THE BYPASS ROUTE TO SEBI TAKEOVER CODE GAINS POPULARITY

Orchid chemicals – a company with a market cap of about 1500 Crs. (as on close of business on 15th December 2009) was taken over for $400 Million Roughly Rs. 1860 crs.) yet no Open offer is triggered.

Incidentally this is not first such case. Orchid management has just followed other such deals. Notable amongst them is Eicher Mootrs (December 2007 deal valued at USD 350 Million) and Gwalior Chemicals (June 2009, Deal valued at Euro 82.4 Million) Such deals valued at hundreds of crores were all able to BYPASS the SEBI Takeover Rules which were promulgated to protect the interest of small shareholders.

Some small shareholder who keep an eagle’s eye on such M & A activities designed by the corporates to short change the small shareholders, did complain to SEBI but it seems that no action has been taken by SEBI resulting in encouraging more and more management to resort to such BY PASS.
Lets examine what the SEBI Takeover code says :
SEBI TAKE OVER CODE REG 12 STATES:
Acquisition of control over a company
12. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the Regulations.

It defies any logic in all such cases. Just examine Orchid case


1. A company with a market cap of Rs.1500 Crs. Is being taken over at more than its Market cap –Rs.1860 Crs. and it does not amount to TAKEOVER?
2. If 15% of the shares were bought of the same co.—amounting to Rs. 225 Crs. –it will be take over.
3. Regulation 12 says Acquisition of control over a company—how then acquisition of control over substantial parts or whole of the company’s assets is not “ Acquisition of control” ?
4. A basic question that comes up is what is a Company? Is the BOARD ROOM a company? Or the place where the real business is done, is the company ? Sale of the business earning in hundreds of crores with about 450 employees at a price of Rs. 1860 crs. Is not a sale/ transfer of control over the company?

SEBI needs to wake up to such deals and Block the By-pass by taking immediate & firm action and directing the parties concerned to follow the Takeover code in letter and spirit. If this loophole is not plugged, soon we will have many dud or KHOKA companies listed on our exchanges.

Why would a Mylan takeover a company like Matrix and come out with an Open Offer & later delisting offer? When an easy escape route is available in the present format with SEBI not making any effort to block the BY PASS, it will be foolish not to exploit it. By buying just the assets the Acquirers takes care of 2 steps at one go—avoids making an Open offer and also subsequent delisting exercise