The board of the market regulator, the Securities & Exchange Board of India (SEBI), has eased the framework for delisting companies following an open offer from the acquirer.
The key change in the new rule gives acquirers the ability to announce an open offer and a delisting together at a differential pricing. Under the current norms, even if an acquirer mops up 90 percent of a target company’s shares under an open offer (this is the delisting threshold), it has to bring down its stake to 75 percent before announcing delisting. Current norms require companies to have a minimum public shareholding of 25 percent.
Now, the acquirer can announce a delisting price at a premium to the open offer price simultaneously. If the delisting is successful, all tendering shareholders will get the delisting price. If it is unsuccessful, then all tending shareholders will get the open offer price, which is guided by a SEBI formula.
If the acquirer ends up with shareholding between 75 percent and 90 percent after the open offer, it will be given an additional 12 months to pursue delisting.
“These changes will considerably facilitate M&A in listed companies" said Salil Pitale, Joint MD & Co-CEO at Axis Capital. He added, “This will smoothen the process of M&A with the delisting process, pursuant to change of control, becoming much easier.”
Other experts also welcomed the move.
“All tendering shareholders get the benefit of dual pricing. This has been done in the interest of both the shareholders and the company, so that the companies can have the option of stating intent to delist at the outset and the shareholders get the price they deserve,” said JN Gupta, Member of Primary Market Advisory Committee at SEBI.
If the acquirer still cannot get its target listed in the additional 12 month window, then it has to comply with the minimum public shareholding norm of 25 percent, SEBI said.
Pitale added: “The additional 12 month window to give another chance to attempt delisting, is a very welcome move.”
For a delisting to be successful, company has to acquire at least 90 percent of the stake, without which the delisting cannot go through. Current norms specify that when there is a change of control in a company that triggers the takeover code, the acquirer is required to make an open offer to shareholders for at least 26 percent of shares.
In the past, companies such as Wabco India and Federal-Mogul Goetze, among others, have faced the situation of having to go through a cumbersome process before delisting. The new norms are likely to avert such issues in the future and give a boost to transactions.
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