also recommends that if a competing offer is made, there ought to beno appointments of directors during the offer period, and only casual vacancies arisingout of death or incapacitation may be filled with prior approval of shareholders.

Timelines for the Open Offer process

With a view to shorten the timelines of the entire open offer process from the publicannouncement to the payment of consideration the committee proposed that theprocess could be done within fifty seven business days.

Mode of Payment

Currently offer consideration shall be payable either (a) by way of cash; (b) by issue,exchange and, or transfer of shares (other than preference shares) of acquirercompany, if the person seeking to acquire the shares is a listed body corporate; or (c)by issue, exchange and, or transfer of secured instruments of acquirer company with aminimum A grade rating from a credit rating agency registered with the Board; or (d) acombination of clause (a), (b) or (c).

The committee proposed that apart from the above payment could be made by issue,exchange or transfer of convertible debt securities entitling the holder to acquire listedshares of the acquirer or of the person acting in concert with him.

Exemptions from open offer obligations

The Takeover Regulations currently provide for fourteen categories of transactionswhich are exempted from the requirement to make an open offer subject to satisfyingthe conditions specified therein, if any, without the need to seek SEBIs approval forthe same. Further, for the transactions that are not covered in the aforesaid fourteen

categories, an application can be made for seeking exemption from SEBI. Suchapplications are referred to a takeover panel for its recommendations. SEBI considersthe recommendations received and passes an appropriate order.

The Committee classified the exemptions on the basis of the specific chargingprovisions which deal with the obligation to make an open offer, and has sought todistinguish between acquisitions involving change in control and those involving onlyconsolidation of shareholding.

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Recommendation by the independent directors of the Target Company

The committee recommended that the independent directors on the board of directorsof the target company ought to make a reasoned recommendation on the open offer.Which is not compulsory in the current provisions and for this the company needs toappoint an committee of independent directors.

Obligations of the Acquirer

The Committee recommends that unless acquirer has declared an intention in thedetailed public statement and the letter of offer, the acquirer shall be debarred fromalienating any material assets of the target company (including its subsidiaries) for aperiod of two years after the offer period. However, where such alienation is necessary

despite no such intention having been expressed by the acquirer, the target companyshall require a special resolution passed by the shareholders by way of a postal ballot.

Obligations of the Merchant Banker

The Committee recommends that the merchant banker would be expected todemonstrate the application of due skill, care and diligence in the discharge ofprofessional duties cast on him and the obligations of the merchant banker ought to beconstrued accordingly, as compared to only ensure of the compliance in the currentregulations.

Disclosure Obligations

The Committee recommends that the acquirer promoter / shareholders shall be askedto disclose their acquisition on periodic as well as transaction specific basis uponcrossing the limits specified therein to the Stock Exchange. Further, such disclosuresshall be of the aggregated shareholding and voting rights of the acquirer and everyperson acting in concert with him. Moreover, the acquisition and holding of anysecurity or instrument that would entitle the acquirer to receive shares in the targetcompany, including warrants and convertible debentures, shall also be required to bedisclosed.

Present Tax regime

The Committee recommends that there is a need to bring parity in the tax treatmentgiven to the shareholders who tender their shares in an open offer and those who areselling the same in the open market. SEBI may like to suitably take up this issue withthe concerned authorities in theGovernment.