Additionally, there are several statutory clearances that need to be taken, such as a clearance under Section 372 of the Companies Act, or even perhaps FIPB clearance for foreign acquisitions. Would the escrow money be returned if the clearance doesn't come through?
Some anomalies, however, remain. For insatnce, only Category-1 merchant bankers have been given the onus of managing takeovers.
Market sources insist that managing a takeover is a mere matter of compliance with the prescribed guidelines, which can be done by any professional, even a chartered accountant.
Another ambiguous area which seems to have been overlooked is the acquisition of control through the medium of investment companies.
It is commonplace in India for corporate houses to hold shares of the company through investment firms.
Without any regulations about this avenue, it is still possible to acquire shares and control of a company simply through this medium. Another grey area is the acquisition of convertible debentures by the acquirer.
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Merchant bankers also state that while the 10 per cent payment upfront is justified in case of large takeovers, it is too little to check non-serious players in case of smaller companies. A possible solution to this problem could be the grading of the upfront amount on the basis of the size of the company being taken over. Another anomaly exists on the issue of consolidation of holdings. While the creeping acquisition route allows the raider to consolidate the holdings in a phased manner without making a public offering, why should the 10 per cent threshold require a mandatory public offering?
Some comfort has also been afforded to the small investor. With the acquirer now allowed to continue open-market purchases at the time of the open offer, the draft code advocates that the small investor be given the highest price paid on market purchases made by the bidder.
Another positive aspect is the committee's focus on change in management control. The draft code now emphasises that any change in management without a change in shareholding patterns would automatically trigger off an open offer. However, market sources state that the onus to provide evidence of collusion with the bidder could be misused by parties with a vested interest. Addressing some of the grey areas above should definitely improve the effectiveness of these takeover guidelines.