SEBI might soon make company acquisitions easier in India
What's the story
The Securities and Exchange Board of India (SEBI) is considering a major change in its takeover regulations. The proposed amendment would require target companies to provide essential information to acquirers during an open offer. This change is likely to be included in the ongoing review of the Takeover Code Regulations, according to Moneycontrol.
Regulatory gaps
Current regulations and challenges
Under the existing takeover regulations, acquirer companies are required to ensure that their public announcements and offer letters are accurate and not misleading. However, there is no such obligation on target companies to cooperate or provide information for an open offer. This has led to difficulties in cases where the bid for control of a target company isn't backed by its management or current controllers.
Corporate disputes
Legal battles over non-cooperation
The lack of cooperation from target companies has led to long legal battles. One such case involved a non-banking financial company (NBFC) that didn't seek statutory approval from the Reserve Bank of India (RBI), despite repeated requests from the acquirer. This prompted SEBI to issue a directive with a timeline for compliance. The review was triggered by this corporate episode and others like it.
International standards
Global practices and potential changes
The proposed amendment to the Takeover Code is in line with global practices where target companies are obligated to share information and cooperate with acquirers. The UK Takeover Code has similar provisions. The review committee has suggested that the board of the target company should be responsible for sharing information and cooperating for an open offer. It also recommends that target companies should fulfill all obligations necessary for a successful open offer, including applying with statutory regulators.
Regulatory amendments
Potential restrictions on willful defaulters
The SEBI is also considering restricting willful defaulters from making competing offers. The rationale behind this proposed change is that a willful defaulter may not be able to meet the financial obligations under the takeover regulations. Currently, while willful defaulters are barred from making an open offer, they can still make a competing offer if another person makes an open offer for acquiring shares of the target company.