Sebi amends delisting rules to make M&A more convenient

Sebi has amended rules pertaining to delisting of equity shares of a company following an open offer as part of efforts to make merger and acquisition transactions for listed companies more convenient.

Under the new framework, promoters or acquirers need to disclose their intention to delist the firm through an initial public announcement, according to a notification.

If the acquirer is desirous of delisting the target company, the acquirer must propose a higher price for delisting with suitable premium over open offer price.

In case the open offer is for an indirect acquisition, the open offer price and indicative price will be notified by the acquirer at the time of making the detailed public statement and in the letter of offer.

"The indicative price shall include a suitable premium reflecting the price that the acquirer is willing to pay for the delisting offer with full disclosures of the rationale and justification for the indicative price so determined that can also be revised upwards by the acquirer before the start of the tendering period," Sebi said in a notification on Monday.

In the existing framework, if an open offer is triggered, compliance with takeover regulations could take the incoming acquirer's holding to above 75 per cent or perhaps even 90 per cent.

However, to ensure compliance with the Securities Contract (Regulation) Rules, the acquirer would be forced to first bring his stake down to 75 per cent as the Sebi delisting norms would not let the acquirer even to attempt at delisting unless the holding is first brought down to 75 per cent.

Such directionally contradictory transactions in a sequence pose complexity in the takeover of listed companies especially where the acquirer desires to get the company delisted pursuant to his takeover.

The revised framework aims to make merger and acquisition (M&A transactions) for listed companies a more rational and convenient exercise, balancing the interest of all investors in the process.

In the new framework, Sebi said that if the response to the open offer leads to the delisting threshold of 90 per cent being met, all shareholders who tender their shares would be paid the indicative price.

In case the response to the offer leads to the delisting threshold of 90 per cent not being met, all shareholders who tender their shares would be paid the open offer price.

If a company does not get delisted following an open offer under this framework, and the acquirer crosses 75 per cent due to the open offer, a period of 12 months from the date of completion of the open offer will be provided to the acquirer to make further attempts to delist the company using the reverse book building mechanism.

Such further delisting attempt will be successful if 50 per cent of the residual public shareholding is acquired and delisting threshold is met.

If delisting during this extended 12-month period is not successful, the acquirer then must comply with the minimum public shareholding norm within 12 months from the end of such period.

If the acquirer at the time of open offer states upfront that it would opt for remaining listed, and the total stake at the end of the tendering period reaches above 75 per cent, then the acquirer may opt for either proportionately scaling down of purchases made under both, i.e. the underlying sharepurchase agreement and the shares tendered under open offer.

The scaling down will be done in a manner that the 75 per cent threshold is never crossed or alternatively, the acquirer shall have to become compliant with minimum public shareholding within the time stipulated under the Securities Contract (Regulation) Rules, 1957.

To give this effect, the Securities and Exchange Board of India (Sebi) has amended the SAST (Substantial Acquisition of Shares and Takeovers) Regulations.

The new rules came into effect from Monday.

This came after the board of Sebi approved a proposal in this regard in September.

Photograph: Shailesh Andrade/Reuters