Ipca Labs' promoters KIPL may get exemption from making open offer: SEBI's informal guidance

After the proposed merger, PCPL will stand dissolved and all its assets, liabilities and properties would get transferred to KIPL, including PCPL's 4.01 percent stake in Ipca Labs

Ipca Laboratories' promoters have been informed that they may be given an exemption from making an open offer, even when the share-transfer would result in one of them Kaygee Investments Pvt Ltd (KIPL) having more than 25 percent stake in the pharma major.

This was in response to a clarification sort by KIPL about a scheme of amalgamation under which another promoter entity Pashchim Chemicals Pvt Ltd (PCPL) would merge with KIPL. Both promoter entities, KIPL and PCPL, are controlled and managed by the Premchand Godha family.

In an informal guidance note issued on April 3, the Securities and Exchange Board of India's (SEBI's) Corporate Finance Department said, "based on the submissions made and the facts presented, it appears that the proposed acquisition of shares by KIPL in the Target Company (Ipca Labs), leading to an increase in KIPL's shareholding from 21.47% to 25.48%, qualifies for an exemption from open offer obligations under Regulation 10 (1) (d) (iii) of the Takeover Regulations, subject to fulfillment of all other applicable conditions and approvals as required by law".

Under SEBI's (Informal Guidance) Scheme does not express a decision of the regulator. Under the scheme, the letter "issued by a Department (of SEBI) constitutes the view of the Department but will not be binding on the Board (SEBI), though the Board may generally act in accordance with such a letter."

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The scheme under consideration is the merging of PCPL with KIPL. After the merger, PCPL will stand dissolved and all its assets, liabilities and properties would get transferred to KIPL, including PCPL's 4.01 percent stake in Ipca Labs. Following this stake transfer, KIPL would hold its 21.47 percent plus this 4.01 percent, resulting in KIPL holding 25.48 percent of Ipca Labs' shareholding.

The informal guidance note said by virtue of provisions of regulations 3(1) read with 3(2) of the Takeover Regulations, the acquirer, KIPL would be under an obligation to make an open offer.

However, it added, certain acquisitions are exempted under regulation 10 of the Takeover Regulations and cited regulation 10 (1)(d)(iii) of the Takeover Regulations. The exemptions are given if the scheme of arrangement does not involve the target company as a transferor or transferee; if the cash component paid does not exceed 25 percent of the total consideration; and at least 33 percent of the voting rights of the combined entity pose-scheme be held by the same persons who held the entire voting rights before the implementation of the scheme.

The note said, "based on your submissions, it is observed that the restructuring involves only KIPL and its wholly owned subsidiary, PCPL, with no direct involvement of the Target Company, IpcaLaboratories Limited. In the proposed scheme, the entire shareholding of PCPL would be extinguished, there would be no fresh issue of shares and the assets and liabilities of PCPL would be transferred to KIPL. There would therefore be no cash component in the transaction. Furthermore, the shareholders of KIPL would continue to hold the shares post implementation of the proposed scheme such that the Premchand Godha family will retain 100% voting rights in KIPL, ensuring continuity".