The Securities and Exchange Board of India (SEBI) has approved a series of amendments to the Takeover Code proposed by the Takeover Regulations Advisory Committee (TRAC). Some important changes include raising the trigger point for an open offer from 15% to 25% and increasing the minimum size of the open offer from 20% to 26%. The new open offer threshold brings India into line with international norms – in Singapore, the trigger for an open offer is 29.99%, in the UK and Hong Kong the trigger is 30% and in Japan it is 33.3%.
Lawyers are anticipating a flurry of deals in the wake of the amendments as well as larger deal sizes. The increased threshold has been warmly welcomed by investors. “The 15% threshold was very restrictive for financial investors,” said Akil Hirani, the managing partner at Majmudar & Co. “This increase will be particularly beneficial to investors such as private equity funds, who will now be able to get larger stakes in investee companies without having to make an open offer.”
SEBI rejected TRAC’s recommendation of raising the open offer size to 100%, but most experts agree that it would be problematic for an acquirer to purchase 100% of equity shares on an initial trigger. “The TRAC proposal would, clearly, have been beneficial for minority shareholders, assuring an exit option for every shareholder,” said Hirani. “However, from a financing standpoint, it would have been excessively burdensome for an acquirer. In addition, the absence of adequate banking options to finance such deals, would place Indian acquirers at an inherent disadvantage vis-à-vis their overseas counterparts.”
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