SEBI’s Amendments to SEBI (SAST) 2011 Regulations

 

On January 18, 2013, SEBI issued a press release amending certain provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. These amendments will take away some of the regulatory hurdles for approval of the Diageo-United Spirits open offer, the provisions of which had come under review by regulators and market participants.

 

InGovern had put out a review paper in December 2012 contesting certain provisions of the United Spirits-Diageo agreement and the timing of the public announcement and hence the interpretation of the open offer price not being in line with current provisions of the SEBI (SAST) 2011 Regulations. The review paper also aimed at seeking clarifications from SEBI for future transactions, as to whether the company’s interpretation was in line with the provisions of SEBI (SAST) Regulations 2011. Our previous article on United Spirits – Diageo open offer can be read here.

 

These amendments gives more clarity to market participants on the interpretation of the open offer price for the United Spirits transaction as well for such transactions in future, where change of control happens either through a preferential allotment or through any combined modes of acquisitions. However it needs to be seen if the amended norms will come into effect in a retrospective manner for the deal to go through, which is still subject to CCI approval.

 

The contents of the press release relating to amendments to the SEBI (SAST) 2011 Regulations are listed below:

 

(a) Relevant date for making Public Announcement and determination of offer price in cases of combined modes of acquisition

Where the open offer obligations are triggered pursuant to an agreement or otherwise in combination of any modes of acquisition, the ‘relevant date’ for making the Public Announcement and determination of offer price shall be the earliest date on which obligations are triggered. This will, however, not be applicable if the subsequent trigger is on account of willful and deliberate act on the part of the acquirer.

(b) Relevant date for making Public Announcement and determination of offer price in cases of preferential allotment

The information about the impending preferential allotment comes into the public domain on the date of the Board resolution which authorizes the preferential allotment and the market price gets adjusted or may even rise which exposes the transaction to market risks. Therefore, it has been decided that the date of board resolution authorizing the preferential allotment shall be the relevant date for the purpose of triggering open offer obligations and determination of offer price, instead of the date on which special resolution is passed under Section 81(1A) of the Companies Act, 1956.

(c) Aligning disclosure requirements under Takeover Regulations with SEBI (Prohibition of Insider Trading) Regulations, 1992

In order to bring parity in disclosure requirements among various SEBI regulations, the disclosure requirement with regard to buy or sell two percent by persons holding more than five percent as specified in Takeover Regulations, 2011 shall be modified in line with SEBI (Prohibition of Insider Trading) Regulations, 1992.

(d) Clarification on reckoning the period of ninety days in case of increase of voting rights due to buyback by target company

Presently, if the voting rights of a shareholder, who is not a party to the buyback arrangement, go beyond the prescribed threshold limit on account of buyback by the target company, the open offer requirement will not be triggered if voting rights are brought below the threshold limit within ninety days from the date on which the voting rights so increase. It has now been clarified that the period of ninety days will be reckoned from the date of closure of the buyback offer.

(e) Norms for completion of market purchase of shares made during the offer period

Presently, the Takeover Regulations do not allow completion of acquisition of shares or voting rights which triggers the open offer obligations until the expiry of the offer period. But such acquisition can be completed after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account.

 

The regulations also allowed purchase of shares from stock exchange which required to be completed within two days as per settlement process, thus creating an anomalous situation. It has, therefore, now been decided that market purchases made during the open offer period can be completed during the open offer period subject to such shares being kept in an escrow account. Further, these shares can be transferred from the escrow account to the name of the acquirer after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account.

The entire press release can be read on this link: SEBI Press Release – January 18 2013