SEBI amends takeover regulations to shield against M&A stock price disruptions: Report

From June 1 onwards, the top 100 listed companies will have to confirm, deny, or clarify any media-reported information that leads to a significant price movement of the shares within 24 hours of the trigger.

The cost of mergers and acquisitions (M&A) for Indian companies could likely come down as the Securities and Exchange Board of India (Sebi) has reportedly made key changes to the takeover regulations.

Notably, the volume-weighted average 60-day before the M&A announcement is the crucial formula for determining the open offer price.

However, news about potential M&A deals often gets reported by media before the formal announcement, causing a surge in the target company’s stock price. This results in a higher open offer price, which makes the acquisition more costly for the acquirer.

The market regulator has stated that disruptions in stock prices due to news reports or leaks of sensitive information will be excluded when determining the open offer price, reported Business Standard.

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This amendment is part of SEBI’s new rumour verification framework that comes into effect on June 1, 2024, the report said.

From June 1 onwards, the top 100 listed companies will have to confirm, deny, or clarify any media-reported information that leads to a significant price movement of the shares within 24 hours of the trigger.

This requirement will be extended to the top 250 listed firms from December 1, the publication said, adding that the norms were initially set to be implemented in February before the postponement.

Under Sebi regulations, the pricing for preferential issues, open offers, and other transactions is based on the volume-weighted average price (VWAP), which calculates a stock’s average price over a period, factoring in trading volume.

The regulator has proposed using the “unaffected price” for these calculations instead.