Acquisition of Company and Business

The facts given in the question are similar to a SEBI order in the matter of M/s. Patels Airtemp (India) Ltd, July 25, 2018

SEBI held that the 2 (two) promoters in this case cannot be held to be ‘persons acting in concert’ because the persons must have a common objective or purpose of acquisition of shares or voting rights. In the instant case, the acquisition in question was an inter se transfer of shares from one promoter entity to another promoter entity, which implies that the promoter entities, including the Noticee, did not have a common objective or purpose of acquisition but were rather acting in opposite directions, where one promoter entity had purchased the shares and another entity had sold the same shares. Hence, SEBI rejected the Noticee’s claim that it was acting in concert with other promoter entities, while acquiring the said shares. Since the Noticee had acquired shares as a result of which its individual shareholding had increased from 24.74% to 25.04% of the total shareholding of the Target Company (even though the overall shareholding of the promoter group remains unchanged), the threshold limit provided under regulation 3(1) of the Takeover Regulations was breached. SEBI ordered the Noticee to make an open offer and also pay interest @ 10% (ten percent) per annum along with the offer price to the public shareholders.

Aggrieved by the SEBI order Noticee filed an appeal with Securities Appellate Tribunal (SAT).

1.The appeal was partly allowed by SAT and directed the to make public announcement to acquire shares of the target company and to pay interest at the rate of 10 percent as detailed in the order is hereby set aside.

2.Instead it is hereby directed that the appellant shall transfer 2000 shares in open market within a period of 4 weeks and shall deposit an amount of Rs.3,60,300 in the Investor Protection and Education Fund established by SEBI within a period of six weeks from the date of this order.

3.In default, the amount shall carry interest at the rate of 12 percent p.a. from the date of this order till the date of deposit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(b) (Syllabus 2022).

As per the SEBI (SAST) Regulations, 2011, where an Acquirer along with person acting in concert, crosses the threshold limits prescribed the Takeover Regulations, it makes Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

* The acquirer shall complete payment of consideration to the shareholders who have accepted the offer, within a period of 10 working days from the expiry of the tendering period.

•As per Regulation 9 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, The offer price may be paid, –

(a)in cash;

(b)by issue, exchange or transfer of listed shares in the equity share capital of the acquirer or of any person acting in concert;

(c)by issue, exchange or transfer of listed secured debt instruments issued by the acquirer or any person acting in concert with a rating not inferior to investment grade as rated by a credit rating agency registered with the Board;

(d)by issue, exchange or transfer of convertible debt securities entitling the holder thereof to acquire listed shares in the equity share capital of the acquirer or of any person acting in concert; or

(e)a combination of the mode of payment of consideration stated in clause (a), clause

(b), clause (c) and clause (d):

Provided that where any shares have been acquired or agreed to be acquired by the acquirer and persons acting in concert with him during the fifty-two weeks immediately preceding the date of public announcement constitute more than ten per cent of the voting rights in the target company and has been paid for in cash, the open offer shall entail an option to the shareholders to require payment of the offer price in cash, and a shareholder who has not exercised an option in his acceptance shall be deemed to have opted for receiving the offer price in cash:

Provided further that in case of revision in offer price the mode of payment of consideration may be altered subject to the condition that the component of the offer price to be paid in cash prior to such revision is not reduced.

The payment of cash consideration shall be made through the escrow account opened prior to the open offer. Any unclaimed balances in the escrow account shall be transferred to the IEPF at the end of 7 years.

(5 marks)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(c) (Syllabus 2017).

“Takeover bid” is an offer to the shareholders of a company, who are not the promoters of the company or the sellers of the shares under an agreement, to buy their shares in the company at the offered price within the stipulated period of time. It is addressed to the shareholders with a view to acquiring sufficient number of shares to give the Offer or Company, voting control of the target company.

A takeover bid is a technique, which is adopted by a company for taking over control of the management and affairs of another company by acquiring its controlling shares.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 require acquirers to make bids for acquisition of certain level of holdings subject to certain conditions. A takeover bid is required to be made by way of a public announcement issued to the stock exchanges, followed by a Detailed Public Statement in the newspapers.

Such requirements arise in the following cases: -

(a)for acquisition of 25% or more of the shares or voting rights;

(b)for acquiring additional shares or voting rights to the extent of 5% of the voting rights in any financial year beginning April 01, if such person already holds not less than 25% but not more than 75% or 90% of the shares or voting rights in a company as the case may be;

(c)for acquiring control over a company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(c) (Syllabus 2017).

Where an acquirer takes over the control of the ‘target company’, it is termed as takeover. When an acquirer acquires ‘substantial quantity of shares or voting rights’ of the target company, it results into substantial acquisition of shares.

The transaction relating to the acquisition of shares of a target company (listed company in India), undertaken by an existing shareholder of the company or any other independent acquirer company, is governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Regulations”). The Regulations’ goal is to govern the direct or indirect purchase of shares, voting rights, or the “control” of the target firm and to make sure that such purchases are made in a just and open way. Its objective is to make the transactions relating to acquisition fairer and more transparent.

A, B, C and Z will be required to follow the following regulations, the prescribed procedure and the timelines.

Regulation 3(1) of the SAST Regulations provides for Substantial acquisition of shares or voting rights. It states that no acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by Persons Acting in Concert (PACs) with him in such target company, entitle them to exercise twenty-five percent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

Regulation 3(2) of the SAST Regulations provides that no acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

The typical steps and corresponding timelines in an open offer process:

•Under most scenarios (except in certain types of indirect acquisitions) on the day of the triggering event, the acquirer is required to make a Public Announcement to the stock exchanges where shares of Target Company are listed and to SEBI. Such public announcement, – in the case of market purchases, shall be made prior to placement of the purchase order with the stock broker to acquire the shares, that would take the entitlement to voting rights beyond the stipulated thresholds.

•A copy of the public announcement shall be sent to the Board and to the target company at its registered office within one working day of the date of the public announcement

•Within 5 working days thereafter, the acquirer is required to publish a Detailed Public Statement (DPS) in newspapers and also submit a copy to SEBI, after creation of an escrow account.

•Not later than two working days prior to the date of the detailed public statement of the open offer for acquiring shares, the acquirer shall create an escrow account towards security for performance of his obligations under these regulations, and deposit in escrow account such aggregate amount according to the scale mentioned in the Regulations.

•Simultaneously with publication of such detailed public statement in the newspapers, a copy of the same shall be sent to stock exchanges where shares of the target company are listed (“BSE” in this case).

•Within 5 working days of publication of DPS, the acquirer through the manager to the offer is required to file a draft letter of offer with SEBI for its observations. .

•Simultaneously with the filing of the draft letter of offer with the Board, the acquirer shall send a copy of the draft letter of offer to the target company at its registered office address and to all stock exchanges where the shares of the target company are listed.

•The letter of offer is dispatched to the shareholders of the target company, as on the identified date, after duly incorporating the changes indicated by SEBI, if there are any, not later than seven working days from the receipt of comments from the Board.

•The offer shall open not later than 12 working days from the date of receipt of SEBI’s observations. The acquirer is required to issue an advertisement announcing the final schedule of the open offer, one working day before opening of the offer. The offer shall remain open for 10 working days from the date of opening of the offer. Within 10 working days after the closure of the offer, the acquirer shall make payments to the shareholders whose shares have been accepted.

•A post offer advertisement, giving details of the acquisitions, is required to be published by the acquirer within 5 workings days of the completion of payments under the open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a) (Syllabus 2022).

Under Regulation 10(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Regulations”), an increase in voting rights in a target company of any shareholder beyond the limit attracting an obligation to make an open offer under sub-regulation (1) of regulation 3, pursuant to buy-back of shares by the target company shall be exempt from the obligation to make an open offer provided such shareholder reduces his shareholding such that his voting rights fall to below the threshold referred to in sub-regulation (1) of regulation 3 within ninety days from the date of the closure of the said buy-back offer.

Under Regulation 10(4) of the SAST Regulations, the following acquisitions shall be exempt from the obligation to make an open offer under sub-regulation (2) of regulation 3, —

c)increase in voting rights in a target company of any shareholder pursuant to buy- back of shares:

Provided that, —

i.such shareholder has not voted in favour of the resolution authorising the buy-back of securities under section 68 of the Companies Act, 2013;

ii.in the case of a shareholder resolution, voting is by way of postal ballot;

iii.where a resolution of shareholders is not required for the buy- back, such shareholder, in his capacity as a director, or any other interested director has not voted in favour of the resolution of the board of directors of the target company authorizing the buyback of securities under section 68 of the Companies Act, 2013; and

iv.the increase in voting rights does not result in an acquisition of control by such shareholder over the target company:

Provided further that where the aforesaid conditions are not met, in the event such shareholder reduces his shareholding such that his voting rights fall below the level at which the obligation to make an open offer would be attracted under sub-regulation (2) of regulation 3, within ninety days from the date of closure of the buy-back offer by the target company, the shareholder shall be exempt from the obligation to make an open offer.

Hence in this case, Q is not required to make an open offer provided he reduces his holding to below the threshold referred to in sub-regulation (1) of regulation 3 within ninety days from the date of the closure of the said buy-back offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(b) (Syllabus 2022).

As per Regulation 8(2) of SEBI (SAST) Regulations, 2011, If the target company’s shares are frequently traded then the open offer price for acquisition of shares under the minimum open offer shall be highest of the following: -

(a)the highest negotiated price per share of the target company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer;

(b)the volume-weighted average price paid or payable for acquisitions, whether by the acquirer or by any person acting in concert with him, during the fifty-two weeks immediately preceding the date of the public announcement;

(c)the highest price paid or payable for any acquisition, whether by the acquirer or by any person acting in concert with him, during the twenty-six weeks immediately preceding the date of the public announcement;

(d)the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the date of the public announcement as traded on the stock exchange where the maximum volume of trading in the shares of the target company are recorded during such period, provided such shares are frequently traded.

Thus, the offer price shall be highest of the followings: -

i)Highest negotiated price is Rs.15

ii)Volume weighted average price is Rs.16 (52 week)

iii)Highest price paid for any acquisition is Rs. 17 (26 week)

iv)Volume weighted average market price is Rs.15(60 days)

Highest of the above price is offer price i.e. Rs. 17 (option iii).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(c) (Syllabus 2022).

By trigger points, it is meant that the threshold levels upon reaching which, an acquirer, either on its own individual account or along with Persons Acting in Concert (PAC) acquiring shares or voting rights in a target company is required to make a public announcement for an open offer and comply with the other provisions of the Takeover Code with regard to an open offer.

Let us determine whether there would be a trigger using the methods.

(2400/ 5400) % - (2000/5000) % = 44.44% - 40% = 4.44%.

Since the acquisition by all the promoters together does not exceed 5% in a financial year there is no trigger.

However, we need to check what would be the post issue holding of A the allottee, who is currently holding 22% of the paid-up capital of the company, with respect to the fully expanded capital w hich works out to 1500/5400 = 27.77%, by virtue of which he has crossed the initial threshold limit of 25% as stipulated in Regulation 3(1) of the Takeover Regulations. Therefore, A has triggered the Code and is under an obligation to make a public announcement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(i) (Syllabus 2017).

As per the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed in the Takeover Regulations, it shall make Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

Obligations of the target company -

1.When a public announcement of an open offer for acquiring shares of a target company is made, the Board of Directors of the target company shall ensure that during the offer period, the business of the target company is conducted in the ordinary course consistent with past practice:

2.During offer period, (unless shareholders’ special resolution by postal ballot) the Board of target company or its subsidiaries shall not:

a)alienate any material assets whether by way of sale, lease, or otherwise or enter into any agreement therefore outside the ordinary course of business;

b)effect any material borrowings outside the ordinary course of business;

c)issue or allot any authorized but unissued securities entitling the holder to voting rights.

d)implement any buy-back or effect any other change to capital structure of target company.

e)enter into, amend or terminate any material contracts to which the target company or any of its subsidiaries is a party, outside the ordinary course of business, whether such contract is with a related party, within the meaning of the term under applicable accounting principles, or with any other person; and

f)accelerate any contingent vesting of a right of any person to whom the target company or any of its subsidiaries may have an obligation, whether such obligation is to acquire shares of the target company by way of employee stock options or otherwise

3.In any general meeting of a subsidiary of the target company in respect of the matters referred to in the above point (2), the target company and its subsidiaries, if any, shall vote in a manner consistent with the special resolution passed by the shareholders of the target company.

4.Target Company is prohibited from fixing any record date for any corporate action on or after third working day prior to commencement of tendering period and until the expiry of the tendering period.

5.Target company shall furnish to the acquirer (within 2 working days from identified date), a list of shareholders as per the register of members of the target company containing names, addresses shareholding and folio number, but the acquirer shall reimburse reasonable costs payable by the target company to external agencies in order to furnish such information.

6.The Board of Directors of Target Company shall facilitate the acquirer in verification of shares tendered in acceptance of the open offer.

7.On receiving detailed public statement, the Board of Target Company shall constitute a Committee of Independent Directors to provide recommendations (with reasons) on the open offer. The Committee may seek external professional advice. The Committee shall provide written recommendations on the open offer to the shareholders of the Target Company Also, the recommendations shall be published in newspapers, and sent to stock exchange(s), Board and the Manager.

8.The Board of Directors of the target company shall make available to acquirers making competing offers, any information and co-operation provided to an acquirer who has made a competing offer.

9.Upon fulfilment by the acquirer, of the conditions required under applicable regulations, the board of directors of the target company shall without any delay register the transfer of shares acquired by the acquirer in physical form, whether under the agreement or from open market purchases, or pursuant to the open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(b) (Syllabus 2017).

Securities and Exchange Board of India (Substantial Acquisition and Takeover) Regulations, 2011 (Takeover Regulations) obliges the Acquirer in case of open offer, to open an escrow account with a scheduled bank and deposit an amount equal to twenty-five per cent of the calculated consideration on the first five hundred crore rupees and on the balance consideration at ten per cent.

Such escrow account cannot be released except in the following manner:

1.The entire amount to the acquirer upon withdrawal of offer in terms of Regulation 23 of SAST Regulations as certified by the manager to the open offer.

2.An amount not exceeding ninety per cent to the special escrow account in terms of Regulation 21.

3.The balance (after transfer of cash to the special escrow account) to the acquirer but after thirty days after completion of payment to shareholders who have tendered their shares in acceptance of the open offer, as certified by the manager to the open offer as certified by the manager to the open offer.

4.The entire amount to acquirer on expiry of thirty days from the completion of payment of consideration to the shareholders who tendered for exchange of other secured instruments.

5.The entire amount to the manager to the open offer, in the event of forfeiture for nonfulfilment of any of the obligations under these regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(a) (Syllabus 2017).

In the present case reduction of share capital, demerger, acquisition, notice to Competition Commission of India (CCI) for crossing threshold of asset/turnover, depository receipts attracting Reserve Bank of India (RBI) /Foreign Exchange Management Act (FEMA) & SEBI (SAST) Regulations, 2011 alongwith other sector regulator specific compliance issues are involved. Here both companies i.e., transferor and transferee will have to comply provisions of section 230 to 232 of Companies Act, 2013, SEBI(SAST) Regulations 2011, FEMA, Competition Act, approval of sector regulators (if product L, M, N and O need specific compliance issues to be ensured).

Hence, mere submission of copy of resolution to ROC, NCLT and publishing in newspaper about successful arrangement will not suffice. NCLT will reject such application.

Merger or amalgamation of companies involves various issues including the regulatory approvals. These regulatory approvals are to be obtained not only from the sector in which the company is operating (for example in case of merger of two banks, RBI’s approval is needed) but also from other departments like Income Tax, SEBI, ROC, etc. The companies are required to obtain following approvals in respect of the scheme of amalgamation:

(i)Authorisation

•Pre-approval authorisation about appointment of intermediaries, advisors, etc.

•Approval of Valuation Report by Audit Committee.

(ii)Approval of Board of Directors

•Approval of scheme of amalgamation by the Board of both the companies.

•Board resolution should, besides approving the scheme, authorise a Director/Company Secretary/ other officer to make application to Tribunal, to sign the application and other documents and to do everything necessary or expedient in connection therewith, including changes in the scheme.

(iii)Approval of Shareholders/Creditors, etc.

Members’ and creditors’ approval to the scheme of amalgamation is sine qua non for Tribunal’s sanction. This approval is to be obtained at specially convened meetings held as per Tribunal’s directions [Section 230(1)]. However, the Tribunal may dispense with meetings of members/creditors [Section 230(9)].

(iv)Approval of the Stock Exchanges

A listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement, proposed to be filed before Tribunal with the stock exchange(s).

(v)Approval of Financial Institutions

The approval of the Financial Institutions, trustees to the debenture holders and banks, investment corporations would be required if the Company has borrowed funds either as term loans, working capital requirements and/ or have issued debentures to the public and have appointed any one of them as trustees to the debenture holders.

(vi)Approval from the Land Holders

If the land on which the factory is situated is the lease-hold land and the terms of the lease deed so specifies, the approval from the lessor will be needed.

(vii)Approval of the Tribunal

•Both companies (amalgamating as well as amalgamated) involved in a scheme of compromise or arrangement or reconstruction or amalgamation is required to seek approval of the respective Tribunal for sanctioning the scheme.

•Every amalgamation, except those, which involve sick industrial companies, requires sanction of Tribunal which has jurisdiction over the State/area where the registered office of a company is situated.

•If transferor and transferee companies are under the jurisdiction of different Tribunals, separate approvals are necessary.

•The notice of every application filed with the Tribunal has to be given to the Central Government (Regional Director, having jurisdiction of the State concerned).

(viii)Approval of Reserve Bank of India

Where the scheme of amalgamation envisages issue of shares/cash option to Non-Resident Indians, the amalgamated company is required to obtain the permission of Reserve Bank of India subject to conditions prescribed under the Regulations issued by RBI.

(ix)Approvals from Competition Commission of India (CCI)

The provisions relating to regulation of combination as provided under Sections 5 and 6 of the Competition Act, 2002 would also be required to be complied with by companies, if applicable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(c) (Syllabus 2022).

As per Regulation 10(1)(a) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 following acquisitions shall be exempt from the obligation to make open offer under regulation 3 and regulation 4 subject to the fulfilment of the conditions stipulated therefore, -

a)Acquisition pursuant to Inter-se transfer of shares amongst qualifying persons, being-

i.Immediate relatives

ii.Persons named as promoters in the share holding pattern filed by the target company in terms of the listing agreement or these regulations for nor less than three years prior to the proposed acquisition;

iii.A company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than fifty percent of the equity shares of such company, other companies in which such persons holding not less than fifty percent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons.

iv.persons acting in concert for not less than three years prior to the proposed acquisition, and disclosed a such pursuant to the requirement under the listing regulations or as the case may be, the listing agreement.

v.Shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to the requirement under the listing regulations or as the case may be, the listing agreement, and any company in which the entire equity shares is owned by such shareholders in the same proportion as their holdings in the target company without any differential entitlement.

Provided that for purposes of availing of the exemption under this clause, —

a)if the shares, of the target company are frequently traded, the acquisition price per share shall not be higher by more than twenty-five per cent of the volumeweighted average market price for a period of sixty trading days preceding the date of issuance of notice for the proposed inter se transfer under sub regulation

(5), as traded on the Stock exchange where the maximum volume of trading in

the shares of the target company are recorded during such period, and if the shares of the target company are infrequently traded, the acquisition price shall not be higher by more than twenty-five per cent of the price determined in terms of clause (e) of sub-regulation (2) of regulation 8: and

b)the transferor and the transferee shall have complied with applicable disclosure requirements set out in Chapter V.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(d) (Syllabus 2017).

In the event of withdrawal of the open offer, the acquirer shall through the manager to the open offer, within two working days:

(a)make an announcement in the same newspapers in which the public announcement of the open offer

was published, providing the grounds and reasons for withdrawal of the open offer.

(b)simultaneously with the announcement inform in writing to SEBI, all the stock exchanges on which the

shares of the target company are listed, and the stock exchanges shall forthwith disseminate such information to the public and the target company at its registered office.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(b) (Syllabus 2017).

According to Regulation 2(1)(p) of the SEBI(SAST) Regulations, 2011, Offer Period means the period between the date of entering into an agreement, formal or informal, to acquire shares, voting rights in, or control over a target company requiring a public announcement, or the date of the public announcement, as the case may be, and the date on which the payment of consideration to shareholders who have accepted the open offer is made, or the date on which open offer is withdrawn, as the case may be.

According to Regulation 2(1) (za) of the SEBI (SAST) Regulations, 2011, Tendering Period means the period within which shareholders may tender their shares in acceptance of an open offer to acquire shares made under these regulations

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(e) (Syllabus 2017).

As per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, the manager to the open offer shall not release the escrow account until the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, save and except for transfer of funds to the special escrow account as required under regulation 21 of the Takeover Regulations.

In the event of non-fulfilment of obligations under the Takeover Regulations, by the acquirer SEBI may direct the manager to the open offer to forfeit the escrow account or any amounts lying in the special escrow account either in full or in part.

The escrow account deposited with the bank in cash shall be released only in the following manner:

-the entire amount to the acquirer upon withdrawal of offer in terms of regulation 23 of the Takeover Regulations as certified by the manager to the open offer;

-for transfer of an amount not exceeding ninety per cent of the escrow account, to the special escrow account in accordance with regulation 21 of the Takeover Regulations;

-to the acquirer, the balance of the escrow account after transfer of cash to the special escrow account on the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, as certified by the manager to the open offer;

-the entire amount to the acquirer upon the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer upon certification by the manager to the open offer, where the open offer is for exchange of shares or other secured instruments;

-the entire amount to the manager to the open offer, in the event of forfeiture for non-fulfilment of any of the obligations under these regulations;

-for distribution in the following manner after deduction of expenses, if any, of registered market intermediaries associated with the open offer-

(a)one third of the escrow account to the target company;

(b)one third of the escrow account to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations; and

(c)one third of the escrow account to be distributed pro-rata among the shareholders who have accepted the open offer.

Accordingly, SEBI may direct the manager to the offer to forfeit the escrow account and the funds may be released in the circumstances mentioned above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 1(d) (Syllabus 2017).

An open offer for acquiring shares once made shall not be withdrawn except under any of the following circumstances: -

(a)Statutory approvals required for the open offer or for affecting the acquisitions attracting the obligation to make an open offer under these regulations having

been finally refused, subject to such requirements having been specifically disclosed in the detailed public statement and the letter of offer;

(b)The acquirer, being a natural person, has died;

(c)Any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer; or

(d)Such circumstances as in the opinion of the board, merit withdrawal. In this case SEBI shall pass a reasoned order permitting withdrawal and such order shall be hosted by the board on its official website.

In the event of withdrawal of any open offer, the acquirer shall through the manager to the open offer, within two working days, make an announcement in the same newspaper in which the public announcement of the open offer was published, providing the grounds and reasons for withdrawal. The acquirer shall inform in writing to SEBI, and all the stock exchanges on which the shares of the target company are listed. The stock exchange shall disseminate such information to the public and the target company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 3(a) (Syllabus 2017).

Regulation 10 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 list out various circumstances under which exemption from the obligation to make an open offer under Regulation 3 and 4. Regulation 3 prescribes open offer thresholds while Regulation 4 prescribes public announcement. The following are some of the circumstances where such exemption can be availed:

i.Acquisition pursuant to inter se transfer of shares amongst qualifying persons such as immediate relatives, promoters.

ii.Acquisition in the ordinary course of business by an underwriter by way of allotment pursuant to an underwriting agreement.

iii.Acquisition in the ordinary course of business by a merchant banker or a nominated investor in the process of market making or subscription to the unsubscribed portion of issue.

iv.Acquisition in the ordinary course of business by a market maker of a stock exchange in respect of shares for which he is the market maker during the course of market making.

v.Acquisition in the ordinary course of business by invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions as a pledge.

vi.Acquisition in the ordinary course of business by a Scheduled Commercial Bank, acting as an escrow agent.

vii.Acquisition pursuant to a scheme made under Section 18 of Sick Industrial Companies (Special Provisions) Act, 1985.

viii.Acquisition pursuant to a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016

ix.Acquisition pursuant to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

x.Acquisition pursuant to the provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009.

xi.Acquisition by way of transmission, succession or inheritance.

xii.Acquisition of shares by the lenders pursuant to conversion of their debt as part of a debt restructuring implemented in accordance with RBI guidelines.

xiii.Acquisition of shares in a target company from state level financial institutions or their subsidiaries or companies promoted by them, by promoters of the target company pursuant to an agreement between such transferors and such promoter.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(a) (Old syllabus).

Whenever an acquirer proposes to make public announcement of an open offer under regulation 17 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the acquirer is required to open an Escrow Account with a bank. Such escrow account is required to be opened not later than two working days prior to the date of the publication of the detailed public statement of open offer for acquiring shares.

In case the acquirer makes an unconditional open offer, he is required to maintain 25% of consideration in the escrow account for the first Rs. 500 Crores of consideration payable under the open offer. For the balance consideration, acquirer is required to maintain an additional amount equal to 10%.

However, in case the acquirer makes a conditional open offer involving minimum level of acceptance, he is required to maintain in the escrow account the higher of-

(a)100% of the consideration payable in respect of the minimum level of acceptance;

(b)50% of the consideration payable under the open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(e) (Old syllabus).

As per regulation 5A(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, any acquirer who is desirous of delisting the company post acquisition due to a variety of reasons, may proceed to voluntarily delist the company under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Delisting of Equity Shares) Regulations, 2009.

In the event, the acquirer makes a public announcement of an open offer for acquiring shares of a target company in terms of regulations 3, 4 or 5 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, acquirer may delist the company in accordance with the provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009.

However, the acquirer shall have declared upfront his intention to so delist at the time of making the detailed public statement and a subsequent declaration of delisting for the purpose of the offer proposed to be made will not suffice.

The following main steps are involved: -

1.Acquirer to intimate the Board of Directors.

2.Board to consider the proposal for delisting.

3.Public announcement in case delisting offer fails.

4.File draft letter of offer with SEBI.

5.Minimum details in the tentative schedule of activity.

6.Competing Offer.

7.Withdrawal of shares tendered.

8.Option to tender shares in open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(d) (Syllabus 2017).

The Mandatory Open Offer bids mentioned in Regulation 3 of the SEBI (SAST) Regulations, 2011 are triggered on occurrence certain events, to which the acquirer and/ or Person Acting in Concert (PAC) must provide an open offer to buy further shares from other shareholders of the target company. The triggering events for Mandatory Open Offer are in two cases, initial trigger and creeping trigger events.

Mandatory Public Offer : First Condition: Acquisition of 25% or more shares or voting rights: An acquirer, who (along with PACs, if any) holds less than 25% shares or voting rights in a target company and agrees to acquire shares or acquires shares which along with his/PAC’s existing shareholding would entitle him to exercise 25% or more shares or voting rights in a target company, will need to make a public announcement of making an open offer to acquire the shares before acquiring such additional shares.

Second Condition : Acquisition of more than 5% shares or voting rights in a financial year: An acquirer who (along with PACs, if any) holds 25% or more but less than the maximum permissible non-public shareholding in a target company, can acquire additional shares in the target company as would entitle him to exercise more than 5% of the voting rights in any financial year beginning April 01, only after making a public announcement of making an open offer to acquire the shares.

Cases:

Case (i) Open Offer is required as First Condition of 25% or more is met.

Case (ii) Open Offer is not required as requirement of open offer as per second condition is when acquisition is beyond 5% of the voting capital of the target company.

Case (iii) For First Acquisition of 3%, Open Offer is not required but for second Acquisition of 4% Open Offer is required because 2nd Condition above is met.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(a) (Old syllabus).

In the event of forfeiture of amount, the entire amount is distributed in the following manner:

(i)one-third of the escrow amount to Target Company;

(ii)one-third of the escrow account to the Investor Protection and Education Fund established under Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009;and

(iii)one-third of the escrow account to be distributed pro-rata among the shareholders who have accepted the open Offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(i) (Old syllabus).

In cases of takeover exercise involving one or more listed companies one needs to look into Companies Act, 2013, Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) for proper compliances.

Regulation 31A (8) of LODR requires any public shareholder seeks to re-classify as promoter of other listed company needs to make an open offer as per SAST. However, neither of regulations shall apply to direct and indirect acquisition of shares or voting rights in, or control over a company listed without making a public issue, on the institutional trading platform of a recognised stock exchange.

As regards Companies Act, 2013, Section 186 shall apply to the acquisition of shares in a company for takeover. Legal requirements are detailed in Sections 235 and 236 for the purpose of takeover of unlisted company through transfer of undertaking.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(b) (Syllabus 2017).

Although open offer once made cannot be withdrawn yet Regulation 23 of SAST Regulations, 2011 provide certain exceptions. They are as under:

(a)Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer have been refused subject to such requirement for approvals having been specifically disclosed in the Detailed Public Statement and the letter of offer;

(b)Any condition stipulated in the Share Purchase Agreement attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, subject to such conditions having been specifically disclosed in the Detailed Public Statement and the letter of offer;

(c)Sole acquirer being a natural person has died;

(d)Any other circumstances if SEBI merit withdrawal of open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(i) (Old syllabus).

For the purpose of delisting of shares in a stock exchange the provisions of Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 need to be complied with. In the public announcement made pursuant to regulations 3, 4 or 5 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the acquirer need to publish intention of delisting.

In case approval of shareholders could not be obtained for delisting or offer for sale is not accepted by the shareholders as per the threshold limits under Regulation 17 of the Delisting Regulations or the acquirer rejected the discovered price – such failures need to be publicly announced by the acquirer. In case any counter offer is made, the acquirer is not entitled to delist and not liable to pay any interest for delay due to counter offer but is required to make a public announcement in newspapers within 2 working days.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(b) (Old syllabus).

Regulation 3 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011 requires public announcement of making an open offer to acquire further shares if the acquirer along with ‘persons acting in concert’ hold less than 25% shares but, desires to acquire exceeding 25% shares by such further acquisition. In case, if already holding above 25% shares, any further acquisition above 5% in a financial year also requires public announcement.

However, the aforesaid threshold limits are of shares not applicable in terms of Securities and Exchange Board of India (Substantial Acquisition and Takeover) (Amendment) Regulation, 2018. As per the said amendment an explanation is added stating that any acquisition pursuant to a Resolution Plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 is exempted, from the above mentioned compliances.

However, for indirect acquisition of shares or control (under Regulation 5 of SEBI (SAST) Regulations, 2011), where the ‘target company’ is to be controlled by ‘persons acting in concert’, the obligation for public announcement of an open offer gets attracted.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(ii) (Old syllabus).

Disclosure of pledged shares

Regulation 31 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 contains provisions relating to disclosure of pledged shares. Since the company is a listed company, hence provisions of Regulation 31 of SEBI (SAST) Regulations, 2011 would apply.

The promoter Ramesh shall disclose details of shares pledged with the bank within 7 working days of such pledge to the target company at its registered office and to the stock exchange where the shares of the target company are listed.

Further, Ramesh shall inform the target company at its registered office and the Stock Exchange, where the shares of the company are listed, the details of any invocation or release of such pledge of shares held by him within 7 working days of the occurrence of such an event.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(c) (Old syllabus).

As per regulation 23 of the SEBI (SAST) Regulations, 2011, an open offer once made cannot be withdrawn except in the following circumstances:

1.Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer have been refused subject to such requirement for approvals having been specifically disclosed in the detailed public statement and the letter of offer;

2.Any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer;

3.The acquirer, being a natural person, has died;

4.Such circumstances which in the opinion of SEBI merit withdrawal of open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(b) (Old syllabus).

The major changes/ amendments introduced vide the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 notified on 23rd September, 2011 were as under:

1.increase in trigger limit for open offer from 15% to 25%.

2.increase in statutory open offer size from 20% of share capital to 26% of total share capital of the company.

3.overhaul of exemptions from open offer.

Exemptions have been further categorized into the following broad heads:

(a)transactions, which trigger a statutory open offer due to substantial acquisition of shares/ voting rights, or due to change in control.

(b)tranactions which trigger a statutory open offer due to acquisition of shares/ voting rights exceeding prescribed thresholds, provided that there is no change in control.

4.Offer pricing: These regulations brought in the concept of Volume Weighted Average Market Price.

5.Creeping acquisition: These regulations provided that an acquirer could make a creeping acquisition of 5% annually (between April 1 to March 31 of next year) to reach 75% stake such that the minimum public shareholding of 25% is maintained. The manner of computation of the 5% creeping acquisition limit has also been clarified.

6.Non-compete fee: The provision of payment of non-compete was done away with.

7.Recommendation of independent directors on the open offer to be published in the newspapers in which the detailed public statement was given.

The Regulations, further sought to include the various SAT judgments, informal guidance given and the experience gained from implementing the Takeover Regulations since 1994. They further sought to align itself with the Takeover Regulations as they exist in the rest of the world.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(iii) (Syllabus 2017).

Maximum permissible non-public shareholding in a listed company

Maximum permissible non-public shareholding is derived based on the minimum public shareholding requirement under the Securities Contracts (Regulations) Rules, 1957 (“SCRR”). Rule 19A of SCRR requires all listed companies (other than public sector companies) to maintain public shareholding of at least 25% of share capital of the company. Thus, by deduction, the maximum number of shares which can be held by promoters i.e. (Maximum permissible non-public shareholding) in a listed company (other than public sector companies) is 75% of the share capital.

= 69.5%

This percentage of the promoter group in the company which is well within the Maximum permissible non-public shareholding norms.

Thus, Vrisha Ltd is compliant with Maximum permissible non-public shareholding norms.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(a) (Syllabus 2022).

Regulation 30 of SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations states that:

1.Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.

2.The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.

3.The disclosures required under sub-regulation (1) and sub-regulation (2) shall be made within seven working days from the end of each financial year to :

(a)every stock exchange where the shares of the target company are listed; and

(b)the target company at its registered office.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(d) (Syllabus 2017).

As per Regulation 5(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 indirect acquisition will be treated as direct acquisition when:

a.the proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or business being acquired;

b.the proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or business being acquired; or

c.the proportionate market capitalisation of the target company as a percentage of the enterprise value for the entity or business being acquired;

is in excess of eighty per cent, on the basis of the most recent audited annual financial statements, such indirect acquisition shall be regarded as a direct acquisition of the target company for all purposes of these regulations including without limitation, the obligations relating to timing, pricing and other compliance requirements for the open offer.

For the purposes of computing the percentage referred to in clause (c) of this subregulation, the market capitalisation of the target company shall be taken into account on the basis of the volume-weighted average market price of such shares on the stock exchange for a period of sixty trading days preceding the earlier of, the date on which the primary acquisition is contracted, and the date on which the intention or the decision to make the primary acquisition is announced in the public domain, as traded on the stock exchange where the maximum volume of trading in the shares of the target company are recorded during such period.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(b) (Syllabus 2017).

Creeping acquisition refers to the process through which the acquirer together with "Person Acting in Concert (PAC) holding more than 25% but less than 75%, to gradually increase their stake in the target company by buying up to 5% of the voting rights of the company in one financial year.

In terms of Regulation 3(3) of SEBI (SAST) Regulations, if the individual shareholding of an acquirer after acquisition exceeds 25% or the creeping acquisition limit of 5% in a financial year in the target company, such acquirer needs to make public announcement of an open offer.

In the given case, combined Promoters' holding after proposed acquisition is [(37000+8000) /108000]*100 – 37% = 4.66% being less than the trigger 5%, there is no need for public announcement.

However, in case of Ram, post-acquisition is 28000/108000 = 25.92% that exceeds 25%. Therefore Ram has triggered the code and under an obligation to make a public announcement.

In case of Mohan, there is no requirement as it does not cross either 5% or 25% of the capital of the target company. However, had there been acquisition by the promoters from dissenting shareholders as per exit offer in terms of Regulation 3(4), there need not be any public announcement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(d) (Syllabus 2017).

‘Conditional offer’ and ‘competing offer’ are different under SEBI (SAST) Regulations, 2011.

Conditional offer : As per regulation 19, a conditional offer is an open offer to acquire shares along with the condition as to the minimum level of acceptance. If shares up to a minimum level are not offered to the acquirer, he may not acquire any shares.

Competing offer : As per regulation 20, when a public announcement for acquiring shares of a target company in an open offer is made, any person, other than the acquirer who has made such public announcement, shall be entitled to make a public announcement of an open offer within fifteen working days of the date of the detailed public statement made by the acquirer.

Unless the open offer first made is an open offer conditional as to the minimum level of acceptances, no acquirer making a competing offer can be made conditional as to the minimum level of acceptances.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(c) (Old syllabus).

The name of the strategy is called “scorched earth approach”. This approach is highly aggressive, and potentially self-destructive takeover defense strategy used by target companies to evade a hostile bid. It is a more extreme form of the "crown jewel " strategy in which the central theme is to divest the most coveted asset (known as crown jewel) Consequently, the hostile bidder is deprived of the primary intention behind the takeover bid.

“Scorched earth approach” is a variation of the crown j ewel strategy and more radical in approach as the target not only sells off the crown jewel asset, but also properties to diminish its worth.

Risks and Consequences

•Self-Destruction ("Suicide Pill"): The strategy is so extreme that it can lead to the destruction of the company's own value, making it difficult to recover even if the takeover is prevented.

•Business Failure: The long-term impact of losing core assets, coupled with high debt, can lead to bankruptcy or liquidation.

•Legal Challenges: The acquiring company may seek a court injunction to stop these actions, viewing them as a violation of fiduciary duties.

•Shareholder Backlash: Because this method often destroys value, it can lead to a revolt from shareholders who would prefer the value offered by the acquirer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2A(i) (Syllabus 2022).

The central theme in this strategy is to divest the most coveted asset by the bidder, commonly known as the “crown jewel”. Consequently, the hostile bidder is deprived of the primary intention behind the takeover bid. A variation of the crown jewel strategy is the more radical “scorched earth approach”, vide which approach, the target sells off not only the crown jewel, but also properties to diminish its worth. Such a radical step may however be self- destructive and unwise in the company’s interest.

However, as per the Companies Act, 2013, selling of whole or substantially the whole of its undertaking requires the approval of the shareholders in a general meeting by way of a special resolution and Regulation 26 of the SEBI (SAST) Regulations, 2011, the target company cannot alienate any of its material assets during the offering period (which commences once the public announcement is made) and can also not make a buy-back of shares from the public shareholders except with the approval of shareholders by way of a special resolution passed by Postal Ballot . Hence it would be almost impossible to use the “Crown Jewel” strategy as a defense mechanism in India.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(a) (Syllabus 2017).

A hostile tender offer made directly to a target company's shareholders, with or without previous overtures to the management, has become an increasingly frequent means of initiating a corporate combination. As a result, there has been considerable interest in devising defense strategies by actual and potential targets.

An increasingly used defense mechanism is anti-takeover amendments to the company's constitution or articles of association, popularly called shark repellants. The anti-takeover amendments have to be voted on and approved by the shareholders. Through this, the practice of the company to change the articles, regulations, bye-laws etc. tries to be less attractive to the corporate bidder.

Anti-takeover amendments generally impose new conditions on the transfer of managerial control of the firm through a merger, tender offer, or by replacement of the Board of Directors. In India every company has the power to alter its articles of association by a special resolution. The altered articles will bind the members just in the same way as did the original articles. But that will not give the altered articles a retrospective effect. The alteration of articles of association is subject to the following restriction:

1.The alteration must not be in contravention of the provisions of the Act, i.e. should not be an attempt to do something that the Act forbids.

2.The power of alteration is subject to the conditions contained in the memorandum of association i.e. alter only the articles of the company as relate to the management of the company but not the very nature and constitution of the company. Also the alteration should not constitute a fraud on the minority.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(d) (Old syllabus).

Mega Motors Limited may have conceived all or any of the following objects of takeover as given below:

i.To effect savings in overheads and other working expenses on the strength of combined resources;

ii.To achieve product development through acquiring firms with compatible products and technological/manufacturing competence, which can be sold to the acquirer's existing marketing areas, dealers and end users;

iii.To diversify through acquiring companies with new product lines as well as new market areas, as one of the entry strategies to reduce some of the risks inherent in stepping out of the acquirer's historical core competence;

iv.To improve productivity and profitability by joint efforts of technical and other personnel of both companies as a consequence of unified control;

v.To create shareholder value and wealth by optimum utilisation of the resources of both companies;

vi.To achieve economies of scale by mass production at economical costs;

vii.To secure substantial facilities as available to a large company compared to smaller companies for raising additional capital, increasing market potential, expanding consumer base, buying raw materials at economical rates and for having own combined and improved research and development activities for continuous improvement of the products, so as to ensure a permanent market share in the industry;

viii.To achieve market development by acquiring one or more companies in new geographical territories or segments, in which the activities of acquirer are absent or do not have a strong presence.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c) (Syllabus 2017).

Takeovers may be broadly classified into:

(i)Friendly Takeover : Friendly takeover is with the consent of taken over company. In friendly takeover, there is an agreement between the management of two companies through negotiations and the takeover bid may be with the consent of majority or all shareholders of the target company. This kind of takeover is done through negotiations between two groups. Therefore, it is also called negotiated takeover.

(ii)Hostile Takeover : When an acquirer company does not offer the target company the proposal to acquire its undertaking but silently and unilaterally pursues efforts to gain control against the wishes of existing management.

(iii)Bail Out Takeover : Takeover of a financially sick company by a profit earning company to bail out the former is known as bail out takeover. There are several advantages for a profit making company to takeover a sick company. The price would be very attractive as creditors, mostly banks and financial institutions having a charge on the industrial assets, would like to recover to the extent possible. Banks and other lending financial institutions would evaluate various options and if there is no other go except to sell the property, they will invite bids.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(d) (Old syllabus).

The poison pill technique, sometimes also known as a shareholder rights plan, is a form of defense against a potential hostile takeover. It is a technique by which the target company seeks to make itself less desirable to potential acquirers.

A controversial but popular defense mechanism against hostile takeover bids is the creation of securities called “poison pills". These pills provide their holders with special rights exercisable only after a period of time following the occurrence of a triggering event such as a tender offer for the control or the accumulation of a specified percentage of target shares. These rights take several forms but all are difficult and costly to acquire control of the issuer, or the target firm. Poison pills are generally adopted by the Board of Directors without shareholders’ approval but the technique is vulnerable to Court review as such considered enhancing the ability of the Board of Directors to bargain for a "fair price” though takeovers cannot be prevented.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(c) (Old syllabus).

(i)The Pac-Man Defence is a defensive mechanism used against the hostile takeover, wherein the target firm turns around the table and acquires the firm that has made the hostile bid or has initiated the takeover.

(ii)Pac-Man defence is a strategy by the promoters of the target company to make a counter offer to existing shareholders that may demoralise the acquirer from the proposal.

(iii)Regulation 26 (2) of SEBI (SAST) Regulations, 2011 prohibits the target company to enter into any agreement other than in ordinary course of business during offer period except with the approval of shareholders through special resolution by way of postal ballot.

(iv)Hence in India with such Regulatory Bodies and regulations, it's almost impossible to resort to Pac-man defence strategy.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(d) (Syllabus 2017).

Takeovers may be broadly classified into three kinds:

(i)Friendly Takeover : Friendly takeover is with the consent of target company. In friendly takeover, there is an agreement between the management of two companies through negotiations and the takeover bid may be with the consent of majority or all shareholders of the target company.

(ii)Hostile Takeover : When an acquirer company does not offer the target company the proposal to acquire its undertaking but silently and unilaterally pursues efforts to gain control against the wishes of existing management.

(iii)Bailout Takeover : Takeover of a financially sick company by a profit earning company to bailout the former is known as bailout takeover.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(d) (Syllabus 2017).

Going global is rapidly becoming Indian company's mantra of choice. Indian companies are looking for ways to reduce costs, innovate speedily and increase their international presence. One of the best ways for this is cross border takeovers. Globalization has helped in increasing the number of cross border takeovers.

Cross border takeover has several benefits as mentioned below:

1.It provides newer and better technology

2.It increases the size of the firm

3.It create employment opportunities

4.It enhances the market capitalization

Cross border takeover is a complex process involving various challenges as mentioned below:

1.Taxation issues

2.Legal issues (company law, market regulations, self-regulations, etc.)

3.Cultural differences

4.Volatility in share prices

5.Technological changes

6.Political considerations

7.Power and pervasiveness of labor unions and employee representatives Some of the recent cross border takeovers are:

•Walmart – Flipkart

•Bayer – Monsanto

•Hindalco – Aleris Corporation

•Rosneft Oil Company – Essar Oil

•General Electric – Alstom

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(i) (Old syllabus).

Four major types of anti-takeover amendments are mentioned below:

1.Supermajority Amendments - These amendments require shareholders’ approval by at least 2/3 vote and sometimes as much as 90% of the voting power. Pure or inflexible super majority provisions would seriously limit the management's scope of options and flexibility in takeover negotiations.

2.Fair-Price Amendments - These are supermajority provisions with a Board out clause and an additional clause waiving the supermajority requirement if a fair-price is paid for the purchase of all the shares. Thus, fair-price amendments defend against two-tier tender offers that are not approved by the target’s Board.

3.Classified Boards - It provides for a staggered, or classified Board of Directors to delay effective transfer and control in a takeover.

4.Authorization of Preferred Stock - This device is a defense against hostile takeover bids. Under this provision, the Board of directors is authorized to create a new class of securities with special voting rights.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(ii) (Old syllabus).

It is possible to identify some characteristics that make a company a desirable candidate for a takeover from the acquirer's point of view. These are:

— Low stock price in relation to the replacement cost of assets of their potential earning power;

— A highly liquid balance sheet with large amounts of excess cash, a valuable securities portfolio, and significantly unused debt capacity;

— Good cash flow in relation to current stock prices;

— Subsidiaries and properties which could be sold off without significantly impairing cash flow; and

— Relatively small stockholdings under the control of an incumbent management.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(d) (Old syllabus).