This article is written by Sidharth Tehran who is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.
Table of Contents
What is a Takeover: relevant laws and sections?
The Securities and Exchange Board of India Takeover Code lays down an organized framework for acquisition of takeover in listed companies. As per these laws and laws the official/regulatory system ensures the simplest interest of the shareholders of listed companies as their position isn’t compromised within the case of acquisition or takeover. It also protects the interest/stake of minority shareholders, which is additionally a crucial duty of corporate governance principle.
The takeover code ensures that the general public shareholders of a listed company are treated during a transparent and equal way. the thing of the takeover regulations is to make sure that the general public shareholders of a corporation are mandatorily offered an exit opportunity from the corporate at the simplest possible way as per depending upon the corporate.
Regulation 10,12,25,26 and 27 of the takeover code.
What’s Bharati Shipyard Limited, ABG shipyard limited Shipyard Limited and Great Offshore Limited?
Bharati Shipyard Limited
Bharati Shipyard Limited was established in 1973 as alittle shipbuilding facility at Ratnagiri and incorporated as a corporation on June 22, 1976. Bharati Shipyard Limited is the leading privately operated shipyard in India today in terms of building facilities. Promoted by Mr. P.C. Kapoor and Mr. Vijay Kumar, Bharati Shipyard Limited has earned its reputation by constructing an outsized array of specialised sophisticated vessels for diverse offshore, coastal and therefore the marine market sectors. Bharati Shipyard Limited is listed on both national stock exchange and Bombay stock exchange and owns six strategically located shipyards at different parts of the country.
ABG Shipyard Limited
ABG shipyard limited was incorporated on March 15, 1985 because the flagship company of the ABG shipyard limited Group. the corporate promoted by Mr. Rishi Agarwal is one among the most important private sector shipbuilding companies in India. ABG shipyard limited is a longtime manufacturer and repair provider of a spread of ships, including bulk carriers, interceptor boats, diving support vessels, anchor handling tugs & other multipurpose vehicles. ABG shipyard limited has client base worldwide including countries like Europe, Middle East and South East Asia and is listed on both the national stock exchange and Bombay stock exchange.
Great Offshore Limited
Great offshore limited was hived faraway from Great Eastern company Limited and incorporated as a separate company on July 14, 2005 under the stewardship of Mr. Vijay Kantilal Sheth. it’s India’s prominent integrated offshore oilfield services provider offering a broad spectrum of services to upstream oil and gas producers to hold out offshore exploration and production (E&P) activities. From drilling services to marine and air logistics, marine construction, port/terminal services and beyond, Great offshore limited caters to a good gamut of offshore requirements. Great offshore limited is listed on both the National stock market and therefore the Bombay stock market.
History of the case
The hot and interesting struggle to accumulate Great Offshore Limited (“Great offshore limited”) saw aggressive bidding by two shipyard giants, Bharati Shipyard Limited (“Bharati Shipyard Limited”) and ABG Shipyard Limited (“ABG Shipyard Limited”). The climax clothed to be even more thrilling when ABG shipyard limited suddenly withdrew from the bidding race each day before its open offer by selling almost its entire stake in Great offshore limited to Edelweiss Capital Limited (“Edelweiss”) et al. thus, pulling back from the battlefield. it’s estimated that after the withdrawal of ABG shipyard limited from the transaction, Bharati Shipyard Limited would now be spending approximately INR 900 crores to finish the acquisition of stake in Great offshore limited, which incorporates the acquisition cost of shares within the open offer (i.e. at INR 590/- per share) and therefore the monies that it’s already invested for acquiring 23% stake in Great offshore limited through open market acquisitions.
The chase to accumulate Great Offshore Limited by both Bharati Shipyard Limited and ABG shipyard limited resulted within the open asking price of Great offshore limited shooting from INR 344/- per share to INR 590/- per share, increasing Bharati Shipyard Limited‟s investment by a further amount of INR 450 crores (approx.). The fierce takeover battle between Bharati Shipyard Limited and ABG shipyard limited and therefore the crucial decision of ABG shipyard Limited to drop out of the race at the eleventh hour have ignited controversies which are relevant from a legal, regulatory and business perspective.
Why did it become an issue?
This transaction rotated when ABG shipyard limited stepped down, each day before fixing of an open offer. ABG shipyard limited being a competitive bidder right along fighting to expel Bharati Shipyard Limited from the Transaction. It first consolidated its stake in Great offshore limited then sold almost the whole stake in one swift move to Edelweiss at INR 580/- per share, ECL Finance Limited at INR 575/- per share, and Carmona Investment & Finance at INR 570/- per share just each day before its open offer opened, making a sweeping profit of INR 50 crores. This step which was taken by ABG shipyard limited had made many problems and left everyone shocked. there are many ideologies/ theories that specify why ABG shipyard limited stepped out of the race, just each day before its open offer opened.
What were the problems involved?
The major issues involved here during this case were that why ABG shipyard limited sold their entire stake in Great offshore limited just each day before fixing of an open offer. This decision/ step of ABG shipyard limited has created tons of discussion and legal questions on the corporate.
Does the Takeover Code permit ABG shipyard limited to unload its stake before the open offer?
ABG shipyard limited sold its entire stake in Great offshore limited to Edelweiss et al. on December 2, 2009, at some point before the opening of its offer. The sale set in tremendous panic and uncertainty within the industry also because the legal circles. The legality of the transaction itself was challenged but an appropriate reading of the Takeover Code clarifies the purpose that such a purchase isn’t prohibited as long because the bidder continues with the open offer. ABG shipyard limited has not withdrawn the offer and therefore the same was opened as scheduled. Therefore, ABG shipyard limited has not violated the Takeover Code. it’s not relevant whether the acquirer sells his stake after triggering the Code or making a public announcement but it’s critical and obligatory that the open offer is sustained and exit opportunity is provided.
In the instant case, the worth offered by ABG shipyard limited is lesser than what’s offered by Bharati Shipyard Limited and logically shareholders would like Bharati Shipyard Limited„s offer over and above ABG shipyard limited‟s. it’s a process of survival supported commercial prudence of the shareholder. this is able to have happened albeit ABG shipyard limited had not sold its stake to Edelweiss et al. the sole layer of protection prescribed by the Takeover Code is that the exit opportunity at fair price which is in any case guaranteed. Therefore, it are often argued that ABG shipyard limited has not erred in law by selling its stake before the open offer.
Conclusion
The great Indian takeover battle has come to a halt with a climatic ending, the move by ABG shipyard limited had stunned everyone who witness this hostile takeover. This takeover is one of the most unforgettable episodes of corporate India. The move made by ABG shipyard limited by selling its share in Great offshore limited was something different and was never witnessed in India before. Due to their move Bharati shipyard limited got a chance to acquire Great offshore limited and therefore making Bharati shipyard limited a winner of this takeover.
This transaction/deal will definitely going to leave a lasting impression. It ended with a win win situation for both the competitors who had aggressive bids to acquire Great offshore limited, but Bharti shipyard won for what is fought for and winning the priced procession. Great offshore limited may be a prized possession which within the days to return are going to be the most important source of income for Bharati shipyard limited. Branding ABG shipyard limited as the villain or loser would be a big mistake.
Acting on commercial and legal vigilance, ABG shipyard limited may not be as desperate as Bharati shipyard limited to acquire Great offshore limited. Therefore, losing Great offshore limited to Bharati shipyard limited may not be a huge setback for ABG shipyard limited but yes, combined power of both Bharati shipyard limited and Great offshore limited would give ABG shipyard limited sleepless nights in future. Though ABG shipyard limited did not win the takeover battle but did not lose at the same time.
This takeover battle is rare in its kind, the battle had so many twists and turns or making use of the loophole in the takeover code. The battle ended by what these companies wanted. As understanding the move which was made by ABG shipyard limited make me surer, that acquiring Great offshore limited was never its plan. They played it well and were also a winner at the end, by making profits out of their move. Bharati shipyard limited won the price procession Great offshore limited which it deeply wanted so that it did not go out of business making him the winner of this takeover battle saga.
I believe this takeover battle had many tails, but the ending was not how people expected. The winner of this takeover battle was not one but there were two winners ABG shipyard and Bharati shipyard limited, ABG bagged profits while quitting out of the takeover race and Bharati shipyard won the priced procession GOL which it wanted badly from the start.
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