SEBI issued Substantial Acquisition of Shares and Takeovers Regulations, 2011

Securities and Exchange Boar of India (SEBI) on 23 September 2011 notified the new takeover rule under which an entity buying 25% stake in a listed firm will have to mandatorily make an open offer to buy an additional 26% shares from the public. The notification follows the decision taken at SEBI's board meeting in July 2011.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently. The trigger for making such an offer was raised from 15 per cent under the existing regulations.

According to SEBI no acquirer shall acquire shares in a target company which taken together with shares or voting rights held by him entitle them to exercise 25 per cent or more of the voting rights unless the acquirer makes a public announcement of an open offer.

The new regulations, titled as The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 will come into effect from October 2011.

As per the new rules there would be no separate provision for non-compete fees, which allows promoters to higher price than the public shareholders, and all shareholders should be given the exit option at the same price. SEBI, as part of the new code, allowed voluntary offers subject to certain conditions.

Regarding control and offer size, SEBI mentioned that the existing definition of control would be retained and the minimum offer size shall be increased to 26% of the target company.

Accepting the recommendations of a SEBI-appointed panel on the matter, the regulator also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals. While the recommendation on trigger was accepted, the suggestion for offer size has been kept lower due to intense opposition from industry and other market participants.

The panel had opined against non-compete fees for promoters which often worked out as high as 25% of the deal value.

A SEBI panel on new takeover regulation had in 2010 recommended an open offer for buying up to 100% in the target company, while suggesting an increase in the trigger limit to 25%.