Open Offer

An open offer is a mandatory or voluntary public offer made by an acquirer to purchase at least 26% of shares from the public shareholders of a listed Indian company, at a price not less than the price determined by SEBI regulations. It is triggered when a buyer crosses certain ownership thresholds under SEBI’s Takeover Code.

What Is an Open Offer?

Under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, an acquirer must make an open offer to public shareholders in certain situations. The open offer ensures that public shareholders get an exit opportunity at a fair price when a company’s ownership changes significantly.

When Is an Open Offer Triggered?

An open offer is mandatory when:

– An acquirer acquires 25% or more of the voting rights in a listed company
– Any acquirer holding 25% or more acquires an additional 5% or more in any financial year
– Indirect acquisition that results in crossing these thresholds

A voluntary open offer can also be made by any existing shareholder to increase their stake.

Key Rules of an Open Offer

– Minimum size: 26% of total shares outstanding
– Minimum price: the highest of:
– The highest price paid by the acquirer in the preceding 26 weeks
– Volume weighted average price for the preceding 60 trading days
– Price at which a preferential allotment was made, if applicable
– Timeline: offer must be announced within 4 working days of trigger event

Practical Example

A foreign company acquires 28% stake in a listed Indian manufacturer from the promoters. This crossing of the 25% threshold triggers an open offer. The foreign company must make a public offer to buy up to 26% from existing public shareholders at the SEBI-determined minimum price. If shareholders holding 30% tender their shares, the acquirer buys 26% on a proportional basis.

Key Takeaways

– Open offer is a mandatory purchase offer to public shareholders when an acquirer crosses 25% ownership
– Minimum size of open offer is 26% of total shares
– Price must meet SEBI’s minimum price formula to protect public shareholders
– Ensures minority shareholders get a fair exit opportunity during ownership changes
– SEBI’s Takeover Code regulates all aspects of open offers in listed Indian companies