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Regulations 2011
By P K Pandya & Co.
Practising Company Secretaries
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Transition
Transformation
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Definitions
Convertible Security means a security which is convertible
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Additions to Persons Acting in Concert: Promoters and members of the promoter group.
Immediate relatives.
A collective investment scheme and its collective investment
management company, trustees and trustee company.
Associate Means: any immediate relative of such person;
trusts of which such person or his immediate relative is a
trustee;
partnership firm in which such person or his immediate relative
is a partner; and members of Hindu undivided families of
which such;
person is a coparcener;
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No.ofshares
traded(A)
1
2
3
4
5
TOTAL
200
300
500
700
600
2,300
MarketPriceper Productof(A)
share(B)
and(B)
500
667
898
450
999
1,00,000
2,00,100
4,49,000
3,15,000
5,99,400
16,63,500
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Modes Of Acquisition
Direct Acquisition of Shares.
Indirect Acquisition of Shares
Direct Acquisition of Control.
Indirect Acquisition of Control.
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Following Explanations have been added:Gross acquisitions alone shall be taken into account regardless
of any intermittent fall in shareholding or voting rights whether
owing to disposal of shares held or dilution of voting rights owing
to fresh issue of shares by the target company.
Example
Mr. A holds 20% and his wife holds 10 % of Equity Share capital
of ABC Ltd as on 31st March 2010. Mr. A acquires additional 2 %
on 1st September, 2010 and another 3 % on 31st December,
2010. He sold 4 % of his shares on 31st January, 2011 in open
market. He wants to acquire another 2% on 1st March, 2011. Can
he do the same?
Yes, But he will have to make an open offer.
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It has been further stated in Regulation 3(3) that:For the purposes of sub-regulation (1) and sub-regulation (2),
acquisition of shares by any person, such that the individual
shareholding of such person acquiring shares exceeds the
stipulated thresholds, shall also be attracting the obligation to
make an open offer for acquiring shares of the target company
irrespective of whether there is a change in the aggregate
shareholding with persons acting in concert.
Case 1
Mrs. A holds 10% and Mr. A holds 22% of Equity Share capital of
ABC Ltd as on 31st March 2010. He acquires additional 4 % from
Mrs. A. Whether he will have to make an open offer?
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Case 1
H Ltd owns 60% of Equity Shares of T ltd. Mr. A owns 5% and Mrs. A holds
10% equity shares in T ltd. Mr. A acquires 20% stake in H Ltd. Whether he
will have to make an open offer?
No, he will not have to make an open offer. As 20% stake is a minority stake
which does not enable the holder to influence the decisions of H Ltd. It does
not enable him to exercise voting rights over T Ltd.
Case 2
Mr. A owns 5% and Mrs. A holds 10% equity shares in T ltd. Mr. A acquires
60% of Shareholding in Z Ltd which owns 12% in T Ltd. Will he be required
to make an open offer?
Yes, he will have to make an open offer. As 60% stake is a majority stake
which enables the holder to influence the decisions of Z Ltd. It enables him
to exercise voting rights of 27% over T Ltd.
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Voluntary Offer
The acquirer together with PAC must hold 25% or more equity shares or
voting rights.
The acquirer or PAC should not have acquired any shares by creeping
acquisition or by any mode which is exempted during the 52 weeks
preceding the PA. However he can acquire shares by way of Bonus or
Stock Split or an open offer.
Compliances to be made if a voluntary open offer is made:1. The acquirer shall not acquire any shares during the open offer
otherwise than under the open offer.
2. The acquirer cannot acquire any shares for a period of six months after
completion of open offer. However he can make another Voluntary offer
or make a competing offer during the said period.
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Disclosure Requirements
Regulation281. The disclosures under this Chapter shall be of the aggregated
shareholding and voting rights of the acquirer or promoter of the
target company or every person acting in concert with him.
2. For the purposes of this Chapter, the acquisition and holding
ofanyconvertiblesecurityshallalsoberegardedasshares,
and disclosures of such acquisitions and holdings shall be made
accordingly.
3. For the purposes of this Chapter, the term encumbrance shall
include a pledge, lien or any such transaction, by whatever name
called.
4. Upon receipt of the disclosures required under this Chapter, the
stock exchange shall forthwith disseminate the information so
received.
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Continual Disclosures
These disclosures to be made by every person which together
with PACs hold more than 25% of shares or voting rights in the
target company and also the promoters of target company.
They have to disclose their aggregate shareholding and voting
rights as of the thirty-first day of March, in the Target
Company.
Disclosure to be made within 7 working days from the end of
Financial Year to every stock Exchange where the shares of
the Company are listed and to the Company.
Case1:
As on 31/03/2011 Mr. A together with Mr. P holds shares of T
Limited which entitles them to exercise more than 25% voting
right in T Limited.
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Offer Size
The offer size under regulation 3 and regulation 4 shall be for at
least twenty six per cent of total shares of the target company,
as of tenth working day from the closure of the tendering period.
Obligation has been placed on the acquire to take into account
all potential increases in the number of outstanding shares
during the offer period contemplated as of the date of the public
announcement.
If there is an increase in total number of shares, after the public
announcement, which is not contemplated on the date of the
public announcement then the offer size shall be proportionately
increased.
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The Size of the voluntary shall be minimum 10% and shall not
where
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Dateof
PricePaidpershare
NoofShares
Acquisition
Acquired
15/03/2010
500
15,00,000
15/04/2010
550
5,00,000
15/05/2010
650
10,00,000
15/06/2010
450
25,00,000
15/07/2010
700
5,00,000
17/08/2010
750
10,00,000
12/09/2010
470
5,00,000
06/10/2010
590
5,00,000
09/11/2010
640
10,00,000
09/12/2010
900
10,00,000
Total
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1,00,00,000
Dateof
Acquisition
15/04/2010
15/05/2010
15/06/2010
15/07/2010
17/08/2010
12/09/2010
06/10/2010
09/11/2010
09/12/2010
15/03/2011
Total
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PricePaid NoofShares
per
Acquired(B)
share(A)
550
650
450
700
750
470
590
640
900
850
5,00,000
10,00,000
25,00,000
5,00,000
10,00,000
5,00,000
5,00,000
10,00,000
10,00,000
1,60,00,000
2,45,00,000
Product(AxB)
27,50,00,000
65,00,00,000
1,12,50,00,000
35,00,00,000
75,00,00,000
23,50,00,000
29,50,00,000
64,00,00,000
90,00,00,000
13,60,00,00,000
18,82,00,00,000
8(5) In the case of an indirect acquisition and open offers under subregulation (2) of regulation 5 where,
the proportionate net asset value of the target company as a
percentage of the consolidated net asset value of the entity or
business being acquired;
the proportionate sales turnover of the target company as a
percentage of the consolidated sales turnover of the entity or
business being acquired; or
the proportionate market capitalization of the target company as
a percentage of the enterprise value for the entity or business
being acquired; is in excess of fifteen per cent, on the basis of
the most recent audited annual financial statements, the acquirer
shall, notwithstanding anything contained in sub-regulation (2) or
sub-regulation (3), be required to compute and disclose, in the
letter of offer, the per share value of the target company taken
into account for the acquisition, along with a detailed description
of the methodology adopted for such computation.
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Example.
Astra Inc is a company incorporated in USA, It has a Subsidiary in India by
the name of Astra India Limited which is listed on BSE and NSE. Vertigo
Inc. acquires 51% in Astra Inc for $6,000. The Consolidate NAV of Astra
Inc is $4,000 Crores, Consolidated Sales is $8000 croresand Market
Capitalization is $10,000 Crores. NAV of Astra India is $1,000 Crores,
Sales are $ 3000 Crores and Market Capitalization is $3,000 Crores.
Since there is an indirect acquisition of Astra India, Vertigo will have to
make a open offer in India. Since the Proportionate NAV, sales and Market
Cap of Astra India as a percentage of the consolidated NAV, sales and
Market Cap of Astra INC is 25%, 37.5% and 30% respectively the
provisions of this sub regulation are attracted. Hence Vertigo Inc is
required to compute and disclose, in the letter of offer, the per share value
ascribed to Astra India when determining the price for acquisition of Astra
Inc, along with a detailed description of the methodology adopted for such
computation.
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8(14) The offer price for equity shares carrying differential voting
rights shall be determined by the acquirer and the manager
to the open offer with full disclosure of justification for the
price so determined, being set out in the detailed public
statement and the letter of offer:
Providedthat such price shall not be lower than the amount
determined by applying the percentage rate of premium, if
any, that the offer price for the equity shares carrying full
voting rights represents to the price parameter computed
under clause (d) of sub-regulation 2, or as the case may be,
clause (e) of sub-regulation 3, to the volume-weighted
average market price of the shares carrying differential
voting rights for a period of sixty trading days computed on
the same terms as specified in the aforesaid provisions,
subject to shares carrying full voting rights and the shares
carrying differential voting rights, both being frequently
traded shares.
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Example
ABC Limited has 2 classes of Equity shares namely Ordinary
Equity Shares and DVRs. The open offer price of Ordinary shares
in Rs. 130 per share. The 60 Days VWAMP of ordinary shares is
Rs. 100 per share and for DVRs Rs. 50 per share. Calculate the
minimum offer price for DVRs.
The offer price of ordinary shares is at a 30% premium to its
60day VWAMP. Hence the minimum price for DVRs will be Rs. 65.
8(16) For purposes of clause (e) of sub-regulation (2) and subregulation (4), the Board may, at the expense of the
acquirer, require valuation of the shares by an independent
merchant banker other than the manager to the open offer
or an independent chartered accountant in practice having
a minimum experience of ten years.
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