Chillin' out till it needs to be funded
SEBI’s proposed new Takeover code that rewrites the existing M&A regulations and thence circulars, takes shape as the final recommendations were presented by the appointed Takeover Panel India’s first attempt at a Takeover code 15 years ago, aimed at building an opportunity marketplace in large deals allowing genuine promoters to upgrade their ownership of large business houses to a reasonable level, while leaving a window of opportunity for professional managers and their supporters to buy into other corporates and also maintain a modicum of transparency for retail investors. The open offer for a minimum of 20% was triggered at 15%. The new rules, published in the here and now again, show no prescience of the corporate world but rather an incessant argument with legal representatives and larger corporates over these 15 years of the law in practice. And that’s much a good thing as even harmonization with International practices would make a significant dent in investor irritation and thence PR focus on India’s unfriendliness as an investment destination
Having said some arcane unsaids of the new code, however a listing and brief impact of each of the new takeover code components would be in order. Open Offers now need to be made only once a threshold of 25% holding in a company has been reached. If a creeping acquisition route is employed (still at 5% annually) one can go up to a holding of 75% instead of 55%, with annual disclosures. Warning modes and triggers have not changed despite their ad hoc beginnings or are too far down in the code for me to get through at this point. Open offers however have to be made for any amount from 10% to 75% of the acquired company’s shares and if the final holding is less than 25% in public categories and more than 10% i.e. the company has not gone private and automatically delisted, then the new company has to make a public offer of shares to take the public holding to the new public threshhold of 25% for listed companies.
The last one, obviously will make sure that the new code be as contentious and fractious as the previous edition. Foreign investors on paper have a significant advantage now that they can acquire up to 25% and even more by the creeping acquisition route as long as they understand and can traverse FDI guidelines without stepping into tax related quicksand and an open offer for retail shareholders. Also such other inter agency matters will hold their interest and may not cause any significant changes in their public stance and in their lobbying with the government. Though the market retains an underlying positive trend, the inability of new regulation to clarify the situation for forthcoming investors is going to test the market’s patience especially when we have a new shadow tracker of the Nifty now launching in Chicago in a few hours.
The new Rupee sign, the new FDI guidelines and corresponding moves in Defence, retail and media or the new denominator of $250bn in reserves are correspondingly nullified by superceding of RBI’s status by ordinance, by laws and inter agency coordination issues almost certain to be red flags in every deal and the inability of such investors to understand a partially convertible economy. SEBI however remains the sole regulator in the Securities regulations area, however Corporate Law is still being redrafted independently by the Ministry of MCA ( Corp Affairs/Law) IRDA /SEBI turf wars were resolved vide the new ordinance and the domestic domicile still expected to be RBI’s domain to clarify.The PMO may resolve Pranab’s folly created by the use of an ordinance but RBI and others would still be stymied by potential make or break deals whence each Corp law notification/ new SEBI Takeover Code notification will intersect leading to more banana republic and other curvaceous insinuations by FII employees and PR professionals with JP Morgan and Goldman Sachs, not to forget lawyers like Amarchand Mangaldas Shroff and others free to therefore interpret the middle ground to their pernicious motives and thus suit their own ways.
We look forward to competing securitiees products from the MCX however as they take on NSE in this next phase when they would also be trading currency derivatives and equities and NSE would be trading in Chicago and Singapore overnight before opening in India at 9am ( Check Indian Nifty Travels on this Series)
Takeover Norms propose Third party vetting of Open Offer valuation and better pricing while right now proposals also include that any open offer has to be for all the remaining outstanding shares not likely to stay in its current one shot form after consultations. Also companies present the open offer when they create the shareholder agreement on the same day and financing has to be presented in the open offer prospectus to validate its feasibility. The proposal for 100% of the company mandatorily means that MNCs delisting may now get valid subscribers to their open offers without mispricing but may be infeasible to many other proponents of inorganic M&A strategies for growth and market share acquisition. No control point valid for open offer below 25% stake (negative control) has been defined much to bankers’ disappointment. The same may be flagged for changes in Corporate Law to clarify, leading to one such flash point.