NEW TAKE OVER CODE

Till now take over of company was not so expensive.Companies can merely acquiring 15% stake and then make open offer for next 20% to remaining shareholders and due to this small share holder were biggest losers, but now a potential acquirer will have to pick up the entire quantum of remaining shares once the threshold limit of 25% is triggered. This will make take over much more expensive from current level. But before analyzing new takeover code its worth knowing following fact.

• In last 5 years more than 100 take over has been done only in less than  15% of the open offers did the acquirer offer to buy more than the mandatory 20%. 
• As per international standards the acquirer agrees to buyout all remaining shares
• The takeover code was amended many times before 1997 it was 10% then it was changed to 15% and now its proposed to 25%
• Today, the mean and median of promoter shareholdings in listed companies are at 48.9% and 50.5% of the total equity capital and the number of companies that are controlled by promoters holding 15% or less is less than 8.4%.
• Internationally countries like UK, European Union, Singapore and Hong Kong threshold limit ranges between 30-35%

 Based on above facts it  was expected that this trigger limit may be higher but what the committee has done is to allow promoters who already have a stake of 25% to continue to make a creeping acquisition of up to 5% a year, without making an open offer up to the maximum permissible non-public shareholding limit or 75%. That gives the promoters the flexibility to beef up their stake in the company, over a period of time.

Ideally, the market price should not form part of the criteria to decide the open offer price since the price negotiated between the buyer and the seller is the best indicator. However, the committee has decided that although the market price may not always be relevant, it should be retained for some more time as one of the criteria used to determine the offer price. The committee has, however, tweaked the rules to try and ensure that the market price of the shares in question cannot be manipulated by suggesting the use of a volume-weighted average price for the last 60 days, instead of the average of the weekly highs and lows for 26 weeks. Clearly, it would be more expensive to tamper with prices because the volume will now be taken into consideration. All in all, any buyout will become more expensive for acquirers now because the open offer will also have to take into account any non-compete fee that they pay to the seller.

But in my opinion this takeover code can be misused by the company at times though now trigger point is 25% but what happens when a company offers share to acquirer up to 25% making it equal partner in the company for example like case of United Breweries Ltd were the Indian and foreign partner holds equal share and they manage the company. This type of activity will make teasing effect on small investors with only cash coming in the company but not to investor.

Though looking at mean and median we say that 25% is good but one should not forget that this percentage is substantial and one can block resolution of company etc. so I feel that this code would have given a rider that

If acquirer is Indian Company then
25% of equity capital
                 or
25% of promoter’s holding which ever is Higher
If acquirer is foreigner etc.
25% of equity capital
           or
Promoter’s shareholding which ever is higher

This would have resulted in more clear picture and would have not resulted in teasing of small share holders, because if any foreigner acquiring shares of 25% or less they cannot sit on the board which would have resulted in takeover with out any benefit of share holders. by above recommendation they would have to make open offer and this code would not be misused by them. further its pertinent to mention that going forward China and Indian market will be be drivers of growth and consumption driven market so many foreign companies, PE funds will take over Indian companies this will result in part by part selling so cap should be give in this regard. otherwise this amendment is better compare to old one.