SEBI can make the rules of open offer stricter. It can ban takeover deals in which promoters are allowed to exit at a higher price discovered through an open offer. Legal sources said that the regulator may make changes in the takeover code. SEBI is considering these to remove the loopholes in the takeover rules.
According to sources, the committee formed to review the rules of takeover has submitted its report. It said, “After the open offer, the acquiring company and the persons associated with the process cannot enter into any negotiated deal at a price higher than the open offer price. This will also include block deals and bulk deals.”
The committee has advised SEBI to make changes in Regulation 8(10) of the existing takeover rules. The source said that its need was felt after a deal for 2022. In that deal, India’s largest infrastructure group had bought shares from the promoters of a Delhi-based media house. This deal was done through open offer tender process at 25 percent more than the fixed price.
In this case, the information about the higher price paid to the promoters was made public 18 days after the open offer closed. Later the acquiring company had to compensate the losses suffered by the minority shareholders. Shareholders who had tendered their shares in the open offer were paid an additional Rs 48.65 per share.
After this case, SEBI had proposed to extend the existing time of 26 weeks for the tendering process. During this period, public shareholders are entitled to receive the difference between the offer price and the higher price paid by the acquiring company. SEBI believed that it was important to share information about this difference in price with those public shareholders who tender their shares in the open offer.
However, the bigger issue that came to light was that those shareholders who have not tendered their shares in the open offer should also be allowed to tender their shares at a higher price. Regulation 8(10) is based on the principle that the highest price paid within 26 weeks should be the original offer price. If this principle is accepted then shareholders who decide not to tender their shares may have the right to sell their shares at a higher price later.