UNIVERSITY INSTITUTE OF LEGAL

STUDIES (UILS)
SUBJECT : MERGERS AND ACQUISITION
(LBT-515)
Ms. Suzanna Augustine George
Topic: Disclosures and Open Offer
Requirements - I

DISCOVER . LEARN . EMPOWER

 DISCLOSURES
(Regulation 29,30,31)
Continual Disclosures of

DISCLOSURES OF
ENCUMBERED SHARES
CONTINUAL DISCLOSURES
EVENT BASED DISCLOSURES
Any person who crosses Regulation 28(3), the
aggregate shareholding term ‘encumbrance’ shall
threshold limit of 5% of include a pledge, lien or
shares or voting rights has shall be made within 7 any such transaction by
to disclose the aggregate working days from the end whatever name called.
shareholding to the Target of the financial year to the The promotor of the
Company and the stock target company and the target company shall
exchange within 2 stock exchange where the disclose the details of
working days of shares of the target shares encumbered by
acquisition them or by their PACs
company are listed by: within 7 working days of
Any person who holds 5% such creation.
or more shares or Voting a. Shareholders holding
shares or voting rights The promoter shall
Rights of the target inform where there is
company and who entitling them to exercise any invocation or release
acquires or sell shares 25% or more of the voting of such encumbrance of
representing 2% or more rights in the target company shares held by them
of the voting rights shall within 7 working days of
disclose the details of b. Promoter of the target the occurrence of the
company irrespective of event.
acquisition within 2
working days to the target their percentage of holding
company
 OPEN OFFER REQUIREMENTS
OPEN OFFER THRESHOLDS (Regulation-3)
• Acquisition of 25% or more shares or voting rights
• Acquisition of more than 5% shares or voting rights in a financial year
Indirect acquisition of shares or control (Regulation 5)
the acquisition which would otherwise attract the obligation to make a
public announcement of an open offer for acquiring shares under these
regulations, shall be considered as an indirect acquisition of shares or
voting rights in, or control over the target company.
 DELISTING OFFER (Regulation -5A)

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, he may delist the company in accordance with provisions of the
Securities and Exchange Board of India (Delisting of Equity Shares)
Regulations, 2009:
Provided that the acquirer shall have declared upfront his intention to so
delist at the time of making the Detailed Public Statement.
• Where an offer made under sub-regulation (1) is not successful,-
(i) on account of non–receipt of prior approval of shareholders in terms of
clause (b) of subregulation (1) of regulation 8 of Securities and Exchange
Board of India (Delisting of Equity Shares) Regulations, 2009; or
(ii) in terms of regulation 17 of Securities and Exchange Board of India
(Delisting of Equity Shares) Regulations, 2009; or
(iii) on account of the acquirer rejecting the discovered price determined by
the book building process in terms of sub-regulation (1) of regulation 16
of Securities and Exchange Board of India (Delisting of Equity Shares)
Regulations, 2009,
the acquirer shall make an announcement within two working days in respect
of such failure in all the newspapers in which the detailed public statement
was made and shall comply with all applicable provisions of these
regulations.
• In the event of the failure of the delisting offer made under sub regulation (1), the
acquirer, through the manager to the open offer, shall within five working days
from the date of the announcement under sub regulation (2), file with the Board, a
draft of the letter of offer as specified in sub-regulation (1) of regulation 16 and
shall comply with all other applicable provisions of these regulations:
Provided that the offer price shall stand enhanced by an amount equal to a sum
determined at the rate of ten per cent per annum for the period between the
scheduled date of payment of consideration to the shareholders and the actual date
of payment of consideration to the shareholders.
• Where a competing offer is made in terms of sub-regulation (1) of regulation 20,-
(a) the acquirer shall not be entitled to delist the company;
(b) the acquirer shall not be liable to pay interest to the shareholders on account of
delay due to competing offer;
(c) the acquirer shall comply with all the applicable provisions of these regulations
and make an announcement in this regard, within two working days from the
date of public announcement made in terms of sub-regulation (1) of regulation
20, in all the newspapers in which the detailed public statement was made.
• Shareholders who have tendered shares in acceptance of the offer
made under sub-regulation (1), shall be entitled to withdraw such
shares tendered, within 10 working days from the date of the
announcement under sub regulation (2) .
• Shareholders who have not tendered their shares in acceptance of the
offer made under sub regulation (1) shall be entitled to tender their
shares in acceptance of the offer made under these regulations.
 OPEN OFFER PROCESS

The Public
Appointment of announcement of the
Public announcement
Manager to the Offer open offer through the
manager of the offer
 Filing of Draft Letter of Offer
(Regulation-16)
• The manager of the offer is required to file a draft letter of offer with SEBI for its
observation within 5 working days of publication of the Detailed Public Statement
• The Board shall give its comments on the draft letter as soon as possible but not
later than fifteen working days of the receipt of the draft.
• If no comments being issued during the said period, it shall be deemed that the
Board does not have comments to offer.
• If the Board has sorted any clarification or additional information from the
manager of offer, the period of issuance of comments shall be extended to the fifth
working day from the date of receipt of satisfactory reply to the clarification or
additional information sought.
• If the Board specifies any changes, the manager to the open offer and the acquirer
shall carry out such changes in the letter of offer before it is dispatched to the
shareholders.
 ESCROW ACCOUNT
(Regulstion-17)
• It is a bank account which is required to be opened by an acquirer who
proposes to make public announcement of an open offer.
• Regulation- 17(1)
“Not later than two working days prior to the date of the publication of
the detailed public statement of 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
such escrow account such aggregate amount as specified.”
• The purpose is to ensure that the acquirer has sufficient funds to pay
the consideration under the offer and he ahs secured sufficient
financial arrangement.
Amount to be Deposited:
Consideration payable under the Open Escrow Account
Offer
On the first Rs. 500 Crores 25% of the consideration

On the balance consideration An additional amount equal to 10%

• If the offer is made conditional upon minimum level of acceptance,
then higher of the following two shall be deposited in the Escrow
Account:
i. Hundred percent of the consideration payable in respect of
minimum level of acceptance
ii. Fifty per cent of the consideration payable under the open offer
• If the acquirer makes any upward revision in the open offer, whether
by way of increase in offer price, or of the offer size, then the Acquirer
shall make corresponding increases to the amount kept in escrow
account prior to making such revision.
 MODE OF DEPOSIT IN ESCROW
ACCOUNT
• Cash Deposit with any scheduled commercial bank
Empower the manager to the open offer to instruct the bank to issue a bankers’ cheque or demand draft or to
make payment of the amounts lying to the credit of the escrow account lying to the credit of the escrow
account
• Bank guarantee issued in favor of the manager to the open offer by any scheduled commercial bank
The bank guarantee shall be in the favor of manager to the offer and shall be kept valid throughout the offer
period and additional 30 days after the payment to the shareholders who have tendered their shares have been
made.
• Deposit of frequently traded and freely transferable equity shares or other freely transferable securities with
appropriate margin
Manager to the Open Offer shall be empowered to realize the value of escrow account by way of sale or
otherwise of the shares so deposited.
Further in case of any shortfall in the amount in the escrow account, such shortfall shall be made good by the
Manager.
• Bank Guarantee or Deposit of Security
Deposit at least 1% of the total consideration payable in cash with schedule commercial bank as part of Escrow
Account.
RELEASE OF AMOUNT FROM
ESCROW ACCOUNT

In case of withdrawal of offer, the entire amount can be released only after
certification by the managers to the open offer

The amount deposited in special escrow account is transferred to a special

bank account opened with the Bankers to an issue; transferred amount not
more than 90% cash deposited in escrow account.

The Balance 10% is to be released to the acquirer on the expiry of thirty days
from the completion of all obligations under the open offer

The entire amount to the acquirer on the expiry of thirty days from the
completion of all obligations under the offer where the open offer is for
exchange of shares or other secured instruments
In the event of forfeiture of the amount is distributed in the following
mannar: one third amount to the target company, one third to the Investor
Protection and Education Fund, remaining one third is to be distributed to
the shareholders who have tendered their shares in the offer.
 DISPATCH OF LETTER OF OFFER
(Regulation-18)
• 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 shall be dispatched to the shareholders whose names appear on the register of
members of the target company as of the identified date, not later than seven working days from the
receipt of comments from the Board or where no comments are offered by the Board, within seven
working days from the expiry of the stipulated period.
• Where local laws or regulations of any jurisdiction outside India may expose the acquirer or the
target company to material risk of civil, regulatory or criminal liabilities in the event the letter of
offer in its final form were to be sent without material amendments or modifications into such
jurisdiction, and the shareholders resident in such jurisdiction hold shares entitling them to less than
five per cent of the voting rights of the target company, the acquirer may refrain from dispatch of
the letter of offer into such jurisdiction
• Every person holding shares, regardless of whether he held shares on the identified date or has not
received the letter of offer, shall be entitled to tender such shares in acceptance of the open offer.
• The acquirer shall send the letter of offer to the custodian of shares underlying depository receipts, if
any, of the target company.