India’s markets watchdog revises takeover norms

July 28th, 2011 - 9:03 pm ICT by IANS  

Sensex Mumbai, July 28 (IANS) India’s markets watchdog Thursday raised to 25 percent from the present 15 percent the trigger point for making an open offer when an entity buys into the shares of another company.

Simultaneously, the Securities and Exchange Board of India (SEBI) has also said that the minimum size of the open offer should be 26 percent of the company’s equity as opposed to 20 percent now.

“The decision was taken unanimously by the board,” Upendra Kumar Sinha, the chairman of the regulatory authority, told reporters here.

Sinha said the board has accepted most recommendations of the Takeover Regulations Advisory Committee.

Accordingly, if a person or entity acquires 25 percent or more equity in a target company, an open offer must be made to existing shareholders to the extent of buying at least 26 percent of the shares.

The limits earlier were 15 percent and 20 percent, respectively.

The announcement was made after the markets closed. The 30-scrip benchmark Sensex of the Bombay Stock Exchange (BSE) fell 1.21 percent to 18,209.52 points Thursday.

“These revisions surely will change the dynamics of mergers and acquisitions in India,” said Jagannadham Thunuguntla, head of strategy and research at leading brokerage SMC Global.

“However, the revisions are not as dynamic as proposed by the takeover committee, as the open offer size proposed by that committee was 100 percent,” Thunuguntla added.

“The new norm will result in making an acquirer ending up with 51 percent stake. That will make the acquirer having the controlling stake in the target company. That is, majority ownership,” he said.

Analysts said this was the most important revision, as it would result in change of guard and ownership in many Indian companies. In the past, it was not easy for an acquirer to get controlling stake in a target company in the country.

“The concept of buyout is a reality now in India,” said D.S. Murthy, a practicing chartered accountant who specialises in advice on mergers and acquisitions and leveraged buyouts.

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