Change in Shareholding of Individual Promoter Triggers Takeover Code

[The following guest post is
contributed by Supreme Waskar,
who is a corporate lawyer]
In
its interpretative
letter
dated March 01, 2016 under the SEBI (Informal Guidance) Scheme,
2003, in the matter of Capital Trust Limited (“CTL”), SEBI clarified the provisions of regulation 3(3) of the SEBI
(Substantial Acquisition of Shares and Takeovers), Regulations, 2011 (“Takeover Code”).
Facts
Pursuant
to sale of shares of CTL by its corporate promoter on July 21 and 28, 2015, the
shareholding of the promoter group of CTL came down to 71.87% from 72.05%. However,
the shareholding of the individual promoter in CTL increased by around 8%
pursuant to subscription of shares of CTL by way of conversion of warrants on
July 28, 2016.
Relevant Provisions of the Takeover
Code
Regulations
3(1) & 3(2) of the Takeover Code restrict the shareholding of the promoter
group from crossing the threshold limits prescribed thereunder without making a
mandatory open offer. The aggregate shareholding of acquirer and persons acting
in concert (“PAC”) is considered for
determining a trigger of Regulations 3(1) and 3(2). In terms of Regulation
3(2), during a financial year the promoter group or individual promoter can
acquire up to 5% of the share capital of the company without making an open
offer.
Further,
Regulation 3(3) of the Takeover Code clarifies that acquisition of shares by
any person resulting in his individual shareholding exceeding the prescribed thresholds
shall trigger open offer obligation irrespective of whether there is a change
in the aggregate shareholding with PAC. This clarification is intended to
negate the claim that the increase in individual shareholding / voting rights
beyond a prescribed threshold should not trigger an open offer if the aggregate
shareholding / voting rights of the acquirer and PAC do not exceed the
threshold applicable to such aggregate shareholding / voting rights.
SEBI’s View
In
terms of regulation 3(3) of the Takeover Code, a change in individual
shareholding of an acquirer, irrespective of change in aggregate shareholding of
the acquirer with PAC will attract regulation 3(2) and consequently will
require compliance with the obligation to make an open offer.
As
per the SEBI’s Interpretative Letter, since regulation 3(2) read with
regulation 3(3) of the Takeover code was triggered upon an 8% increase in the
shareholding of the individual promoter, CTL will be required to make a delayed
open offer.
Offer Price and Interest on Delayed
Open Offers
Since
the Rhodia SA matter in 2000, SEBI follows the same principle for open offer
price i.e. highest of open offer price derived based on reference dates:-  (i) the date of actual public announcement;
or (ii) the date of violation, along with interest on the offer price from the
date of violation till the date of actual payment of consideration to the
shareholders on the date of violation and for the shares to be tendered in the
open offer.

– Supreme
Waskar

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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