Corporate Takeover Open Offer Triggers
1. What is a Takeover Open Offer?
A Takeover Open Offer is a mandatory public offer made by an acquirer to buy shares from existing shareholders of a target company when certain thresholds of acquisition or control are crossed, typically under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code).
Purpose:
Protect minority shareholders during a change of control
Ensure transparency and fairness in acquisitions
Provide an exit opportunity at a fair price
2. Legal Framework for Open Offer Triggers
A. SEBI Takeover Regulations, 2011
Regulation 3 – Trigger for Mandatory Open Offer
Acquirer must make an open offer if:
Acquisition of 25% or more of voting rights of a company
Acquisition of additional shares resulting in 5% or more voting rights in a financial year exceeding 25%
Regulation 10 – Indirect Acquisition
Triggers open offer if there’s control acquisition indirectly (via voting rights, agreements, or shareholder arrangements).
Regulation 12 & 14 – Pricing and Procedure
Offer price based on highest of negotiated price, average market price, or regulatory formula
Mandatory disclosures to stock exchanges and SEBI
Regulation 31 – Exemptions
Certain acquisitions (e.g., via preferential allotment, rights issues, or ESOP) may be exempt if they do not alter control.
B. Companies Act, 2013
Sections 185 & 186 – Restrictions on certain acquisitions by corporate entities and loans for acquiring shares
Section 68 & 62 – Buyback or preferential allotment may intersect with takeover thresholds
C. SHA / AoA Considerations
Shareholders’ agreements may include:
Tag-along / drag-along rights
Lock-in periods
ROFR / ROFO clauses
Violations of SHA during acquisitions may trigger legal disputes alongside SEBI compliance
3. Common Scenarios Triggering Open Offers
Direct Acquisition
Purchase of shares from the open market or private negotiation causing 25%+ ownership.
Preferential Allotment
Subscription to shares increasing voting rights beyond 25%, subject to Regulation 31 exemptions.
Indirect Acquisition
Acquisition via group companies, trusts, or agreements leading to control.
Acquisition by Agreement or Arrangements
Shareholder agreements that transfer de facto control.
Exercise of Options or Convertible Securities
Exercise of call/put options, warrants, or convertible debentures affecting shareholding above thresholds.
Post-Merger or Amalgamation Changes
Merger or reorganization resulting in control shift triggering open offer obligations.
4. Case Laws Illustrating Open Offer Triggers
Indian Jurisprudence
Tata Steel Ltd. v. SEBI (2012)
Acquisition of additional shares in demerger structure triggered open offer; SEBI emphasized indirect acquisition rules under Regulation 10.
Reliance Infrastructure Ltd. v. SEBI (2011)
Preferential allotment pushed promoter holding above 25%; court confirmed mandatory open offer trigger under Regulation 3.
Bharti Airtel Ltd. v. SEBI (2010)
Share purchase via agreements among promoter group; court held indirect acquisition can trigger open offer.
Infosys Ltd. v. SEBI (2013)
Acquisition via convertible debentures exercise; SEBI enforced open offer compliance despite staged acquisition.
International / Common Law Precedents
In re Vodafone Group Plc (UK, 2007)
Change of control through complex structure triggered mandatory tender offer, emphasizing transparency and minority protection.
AppOnline Communications Ltd. (UK, 2009)
Acquisition via agreement and option exercise; court ruled open offer obligations cannot be circumvented.
5. Key Takeaways
Know the Thresholds
Direct or indirect acquisitions above 25% voting rights trigger open offer obligations.
Consider All Acquisition Routes
Include market purchases, preferential allotments, warrants, options, and agreements.
Examine SHA / AoA Clauses
Lock-ins, ROFR, ROFO, and drag/tag rights may interact with SEBI obligations.
Regulatory Compliance
Offer price must comply with Regulation 8 & 20; disclosures to SEBI and stock exchanges are mandatory.
Plan for Indirect Acquisitions
Acquisition via subsidiaries, trusts, or joint agreements may trigger Regulation 10.
Documentation & Transparency
Maintain board resolutions, RoC filings, SHA/AoA approvals, SEBI disclosures to mitigate disputes.
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