The measures recommended in the draft takeover regulations which were unveiled recently by the committee headed by Justice P N Bhagwati are certainly steps taken in the right direction.
I believe they will go a long way in getting the management of companies to be more focused in terms of enhancing the productivity of their capital employed, which is a crucial requirement to remain competitive with sustained growth in the industry.
It would also focus more on the issue of increased profit-sharing with the shareholders.
However, there is still some ground that needs to be covered.
The major areas which still need to be addressed include :
nCases of consolidation of holdings where the stake is to be increased to more than 50 per cent. This would make the companies vulnerable to takeovers by large shareholders like the financial institutions (FIs) which are not covered by this regulations.
nAlso in cases of sick companies not covered under the Board for Industrial and Financial Reconstruction (BIFR). When such companies are being taken over, there is need to give additional sops.
One such incentive I would suggest could be by way of various monetary and fiscal benefits on the completion of the takeover, for say, the next five years of operations.
Further, I feel that the takeover code will be effective only if insider trading rules are fully implemented. This according to me, is a pre-requisite for the success of any takeover regulations.
What will be ideal is that there should be an act which exclusively covers all rules and regulations related to takeover or alternatively, all other areas related to the takeover need to be looked upon, namely the Companies Act 1956, the Sebi takeover, the Income Tax Act and so on.
(This is a part of a series of views on the draft takeover regulations)
