Takeover norms: Tossed, not turned

I have a piece today in the Economic Times on the SEBI takeover regulations. I believe it is over-modified and under-reformed. Here are some key paragraphs:

The takeover of substantial number of shares, voting rights or control in a listed Indian company attracts the provision of Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The 1997 regulations have been amended 19 times in the last 13 years. At the same time, a number of obvious problems have not been rectified in the regulations. The large number of amendments have also created requirement of a compulsory tender offer of such unnecessary complexity as to make it virtually unintelligible to even a well-qualified professional.

The complexity in the trigger points for disclosure and tender offer introduced over the years needs to be simplified, making compliance of the regulations straightforward and easy to understand by management of listed companies.

A vast majority of these amendments kept modifying numbers in trigger points for disclosure and compulsory tender offers contained in the regulations. To give just one example, the concept of ‘creeping acquisition’ exemption was modified from 2% in 1997 to 5% in 1998, to 10% in 200,1 to 5% in 2002, to a modified 5% in 2008. In other words, most of them tried to second-guess the wisdom of the original or amended numbers.

The takeover regulations mandate a compulsory tender offer to public shareholders in a dozen circumstances. It is proposed that there should only be one trigger on acquisition of over 5% unless the acquirer owns less than 15% shares of the target company. This would enable a person to acquire up to 15% shares i.e., up to a control figure, and not trigger a compulsory tender offer. Where a person owns any number of shares up to 50%, such person should be entitled to purchase shares or voting rights up to 5% each year by way of creeping acquisition.

Any acquisition over 55% should not be allowed without a compulsory tender offer of such number of shares as would result in a post-acquisition public shareholding of at least 25%. This is consistent with the view of the finance ministry that, gradually, all companies should be mandated to have a minimum of 25% public shareholding.