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This article is written by Shreya Kalantri pursuing a Diploma in Merger and Acquisitions (PE and VC transactions) from LawSikho


The Securities and Exchange Board of India (substantial acquisitions of Shares and Takeovers) Regulations, 2011 governs the mergers and acquisitions transactions that involve the acquisition of a substantial stake in a publicly listed company. When the acquirer acquires 5% or more of the targeted company then it has to make full disclosure of all its holdings within 2 days of acquisition of shares. When the company acquires 5% or more shares of the target company then it is called a substantial acquisition of shares. At the point of time, when the acquirer company acquires 25% shares or more they have to give an open offer. Initial Threshold Regulation 3(1) triggers the acquisition of 25% or more of the voting rights of the target company.

The company now has to appoint a manager to the open offer. This is done before making a public announcement. The manager must be a merchant banker enrolled with the Board. Acquirer may delegate an enlistment center to the offer and will connect with other lawful and monetary guides. At the point of time when the acquirer and the PAC’s acquire 25% or more voting rights in the target company then they are entitled to make a Detailed Public Statement (DPS) within 5 days, that contains subtleties like name of the acquirer and PAC, sellers, consideration, offer price, offer size, mode of payment and the nature of the proposed acquisition. A copy of the announcement should be sent to all stock exchanges on which the target company is listed and to the Board of Directors of the target company. Within 2 days of the Detailed Public Statement (DPS), the acquirer and the PACs are required to open a bank account and deposit their funds. This type of bank account is known as an Escrow account. An Escrow account is made to ensure the performance obligation by the acquirer.

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Open offer: an understanding 

The acquirer needs to make an open offer with 5 days of detailed public statement. The publication must be made accessible in all languages required by the Board of Directors and the stock exchanges where the target company is listed. An open offer happens when the target company wishes to raise capital proficiently. As a secondary market offering, the open offer permits stakeholders of a target company to purchase shares/stocks at a lower cost when contrasted with the stock’s overarching market price.

The open offer is nothing but giving the existing stakeholders of the target company the advantage of an exit option, in case they anticipate expected dangers because of progress in the administration and business. The open offer is made when the acquirer and the PAC have acquired 25% or more voting rights in the target company.

Two types of open offer  

Mandatory open offer 

A mandatory open offer under Regulation 3 of SEBI (SAST) Regulations, 2011 takes place when the acquirer has already acquired 25% voting rights in the target company and wants to acquire at least 26% more voting rights from the rest of the shareholders than the acquirer is required to make a public announcement of an offer to the shareholders of the target company.

Voluntary open offer

A voluntary open offer under Regulation 6 of SEBI (SAST) Regulations,2011 an offer made by a person who himself or through Persons acting in concert, if any, holds 25% or more shares or voting rights in the target company but less than the maximum permissible non-public shareholding limit. There should be no acquisition during the preceding 52 weeks without attracting open offer requirements. Post offer there should be no future acquisition for a period of 6 months, except by way of a voluntary open offer or competing open offer.

Creeping acquisition

An acquirer who holds 25% or more but less than maximum permissible non-public shareholding of the target company, can acquire additional shares that would entitle him to exercise more than 5% of voting rights in any financial year ending on 31st march only after making a public announcement to acquire minimum 26% shares of the target company through an Open Offer. In the case of Stone India Limited case, markets regulator SEBI imposed a fine of Rs 10 lakh on ISG Traders for non-disclosure of acquisition of shares in Stone India Ltd. The company had violated SEBI Regulations by neglecting to unveil a declaration after its shareholding in Stone India crossed 25%. Under SEBI regulations and guidelines whose stake in a listed company crosses 25% has to make adequate disclosures to the exchanges.

Offer size

Offering Size implies that the Offering Price is multiplied by the number of Common Shares sold in the Share Offerings. The purpose of calculation of Offer Size, that is the total shares as on 10th Working day from the conclusion of offering period will be contemplated. Offer size can be divided into two halves for better understanding :

  1. When the acquirer holds less than 25% shares in the target company

In the present circumstance if the acquirer is wanting to get 25% or more shares in the target company then he will have to make an open offer.

Example: A Limited has 10% shares of B Limited which is the target company and wishes to acquire 20% more shares then the acquirer A Limited has to make an Open offer as it will acquire 30% shares in the target company which will trigger the event of making an Open offer.

2. When the acquirer holds more than 25% shares in the target company. 

In this case, the acquirer along with the PAC’s has to make an Open offer only if he wishes to acquire more than 5% shares in the target company during a financial year. In this case, the offered size ought to be for at least 26% of the absolute capital. 26% is only the base size, the acquirer can obtain all the more however keep up the base public shareholding limit that is 25%. Thus the maximum limit the acquirer can acquire is 75%.

Example:  A Limited has 27% shares in B Limited which is the target company and wishes to acquire 10% more shares in the target company then it has to make an open offer of a minimum of 26% or more shares, which gives them 53% of the total shares in the company. 

Format for offer size in the letter of offer 

The acquirer and the PAC’s hereby make this (mandatory/voluntary) open offer to the public shareholders to acquire up to (figures), (words) equity shares repressing (%) of the fully diluted voting equity share capital of the target company as of the 10th working day from the closure of the tendering period subject to the terms and conditions mentioned in the Public announcement, the detailed public statement (DPS) and the letter of offer that are proposed to be issued in accordance with SEBI (SAST) Regulations, 2011.

Offer price

The price at which the acquirer acquires shares of the target company from the shareholders is known as the offer price. For calculation of offer price the acquirer first has to check whether the target company is a frequently traded company or an infrequently traded company. 

In the case of Tenneco Inc .v. SEBI, Tenneco Inc acquired Federal-Mogul Goetze Limited, whose shares were infrequently traded. The acquirer made an open offer with an offer price of Rs 400 per share. Later, SEBI delegated a sanctioned bookkeeper for the calculation of the reasonable cost of the offer, per the forces presented upon it by the Takeover Regulations. SEBI coordinated with Tenneco Inc. to reconsider the offer cost to Rs 608.46. Bothered by the heading of SEBI, the acquirer recorded an allure before the SAT. The SAT excused the allure and maintained the course of SEBI. If the shares are frequently traded then the Offer Price will be the highest of the following:

  1. The volume-weighted average price for acquisition made during 52 weeks preceding the date of public announcement.
  2. Highest price paid for acquisition during 26 weeks following the date of public announcement 
  3. The volume-weighted average market price for 60 trading days following the date of public announcement.
  4. Highest bid price paid under the agreement.

Filling of letter of offer

The Letter of offer contains justifications for offer price for equity shares, for differential pricing, and full disclosure of information at all levels of acquisition. Letter of offer has to be recorded by the acquirer within 5 working days from the date of DPS. The Board is to give its remarks on the draft not later than 15 working days of its receipt. If no remarks are given inside such a period, it will be considered that the Board has no remarks. Any progressions indicated by the Board will be completed by the acquirer prior to dispatching of LOO. The Letter of offer has to be sent to the target company at its enrolled office address, and to all stock exchanges where shares are listed. The supervisor to open an offer will have to submit a due diligence certificate to the Board. The Letter of offer will be delivered to all the shareholders within 7 working days from remarks given by the Board.

Opening and closing of tendering period

Tendering period refers to the period within which shareholders may tender their shares in acceptance and acknowledgment of an open offer to acquire shares. This Period begins not later than 12 working days from receipt of remarks from the Board and stays open for 10 working days. There must be full disclosure of acquisition during the offer period. There must be a Post Offer Advertisement issued by the acquirer to the Board, stock exchanges, and newspapers within 5 working days from the Offer Period which should contain all details of shares tendered and accepted. Within 10 working days from the last date of the tendering period, the acquirer should complete all requirements under the prescribed law. The acquirer opens an escrow account with the banker and requests the manager to operate on his behalf. The acquirer will make the payment to the shareholders within 10 working days of the expiry of the tendering period. The balance amount will be transferred at the end of 7 years. After completion of the following processes, the Open Offer is withdrawn.


The new guideline is undoubtedly path-breaking legislation that is changing the scene of corporate India. The increase in the initial threshold trigger point has increased the material stakes of the company. The cost incurred by the acquirer is much higher than before as he needs to hold a minimum of 51% in an Open Offer. The whole process is made with the mindset of protecting the minority shareholders and providing them a free and fair chance of exit from the company.


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