COMPANY LAW
| Conflict of CCI, SEBI takeover rules Fri, 18 Mar 2011 23:08:36 GMT |
| The government recently notified that the merger control provisions of the Competition Act, 2002, would become effective from June 1, 2011. Alongside, the Competition Commission of India has published draft regulations pertaining to the procedure in regard to the transaction of business related to combinations. From these notifications and draft regulations, it appears that the procedure for acquisition of shares or voting rights of listed companies in the country will undergo a substantial change from June 2011. This article attempts to examine how mandatory and voluntary tender offers will get affected due to the merger control regulations. The Competition Act regulates all 'combinations' that meet the prescribed threshold for India or worldwide assets or turnover of the target company and the India or worldwide assets or turnover of the parties to the acquisition or the group to which the target would belong after the acquisition. A combination includes acquisition of shares or voting rights of a listed company. It is interesting to note that to determine whether an acquisition is to be notified as a combination, the size of the transaction in question is not taken into account. Assuming that a potential acquirer intends to acquire more than 15% stake in a listed entity, under the SEBI Takeover Regulations, the acquirer will be required to make a public announcement of an open offer to the shareholders of the target company within four working days of agreeing to acquire the said stake. In the event that such an acquisition is a combination under the Competition Act, the acquirer will be required to not only make an open offer as per the SEBI Takeover Regulations but also notify the Competition Commission. Though the term 'acquisition' in the Competition Act is aligned to the definition of an 'acquisition' in the SEBI Takeover Regulations, i.e., 'acquiring or agreeing to acquire', there seems to be a divergence when it comes to the operative provisions. The Competition Act states that any person who proposes to enter into a combination shall give notice to the commission in the relevant form within 30 days of execution of any 'agreement' or 'other document' for acquisition. The term 'agreement' is broadly defined to include even an oral non-binding arrangement. The term 'other documents' is defined in the draft regulations to mean any document purporting to convey the intention to acquire shares or voting rights. Further, the draft regulations state that the date on which intention to acquire is communicated to the central government or a state government or a statutory authority shall be deemed to be the date of execution of the other document for acquisition. The language and the intention behind insertion of this deeming feature are not clear. One can only hope that the final regulations clarify the trigger date such that it does not involve notification of a mere intention to acquire. The SEBI Takeover Regulations have a time-bound procedure whereby the offer opens within 55 days of the public announcement and payments are made to the tendering shareholders within 15 days of close of the offer. In the event that the acquisition requires to be notified under the Competition Act, the shares tendered in the open offer cannot be transferred to the acquirer until receipt of the approval of the commission or expiry of 210 days from the date of filing. Shares tendered in an open offer are held by the registrar to the offer in a trust until the offer formalities are completed. Therefore, a delay in receipt of relevant regulatory approvals will cause undue hardship to the shareholders and also to acquirers who place a portion of the offer consideration in non-interest bearing escrow accounts. Therefore, it is critical |
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