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Sebi changes write-off rules to make merger and acquisition more convenient

Sebi has changed the rules for delisting a company’s shares following a public offering as part of efforts to facilitate M&A transactions for listed companies. Under the new framework, developers or buyers must disclose their intention to delist the company through an initial public announcement, according to a notification.

If the acquirer wishes to delist the target company, the acquirer must offer a higher delisting price with an appropriate premium over the open offer price. In the event that the open offer concerns an indirect acquisition, the price of the open offer and the indicative price will be communicated by the purchaser at the time of the detailed public declaration and in the letter of offer.

“The indicative price includes an appropriate premium reflecting the price that the purchaser is prepared to pay for the delisting offer with full information on the reason and justification for the indicative price thus determined which may also be revised upwards by the ‘buyer before the start of the bidding period,’ Sebi said in a notification Monday. Under the current framework, if an open offer is triggered, compliance with the regulations relating to takeover bids could increase the participation of the incoming buyer to more than 75% or even 90%.
However, to ensure compliance with the rules (regulations) relating to securities contracts, the acquirer would be forced to reduce its stake to 75% first, as Sebi’s delisting standards would not even allow the acquirer to attempt a delisting unless participation is first reduced. at 75 percent. Such transactions with contradictory direction in a sequence complicate the takeover of listed companies, in particular when the acquirer wishes to obtain the delisting of the company following its takeover.

The revised framework aims to make mergers and acquisitions (M&A transactions) for listed companies a more rational and practical exercise, balancing the interests of all investors in the process. Under the new framework, Sebi said if the response to the open offer succeeded in meeting the 90 percent delisting threshold, all shareholders who tendered their shares would be paid the target price.

In the event that the response to the offer results in failure to meet the 90 percent delisting threshold, all shareholders tendering their shares will be paid the price of the open offer. If a company is not delisted following an open offer in this context and the buyer exceeds 75% due to the open offer, a period of 12 months from the closing date of the open offer will be granted to the acquirer for attempts to delist the company from listing using the reverse book building mechanism.

This new delisting attempt will be successful if 50 percent of the remaining public shareholding is acquired and the delisting threshold is reached. If delisting during this extended 12-month period is unsuccessful, then the acquirer must comply with the minimum public shareholding standard within 12 months of the end of this period.

If the buyer at the time of the open offer declares from the outset that he would choose to remain listed and the total participation at the end of the tender period exceeds 75%, then the buyer can opt for a proportional reduction in purchases made in both, i.e. the underlying stock purchase contract and the shares tendered to the public offering. The reduction will be effected in such a way that the 75% threshold is never crossed or, failing this, the purchaser will have to comply with the minimum public shareholding within the period stipulated by the Securities Contract (Regulation) Rules, 1957.

To achieve this effect, the Securities and Exchange Board of India (Sebi) amended the SAST (Substantial Acquisition and Takeover) Regulation. The new rules went into effect on Monday. This came after Sebi’s board of directors approved a proposal in this regard in September.


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