Publication: SEBI & Corporate Laws, July 2002
Article Summary: This article critically examined the then prevalent trend of multinational companies (MNCs) to delist their Indian subsidiaries from stock exchanges through open offers, highlighting its adverse implications for investors and the capital market. It explained that several MNCs were acquiring shares from public shareholders to convert listed subsidiaries into over 90% ownership and subsequently delisting them from Indian stock exchanges.
The article analysed the regulatory framework under the SEBI Takeover Code, which permitted such acquisitions at prices based on historical market averages. It pointed out that MNCs were strategically timing these open offers during bearish market conditions, enabling them to acquire shares at relatively lower prices. Additionally, stringent listing and disclosure requirements were identified as a key driver encouraging MNCs to delist and avoid ongoing compliance obligations.
The impact on Indian shareholders was examined in detail, highlighting that investors were often compelled to tender shares due to lack of liquidity post-delisting, resulting in potential loss of long-term value. The broader consequences included reduced market depth, decline in quality of listed companies, and erosion of investor confidence in the capital markets.
The article suggested regulatory intervention, including limiting promoter shareholding to ensure adequate public float and revising pricing mechanisms to reflect intrinsic value rather than price based on historical stock prices.
Key Insight: Delisting by MNCs through open offers undermines investor interest and market depth unless supported by fair pricing mechanisms and minimum public shareholding safeguards.