M&A Critique

Whether Global corporation should combine mandatory Open Offer and Delisting Offer?

The doors of Indian economy were opened to overseas Investors, due to global acquisitions, mergers, demergers, etc. among conglomerates, the impact is on change in control of Indian Listed entities resulting direct or indirect acquisition of shares or voting rights or control over Indian Listed Companies. In such a case most of the MNC’s, listed on the Indian Stock Exchanges need to comply with Regulation 3, 4, or 5 of SEBI (SAST) Regulations, 2011 which includes Appointment of Merchant Banker, Making Public Announcement, arriving at the offer price, etc. But Promoters want to have full control over the affairs of the company then delist is the only option. It takes around 3 months to complete all the compliances under the open offer.

As per regulation 7 (4) of SAST Regulations, if the following completion of open offer results in the acquirer’s shareholding exceeding the maximum permissible non-public shareholding then Acquirer need to bring down non-public shareholding below 75% within a maximum period of twelve months from the completion of open offer.

As per Regulation 38 of SEBI (LODR) Regulations, 2015 listed entity to comply with minimum public Shareholding as specified in Rule 19(2) and 19A of the Securities Contract (Regulations) Rules, 1957. So even though the Acquirer enjoys more than 75% of the shareholding, the happiness doesn’t last forever, because within one year Acquirer need to bring down its shareholding to 75% otherwise penalties in terms of fines, freezing of promoters shares and even barring promoters from being promoters in other listed companies will be imposed.

Due to mandatory provisions earlier, Multinational Companies need to get themselves listed on the Indian Stock Exchanges but considering ongoing arrangements at the global level the control over such entities is changing and in most cases triggering the Open Offer. Now along with open offer an option is available to said entities to get out of the listing zone by delisting their securities from Stock Exchanges. Regulation 5A of the SEBI (SAST) Regulations, 2011 provides an option of Delisting along with the open offer.

We have covered a recent delisting offer which failed by INEOS STYROLUTION in our August 2020 issue and to further the knowledge of our readers we have listed the overlaps and differences in open offer and delisting way for listed companies.

Following are the options available to the companies for delisting of securities at time of open offer:

A.  Combined open offer with Delisting offer

Regulation 5A of SEBI (SAST) Regulation gives an option that, if the acquirer makes a public announcement of an open offer in terms of regulation 3, 4 or 5, he may delist the Company following provisions of SEBI (Delisting of Equity Shares) Regulations, 2009.

Compliances under Regulations 5A:

  1. Acquirer shall declare upfront his intention to so delist at time of detailed public announcement (Subsequent declaration of delisting will not be availed)
  2. Provisions of Delisting Regulations viz Declaration of Indicative Price, Public announcement, In-Principle Approval from Stock Exchanges, Valuation through Book Building Process, etc.

What If Delisting Offer is Successful?

If offer of delisting under Regulation 5A is successful then Company can delist the shares as per the provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009.

There are not any hindrances from Regulators or at part of the Company but to comply with the provisions of the Delisting Regulations, if the delisting offer is accepted and successful as per Regulations 5A (1) of SEBI (SAST) Regulations, 2011.

What if Delisting offer is not successful?

  1. If in any case delisting offer is not successful on account of Non-receipt of prior approval of shareholders as per Regulation 8 (b) of SEBI (Delisting of Equity Shares) Regulations, 2009;
  2. Post offer promoter’s shareholding (along with persons acting in concert) has not reached ninety per cent of the total issued shares as per Regulation 17 of SEBI (Delisting of Equity Shares) Regulations, 2009;
  • Acquirer rejecting discovered price decided by Book building process in terms of Regulation 16 of SEBI (Delisting of Equity Shares) Regulations, 2009.

Then acquirer shall:

  1. make a public announcement of the failure of offer in all newspaper wherein detailed public statement was made;
  2. Within five working days from date of the announcement, file with the Board a draft of letter of offer as per regulation 16 SEBI (SAST) Regulations, 2011;
  • Comply with the provisions of the open offer as mentioned in SEBI (SAST) Regulations, 2011, provided the offer price will get enhanced at the rate of 10% per annum from the scheduled date of payment till the actual date of payment of consideration to the shareholders.

Going with this first option of Open offer along with delisting offer there are two possibilities either successful offer or a non-successful offer. If the offer succeeds, then the company needs not to worry but to follow the provisions of the Delisting Regulations and complete the delisting. If the offer is not successful because of the conditions mentioned above, then along with the time spent by the company for complying with the procedure under the Regulations the company shall bear the cost of interest at the rate of 10% per annum over the offer price for the period of the scheduled date of payment of consideration to the actual date of payment of consideration.

Most delisting offers are rejected by the promoter because of the huge difference between indicative price and price figured out by the book-building process. But SEBI through its notification dated 14th November 2018 has given an option to the promoter to make a counteroffer. So, even after the determined price being on the higher side, the Promoter can construct the delisting successful by making the counteroffer.

B.  Distinct Open offer and Delisting offer

The other option Companies can avail is to go separately with Open offer and Delisting Offer.

For Open Offer:

Companies to follow the provisions of SEBI (SAST) Regulations, 2011.

The open offer price shall be determined as per Regulation 8 of SEBI (SAST) Regulations, 2011. Acquirer acquires shares at a higher price during twenty-six weeks after tendering period then he shall pay the difference between highest acquisition price and the offer price to all shareholders whose shares were accepted during the open offer.

For Delisting offer:

Companies to follow the provisions of SEBI (Delisting of Equity Shares) Regulations, 2009.

The Floor price to be determined as per Regulation 8 of SEBI (SAST) Regulations, 2011, and after fixation of floor price the offer price to be determined through book building as per Regulation 15 of SEBI (Delisting of Equity Shares) Regulations, 2009.

Following are the consequences in case post-acceptance of shares in open offer:

  • Promoters Shareholding is in excess of ninety percent of total issued shares:
  1. In absence of upfront declaration for delisting, the company cannot delist the shares as subsequent declaration is not acceptable. (Regulation 5A (1) of SEBI (SAST) Regulations, 2011)
  2. Company will not be allowed to make a voluntary delisting offer under SEBI (Delisting of Equity Shares) Regulations, 2009 for the period of 12 months from the completion of the offer period. (Regulation 7(5) of SEBI (SAST) Regulations, 2011)
  • Promoters Shareholding is in excess of maximum permissible non-public shareholding but less than ninety percent of total issued shares.

In such a case Acquirer does not have any choice but to dilute its shareholding to specified level of non-public shareholding within 12 months from closure of the open offer. (Regulation 7 (4) of SEBI (SAST) Regulations, 2011).

If Companies opt for this option of going separately for the open offer and then delisting offer Companies need to spend plenty of time in complying with provisions and following the procedure of SAST and Delisting Regulations and after spending valuable time, it is not surety that the company will get delisted as there are various factors impacting delisting like prior approval of shareholder, price determination, acceptance by the promoter, acquisition of minimum no. of equity shares, etc.

Recently Wabco India Limited and ABB Power Products and System India Limited have made a public announcement of the open offer. The interesting part of the offers are although both the companies have prescribed to follow tender offer method in accordance with SEBI Circular CIR/CFD/POLICYCELL/1/2015 dated April 13, 2015, as amended by SEBI Circular CFD/DCR2/CIR/P/2016/131 dated December 9, 2016, as amended from time to time, the Acquirer of both these companies are European Corporations but ABB Power has specifically mentioned that Acquirer is not permitted to acquire the shares in open offer on the floors of stock exchange, being person resident outside India. One must need to evaluate the reason behind said wordings.

In a case, they receive more than 90% shares by said offer, either within a period of 12 months they must dilute the shareholding till the maximum permissible limit or wait for 12 months and then make delisting offer. As in absence of upfront intention company will not be able to get delisted.

Further, in a recent delisting offer of Ineos Styrolution Limited, wherein shareholders have tendered their shares which counting in total is more than 90% of total issued shares. But the same was rejected by the promoters without any counter offer majorly on the ground that huge difference between Floor Price and Determined Price.


It has observed that, many of the Global Corporations having operations listed only in Indian market. The Promoter of such Companies are Parent Companies registered outside India, holding the majority of shares but due to Listing Regulations, the Parent Companies cannot hold 100% shareholding in Indian entities. The current Covid situation having adverse impacts worldwide, due to which we will see cross border consolidation of the Conglomerates result in indirect change of control. In such a case Acquirer/Promoter must give open offer then why not combine it with delisting offer and go away with the burden of listing regulations.

Delisting offer, if given along with open offer it will save not only compliance procedural hurdle but may work out cheaper as time passes, because of huge opportunity in the Indian market, any delay in delisting offer will definitely very expensive.

Though the offer method prescribed under both ABB & Wabco is similar, the direct taxation occurring to the shareholders in both offers is different. One offer is directly through exchange & the other is through clearing corporation and not through exchange directly.  The taxation arising due to this is slightly different and in ABB, the price will be received by participating shareholders is after deducting the taxes on the interest component whereas in Wabco interest is considered as part of the consideration.

The requirement of open offer gets triggered immediately after the announcement of indirect change in control. Generally, it takes time to complete the global acquisition from the date of announcement and as a result, the actual commencement of open offer gets prolonged. The delay in the open offer must be compensated by the interest as specified under the law which is considered as an “Other Income” in the hands of shareholders and not “Capital gains”. One/authorities need to look at whether consideration is to be worked out based on the date of global acquisition plus interest on the same or it should be considered based on the revised price post completion of the global acquisition.

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Shriprasad Pise