Sebi likely to raise open offer limit

Move will allow more investors to exit the firm if there is a change in management. The committee appointed by the Securities & Exchange Board of India (Sebi) to draft new takeover regulations is likely to increase the open offer size from 20 per cent now to a maximum of 35 per cent.This will allow more investors to exit a company, if they so wish, in case of a change in its ownership. “We have proposals to hike the open offer size even to 50 per cent. Certainly, the open offer size will go up. We have not taken a final decision on the exact extent of the increase. But we may settle for an open offer of anything between 25 and 35 per cent,” said a person privy to the discussions within the committee.The takeover code is now triggered when an acquirer buys more than 15 per cent in a target company. The committee is also considering an increase in the trigger to 25 per cent. Here again, a final decision is yet to be taken.

Present rules allow a company to change hands if as little as 35 per cent of it is acquired. This implies as many as 65 per cent of public shareholders have no option but to stay invested in it. Even if they want to exit the company during an open offer, they cannot. This is because the acquirer is required to buy 20 per cent from public shareholders. “There could be many investors who may want to exit a company when its ownership changes. The buyer has to accept shares on a pro rata basis in an open offer. This means an investor who offers fewer shares will have less chance of acceptance by the company than an investor who tenders a larger number of shares. By increasing the open offer size, the committee aims to rectify this,” said the person.

The committee, headed by C Achuthan, former presiding officer of the Securities Appellate Tribunal, is expected to submit its report by the end of July. “We want to submit it as early as possible,” said another member, who also wished not to be named. The committee, which held discussions with all stakeholders, is expected to finalise the draft rules in another three or four sittings. Asked if the delisting trigger will still be 90 per cent in case the open offer is fixed at 35 per cent stake, the member said: “If the delisting rule gets triggered, then companies can do so. The takeover code will not stop them.”