Existing takeover code flawed, Sebi step adequate: JR Varma

JR Varma, Former Member, SEBI, is against making Sebi’s takeover code provision Satyam specific. He said Sebi has taken this decision because the existing takeover code is flawed and therefore it is adding a new chapter to the takeover code and saying that here we have a process. “The existing takeover code envisages a takeover process which is run by the buyer. The acquirer initiates the process. He decides when to make an open offer and so on. We want a process which is controlled by the seller.”

Here is a verbatim transcript of the exclusive interview with JR Varma on CNBC-TV18. Also watch the accompanying video.

Q: What kind of ramifications does this have particularly with respect to Satyam and any concerns that you may have in this new norms?

A: I am quite unhappy with this. I have no problem with a company being sold through a transparent bidding process. That is perfectly fine. My problem is why do you make this provision Satyam specific or say that this applies only if you have had the good fortune of having your sacked by the government. If you say that a transparent bidding process is a good way to sell a company then in my view it is good way to sell any company regardless of whether it has a board elected by the shareholders or it has a board appointed by the government. We should have been very clear on that. We should have said that we have had the situation where we find that we are not able to run a good way of selling a company under the existing takeover code. We accept that the existing takeover code is flawed and therefore we are adding a new chapter to the takeover code and saying that here we have a process.

The existing takeover code envisages a takeover process which is run by the buyer. The acquirer initiates the process. He decides when to make an open offer and so on. We want a process which is controlled by the seller. The seller decides that okay, bid is due by 5 pm on Friday – the bids are opened on Thursday – that is the process that we are following. Yes we are adding a new chapter to the takeover code – that’s what I would have liked. To say that it is contingent on all these events happening that is completely missing the point. It is missing the point that the takeover code proved inadequate to run a good auction of a company and if it failed in Satyam it could fail anywhere else. We should have recognized that. That is point number one.

My point number two is I am uncomfortable with saying that once you have run a process this way, then somebody else cannot make a comparative bid. What you are really saying is trust the board, trust Sebi to find out who is the best buyer. Once we have done that nobody else can appeal above the board, above Sebi directly to the shareholders and this is fundamentally unacceptable. The company belongs to the shareholder – anybody must have the right to go directly to the shareholders. And why I am worried about it? Let us imagine a situation tomorrow, you have a private sector bank which is run badly – the RBI steps in, sacks the board, puts in the new board and then one of the bidders for that is a PSU bank. Would I trust the board appointed by the RBI to be fair between a PSU bank and another acquirer? The answer is no. Would I trust any of the regulators – Sebi or RBI to be fair between a PSU buyer and a private sector buyer? The answer is no.

I would like the shareholder of that bank to have the right to have any other bidder come directly to the shareholder going above the board, going above all of these things and I find that provision saying that section 25 does not apply if you have put in this process – that is a very dangerous and unacceptable provision.

Q: You’re saying that what Sebi is trying to say is that they are trying to make the process more transparent inadvertently they have done exactly the opposite?

A: The idea that you cannot have another competing bid is wrong. Who is the board to say that this is the only buyer who can approach the shareholders? The board has no right to do that. The board doesn’t own the company. They can run a whole process and the board has a right to say that we recommend this bid but who the shareholders choose is ultimately is the shareholders right. You cannot take that right away from the shareholders.