Recoding takeovers: Examining the changes

Few pieces of legislation have made as immediate and wide-sweeping an impact as the Takeover Code did when it was first introduced in 1997. It was a milestone marking the beginning of India’s corporate growth and consolidation story. Thirteen years on, the country’s M&A space has grown from a gawky adolescent to a feisty young adult.

To keep pace with market realities and demands, the Securities & Exchange Board of India (SEBI), the capital market regulator, has initiated a rethink of the Takeover Code. It entrusted the task of articulating what needs to be done to the Takeover Regulations Advisory Committee (TRAC), which comprises a range of industry experts. SEBI has recently made TRAC’s recommendations public and has invited feedback on them. The committee has advocated some bold, fundamental changes and we discuss the highlights below.

Raising the thresholds

Under the current code, an acquirer is required to make a mandatory open offer to provide other shareholders an exit upon hitting the 15% threshold. This was believed to give the acquirer substantial control in the Indian context where listed companies generally had low promoter shareholdings. This is no longer the case and average promoter holdings in India have seen a steep jump since the open offer benchmarks were first set.

Akanksha Midha and Sriram Ramachandran are associates at Phoenix Legal in Mumbai. They can be reached at akanksha.midha@phoenixlegal.in and sriram.ramachandran@phoenixlegal.in.