SEBI warns of share price foul play in open offers

Suspecting foul play by promoters and other bodies through frivolous open offers aimed at influencing share price of listed firms, market watchdog Sebi is working on safeguards against such practices.

The steps being mulled by the Securities and Exchange Board of India include
tougher norms for withdrawal of offers at a later stage and even delinking of offered price from prevailing market rates, a senior official said.

In entire takeovers or any significant purchase of shares by promoters or other large investors in listed companies, regulations make it mandatory for the acquirer to make an open offer for purchase of additional shares from the public investors.

However, the open offer price is determined on the basis of average prevailing market price of the company, while a spike is generally noticed in the share price in the run-up to the announcement of such offers and even later in hopes the offer might be revised upward by  acquirer to get desired shares.

SEBI feels promoters and other bodies tend to use open offers to jack up share price and withdraw the same later, while citing insufficient response as an excuse, the official said.

As a safeguard mechanism, Sebi is mulling delinking open offer price from prevailing market rates and linking it entirely with the price agreed between the acquirer and sellers.

However, any decision in this regard would require much more consultation, the official said.

With regard to ‘frivolous’ open offers, the Sebi board has already been apprised of the apprehension that some acquirers may use these offers as a means to influence the market price and then attempt to withdraw the offer saying subsequent acquisition was unsuccessful.

It has been proposed that acquirer should not be allowed to withdraw open offer on such grounds.