Changes in takeover code likely for indirect takeovers

These, and a number of other issues, were raised by investors’ associations and industry chambers which met the Bhagwati panel on the first day of the three-day meeting of the panel in Mumbai on Wednesday.

After the three-day meeting, Sebi is expected to set up a group which would write the draft report incorporating changes to the existing code. This report would then be brought before the committee again, and then thrown open for public debate. Thereafter, the Sebi board would give final shape to the new takeover regulations.

BJP Member of Parliament, Kirit Somaiya is understood to have raised the issue of safeguards for professionally managed companies at Wednesday’s meeting, an issue which is now being seen as important by Sebi. "For companies which are professionally managed, getting a white knight to ward off takeover threats may be difficult. What is to be done for that?" Sebi sources said.

Speaking to reporters after the meeting, Sebi chairman D R Mehta said the interaction, with both industry and investor representatives together, was very beneficial to the regulator, since a number of important issues were thrown open for discussion. "It is also important to see whether the code needs to be changed every time there is a hostile bid, since there have so far been only nine hostile takeover bids in the country", Mehta said.

He said Sebi will examine the legal position of whether it can force acquirers to divest illegally acquired shares or freeze the voting rights on those shares. No change seems likely in the minimum offer price though a prop

From the discussions and emerging consensus, it now appears Sebi may not meddle with the 5 per cent creeping acquisition limit or the 20 per cent minimum open offer norm. "Hiking minimum offers above 20 per cent may turn counter-productive and reduce takeovers, which is not healthy", Sebi sources said.

In the case of inter-se transfers between promoters, there is a feeling that an open offer should be made mandatory. Though not strictly an inter-se transfer, the ACC case where Gujarat Ambuja group has come into the company and the Tatas have exited, has made Sebi sit up and take notice.

In the case of indirect takeovers of foreign companies which hold a controlling stake in India, if a foreign parent of a foreign company having a controlling interest in an Indian company is taken over, the immediate foreign parent of the Indian company may be asked to make an open offer.

Meanwhile, industry associations have sought hike in the creeping acquisition limit for existing managements of companies with a provision for `lock-in period’ in SEBI takeover code.

Around 20 investors and industry association representatives who made presentations today to SEBI, emphasised that most provisions of take-over code were relevant, “and there was no need for drastic changes in the code,” SEBI sources said here.

However, industry organisations felt need to increase the limit for creeping acquisition from current five per cent in case of existing managements and promoters, sources said.