Takeovers

1. Definition of Takeover
A takeover occurs when one company (the acquirer) gains control over another company
(the target) by acquiring a significant portion or all of its shares, assets, or voting rights. This
often results in a shift in ownership and decision-making authority, enabling the acquiring
company to influence the target's operations.
The acquisition of one company (target) by another (acquirer), typically through share
purchase or operational merger, to gain control over the target's management or assets.
2. Purpose:
o Expansion: Access new markets, customers, or geographical regions.

o Synergy: Achieve cost savings, enhance efficiencies, or create value by

integrating resources.
o Strategic Benefits: Acquire technology, intellectual property, or established
brands.
o Defensive Strategy: Prevent competition by consolidating market share or
acquiring strategic assets.
3. Objectives of Takeovers
Takeovers serve several strategic and financial objectives for the acquiring company:
 Business Expansion: To enter new markets or geographic regions.
 Acquisition of Resources: Gaining access to intellectual property, advanced
technologies, or raw materials.
 Market Power: Increasing market share or eliminating competition.
 Economies of Scale: Reducing operational costs by consolidating resources.
 Restructuring Opportunities: Reviving underperforming companies or sectors.
4. Types of Takeovers

a. Friendly Takeover
 Explanation: Involves cooperation between the acquirer and the target. The target
company's board and shareholders agree to the acquisition after negotiations.
 Process:
1. The acquirer presents an offer.
2. Negotiations take place between the boards of both companies.
3. The acquisition is approved by shareholders of the target company.
  Example: Walt Disney’s acquisition of Pixar, where both companies aligned for
mutual growth.
b. Hostile Takeover
 Explanation: The acquirer bypasses the target company’s management and directly
approaches its shareholders or employs other methods to gain control.
 Strategies:
o Tender Offer: Offers to purchase shares from shareholders at a price above
market value.
o Proxy Fight: Persuades shareholders to replace the current board of directors
with one supportive of the takeover.
 Example: Vodafone’s hostile takeover of Mannesmann in 1999.
c. Reverse Takeover
 Explanation: A private company acquires a public company to bypass the lengthy
process of going public (Initial Public Offering).
 Example: Burger King’s acquisition by Justice Holdings, enabling Burger King to list
publicly without an IPO.
d. Bailout Takeover
 Explanation: A financially distressed company is rescued by another entity through
acquisition.
 Example: Tata Motors’ acquisition of Jaguar Land Rover in 2008 to save the British
automaker from financial troubles.
e. Statutory Takeover: The target company is legally absorbed, with its shares
canceled, and the acquirer assumes control.
f. Tender Offer: Acquirer offers to purchase shares from shareholders at a premium to
gain majority control.
5. Legal Framework Governing Takeovers in India
5.1. The Companies Act, 2013
 Relevant Provisions:
o Sections 230-240: Governs compromises, arrangements, and amalgamations,
commonly utilized during takeovers.
o Key Features:

 Shareholder and creditor approval is mandatory.

 Requires sanction by the National Company Law Tribunal (NCLT).
  Ensures compliance with procedural requirements for protecting
stakeholders.
5.2. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
 Purpose: Regulates the acquisition of shares in listed companies to protect minority
shareholders.
 Key Provisions:
o Open Offer: Mandatory when the acquirer exceeds a 25% shareholding in the
target company.
o Creeping Acquisition: Promoters may increase their shareholding by 5%
annually without triggering an open offer, provided total holdings remain
within limits.
o Disclosure Obligations: Acquirers must declare shareholding changes beyond
a specified threshold.
5.3. Competition Act, 2002
 Role: Prevents anti-competitive practices resulting from mergers and takeovers.
 Authority: The Competition Commission of India (CCI) reviews takeovers to
ensure they do not harm market competition.
6. Procedure for Takeovers
A structured process is essential to ensure compliance and success:
6.1. Strategic Planning
 Identify the target company based on strategic objectives such as market entry or
synergy potential.
6.2. Due Diligence
 Conduct a detailed review of:
o Financial records.

o Legal obligations (e.g., pending litigations).

o Operational efficiency.

6.3. Negotiation and Agreement

 Finalize terms with the target company’s management and shareholders in a friendly
takeover. For hostile takeovers, directly approach shareholders.
6.4. Regulatory Compliance
 File necessary documents with authorities such as:
 o SEBI (for listed companies).

o CCI (to ensure compliance with anti-competition laws).

o NCLT (for structural changes under the Companies Act).

6.5. Execution
 Acquire shares or assets through direct purchase, market transactions, or agreements,
completing the takeover.
7. Stages of a Takeover
1. Pre-Takeover:
o Due Diligence: Comprehensive analysis of the target’s financial, operational,
and legal aspects.
o Negotiation: Terms, pricing, and structure agreed upon in friendly
acquisitions.
2. Offer Stage:
o Public announcement of the takeover proposal.

o Shareholders' decision to accept or reject the offer.

3. Post-Takeover:
o Integration: Streamlining operations, management, and cultural alignment.

o Regulatory Approvals: Compliance with SEBI, CCI, or other authorities.

8. Challenges in Takeovers
 Cultural Integration: Aligning organizational cultures post-takeover.
 Regulatory Hurdles: Navigating SEBI, CCI, and other regulatory approvals.
 Resistance: Management or shareholder opposition, particularly in hostile takeovers.
 Valuation Disputes: Disagreement over the fair value of the target company.
 Operational Disruptions: Integration of systems, processes, and teams can be
challenging.
9. Strategic Importance of Takeovers
 Growth and Expansion: Enables entry into new markets or industries.
 Synergy: Combines resources for operational efficiency.
 Market Power: Increases influence and competitive advantage.
 Access to Innovation: Acquiring intellectual property, technology, or specialized
skills.
10. Case Studies
1. Tata Steel’s Acquisition of Corus (2007)
Background:
In 2007, Tata Steel, part of the Tata Group, acquired Corus, a leading global steel producer
based in the UK, in a deal worth approximately $12 billion. This acquisition marked one of
the largest cross-border acquisitions by an Indian company at the time.
Key Points:
 Global Expansion: The acquisition helped Tata Steel expand its global footprint,
establishing it as one of the top 10 steel manufacturers worldwide.
 Friendly Takeover: The deal was a friendly takeover, with both companies agreeing
to the terms of the acquisition. The friendly nature of the deal helped in ensuring a
smooth transition and alignment of operational goals.
 Synergies: Tata Steel was able to integrate Corus's advanced manufacturing
capabilities with its own operations, leveraging economies of scale and improving
market access.
 Strategic Objectives: This acquisition was driven by Tata Steel's strategy to diversify
its product portfolio, gain access to new markets, and strengthen its global operations.
Significance:
 The deal showcased India’s growing role in global mergers and acquisitions.
 Tata Steel’s strategy to acquire a large European company was seen as a step towards
increasing its international presence and competitiveness in the steel industry.

2. Flipkart’s Acquisition by Walmart (2018)

Background:
In 2018, Walmart, the American retail giant, acquired Flipkart, India’s leading e-commerce
platform, for approximately $16 billion, making it one of the largest foreign investments in
India’s e-commerce sector.
Key Points:
 Market Entry: The acquisition enabled Walmart to enter the Indian e-commerce
market, which was rapidly growing and increasingly competitive, particularly with
players like Amazon.
 Expansion of Customer Base: Walmart gained access to Flipkart’s established
customer base and infrastructure, allowing it to better compete with Amazon in India.
 Strategic Synergy: Walmart's global supply chain expertise combined with Flipkart’s
market knowledge provided a strong foundation for expanding their operations.
  Investment in India’s Growth: The deal reflects India’s potential as a major growth
market for global companies, particularly in digital retail and technology.
Significance:
 This acquisition underscores the increasing foreign interest in the Indian e-commerce
sector.
 Walmart’s strategy of acquiring Flipkart instead of directly competing with it helped
accelerate its entry into the Indian market.
 It highlighted the growing significance of e-commerce in India’s retail landscape.
3. ArcelorMittal’s Acquisition of Essar Steel (2019)
Background:
In 2019, ArcelorMittal, the world’s largest steel manufacturer, successfully acquired Essar
Steel, an Indian steel company, through the insolvency resolution process under the
Insolvency and Bankruptcy Code (IBC).
Key Points:
 Bailout Acquisition: This was a bailout takeover that emerged as a part of the IBC’s
efforts to resolve stressed assets. ArcelorMittal won the bid for Essar Steel after years
of financial turmoil within Essar Steel.
 Strategic Importance: The acquisition significantly enhanced ArcelorMittal’s
presence in India, one of the fastest-growing steel markets in the world.
 Regulatory Framework: The acquisition took place within the framework of the
IBC, highlighting the role of insolvency laws in facilitating takeovers of distressed
companies.
 Controversies: The deal faced several challenges, including competing bids and
regulatory hurdles, but ArcelorMittal ultimately gained control.
Significance:
 This takeover demonstrated the effectiveness of India’s insolvency laws in facilitating
resolution of distressed assets.
 It marked ArcelorMittal’s consolidation of its position in the Indian market, a key part
of its global growth strategy.
4. Tata Sons Ltd. v. Mistry (2016)
Background:
The Tata Sons Ltd. v. Mistry case revolves around the removal of Cyrus Mistry as the
Chairman of Tata Sons in 2016, triggering a legal dispute over control of the Tata Group.
Key Points:
  Hostile Takeover Attempt: The case is considered an example of a hostile takeover,
with Cyrus Mistry challenging his ouster from the Tata Group and attempting to
regain control.
 Corporate Governance Issues: The case raised important issues about corporate
governance, board control, and the rights of minority shareholders within family-
controlled businesses.
 Legal and Governance Precedents: The case involved legal principles surrounding
the definition of “control,” the governance structure of conglomerates, and the
protection of minority shareholders' interests.
Significance:
 This case emphasized the need for clearly defining control in corporate acquisitions
and governance frameworks, especially in family-run conglomerates.
 It has been a landmark case in understanding the relationship between board control
and shareholder rights in hostile takeovers.
5. SEBI v. Kanaiyalal (2018)
Background:
The case SEBI v. Kanaiyalal (2018) focused on the mandatory open offer requirement for
acquisitions in India, as per the SEBI Takeover Code.
Key Points:
 Mandatory Open Offer: SEBI’s action emphasized the requirement of a mandatory
open offer when an acquirer reaches certain thresholds (e.g., 25%) of shares in a
listed company.
 Transparency: The case highlighted the role of transparency in takeovers, ensuring
that minority shareholders are given the opportunity to sell their shares at a fair price
when there is a significant acquisition.
 Regulatory Compliance: SEBI’s enforcement reinforced the importance of
complying with the regulations surrounding public offers and acquisitions.
Significance:
 This case reiterated the importance of regulatory oversight in ensuring that
shareholders are protected during substantial acquisitions.
 It also highlighted the open offer provision as a key safeguard in the Indian takeover
process.
6. Jet-Etihad Takeover Case
Background:
In 2013, Etihad Airways acquired a 24% stake in Jet Airways, India’s leading private
airline, which led to a complex ownership structure.
Key Points:
 Complex Valuation Issues: The acquisition raised questions about the valuation of
the airline, with concerns over the accuracy and transparency of the process.
 Minority Shareholder Protection: The case emphasized the need for ensuring that
minority shareholders’ rights are protected in significant acquisitions, particularly
when foreign investments are involved.
 Hostile Elements: Although the acquisition was not outright hostile, there were
concerns over the impact on minority shareholders, especially regarding decision-
making power post-acquisition.
Significance:
 The case is a reminder of the importance of valuation and minority shareholder
protection in acquisitions, particularly in sectors like aviation where foreign
investments play a significant role.
7. L&T’s Takeover of Mindtree
Background:
In 2019, Larsen & Toubro (L&T) launched a hostile bid to acquire Mindtree, an Indian
multinational IT and consulting company.
Key Points:
 Hostile Takeover: L&T gradually increased its stake in Mindtree through the stock
market, culminating in a hostile takeover.
 SEBI Regulations: The acquisition showcased the SEBI rules related to gradual
stake acquisition, requiring disclosure at various thresholds (e.g., 5%, 10%, etc.).
 Strategic Acquisition: Mindtree’s focus on technology consulting and its established
clientele made it a strategic acquisition for L&T, which wanted to strengthen its IT
business.
Significance:
 The case showcased how hostile takeovers can be conducted in compliance with
SEBI regulations.
 It also underscored the role of gradual stake accumulation and transparency in such
transactions.
8. Tata Motors and Jaguar Land Rover (2008)
Background:
In 2008, Tata Motors acquired Jaguar Land Rover (JLR), two iconic British car brands, for
approximately $2.3 billion.
Key Points:
  Strategic Acquisition: The acquisition helped Tata Motors strengthen its global
portfolio and establish a strong foothold in the luxury automobile segment.
 Regulatory Compliance: Tata Motors followed the necessary regulatory procedures,
ensuring compliance with both Indian and international laws regarding cross-border
acquisitions.
 Global Expansion: The deal demonstrated Tata Motors’ strategic intent to expand its
global presence and access new markets, particularly in Europe and North America.
Significance:
 The acquisition of JLR was a successful example of how global expansion can be
achieved through strategic acquisitions, even during a financial downturn (global
recession of 2008).
 It also highlighted the importance of compliance with acquisition regulations in
international mergers.
11. Recent Trends in Takeovers
 Technology-Driven Acquisitions: Companies are acquiring startups for digital
transformation (e.g., Facebook’s acquisition of WhatsApp).
 Cross-Border Transactions: Increased globalization has led to more international
acquisitions.
 Sustainability: Focus on acquiring businesses with sustainable practices to align with
ESG goals.
 Private Equity Involvement: Private equity firms are increasingly participating in
takeover deals.
SEBI Takeover Code (2011):
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, known as the
Takeover Code, regulate the process of acquisitions and takeovers in listed companies in
India. The regulations provide a transparent framework aimed at ensuring fairness, protecting
minority shareholders' interests, and maintaining market integrity.
1. Objectives of the Takeover Regulations
The primary objectives of the SEBI Takeover Code are:
1. Protection of Minority Shareholders:
The regulations ensure that minority shareholders are provided with an opportunity to
exit during substantial acquisitions or changes in control, particularly where they
might otherwise face coercive actions or undervaluation.
2. Regulation of Acquisitions:
The framework ensures that substantial acquisitions of shares or control in listed
companies are undertaken through a regulated process, providing investors and
market participants clarity on procedural guidelines.
3. Transparency:
The regulations mandate full disclosure of the acquirer’s intentions, financial capacity,
and the terms of the offer to prevent unfair practices, insider trading, or market
manipulation.
4. Fairness:
The Code aims to provide a fair pricing mechanism for acquisitions, ensuring that all
shareholders, including minority ones, are treated equitably during the takeover
process.
2. Scope of the Regulations
 Applicable Entities:
The regulations apply to listed companies in India and govern substantial acquisitions
of shares or control, along with public offers for shares.
 Key Areas Covered:
o Substantial acquisitions

o Change in control

o Public offers

o Exemptions for specific transactions like inter-group transfers and rights

issues
 Exemptions:
The regulations provide certain exemptions from open offer obligations, such as:
 o Inter-group Transfers: Transfers within a group that do not result in a change
in control.
o Rights Issues: Acquisitions through rights issues offered to existing
shareholders.
o Investments by Financial Institutions: Exemptions for financial investors
like private equity and venture capital funds.
3. Key Definitions
1. Acquirer:
A person or entity that acquires shares or control over a target company.
2. Target Company:
The company whose shares are being acquired or where the control is changing.
3. Control:
The right to appoint a majority of the directors or exercise significant influence over
the management and policies of the company. Control can be direct or indirect.
4. Persons Acting in Concert (PACs):
Individuals or entities acting together with a common objective to acquire shares or
control over the target company. This includes family members, business groups, or
associated entities.

5. The Takeover Offer Process

5.1. Pre-Offer Process
1. Public Announcement:
The acquirer must announce their intention to make an offer to the public.
2. Due Diligence:
A thorough financial and legal assessment of the target company.
3. Board Meeting of Target:
The board of the target company evaluates the offer and makes recommendations to
shareholders.

5.2. Offer Document

 Content:
The offer document must be submitted to SEBI, detailing the terms of the offer,
pricing, and fairness opinions.
5.3. Offer Period
  Duration:
The open offer period is generally between 10 to 30 days. Extensions can be requested
and are subject to SEBI’s approval.
5.4. Post-Offer Obligations
 Settlement:
The acquirer must settle payments with shareholders who tender their shares during
the offer.
 Completion Notification:
SEBI, stock exchanges, and the target company must be notified once the offer is
complete.
6. Role of the Target Company’s Board
 Recommendations:
The board of the target company must provide a recommendation regarding the
fairness of the offer and the best interests of shareholders.
 Independent Committee:
The board must form an independent committee to assess the offer and provide advice
to shareholders.
 Defensive Tactics:
The board cannot take defensive actions like issuing new shares or selling key assets
without shareholder approval.
7. SEBI’s Role in Takeover Regulation
 Review and Approval:
SEBI reviews and approves offer documents to ensure compliance with the
regulations.
 Penalties and Enforcement:
SEBI imposes penalties for non-compliance and investigates any violations.
 Dispute Resolution:
SEBI handles disputes related to the takeover process through the Takeover Panel.
8. Post-Takeover Compliance and Reporting
 Disclosure Requirements:
The acquirer must report any changes in shareholding to SEBI and the stock
exchanges.
 Periodic Reporting:
Ongoing disclosures ensure the acquirer adheres to the commitments made during the
offer process.
9. Recent Amendments and Developments
  Threshold Adjustments:
SEBI periodically reviews and adjusts the thresholds (e.g., 25% or 5% limits) for
triggering open offers based on market conditions.
 Pricing Updates:
Amendments may update the methods for determining the offer price to better reflect
market realities.
 Delisting Offers:
Special provisions have been introduced for takeovers that involve delisting of the
target company.
The SEBI Takeover Code (2011) provides a comprehensive framework for regulating the
process of acquisitions and takeovers in India, ensuring that all shareholders, especially
minority ones, are protected from unfair practices. The regulations promote transparency,
fairness, and accountability in the acquisition process, and they provide a balanced approach
for both acquirers and target companies. By establishing a clear and robust procedure, the
Code safeguards the integrity of India’s capital markets, fostering investor confidence and
promoting ethical business practices.
Regulation 3: Substantial Acquisition of Shares or Voting Rights
Key Points:
 This regulation applies to situations where an acquirer’s shareholding or voting rights
in a company crosses certain thresholds.
 Trigger for Open Offer:
o Regulation 3(1): If an acquirer owns 25% or more shares/voting rights, an
open offer to other shareholders is mandatory.
o Regulation 3(2): Any additional acquisition beyond 5% in a financial year by
a shareholder holding 25%-75% also triggers a mandatory open offer.
Example:
 Scenario:
o Mr. A owns 20% shares of XYZ Ltd.

o He acquires an additional 7%, taking his total stake to 27%.

 Implications:
o Under Regulation 3(1), Mr. A must make an open offer to the remaining
shareholders for at least 26% of shares.

2. Regulation 4: Acquisition of Control

Key Points:
 Acquirers gaining “control” over a company, even without exceeding the
shareholding thresholds, must make an open offer.
 Control: Includes the power to appoint directors, influence decisions, or enter into
agreements that provide strategic control.
Example:
 Scenario:
o A private equity fund acquires 18% of DEF Ltd. along with the right to
nominate the CEO and influence strategic decisions.
 Implications:
o Despite holding less than 25%, the fund is acquiring “control,” triggering a
mandatory open offer under Regulation 4.

3. Regulation 5: Minimum Offer Price

Key Points:
 The minimum price for an open offer must be the highest of:
1. The price paid by the acquirer in the preceding 52 weeks.
2. The average market price during the 26-week or 60-day period prior to the
offer announcement.
Example:
 Scenario:
o Acquirer GHI Ltd. bought shares of LMN Ltd. at ₹150 per share 40 weeks
ago.
o The 60-day average price before the announcement is ₹140, and the 26-week
average is ₹145.
 Implications:
o The minimum offer price must be ₹150 as it is the highest.

4. Regulation 6: Obligation to Make an Open Offer

Key Points:
 Once an acquirer crosses the 25% threshold, they must make an open offer for at
least 26% of the company’s shares.
Example:
 Scenario:
o Acquirer JKL Ltd. increases its holding in MNO Ltd. from 23% to 28%.

 Implications:
o JKL Ltd. must make an open offer for an additional 26% shares to comply
with Regulation 6.

5. Regulation 7: Disclosure of Acquisition

Key Points:
 Acquirers must disclose acquisitions reaching thresholds of 5%, 10%, or multiples of
5% within 2 working days to the company, stock exchange, and SEBI.
Example:
 Scenario:
 o Mr. P owns 12% of PQR Ltd.

o On November 1, he acquires an additional 4%, increasing his holding to 16%.

 Implications:
o Mr. P must disclose his acquisition to PQR Ltd., the stock exchanges, and
SEBI by November 3.

6. Regulation 8: Payment and Settlement of Open Offer

Key Points:
 Acquirers must pay shareholders who tender their shares in response to the open offer
within 10 working days of offer closure.
 An escrow account must be maintained to guarantee financial resources.
Example:
 Scenario:
o Acquirer STU Ltd. makes an open offer to acquire 20% shares of VWX Ltd. at
₹250/share. The offer closes on January 31.
 Implications:
o STU Ltd. must pay ₹250/share to all tendering shareholders by February 14.

7. Regulation 9: Non-Compete Fee

Key Points:
 If a non-compete fee is paid to the promoters of a target company, it must be disclosed
as part of the open offer.
Example:
 Scenario:
o Acquirer YZA Ltd. agrees to pay a ₹10 crore non-compete fee to the
promoters of BCD Ltd. to refrain from entering the same industry for five
years.
 Implications:
o The fee must be disclosed in the open offer documents, ensuring transparency
for shareholders.
8. Regulation 3(9): Voluntary Open Offer
Key Points:
 Acquirers not required to make an open offer (e.g., holding less than 25%) may
voluntarily do so to increase their stake transparently.
 Fair pricing and disclosure rules apply.
Example:
 Scenario:
o Mr. Q owns 20% of EFG Ltd. and believes the company is undervalued. He
voluntarily makes an open offer to acquire an additional 10%.
 Implications:
o Mr. Q must follow all SEBI rules, including fair pricing and disclosures, and
offer shareholders a choice to tender shares.
Regulation 10:
1. Exemptions: Certain acquisitions are exempt from triggering an open offer
obligation. These include:
o Inter se Transfer Among Promoters:
Acquisitions that occur between persons classified as promoters or within the
immediate relatives of the promoters are exempt.
o Acquisition in the Ordinary Course of Business:
Includes acquisitions made by underwriters, stockbrokers, or merchant
bankers during their ordinary business operations.
o Acquisition by Government or Public Financial Institutions:
Purchases by government entities or public financial institutions like LIC,
IDBI, etc., as part of statutory obligations or in the public interest.
o Acquisition Due to Succession or Inheritance:
Transfers due to inheritance, succession, or other similar transactions are
exempt.
o Bonus Issues or Rights Offers:
Shares acquired through a bonus issue, rights issue, or similar corporate
action, provided it is proportionate to the existing holding.
o Acquisition as a Result of a Scheme of Arrangement:
Shares acquired as part of a scheme of arrangement or compromise, such as
mergers, demergers, or amalgamations, sanctioned by a competent authority.
 2. Conditions for Exemptions:
o The transaction must fall strictly within the scenarios outlined in Regulation
10.
o Adequate disclosures and regulatory compliance must still be maintained for
the acquisition.
o The acquirer must not bypass the intent of the regulations through the
exemption.

Example of Regulation 10:

Case 1: Inter se Transfer Among Promoters
 Scenario:
o Promoter A holds 15% of the shares of ABC Ltd., and Promoter B holds
20%.
o Promoter A acquires 10% from Promoter B, increasing their total holding to
25%.
 Implications Under Regulation 10:
o Since this is an inter se transfer among promoters, it is exempt from the
obligation to make an open offer, even though Promoter A’s holding crosses
the 25% threshold.
Case 2: Succession or Inheritance
 Scenario:
o Mr. X, holding 30% shares in DEF Ltd., passes away, and his shares are
inherited by his son.
o The son’s total holding now becomes 30%.

 Implications Under Regulation 10:

o The son is exempt from making an open offer as the acquisition is through
inheritance.
Case 3: Acquisition by Public Financial Institution
 Scenario:
o LIC acquires 10% of shares in XYZ Ltd. as part of a bailout plan approved by
the government.
o LIC already holds 18% shares in XYZ Ltd., so its total holding increases to
28%.
  Implications Under Regulation 10:
o LIC is exempt from making an open offer because the acquisition is in the
public interest and falls under the exemption for government or public
financial institutions.

Regulation 10 recognizes specific scenarios where the mandatory open offer requirement
would not apply, acknowledging the non-commercial nature or public benefit of such
transactions. This ensures that acquisitions meeting these conditions do not face unnecessary
regulatory burdens while maintaining transparency and fairness in the market.
Regulation 11: Voluntary Open Offer
Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, allows an acquirer to make a voluntary open offer for acquiring additional shares of a
target company, even if they are not mandated to do so under the regulations. This provision
enables an acquirer to increase their shareholding or consolidate control in the company.

Key Provisions of Regulation 11:

1. Eligibility for Voluntary Open Offer:
o An acquirer can make a voluntary open offer only if they already hold a
minimum of 25% shares or voting rights in the target company but do not
exceed 75% (or such other limits as prescribed under the listing agreement).
o The acquirer must not have acquired any shares of the target company in the
preceding 52 weeks other than by way of an open offer or an exempted
transaction.
2. Size of the Offer:
o The acquirer can make an offer for an additional 10% or more of the voting
rights or shares of the target company.
3. Conditions:
o The voluntary open offer must comply with all the procedural requirements
applicable to a mandatory open offer, such as public announcement,
disclosure, and payment timelines.
o After the completion of the voluntary open offer, the acquirer cannot acquire
additional shares in the target company for the next six months except through
another open offer or exempted transactions.

Example of Regulation 11:

Case: Voluntary Open Offer to Consolidate Shareholding
 Scenario:
o Acquirer XYZ Ltd. holds 30% shares in ABC Ltd., a listed company.

o XYZ Ltd. intends to increase its shareholding to 40% to consolidate its

control over ABC Ltd.
o In the preceding year, XYZ Ltd. has not acquired any shares of ABC Ltd.
except through the prescribed methods.
 Implications Under Regulation 11:
o XYZ Ltd. can initiate a voluntary open offer to acquire an additional 10%
shares in ABC Ltd.
o The offer must comply with all disclosure, payment, and procedural
requirements under the SEBI regulations.
o Once the offer is complete, XYZ Ltd. cannot acquire any additional shares in
ABC Ltd. for the next six months except via an open offer or exempted route.

Significance of Regulation 11:

 Flexibility: Regulation 11 allows acquirers to consolidate their shareholding or
control in a company without being forced into it by regulatory thresholds.
 Transparency: The process follows the same standards as a mandatory open offer,
ensuring fairness for shareholders.
 Market Confidence: Voluntary open offers signal the acquirer’s commitment to the
target company, often leading to improved investor sentiment.

:
Regulation 11 provides a framework for acquirers to voluntarily acquire additional shares of a
listed company in a transparent and regulated manner. By specifying eligibility, procedural
requirements, and post-offer restrictions, it ensures a balance between the acquirer’s strategic
goals and the interests of other shareholders.
Public Announcement (Regulation 14)
 The acquirer must make a public announcement within four working days of entering
an acquisition agreement.
 Sub-regulations further outline the announcement requirements for indirect
acquisitions or changes in control.
Bhagwati Committee Recommendations on Public Announcement Timing
 The second Bhagwati Committee addressed the timing issue for public
announcements in cases of indirect acquisitions.
Chain Principle: In cases where a primary target is acquired and triggers subsequent
acquisitions (secondary targets), the public offer for secondary acquisitions can occur within
three months following the initial offer’s completion
Regulation 16: Public Announcement of an Open Offer
Regulation 16 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, governs the process of making a public announcement of an open offer by an
acquirer. The regulation ensures transparency, timely communication, and protection of the
interests of the target company's shareholders by providing them with critical information
regarding the open offer.
Public Announcement Contents (Regulation 16)
 Clause (ix): Requires disclosure of the acquirer’s purpose and future plans for the
target company.

Key Provisions of Regulation 16:

1. When a Public Announcement is Required:
o A public announcement must be made when:

 An acquirer intends to acquire shares or voting rights that trigger the

mandatory open offer threshold (25%) or increase control over the
target company.
 There is an acquisition of control or management of the target
company.
 A voluntary open offer is being made as per Regulation 11.
2. Responsibility to Make the Announcement:
o The acquirer and the manager to the offer are jointly responsible for making
the public announcement.
3. Mode of Announcement:
o The public announcement must be made in the following:

 One English newspaper with wide circulation.

 One Hindi newspaper with wide circulation.
  A newspaper published in the regional language of the area where the
target company’s registered office is located.
4. Timing of the Announcement:
o The public announcement must be made on the same day the acquirer enters
into an agreement or decides to acquire shares/control that triggers the open
offer obligations.
5. Contents of the Announcement:
o The announcement must include details such as:

 The identity of the acquirer.

 The target company and its business.
 The percentage of shares/voting rights to be acquired.
 The offer price.
 The purpose and intent of the acquisition.
 Timelines for the open offer process.

Example of Regulation 16:

Case: Mandatory Open Offer Following a Share Acquisition
 Scenario:
o Acquirer XYZ Ltd. agrees to purchase 30% shares of ABC Ltd. from the
company's promoters on 1st November.
o This acquisition crosses the 25% threshold, triggering the mandatory open
offer requirement.
 Implications Under Regulation 16:
o XYZ Ltd. must make a public announcement on 1st November (the same
day the agreement is executed).
o The announcement must appear in:

 An English daily like The Times of India.

 A Hindi daily like Dainik Jagran.
 A regional-language newspaper based on the location of ABC Ltd.'s
registered office (e.g., a Marathi newspaper if the company is
headquartered in Maharashtra).
  The announcement should disclose the intention to acquire 20% more shares from
public shareholders through the open offer, the offer price, and the acquirer’s purpose
for acquiring shares.

Significance of Regulation 16:

 Transparency: Ensures that all shareholders, including retail investors, are informed
about significant transactions affecting the target company.
 Equal Opportunity: Provides shareholders a fair chance to tender their shares in the
open offer.
 Market Stability: Prevents insider trading and speculation by making acquisition
intentions public.
Regulation 16 plays a crucial role in maintaining transparency and fairness during significant
acquisitions. By mandating timely and detailed public announcements, it empowers
shareholders with the necessary information to make informed decisions about their holdings
in the target company.
Regulation 17: Allotment of Shares and Refund of Application Money
Regulation 17 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, delineates the procedures and obligations related to the allotment of shares acquired
through an open offer and the refund of application money in cases where the offer is
oversubscribed or shares remain unsubscribed. This regulation ensures that the rights of
shareholders are protected and that the open offer process is conducted transparently and
efficiently.

Key Provisions of Regulation 17:

1. Allotment of Shares:
o Timelines:

 The manager to the offer is responsible for allotting shares to the

applicants who have tendered their shares.
 Allotment must be completed within 10 working days from the
closure of the open offer.

o Process:

 Shares are allotted on a pro-rata basis if the number of shares

tendered exceeds the number of shares the acquirer intends to
purchase.
  In cases where the number of shares tendered is less than or equal to
the number of shares sought, all tendered shares are allotted without
proportionate distribution.
2. Refund of Application Money:
o Eligibility for Refund:

 If an applicant's tendered shares are not fully allotted, the unallotted

portion of the application money must be refunded.
 Refunds are also applicable in cases where the open offer is
withdrawn or terminated.
o Timelines:

 Refunds must be processed within 10 working days from the closure

of the open offer.
o Method of Refund:

 Refunds should be made using the same mode of payment that the
applicant used to tender their shares, unless otherwise specified.
 Alternatively, refunds can be credited directly to the bank account
provided by the applicant.
3. Handling Oversubscription:
o When the open offer is oversubscribed (i.e., more shares are tendered than
the acquirer intends to purchase), shares are allotted on a pro-rata basis.
o The manager to the offer must ensure fair and equitable distribution of shares
among all applicants.
4. Role of the Manager to the Offer:
o The manager to the offer plays a pivotal role in ensuring compliance with
Regulation 17.
o Responsibilities include:

 Conducting the allotment process transparently.

 Managing the refund process efficiently.
 Communicating with applicants regarding the status of their
applications and refunds.
5. Disclosures:
o Details regarding the allotment of shares and refund of application money
must be disclosed in the offer letter and other relevant offer documents.
 o Any deviations or delays in the process must be promptly communicated to
applicants and regulatory authorities.

Example Scenario:
Case: Oversubscription in Open Offer by ABC Ltd.
 Scenario:
o Acquirer: ABC Ltd. initiates an open offer to purchase 10% of the shares of
XYZ Ltd. at ₹500 per share.
o Tendered Shares: Shareholders of XYZ Ltd. tender 15% of their shares in
response to the open offer.
 Implications Under Regulation 17:
1. Allotment of Shares:
 Since the tendered shares (15%) exceed the number of shares ABC
Ltd. intends to purchase (10%), the shares are oversubscribed.
 ABC Ltd., through the manager to the offer, must allot shares on a pro-
rata basis. This means that each applicant who tendered shares will
have their tendered shares reduced proportionally to fit within the
10% acquisition target.
2. Refund of Application Money:
 The excess shares tendered (i.e., the 5% oversubscription) require a
refund.
 For every applicant, the unallotted portion (the extra 5%) of their
application money must be refunded within 10 working days from
the closure of the offer.
 If a shareholder tendered 1,000 shares, ABC Ltd. would allot (10/15) *
1,000 = 666.67 ≈ 667 shares, and refund the amount corresponding to
333 shares.
3. Communication:
o ABC Ltd. must ensure that all applicants are informed about the allotment
ratio and the refund process through official channels, such as the offer
letter, website updates, and direct communications if necessary.

Significance of Regulation 17:

 Protection of Shareholder Interests:
 o Ensures that shareholders receive their rightful allotment and timely refunds in
cases of oversubscription, thereby safeguarding their financial interests.
 Transparency and Fairness:
o Mandates a pro-rata and equitable distribution of shares, preventing
favoritism or biased allotment practices.
 Efficient Management:
o Establishes clear timelines and procedures for allotment and refunds,
promoting operational efficiency and reducing uncertainties for applicants.
 Regulatory Compliance:
o Aligns the open offer process with SEBI's standards, ensuring that acquirers
adhere to legal obligations and maintain market integrity.

Regulation 17 plays a critical role in the open offer process by outlining the procedures for
allotting shares and refunding application money when necessary. By enforcing timely and
fair distribution of shares and refunds, Regulation 17 enhances market transparency, trust,
and efficiency, thereby protecting the interests of all stakeholders involved in substantial
acquisitions and takeovers.
Regulation 19: Minimum Offer Size
Regulation 19 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, specifies the minimum offer size required in an open offer. It ensures that the acquirer
offers to purchase a certain percentage of the shares of the target company, thereby providing
an exit opportunity to minority shareholders.

Key Provisions of Regulation 19:

1. Minimum Offer Size:
o The open offer must be for at least 26% of the total shares of the target
company, including:
 Shares carrying voting rights, or
 Shares convertible into voting rights.
2. Calculation Basis:
o The 26% offer size is calculated on the fully diluted share capital of the
target company as of the 10th working day from the closure of the
tendering period. This includes:
  Outstanding convertible instruments (like convertible debentures or
warrants).
3. Exceptions:
o If the total shareholding of the acquirer after the acquisition (including the
shares acquired through the open offer) exceeds 75% of the total
shareholding (the maximum permissible for public companies), the acquirer
need not acquire the full 26%. Instead:
 The acquirer can acquire shares only up to the 75% threshold to
comply with SEBI’s rules on minimum public shareholding.
4. Open Offer Process and Compliance:
o The offer price for the 26% shares must comply with SEBI’s pricing norms
(typically the highest price paid by the acquirer in a defined lookback period
or the market price, whichever is higher).
o If fewer shares are tendered by the shareholders than the minimum offer size,
the acquirer is required to purchase all tendered shares.

Example Scenario:
Case: Acquisition by XYZ Ltd.
 Scenario:
o Acquirer XYZ Ltd. acquires 30% shares in ABC Ltd. through a private
agreement with ABC Ltd.’s promoters. This acquisition triggers the open offer
requirement under SEBI regulations.
o ABC Ltd. has a fully diluted share capital of 10 million shares.

 Implications Under Regulation 19:

1. Minimum Offer Size:
 XYZ Ltd. must make an open offer for at least 26% of ABC Ltd.’s
total shares, i.e., 2.6 million shares.
2. Compliance with Public Shareholding Norms:
 If XYZ Ltd.’s acquisition (including shares acquired in the open offer)
causes its shareholding to exceed 75% of ABC Ltd., the offer size may
be adjusted to ensure compliance with SEBI’s requirement that at least
25% of shares remain with the public.
3. Pricing:
  The offer price for the 26% shares must be at least the highest price
paid by XYZ Ltd. for any shares acquired in the preceding 26 weeks
or as per SEBI norms.

Significance of Regulation 19:

1. Protection of Minority Shareholders:
o Ensures that minority shareholders have a fair opportunity to exit the company
when a significant portion of shares or control changes hands.
2. Market Stability:
o Prevents acquirers from gaining control of companies without offering an
appropriate exit mechanism for other investors.
3. Regulatory Compliance:
o Maintains the minimum public shareholding norms of 25% for listed
companies.
4. Fair Valuation:
o SEBI's pricing mechanism ensures that minority shareholders are offered a fair
price for their shares.

:
Regulation 19 ensures that acquirers meet the minimum open offer requirements, protecting
the rights of minority shareholders and maintaining transparency in substantial acquisitions.
By mandating a 26% minimum offer size, the regulation balances the interests of the acquirer,
the target company, and its shareholders while upholding the integrity of the capital market.
Regulation 20: Conditional Open Offer
Regulation 20 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, provides provisions for conditional open offers, which allow an acquirer to specify
certain conditions regarding the minimum number of shares that must be tendered for the
offer to be successful.
Offer Price Determination (Regulation 20)
 Standard Offer Price (Sub-regulation 4): The highest among:
o Negotiated price,

o Highest price paid by the acquirer in the past 26 weeks,

 o Average price of the stock for 26 weeks or two weeks prior to the public
announcement.
 Infrequently Traded Shares (Sub-regulation 5): The offer price is determined by
negotiated terms and market parameters such as earnings and book value.
Bhagwati Committee Recommendations on Offer Price
 Price Determination: For secondary target companies acquired following the
primary acquisition, the offer price should be the higher value between:
o The date of the initial public announcement,

o The date of the public announcement for the secondary target.

Important Additions Based on the Bhagwati Committee Report

 Regulation 20(12): Implements the Committee’s recommendation by setting the offer
price for secondary acquisitions based on the highest price between two reference
dates to protect shareholder interests.

Key Provisions of Regulation 20:

1. Conditions for Open Offer:
o An acquirer can make an open offer conditional upon receiving tenders for a
minimum level of acceptance from shareholders.
o The minimum level must be specified in the public announcement and
detailed public statement.
2. Non-Fulfillment of Condition:
o If the specified minimum level of acceptance is not met, the acquirer is not
obligated to proceed with the offer.
o All shares tendered by shareholders in such cases are returned, and no
payment is made.
3. Disclosure Requirements:
o The acquirer must disclose:

 The minimum number of shares required for the offer to be

successful.
 The rationale behind making the offer conditional.
4. Obligations on the Acquirer:
 o The acquirer must ensure that adequate funds or guarantees are in place (such
as an escrow account) to fulfill the offer if the condition is met.
5. Timing and Withdrawal:
o The acquirer must announce whether the conditional requirement has been met
within the specified timeline after the closure of the tendering period.

Example Scenario:
Case: Conditional Offer by DEF Ltd.
 Scenario:
o Acquirer DEF Ltd. intends to acquire a controlling stake in PQR Ltd.
through an open offer.
o PQR Ltd. has 100 million shares outstanding.

o DEF Ltd. offers to acquire 40% (40 million shares) of PQR Ltd. at ₹200 per
share.
o However, DEF Ltd. makes the offer conditional, requiring at least 30 million
shares to be tendered for the offer to be successful.
 Implications Under Regulation 20:
1. Offer Condition:
 DEF Ltd. specifies in the public announcement that the offer is valid
only if 30 million shares or more are tendered.
2. Outcome 1: Condition Fulfilled:
 If 30 million or more shares are tendered, DEF Ltd. is required to
purchase the tendered shares (up to 40 million).
 If 35 million shares are tendered, DEF Ltd. would buy 35 million
shares at ₹200 per share.
3. Outcome 2: Condition Not Fulfilled:
 If less than 30 million shares are tendered, the offer becomes void.
 DEF Ltd. is not obligated to acquire any shares, and all shares tendered
are returned to the shareholders.
 DEF Ltd. must disclose that the offer condition was not met and
provide reasons.
Significance of Regulation 20:
1. Flexibility for Acquirers:
o Allows acquirers to set specific conditions to protect their interests, especially
in cases where acquiring less than the desired number of shares may not
provide the intended control or benefits.
2. Transparency for Shareholders:
o Requires clear disclosure of conditions, ensuring shareholders are informed
before tendering their shares.
3. Protection for Shareholders:
o Prevents shareholders from being locked into partial or failed acquisitions, as
the regulation mandates the return of shares if conditions are not met.
4. Efficient Use of Resources:
o Ensures that acquirers proceed with acquisitions only if they achieve the
desired minimum stake, avoiding unnecessary financial commitments.

:
Regulation 20 of the SEBI Takeover Code provides a framework for conditional open offers,
balancing the acquirer’s need for flexibility with shareholder protection. By allowing
acquirers to specify minimum acceptance levels, the regulation ensures that acquisitions
proceed only when strategically viable, while also maintaining transparency and fairness in
the open offer process.
Regulation 29: Disclosure of Shareholding and Control
Regulation 29 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, governs the disclosure requirements related to the acquisition and disposal of shares or
voting rights in a target company. The objective is to ensure transparency and provide
information to the public and regulatory authorities about significant changes in shareholding
and control.

Key Provisions of Regulation 29:

1. Initial Disclosure Requirements:
o Any acquirer who acquires shares or voting rights in a target company that
results in their aggregate shareholding reaching 5% or more of the total
shareholding must disclose this acquisition.
2. Subsequent Changes:
 o If there is a change of 2% or more in the shareholding or voting rights of an
acquirer (whether an increase or decrease), they must disclose this change.
3. Disclosure Timeline:
o The disclosure must be made within 2 working days of the acquisition or
disposal of shares or voting rights.
4. Entities to Notify:
o Disclosures must be made to:

 The target company.

 The stock exchanges where the shares of the company are listed.
5. Triggering Thresholds:
o The disclosure requirements apply for every acquisition or disposal that causes
the acquirer's holding to cross the following thresholds:
 5%, 10%, 15%, 20%, 25%, 30%, 35%, and so on (in multiples of 5%).
6. Promoter Group Disclosure:
o If a promoter group or person acting in concert (PAC) makes acquisitions or
disposals, their aggregate shareholding must also be disclosed.

Example Scenario:
Case: Acquisition by XYZ Fund
 Scenario:
o XYZ Fund is a mutual fund company that acquires shares in ABC Ltd. (a
listed company).
o Before the acquisition, XYZ Fund holds 4% of ABC Ltd.’s shares.

o XYZ Fund acquires an additional 2% shares, increasing its total shareholding

to 6%.
 Implications Under Regulation 29:
1. Trigger Point:
 Since XYZ Fund’s shareholding crosses the 5% threshold, they are
required to disclose the acquisition.
2. Disclosure Timeline:
 XYZ Fund must notify ABC Ltd. and the stock exchanges where ABC
Ltd.’s shares are listed within 2 working days of the acquisition.
 3. Subsequent Change Example:
 Later, XYZ Fund sells shares equivalent to 3% of ABC Ltd.’s shares,
reducing its shareholding to 3%.
 This triggers another disclosure requirement because the reduction is
2% or more.
 XYZ Fund must disclose this disposal within the stipulated time.
Significance of Regulation 29:
1. Market Transparency:
o Ensures that the market and shareholders are aware of significant changes in
ownership and control of listed companies.
2. Investor Protection:
o Provides early warnings to minority shareholders about changes in control or
potential takeover attempts.
3. Regulatory Oversight:
o Enables SEBI and stock exchanges to monitor substantial changes in
shareholding and prevent market manipulation.
4. Promoter Accountability:
o Helps track the shareholding patterns of promoters and ensures fair practices
in trading.

Regulation 29 ensures transparency in the acquisition and disposal of shares or voting rights
in listed companies by mandating timely disclosures. By requiring acquirers to notify
significant changes in shareholding, the regulation protects investor interests, maintains
market integrity, and promotes fair trading practices.
Regulation 30: Disclosures of Encumbrance
Regulation 30 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, focuses on the disclosure requirements for encumbrances on shares. It aims to ensure
transparency regarding the creation or release of encumbrances by significant shareholders,
especially promoters, as such actions may influence the company’s control structure.

Key Provisions of Regulation 30:

1. Who Needs to Disclose:
 o Promoters, members of the promoter group, or persons acting in concert
(PAC) who create, release, or invoke encumbrances on their shares.
2. What Constitutes an Encumbrance:
o Pledges, liens, negative liens, non-disposal undertakings, or any transaction by
which shares are used as collateral or security for a debt or obligation.
3. When to Disclose:
o Disclosures are required:

 When encumbrance is created on shares.

 When encumbrance is released or invoked.
4. Disclosure Timeline:
o The disclosure must be made within 7 working days of the creation, release,
or invocation of the encumbrance.
5. Entities to Notify:
o Disclosures must be made to:

 The target company.

 The stock exchanges where the company’s shares are listed.
6. Aggregate Encumbrance Reporting:
o Promoters must disclose their total encumbered shares, including the
percentage of their shareholding encumbered.

Example Scenario:
Case: Encumbrance by Promoter Group
 Scenario:
o Mr. A is a promoter of XYZ Ltd., a listed company.

o Mr. A holds 15 million shares, constituting 20% of XYZ Ltd.’s total shares.

o Mr. A pledges 10 million shares (13.3%) with a bank as collateral for a loan.

 Implications Under Regulation 30:

1. Creation of Encumbrance:
 Mr. A must disclose to XYZ Ltd. and the stock exchanges that he has
encumbered 10 million shares within 7 working days of the pledge.
2. Release or Invocation of Encumbrance:
  If the loan is repaid and the encumbrance is released, Mr. A must
disclose this change within the same 7-day timeframe.
 If the bank invokes the pledge due to loan default, leading to the
transfer of the shares, Mr. A must report this as well.
3. Aggregate Disclosure:
 Mr. A must ensure that the cumulative encumbered shareholding (10
million shares in this case) is accurately reported.

Significance of Regulation 30:

1. Market Transparency:
o Ensures investors and stakeholders are aware of significant encumbrances on
shares, which could impact control over the company.
2. Investor Protection:
o Provides early warnings to investors about potential risks, such as a
promoter’s inability to repay loans secured by pledged shares.
3. Regulatory Oversight:
o Allows SEBI and stock exchanges to monitor potential changes in
shareholding patterns due to encumbrances.
4. Promoter Accountability:
o Discourages promoters from creating undisclosed encumbrances that might
compromise corporate governance or minority shareholder interests.

:
Regulation 30 of the SEBI Takeover Code mandates disclosure of encumbrances on shares to
maintain transparency and protect investor interests. By ensuring that significant
shareholders, particularly promoters, report such actions promptly, the regulation enhances
market integrity and fosters confidence among investors in the company’s governance.
Defense Strategies to Takeover Bids
When a company faces a potential hostile takeover, the management or board may employ
various defense strategies to either thwart the bid or make it less attractive to the acquirer.
These strategies can be categorized into pre-offer, post-offer, and structural defenses, and
each approach has its own set of advantages and disadvantages. Below are common defense
strategies employed in takeover situations:

1. Poison Pill (Rights Plan)

Definition: A poison pill is a strategy that makes the target company less attractive or more
expensive for the acquirer. It usually involves the issuance of new shares to existing
shareholders if a hostile acquirer acquires a certain percentage of the target company's shares
(e.g., 20%).
How it works:
 Flip-in Poison Pill: Allows existing shareholders (except the acquirer) to buy
additional shares at a discounted price, diluting the acquirer’s stake and making the
acquisition more expensive.
 Flip-over Poison Pill: Allows shareholders to purchase the acquirer’s shares at a
discounted price if the takeover succeeds, making the takeover less attractive.
Example: In 1986, Netflix used a poison pill to resist a takeover bid by Viacom.

2. White Knight Strategy

Definition: The target company seeks a friendly acquirer (the "white knight") to intervene
and purchase the company at a higher price than the hostile bidder is offering, thereby
defeating the hostile takeover.
How it works:
 The target actively negotiates with a more favorable acquirer, offering them a
premium price.
  The white knight is typically a company with which the target’s board feels
comfortable.
Example: In 1989, Goodyear faced a hostile takeover from Mason Capital but was able to
ward it off by allowing B.F. Goodrich to acquire the company instead.

3. Staggered Board (Classified Board)

Definition: A staggered or classified board is a strategy where only a portion of the board of
directors is elected each year, rather than the entire board at once.
How it works:
 A hostile acquirer may find it difficult to replace a majority of the board members in
one go, as elections are staggered.
 This gives the target company more time to resist the takeover or negotiate with the
acquirer.
Example: Philip Morris used a staggered board structure to resist a hostile takeover attempt
in the 1990s.

4. Crown Jewels Defense

Definition: The target company sells off its most valuable assets (often referred to as "crown
jewels") to either a friendly party or to create financial leverage against the acquirer.
How it works:
 The target company identifies key assets that could be highly valuable to the acquirer.
 By selling or threatening to sell these assets, the target reduces its appeal to the
acquirer.
Example: In 1989, United Airlines used the crown jewels defense against Carl Icahn's
takeover attempt by selling off assets like its planes and facilities.

5. Greenmail
Definition: Greenmail involves the target company purchasing the acquirer’s shares at a
premium to force them to exit the company.
How it works:
 The acquirer buys a large number of shares in the target company.
 The target then buys back these shares at a premium, often at a price higher than the
market value, to force the acquirer to sell the shares back.
Example: T. Boone Pickens attempted a hostile takeover of Gulf Oil, and Gulf paid him a
premium to stop his acquisition, a classic example of greenmail.

6. Pac-Man Defense
Definition: In the Pac-Man defense strategy, the target company turns the tables and attempts
to acquire the hostile bidder.
How it works:
 The target company buys shares of the acquirer, often at a premium, in an attempt to
gain control of the bidding company.
 This tactic forces the acquirer to either back off or engage in a full-scale takeover
battle.
Example: In the 1980s, Chesapeake Energy used the Pac-Man defense to fend off a hostile
takeover bid from T. Boone Pickens.

7. White Squire Strategy

Definition: A white squire is similar to a white knight, but instead of purchasing a majority of
shares, the white squire acquires a significant minority stake, usually in exchange for some
form of protection or governance rights.
How it works:
 The white squire typically agrees to support the target company’s management and
board in return for a significant shareholding or influence within the company.
Example: In the 1990s, Merrill Lynch stepped in as a white squire to help Disney resist a
hostile bid from Ronald Perelman.

8. Share Buybacks (Repurchase Program)

Definition: The target company repurchases its own shares from the market to increase the
price of its stock and reduce the shares available for a potential acquirer to purchase.
How it works:
 The target company uses its cash reserves to buy back shares, making it more
expensive for the acquirer to purchase a controlling interest in the company.
Example: In 2000, Papa John’s Pizza used a share buyback program to defend against a
hostile takeover attempt from Hedge fund manager Carl Icahn.
9. Litigation
Definition: The target company may resort to litigation to delay or block the takeover
process.
How it works:
 The target company files legal claims to challenge the legality of the takeover or to
seek an injunction, which can delay or disrupt the process.
 Common reasons for litigation include breach of fiduciary duties or failing to follow
proper procedures.
Example: Air Canada filed lawsuits in response to a hostile bid from Onex Corporation in
the 1990s to delay the acquisition process.

10. Poison Put

Definition: A poison put involves provisions in the company’s debt agreements that trigger
the accelerated repayment of debt if a change of control occurs.
How it works:
 If a hostile takeover is successful, the target company must pay off its debts
immediately or within a short time frame, which can create financial distress for the
acquirer.
Example: A well-known use of this strategy was by Time Warner, which had a poison put
clause that required the company to repay its bonds in the event of a change in control.

:
Companies facing hostile takeover bids have several defense strategies available to protect
their interests and maintain control. These strategies vary from making the acquisition more
costly (e.g., poison pill, greenmail) to directly blocking the takeover attempt (e.g., litigation,
staggered boards). The effectiveness of these defenses depends on the specific circumstances
of the takeover and the company’s structure. Ideally, a target company will use these defenses
strategically, balancing the need to fend off hostile bidders with the desire to maintain
shareholder value and avoid protracted legal battles.
2. The Companies Act, 2013
The Companies Act, 2013 is the primary legislation that governs the corporate framework in
India. It encompasses a wide range of provisions, and several sections of the Act are relevant
to mergers, acquisitions, and other forms of corporate restructuring.

Key Provisions:
Section 230- 240 (Compromise, Arrangement, and Amalgamation):
 These sections provide the legal procedures for mergers, amalgamations, demergers,
and compromises. The key stages include:
 Board Approval: The proposal for the merger or acquisition must first be approved
by the board of directors of both companies involved.
 Shareholder Approval: Following board approval, a meeting with shareholders is
held to gain their approval for the merger or acquisition. This is particularly
important in the case of hostile takeovers where shareholder approval is crucial.
 NCLT Approval: The proposal is then submitted to the National Company Law
Tribunal (NCLT) for judicial approval, ensuring that the deal is in the interest of the
creditors and shareholders.
 Registrar of Companies (RoC) Filing: Upon approval from NCLT, the merger or
acquisition is filed with the RoC for implementation.

Section 111A (Transfer of Shares):

This provision governs the transfer of shares in listed companies. It is relevant to takeovers
because any acquisition of shares involves the transfer of ownership. The company must
ensure that the transfer is done in accordance with this provision.

Section 185 and 186 (Loans and Advances):

These provisions regulate the granting of loans and advances by companies to their
directors or related parties. These sections can become important during takeovers where
financing is involved, and loans or guarantees might be offered by the target company or
acquirer.

Section 2(1)(zzc) (Definition of “Merger”):

This section provides the legal definition of a "merger," offering clarity on what constitutes
a merger or amalgamation under Indian corporate law.
Impact:
The Companies Act, 2013 ensures that corporate restructuring is carried out transparently and
with due regard for all stakeholders, including shareholders, creditors, and employees. The
judicial oversight provided by the NCLT ensures that mergers and acquisitions are in the best
interests of all parties involved and that minority shareholders are protected.

3. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)

The SEBI (LODR) Regulations, 2015 primarily govern the disclosure and compliance
requirements for listed companies in India. Though they focus on the daytoday governance
and compliance obligations of listed companies, these regulations also play a critical role in
the takeover process, especially in ensuring transparency and timely disclosures of corporate
actions such as mergers and acquisitions.

Key Provisions:
 Regulation 29 (Disclosure of Material Events):
Companies must inform the stock exchanges of any material event (including mergers or
acquisitions) within 24 hours of its occurrence. This ensures that investors are promptly
informed about significant corporate developments.

Regulation 30 (Corporate Disclosures):

Any decision that may affect the company's financial position or stock price, including
mergers and acquisitions, must be disclosed to the public. This helps investors to make
informed decisions about their investments.

Regulation 46 (Website Disclosures):

Companies must update their official websites with disclosures regarding mergers,
acquisitions, and any changes in control. This provision ensures that investors and
stakeholders have easy access to information.

Impact:
The LODR Regulations ensure transparency in the corporate world, particularly during
takeovers, by mandating disclosures that keep investors and other stakeholders wellinformed.
This transparency is key to maintaining market integrity and investor confidence during the
takeover process.