New Takeover Code: Minority shareholders can still miss out
The difference between the draft Takeover Code and the final set of rules approved by the Sebi board is that the first one was perceived to be too acquirer unfriendly, while the second one could well turn out to be too acquirer friendly.
July 29, 2011 / 10:45 IST
Santosh Nair
Moneycontrol.comThe difference between the draft Takeover Code and the final set of rules approved by the SEBI board is that the first one was perceived to be too acquirer unfriendly, while the second one could well turn out to be too acquirer friendly.The committee headed by former Securities Appellate Tribunal (SAT) Head C Achutan had proposed that the limit on the maximum stake an investor could hold without having to make an open offer, be raised to 24.99% from 14.99%. However, once the threshold was breached, that investor (acquirer) would have to make an open offer for the entire remaining equity, instead of only 20% as the current regulations stipulate.The proposed rule was beneficial to minority shareholders because they could be assured of an exit if they so chose to exercise it. Experts felt that it would make acquisitions prohibitively expensive for acquirers. Besides, Indian acquirers would be at a disadvantage to their overseas counterparts, as they (Indians) could not use bank funds to finance the deal. With the fear of being taken over minimal, incumbent promoters could afford to ignore minority shareholders. The new rule allows potential acquirers to hold up to 24.99% in a company without having to make an open offer, against 14.99% as is the present rule.Minority shareholders stand to gain more if the takeover attempt is hostile. In India there have been hostile takeover attempts in the past, but almost all of them have flopped as the regulatory and business environment does not look upon such deals favourably.The Ambanis hostile attempt to takeover Larsen & Toubro in the 80s came to naught because of opposition. Global tobacco major BAT did not fare any better when it tried to take control of ITC. In the 90s, financial institutions threatened to sell their holdings in Modi Rubber to any interested buyer, over non-repayment of loans. The promoters
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