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Necessary resolution of complexity in the acquisition and non-listing rules

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complexity in the acquisition and non-listing rules

The rules related to mergers and acquisitions of companies will need to be rethought in the context of the outbreak of COVID epidemic and the steps taken to overcome it. Companies and their large shareholders will feel the need for buyers to overcome difficulty. Due to lack of capital, buyers will want to put their money in the same circumstances which will be easy to deal with and the regulations will also be rational.

Against this backdrop, this is perhaps the best time for the much-awaited reform of acquisition rules and unlisted rules. There are two different laws for this in India for strange reasons.

Under the takeover rules, a company intending to take up an offer to buy a stake from other shareholders when it agrees to buy a 25 per cent or more stake in a listed company or when it takes control of the listed company beyond the shareholding level But agrees. Companies that already hold more than 25 per cent stake also have to make such offers when the acquisition exceeds the franchise by more than 5 per cent in a financial year. The offer is for the acquisition of at least 26 per cent stake. The minimum price offered during stake purchase is regulated and the buyer may also offer a higher price than that.

Under the non-listing rules, public shareholders disclose their share price to a company willing to purchase, which can be bought off the market listing of that company. The highest price at which the acquirer crosses the 90 per cent shareholding level is the withdrawal price that shareholders are willing to pay to sell the share. If the price is acceptable and the 90% shareholding limit is exceeded, the company can be unlisted from the stock exchange. When an interested company agrees to buy more than 49 per cent stake in a listed company, its stake is likely to increase to over 75 per cent with an open offer of 26 per cent. Under the listing rules, only the maximum level of non-public shareholding is allowed. If the share purchase agreement is actually for 64 per cent or more, likely, it will also cross the 90 per cent level. However, a company cannot become unlisted if it has more than 75 per cent stake by creating two separate laws for the same activity, but after waiting for a year, it will try to re-list by selling some part. Can do. In short, one law takes the acquirer beyond the 75% limit, while another law again takes it below the 75% level. After that, the third type of law will apply to it. Even before the COVID crisis, the corporate has been improving this system. But now it has become even more necessary to change it. These unspoken rules may shatter the chances of acquisition of Indian listed companies. Deals are actually counted in the transaction data.

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Attempts were made to half-heartedly link the two laws together but with no reformist view in it, it proved to be a failure. Overall, if a company wants to buy a stake up to the mandatory level to hold an open offer under the acquisition rules, it can do so under this law and then try to eliminate the company's listing under the unlisted rule. If it fails in this effort, then it can complete this work under the acquisition law. Clearly, this is not a popular legal format.

A decade ago, the Acquisition Regulation Advisory Committee (a member of which was also the author) presented a simple draft of reforms in this direction, but the whole proposal was put on hold due to the uproar over the suggestion to keep an open offer for all the shares. Gone. In a potential merger and acquisition deal, an acquirer may intend to unlisted the company and if the price-preferred shareholders sell off their share and the 90 per cent threshold is exceeded, then the company may actually become unlisted is.

All parties will look at the available information and offers with open eyes and if 90 per cent of the shareholders agree, it will empower the law instead of becoming a deterrent. For those not intending to end listing, this provision will prevent them from public and open purchase so that the stake does not exceed 75 per cent. Thus, no law obligates the acquirer to go beyond the 75 per cent level.

At the same time, the acquirer wishing to abolish the listing will have to comply with the 75 per cent shareholding conditions within a year. If the non-listing rules are improved, they may be able to align with the offer placed under the acquisition rules, along with the elimination of listing and the withdrawal price will also be known.

This is a necessary reform of the merger and acquisition system. If we do not make this system simple and rational, then capital will start moving from India to such countries where there is no such complexity.

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