India Inc welcomes new takeover code

Consultants, lawyers and companies across the board believe the Securities and Exchange Board of India decision to raise the open offer trigger to 25 per cent from 15 per cent will enliven the deal market, both for private equity players and foreign institutional investors.

"It is a positive move, especially for financial investors who can now come in without having to worry about triggering an open offer. It is a good move for corporates as well, who can now go for more private placements.

"It will encourage foreign institutional investors to come in and invest in good stocks in India," said V Ashok, group chief financial officer, Essar group.

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The decision to increase the trigger limit will lead to more transactions in companies where private equity players have to be satisfied with slightly lower than 15 per cent in a company, despite their preference to remain just financial investors, said Ashok Wadhwa, Group CEO, Ambit.

"However, strategic investors will have to be ready to spend more to get control." The trigger in Japan for an open offer is 33.3 per cent, Hong Kong 30 per cent and in Singapore it is 29.99 per cent.

In all three countries, the trigger requires an acquirer to make an offer for the entire company.

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However, there were mixed opinions over Sebi's proposal to increase the open offer size to 26 per cent from the current 20 per cent.

Last year, the Achuthan Committee on Takeover Regulations had recommended that an open offer ought to be for all the shares (100 per cent) of the target company "to ensure equality of opportunity and fair treatment of all shareholders, big and small".

Satyen Shah, head, equity capital markets at Edelweiss Capital, said it was a "welcome step as it would have made acquisitions too expensive, especially for Indian promoters who do not have access to bank funds for acquisitions".

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However, Wadhwa of Ambit believed that limiting open offer to minimum 26 per cent "is not in the interest of minority shareholders" as they will not get a complete exit opportunity.

On Sebi abolishing non-compete fees, Manvani of PWC said: "The move may have been triggered by Sebi's need to usher in better governance in deals."

He said in some deals, companies would split the total pricing consideration (deal size) into a non-compete fee portion so that the acquirer spent less on the total transaction cost while the promoter earned more."