Publication: Capital Market, February 2010
Article Summary: The article analyses the proposed overhaul of India’s takeover regulations based on recommendations made by the Takeover Regulations Advisory Committee (TRAC) constituted by the Securities and Exchange Board of India (SEBI). The committee proposed sweeping changes to the existing takeover framework with the objective of improving transparency in acquisition transactions while strengthening protection for minority shareholders.
One of the key recommendations was the elimination of non-compete fees paid to promoters, which had often enabled promoters to receive a higher price than public shareholders during takeover transactions. The article illustrated how such payments could create an uneven playing field and argued that any consideration paid to promoters should be included while determining the open offer price payable to public shareholders. This change was intended to ensure fair treatment of minority investors during acquisition deals.
The committee also proposed several structural changes in the takeover process, including raising the trigger threshold for mandatory open offers from 15% to 25%, expanding the potential open offer size up to 100% of the company’s equity, and revising the methodology for determining the offer price by introducing a volume-weighted average price (VWAP) benchmark instead of the earlier pricing parameters. These measures aimed to align India’s takeover framework more closely with global practices while improving transparency in pricing and acquisition processes.
The analysis emphasised that the proposed reforms sought to strike a careful balance between the interests of promoters, acquirers and minority shareholders. By eliminating preferential payments and expanding exit opportunities, the recommendations aimed to strengthen investor protection in takeover transactions. The article also cautioned that allowing takeover and delisting through the same transaction could dilute safeguards embedded in the delisting regulations, highlighting the need to preserve strong minority shareholder protections while reforming the takeover framework.
Key Insight: Fair takeover regulations must balance acquisition flexibility for promoters with equitable exit opportunities for minority shareholders.