India Inc may be in for some good news on the mergers and acquisitions front. The Securities and Exchange Board of India (Sebi) is not in favour of a 100 per cent open offer requirement prescribed by an advisory panel last month.
Sources familiar with the developments said that based on feedback received so far, Sebi may reduce the open offer requirement to 75 per cent, though a final view has not been taken.
The panel, led by former Chairman of the Securities and Appellate Tribunal S Achuthan, had suggested that promoters must make an open offer for 100 per cent shares after touching the threshold limit of 25 per cent (against 15 per cent now) shares in a target company. The consensus among Indian companies is that this would make takeovers prohibitively expensive.
The Achuthan committee had suggested an open offer for 100 per cent shares to give all shareholders equal opportunity to exit. It had, however, suggested some exceptions.
Sandeep Parekh, former ED-Legal, Sebi, said, “The 100 per cent open offer norm will make takeovers expensive and hence there will be fewer M&As, as most promoters will avoid crossing the 25 per cent threshold.”
This, experts said, is not desirable at a time when there is a clear case for consolidation in the Indian market, given the large number of companies in every sector and their small size of operation. An active M&A market will enable people to unlock value in these units, both as sellers and buyers.
| M&A MUSCLE # Sebi likely to scale down norm to 75% shares after touching 25% threshold # Critics say that will make takeovers expensive and there will be fewer M&As # An active M&A market will enable sellers and buyers unlock value # Achuthan says if promoters don’t have financial muscle, avoid takeovers |
Even on Thursday, promoters of many companies prefer to have benami holdings as there is no tax on long-term capital gains. An investment banker said the Direct Taxes Code proposal to impose a tax on long-term capital gains has resulted in some promoters shifting indirect holding to their own name, with the net result that transparency in the holding structure takes a back seat.
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Achuthan, however, had taken a tough stand in his media interactions after presenting the report and said if promoters don’t have the financial muscle to make an open offer to all shareholders, they should avoid going in for takeovers.
The Sebi board is expected to consider the committee’s recommendations in its next meeting, expected in September-end or early October.