SEBI Takeover Code

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, commonly called the SEBI Takeover Code, governs acquisition of shares and control in listed Indian companies. It mandates open offers to public shareholders when an acquirer crosses specified ownership thresholds, protecting minority shareholders.

What Is the SEBI Takeover Code?

The Takeover Code ensures that when a substantial acquisition of shares in a listed company occurs, existing public shareholders get the right to exit at a fair price. It creates transparency and fairness in takeover transactions.

Key Thresholds

**Mandatory Open Offer Triggers:**
– Any person acquiring 25% or more of the total shares or voting rights
– Any person already holding 25-75% who acquires additional 5% or more in any financial year

**Size of Open Offer:**
– Minimum 26% of total shares and voting rights of the target company

**Open Offer Price:**
– Must be the highest price paid by the acquirer in the preceding 52 weeks
– Or the volume-weighted average price of the preceding 60 trading sessions
– Whichever is higher

Exemptions

Certain acquisitions are exempt from mandatory open offer:
– Intra-group restructuring among group companies
– Transmission or inheritance of shares
– Rights issue subscriptions
– Open market purchases below 5% in a year

Process

1. Acquirer crosses threshold
2. Public announcement of open offer within 2 working days
3. Detailed public statement within 5 working days
4. SEBI reviews; open offer opens for 10 working days
5. Payment made to tendering shareholders

Practical Example

A company acquires 30% stake in a listed target through a block deal. This triggers the Takeover Code. The acquirer must announce an open offer for 26% of shares at the SEBI-mandated minimum price. Existing shareholders who wish to exit can tender their shares during the 10-day open offer window.

Key Takeaways

– SEBI Takeover Code mandates an open offer for 26% when an acquirer crosses 25% ownership
– Open offer price must meet SEBI’s formula (highest 52-week price paid by acquirer or 60-day VWAP)
– Protects minority shareholders by giving them an exit opportunity at a fair price
– Certain transactions (intra-group, rights issue) are exempt from open offer requirements
– The Takeover Code is frequently invoked in M&A transactions involving listed Indian companies