Satyam regulations

In an ad hoc move, the Indian securities regulator has created an amendment for Satyam in the takeover regulations. This is wrong in principle even though the regulator may have done it with good intentions. The amendment also reduces the scope of a fair competition in the bidding process. Also, as an amendment specifically targeted at Satyam, it will have unintended consequences in similar but not identical cases and would also be open to misuse.

To give a background - the takeover regulations prescribe that any substantial acquirer of shares or control of a listed company creates an obligation on the acquirer to make a tender offer for such target company at a minimum price. Since the minimum price is based on historical prices, and since the historical price of Satyam (before the discovery of the fraud) was substantially higher, no one would be able to make a tender offer for Satyam, making it difficult to sell the company in the market.

The 'Satyam amendment' as I call it, to the takeover regulations, exempts acquiring companies from the mandate of a compulsory tender offer (and other norms) if a) the Board of such troubled company is recomposed by the Central/State government b) the target directors set a competitive process to sell the company c) such relaxation is in the public interst.

There are already umpteen number of exemptions in the takeover regulations, and I am not sure whether this one was at all needed. Here are the list of exemptions already available a) Regulation 3 contains a series of 15 exemptions b) Takeover Panel based case by case exemption c) creeping acquisition exemption d) Regulation 12 proviso exemption (which is a bizarre relic of the past) e) bailout of companies exemption (Chapter IV).

It is not clear to me why the Satyam case could not be fitted into a Takeover Panel exemption. It could also perhaps be fitted into the exemption for bailout of companies (for which an entire part of the regulation is devoted). In addition, the regulation prohibits competitive bids to take place and thus reduces competition between acquirers and gives too much power to government appointed directors in the process. While we may be comfortable with the integrity of the Board of Satyam, clearly, these provisions could be grossly misused in other cases. In any case I'm not sure if all this brouhaha is worth anything, because the contingent liabilities from US and Indian courts is something which no regulator or government can protect against.