Takeover code: Small investors to gain big time

Retail investors have much to cheer about in the new takeover code. The code proposes to give a chance to all retail investors to participate in open offers and suggests that they get the same price as is given to the promoters.

An expert committee constituted by the Securities and Exchange Board of India (Sebi) to review the takeover norms submitted its report on Monday.

According to a recommendation of the committee, the acquirer will have to make an open offer to all shareholders of the target company instead of the minimum 20 per cent at present.

"The committee has recommended that an open offer ought to be for all the shares of the target company to ensure equality of opportunity and fair treatment of all shareholders, big and small," said a press release issued by Sebi.

This, experts say, will give an opportunity to retail investors to tender their shares in open offers, if they wish to do so.

"If promoters can sell their 100 per cent stake to the acquirer, all retail investors should get the same exit opportunity," said AK Narayan, president of the Tamil Nadu Investors' Association and one of the members of the Sebi panel.

The committee has also recommended that all shareholders of the target company should get the same price. In case an acquirer gives a control premium or a non-compete fee to the promoter, the additional amount must be added to the negotiated price per share to determine the price other shareholders get. This means promoters can't get a better deal than retail shareholders.

The Sebi committee has also recommended making it mandatory for a panel of independent directors of the target company to give its opinion about the open offer price to investors. This would help retail investors decide whether to tender their shares or not, said Narayan.

However, considering the record of independent directors in India, this proposal, though good in theory, might not work in practice, said Hinesh Doshi, vice-president of the Investors' Grievances Forum, a Sebi-recognised investors' association.

"Most of the time, independent directors are 'yes men' of promoters. They hardly exercise their rights for retail investors," he added.

The market regulator has invited comments on the report from public by August 31.