Sebi proposes allowing completion of acquisition through bulk, block deals during open offer

Markets regulator Sebi on Monday proposed to allow completion of open offer acquisition of shares through stock exchange settlement for all types of transactions, including bulk deals and block deals.In the discussion paper, the regulator has proposed to deposit 100 per cent amount in escrow account in case of open offers following indirect acquisitions, and recommended payment of interest in the case of delay in open offers.

Sebi has sought public comments on the proposed amendment to SAST (Substantial Acquisition of Shares and Takeovers) Regulations till March 2 and final norms will be put in place after taking into views of all the stakeholders. In case of allowing completion of acquisition through block deals and bulk deals during the offer period, Sebi said the acquirer will be able to directly acquire significant stake in the target company through stock exchanges instead of negotiating through the off-market route.

The acquirer will be able to complete the acquisition quickly instead of placing small orders for a longer period of time, with appropriate checks and balances, such as shares being kept in an escrow demat account and the acquirer not exercising any voting rights over such shares, unless 100 per cent cash is deposited in the account. Accordingly, Sebi has proposed to allow "completion of acquisition through stock exchange settlement process for all types of transactions including bulk deals and block deals".

In case of indirect acquisition under the Takeover Regulations, Sebi has proposed that an amount of 100 per cent of the consideration payable under the open offer must be deposited two working days before the date of detailed public statement. The regulator noted that since an entity acquires indirect control over the target company by virtue of completing the primary acquisition and enjoys the benefits arising out of being in control over the target company, an amount equal to 100 per cent of the consideration payable under an open offer must be set aside as a security for the performance of obligations under an open offer similar to direct acquisitions.

Further, such escrow account should be in the form of cash and/or bank guarantee, Sebi noted.

In case of delay in the open offer, Sebi said the acquirer may be required to pay interest rate of 10 per cent per annum in respect of indirect acquisitions.
The delay could be due to several reasons such as inter-se dispute among parties to the agreement, valuation disputes, investor complaints, delay in commencing the tendering process and delay in making payment. Sebi has been considering interest rate of 10 per cent for the delayed open offers, and also for extension of time granted to open offers on account of non-receipt of statutory approvals.

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"It is proposed that the revised open offer price may be calculated after addition of interest (10 per cent) and the revised offer price is paid to all the shareholders (in line with the approach currently followed for indirect acquisitions and delays on account of non-receipt of statutory approvals," Sebi said.