2. Evolution
Regulation and applicability
Objectives of the Take over code
What is a Takeover?
Reasons for a Takeover
Types of Takeover
Substantial Acquisition
Applicability of Laws
Important Definitions
Acquirer
Acquisition
Control
Target Company
18-02-2016 17:47:48 2
FLOW OF THE PRESENTATION
3. Promoter
Promoter Group
Person Acting In Concert
Convertible security, disinvestment & manager to the open offer
Shares
Open Offer, Conditional Offer and Voluntary offer
Minimum Offer Size
Offer Size (Regulation 7)
Public Announcement
Process of public Announcement
Timings of Public Announcement
Contents of Public Announcement
18-02-2016 17:47:48 3
FLOW OF THE PPTFLOW OF THE PPTFLOW OF THE PPTFLOW OF THE PRESENTATION
4. Letter of offer
Offer Period
Offer Price
Minimum Offer Price for Frequently Traded Shares
Minimum Offer Price For Infrequently Traded Shares
Enterprise Value
Comparison of SEBI track report 1997 and SEBI regulations 2011
Letter Of Offer
Trigger Points for open offer
Acquistion of Shares (Regulation 3)
Initial Trigger point
Creeping Acquisition
Acquisition of control
18-02-2016 17:47:48 4
FLOW OF THE PRESENTATION
5. Indirect acquisition of shares and control
Voluntary Offer
Non Competent Fees
Mode Of Payment
Escrow Account
Payments of consideration
Disclosures under Chap 5
Exemptions
Takeover Panel
Investigation And Action By The Board
Competing Offer
18-02-2016 17:47:48 5
FLOW OF THE PRESENTATION
6. Size of Competing offer
Timing under competing offer
Withdrawal of An Open Offer
Open offer Process
Obligation of acquirer
Obligation of the target company
Obligation of the merchant Banker
Penalties for non-compliance
Case study – United Spirits and Diageo
18-02-2016 17:47:48 6
FLOW OF THE PRESENTATION
7. Concept of merger and acquisition in India was not popular until the year 1988.
Very small percentage of businesses in the country used to come together, mostly
into a friendly acquisition with a negotiated deal.
Key factor - Regulatory and prohibitory provisions of MRTP Act, 1969.
Follow a pressurized and burdensome procedure to get approval for merger and
acquisitions.
Globalisation - Opened the Doors Of Indian Economy To International Investors.
Created a need for some regulation to protect the interest of investors.
18-02-2016 17:47:48 7
EVOLUTION
8. SEBI sets up a committee under former Chief Justice of India P N Bhagwati to
review the 1994 Takeover Regulations in order to frame comprehensive regulations.
Accepts the report and Substantial Acquisition of Shares and Takeovers Regulations,
1997 notified.
Volume is tremendously increasing with an estimated deals worth more than $100
billions in 2007.
Recommendations of The Takeover Regulations Advisory Committee (TRAC) were
accepted.
Amendments were made and brought in 2011 and were taken as the new guideline
code.
India has emerged as one of the top countries entering into merger and acquisitions.
18-02-2016 17:47:48 8
EVOLUTION
9. Regulations may be called the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
5th May, 2015 - SEBI (Substantial Acquisition of Shares and Takeovers)
(Second Amendment) Regulations, 2015.
18-02-2016 17:47:48 9
These regulations shall apply to direct and indirect acquisition of shares
or voting rights in, or control over target company.
REGULATION & APPLICABILITY
10. To provide a transparent legal framework for facilitating takeover activities.
To protect the interests of investors in securities and the securities market.
To balance the conflicting objectives and interests of various stakeholders.
To provide each shareholder an opportunity to exit his investment in the target
company.
To provide acquirers with a transparent legal framework to acquire and to make
an open offer.
To ensure that fair and accurate disclosure of all material information is made.
To regulate and provide for fair and effective competition among acquirers
desirous of taking over the same target company.
18-02-2016 17:47:48 10
OBJECTIVES - TAKEOVER CODE
11. A transaction or a series of transactions whereby a person acquires control over the
assets of a company, either directly by becoming the owner of those assets or
indirectly by acquiring control of the management of the company. A takeover is
the purchase of one company (the target) by another (the acquirer, or bidder).
1) In October, 2006 – Tata Steel acquired Corus for $12.8 billions.
2) 21st January, 2015 - Mahindra completes 51% takeover in Peugeot Motocycles.
18-02-2016 17:47:48 11
TAKEOVER
12. 18-02-2016 17:47:48 12
Where shares are closely held (i.e. by a small no. of persons), a take-over will
generally be effected by agreement with the holders of the majority of the share
capital of the company being acquired.
Where shares are held by the public generally, the take-over may be effected by:-
1) By agreement between the acquirer and the controllers of the acquired
company;
2) By purchase of shares on the Stock Exchange;
3) By means of a “take - over bid.”
TAKEOVER
14. 18-02-2016 17:47:48 14
REASONS FOR TAKEOVER
SYNERGY - By combining business activities, performance will increase and
costs will decrease.
DIVERSIFICATION - A company that merges to diversify may acquire
another company in a seemingly unrelated industry in order to reduce the
impact of a particular industry's performance on its profitability.
GROWTH - Mergers can give the acquiring company an opportunity to grow
market share without having to really earn it by doing the work themselves.
INCREASE SUPPLY - Chain Pricing Power - By buying out one of its
suppliers or one of the distributors, a business can eliminate a level of costs.
ELIMINATE COMPETITION - Many deals allow the acquirer to eliminate
future competition and gain a larger market share in its product's market.
17. 18-02-2016 17:47:48 17
LEGAL
CONTEXT
FRIENDLY OR
NEGOTIATED
HOSTILE BAIL OUT
Friendly takeover means takeover of one company by change in its management & control
through negotiations between the existing promoters and prospective investor in a friendly
manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further
some common objectives of both the parties. It is an acquisition which is approved by the
management. Before the bidder makes an offer for another company, it actually first informs the
company’s Board of Directors.
E.g. - Johnson & Johnson completed the friendly takeover of a Dutch vaccine maker Crucell for
about $2.37 billion.
NEGOTIATED TAKEOVER
18. 18-02-2016 17:47:48 18
Hostile takeover is a takeover where one company unilaterally pursues the
acquisition of shares of another company without being into the knowledge of that
other company. The most dominant purpose which has forced most of the companies
to resort to this kind of takeover is increase in market share. The company being
acquired does not approve of the buyout and fights against the acquisition.
E.g. In 2000, AOL took over the much larger and successful Time Warner.
HOSTILE TAKEOVER
LEGAL
CONTEXT
FRIENDLY OR
NEGOTIATED
HOSTILE BAIL OUT
19. 18-02-2016 17:47:48 19
It is the process of rehabilitation of a financially weak company not being a sick
industrial company. The lead institution shall appraise the financially weak company
taking into account the financial viability, and assess the requirement of funds for
revival and draw up the rehabilitation package on the principle of protection of interests
of minority shareholders, good management, effective revival and transparency.
E.g. Tech Mahindra Ltd. acquired Satyam Ltd.
BAILOUT
LEGAL
CONTEXT
FRIENDLY OR
NEGOTIATED
HOSTILE BAIL OUT
21. 18-02-2016 17:47:48 21
BUSINESS
CONTEXT
HORIZONTAL VERTICAL CONGLOMERATE
Takeover of one company by another company in the same industry. The main
purpose behind this kind of takeover is achieving the economies of scale, increasing
the market share and economies of scope.
E.g. 1) Bank of Madura with ICICI Bank Ltd. (Industrial Credit and Investment
Corporation of India) 2) Patni Computers by iGate.
HORIZONTAL TAKEOVER
22. 18-02-2016 17:47:48 22
Takeover by one company of its suppliers or customers. The former is known as
Backward integration and latter is known as Forward integration. A vertical merger
occurs when two or more firms, operating at different levels within an industry's supply
chain, merge operations. Most often the logic behind the merger is to increase synergies
created by merging firms that would be more efficient operating as one. E.g. 1)
Takeover of Sona Steerings Ltd. By Maruti Udyog Ltd. 2) Tata Motors acquired Trilix
Srl for €1.85 million to enhance its styling and design capabilities to global standards.
VERTICAL TAKEOVER
BUSINESS
CONTEXT
HORIZONTAL VERTICAL CONGLOMERATE
23. 18-02-2016 17:47:48 23
Takeover of one company by another company operating in totally different industries
or firms operating in different geographic areas. It could include extending corporate
territories and extending a product range. The main purpose of this kind of takeover is
diversification. Pure conglomerate mergers involve firms with nothing in common,
while mixed conglomerate mergers involve firms that are looking for product
extensions or market extensions.
E.g. Walt Disney Company and the American Broadcasting Company.
CONGLOMERATE TAKEOVER
BUSINESS
CONTEXT
HORIZONTAL VERTICAL CONGLOMERATE
24. Acquisition, directly or indirectly, by an acquirer or jointly
with Persons Acting In Concert with him of 25% or more of
the shares or voting rights of a listed company.
Acquisition, directly or indirectly, by an acquirer or jointly
with Persons Acting In Concert with him, who already hold
25 % or more but less than 75% of shares, a further 5% of
shares or voting rights in any financial year.
18-02-2016 17:47:48 24
SUBSTANTIAL ACQUISITION
27. An acquirer means any individual / company / any other legal entity which
intends to acquire or acquires substantial quantity of shares or voting rights of
target company or acquires or agrees to acquire control over the target company.
It includes persons acting in concert (PAC) with the acquirer.
E.g. – Reliance Industries Ltd. was the Acquirer in the Network 18 Media and
Investments deal. In May 2014, it acquired 78% stake for Rs. 4,000 Crores.
18-02-2016 17:47:48 27
ACQUIRERACQUIRER
28. “Acquisition” means, directly or indirectly, acquiring or agreeing to acquire
shares or voting rights in, or control over, a target company.
E.g. Flipkart acquired Myntra in May, 2014 for around Rs. 2,000 Crores.
18-02-2016 17:47:48 28
Directly Indirectly
Acquiring Agreeing to Acquire
OR
OR
Voting Rights ControlOROR
Target Company
Shares
Means
ACQUISITION
29. 18-02-2016 17:47:48 29
Control includes the right to appoint directly or indirectly or by virtue of agreements
or in any other manner majority of directors on the Board of the target company or
to control management or policy decisions affecting the target company.
CONTROL
30. A Target Company means a company and includes a body corporate or corporation
established under a Central legislation, State legislation or Provincial legislation for
the time being in force, whose shares are listed on a stock exchange.
E.g. Essar oil is a Target company for Rosneft.
18-02-2016 17:47:48 30
TARGET COMPANY
31. The person or persons who are in control of the issuer.
The person or persons who are instrumental in the formulation of a plan or
programme pursuant to which specified securities are offered to public.
The person or persons named in the offer document as promoters.
Provided that a director or officer of the issuer or a person, if acting as such
merely in his professional capacity, shall not be deemed as a promoter.
18-02-2016 17:47:48 31
PROMOTER
33. i) The promoter
(ii) An immediate relative of the promoter (i.e., any spouse of that person, or any
parent, brother, sister or child of the person or of the spouse); and
(iii) In case the promoter is a body corporate:
a) a subsidiary or holding company of such body corporate;
b) any body corporate in which the promoter holds ten per cent. or more of the
equity share capital or which holds ten per cent. or more of the equity share capital
of the promoter;
c) any body corporate in which a group of individuals or companies or combinations
thereof which hold twenty per cent. or more of the equity share capital in that body
corporate also holds twenty per cent. or more of the equity share capital of the issuer;
18-02-2016 17:47:48 33
PROMOTER GROUP
34. (iv) in case the promoter is an individual:
a) any body corporate in which ten per cent. or more of the equity share capital is held
by the promoter or an immediate relative of the promoter or a firm or Hindu
Undivided Family in which the promoter or any one or more of his immediate relative
is a member;
b) any body corporate in which a body corporate as provided in (A) above holds ten
per cent. or more, of the equity share capital;
c) any Hindu Undivided Family or firm in which the aggregate shareholding of the
promoter and his immediate relatives is equal to or more than ten percent of the total;
(v) all persons whose shareholding is aggregated for the purpose of disclosing in the
prospectus under the heading "shareholding of the promoter group”.
18-02-2016 17:47:48 34
PROMOTER GROUP
36. PERSONS DEEMED TO BE ACTING IN CONCERT.
1) A Company, its Holding or Subsidiary or Company under the same
Management or control.
2) A Company, its directors and any person entrusted with the management of
the company.
3) Directors of companies (1st & 2nd point) and associates of such directors.
4) Promoters and members of the Promoter group.
5) Immediate relatives.
6) Mutual Fund, its Sponsor, Trustees, Trustee Company and AMC.
7) Collective Investment Scheme and its Collective Investment Management
Company, Trustees and Trustee Company.
8) Venture Capital Funds with Sponsor, Trustees, Trustee Company and AMC.
9) Foreign Institutional Investor and its sub-accounts.
10) Merchant banker and its client, who is an acquirer.
11) Portfolio manager and its client, who is an acquirer.
12) Banks, Financial Advisors and Stock brokers of the acquirer.
18-02-2016 17:47:48 36
37. CONVERTIBLE SECURITY means a security which is convertible into or exchangeable with
equity shares of the issuer at a later date, with or without the option of the holder of the security, and
includes convertible debt instruments and convertible preference shares.
E.g. The Indian Hotels Company Ltd. issued Unsecured Compulsory Convertible Debentures.
DISINVESTMENT means the direct or indirect sale by the Central Government or any State
Government or by a government company, as the case may be, of shares or voting rights in, or
control over, a target company, which is a public sector undertaking. For 2015-16, the budgeted
disinvestment target is Rs.69,500 crore, of which Rs.41,000 crore is expected from stake sale in state
- owned companies, and Rs.28,500 crore from sale of loss-making public sector units.
E.g. Indian Government raised around Rs.9,300 crores by selling a 10% stake sale in Indian Oil.
MANAGER TO THE OPEN OFFER means Any person who is engaged in the business of issue
management either by making arrangements regarding selling, buying or subscribing to securities or
acting as a manager, consultant, adviser or rendering corporate advisory service in relation to such
issue management. E.g. JM Financial in the Reliance Infrastructure open offer for Pipavav Defence.
18-02-2016 17:47:48 37
CONVERTIBLE SECURITY, DISINVESTMENT &
MANAGER TO THE OPEN OFFER
38. SHARES means shares in the equity share capital of a target company
carrying voting rights, and includes any security which entitles the holder
thereof to exercise voting rights. For the purpose of this clause shares will
include all depository receipts carrying an entitlement to exercise voting
rights in the target company
FREQUENTLY TRADED AND INFREQUENTLY TRADED SHARES
Means shares of a target company, in which the traded turnover on any stock
exchange during the 12 calendar months preceding the calendar month in
which the public announcement is made, is at least 10% of the total number
of shares of the target company. If the turnover is less than 10%, it will be
deemed to be infrequently traded.
18-02-2016 17:47:48 38
SHARES
39. OPEN OFFER - An invitation to shareholders of a Target company to sell their
shares to the acquirer at a specified price before closure of the offer period.
CONDITIONAL OFFER - An open offer to shareholders where acquirer keeps
a condition that he will accept shares only if response is beyond a certain limit.
VOLUNTARY OFFER - An acquirer, who together with persons acting in
concert with him, holds shares or voting rights in a target company entitling them
to exercise twenty-five per cent or more but less than the maximum permissible
non-public shareholding, shall be entitled to voluntarily make a public
announcement of an open offer for acquiring shares in accordance with these
regulations, subject to their aggregate shareholding after completion of the open
offer not exceeding the maximum permissible non-public shareholding.
18-02-2016 17:47:48 39
OFFERS
40. 18-02-2016 17:47:48 40
OFFER SIZE REGULATION (7)
SEBI TAKEOVER
REGULATIONS, 1997
20%
SEBI TAKEOVER
REGULATIONS, 2011
26%
Global Trend
Indonesia 100%
France 100%
Hong Kong 100%
UK
No %
prescribed
Singapore 100%
Japan 100%
India 26%
Acquirer getting simple majority i.e. 51% (25% + 26%)
No need to depend on other shareholders for passing simple corporate law
resolutions.
41. 18-02-2016 17:47:48 41
PUBLIC ANNOUNCEMENT (PA)
A public announcement is an announcement made in the newspapers by the
acquirer primarily disclosing his intention to acquire shares of the target
company from existing shareholders by means of an open offer.
OBJECTIVE OF PUBLIC ANNOUNCEMENT
The Public Announcement is made to ensure that the shareholders of the
target company are aware of an exit opportunity available to them through
ensuing open offer.
PUBLIC ANNOUNCEMENT
43. 18-02-2016 17:47:48 43
TIMMINGS OF PA
The Public Announcement shall be sent to-
the stock exchanges on which the shares of the target company are listed.
The Board and to the target company at its registered office within one
working day of the date of the public announcement.
In terms of Regulation 13(4) of SEBI (SAST) Regulations, 2011, a
Detailed Public Statement(DPS) shall be published by the acquirer
in newspaper and one copy to be submitted to SEBI through the
Manager to the Open Offer within 5 working days from the date
of Public Announcement.
44. 18-02-2016 17:47:48 44
CONTENTS OF PUBLIC ANNOUNCEMENT
The public announcement shall contain such information as may be specified,
including the following —
Name and identity of the acquirer and Persons Acting In Concert with him,
Name and identity of the sellers, if any,
Nature of the proposed acquisition such as purchase of shares or allotment of
shares, or any other means of acquisition of shares or voting rights in, or control
over the target company ,
The consideration for the proposed acquisition that attracted the obligation to make
an open offer for acquiring shares, and the price per share, if any;
45. 18-02-2016 17:47:48 45
The offer price, and mode of payment of consideration; and
Offer size, and conditions as to minimum level of acceptances, if any.
The detailed public statement to the public announcement shall contain such
information as may be specified in order to enable shareholders to make an informed
decision with reference to the open offer.
The public announcement of the open offer, the detailed public statement, and any other
statement, advertisement, circular, brochure, publicity material.
Letter of offer issued in relation to the acquisition of shares under these regulations
shall not omit any relevant information, or contain any misleading information.
CONTENTS OF PUBLIC ANNOUNCEMENT
46. 18-02-2016 17:47:48 46
LETTER OF OFFER(LOF)
A document addressed to the shareholders of the target company containing
disclosures (acquirer/PACs, target company, their financials, offer price,
number of shares to be acquired, purpose of acquisition, future plans of
acquirer, the procedure to be followed by acquirer in accepting the shares
tendered by the shareholders and the period within which all the formalities
to the offer would be completed)
47. 18-02-2016 17:47:48 47
LETTER OF OFFER
OFFER SIZE FEE (Rs.)
Less than or equal to one crore rupees Rs. 1,00,000/-
More than one crore rupees, but less than or equal
to five crore rupees
Rs. 2,00,000/-
More than five crore rupees, but less than or equal to
ten crore rupees
Rs. 3,00,000/-
More than ten crore rupees, but less than or equal to
one thousand crore rupees.
0.5% of the offer size
More than one thousand crore rupees, but less than
or equal to five thousand crore rupees
Rs. 5,00,00,000/- plus
0.125% of the portion of
the offer size in excess of
Rs.1000,00,00,000/-
More than five thousand crore rupees Rs.10,00,00,000/-
48. 18-02-2016 17:47:48 48
OFFER PERIOD
Means the period between the date of entering into Memorandum of
Understanding or the public announcement, as the case may be and the date of
completion of offer formalities relating to the offer made under these
regulations.
49. 18-02-2016 17:47:48 49
OFFER PERIOD
Identified date
Date falling on the 10th working day prior to the commencement of the
tendering period, for the purposes of determining the shareholders of
target company to whom the letter of offer shall be sent.
Tendering Period
Period within which shareholders may tender their shares in acceptance
of an open offer.(10 working days)
50. 18-02-2016 17:47:48 50
OFFER PERIOD
Date of
acquisition of
shares/control
triggering PA
Date of payment
to shareholders
or withdrawal
10 working days
within which
shareholders
tender their
shares
10th working day
prior to
commencement
of tendering
Period
Identified
Date
Tendering
Period
51. 18-02-2016 17:47:48 51
PA TO SEBI, SE &
TARGET CO X
OPENING OF
ESCROW
ACCOUNT X+2
DPS TO BE
PUBLISHED
X+5
DRAFT LO TO BE
SUBMITTED TO
SEBI X+10
COMMENT
FROM SEBI
X+25
IDENTIFIED
DATE
X+27
DISPATCH OF LO
TO
SHAREHOLDERS
X+32
COMMENT OF
INDEPENDENT
DIRECTORS OF TARGET
COMPANY X+35
ADVERTISEMENT
FOR
COMMENCEMENT
OF TENDERING
PERIOD X+36
OFFER OPENS
X+37
OFFER CLOSES
X+47
PAYMENT TO
SHAREHOLDERS
X+57
Within 2 working
days prior to DPS
Within 5 working
days from PA
Within 5 working days
from the date of DPS
Within 7 days from
receipt of comments
of SEBI
Within 15days of the
draft offer
10th working day
prior to the
commencement
of tendering
period
1 day before
Within 12 working
days from date of
receipt from SEBI
10 days from
the opening of
issue
Within 10 working days
from the expiry of
tendering period
Atleast 2 working day before
the commencement of
tendering period
52. 18-02-2016 17:47:48 52
MINIMUM OFFER PRICE FREQUENTLY TRADED
SHARES
The offer price is the highest of the following:
Highest negotiated price per share under the share purchase agreement (SPA)
triggering the offer,
Volume weighted average price of shares acquired by the acquirer during 52
weeks preceding the public announcement (PA),
Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA,
Volume weighted average market price for 60 days preceding the PA.
53. 18-02-2016 17:47:48 53
Means the product of the number of equity shares bought
and price of each such equity share divided by the total
number of equity shares bought.
Number of shares bought on a particular day: A
Market Price: B
A1*B1+A2*B2+A3*B3………
Volume weighted Average Price =
A1+A2+A3……………..
VOLUME WEIGHTED AVG PRICE
54. 18-02-2016 17:47:48 54
VOLUME WEIGHTED AVG MARKET PRICE
The product of the number of equity shares traded on a stock exchange and
the price of each equity share divided by the total number of equity shares
traded on the stock exchange
Number of shares traded on the Stock Exchange on particular day: X
Market Price: Y
X1*Y1+X2*Y2+X3*
Volume weightedAverage Market Price =
X1+X2+X3……………..
55. 18-02-2016 17:47:48
55
MINIMUM OFFER PRICE
MINIMUM OFFER PRICE SHALL BE HIGHEST OF RS.
Highest price paid per share under the agreement 170
Volume weighted average price paid or payable by the acquirer
or PAC during the preceding 52 weeks
150.68
The highest price paid or payable for any acquisition by the
acquirer or PAC during the preceding 26 weeks preceding date
of PA
160
Volume weighted average market price of such shares for a
period of 60 trading days preceding date of PA
108.03
MINIMUM OFFER PRICE 170
EXAMPLE – THE DATE OF PA IS 4TH SEPTEMBER 2015
56. 18-02-2016 17:47:48 56
Volume weighted average price paid or payable by the
acquirer or PAC during the preceding 52 weeks
DATE OF
ACQUISITION
PRICE PER
SHARE(Rs.)
(1)
NO OF
SHARES
ACQUIRED(2)
CONSIDERATION
(3=1*2)
(Rs.) (₹)
3.10.2014 150 200 30,000
12.11.2014 140 100 14,000
2.12.2014 155 250 38,750
25.2.2015 145 50 7,250
30.3.2015 160 150 24,000
14.4.2015 150 200 30,000
18.5.2015 140 100 14,000
17.6.2015 155 50 7,750
TOTAL 1100 1,65,750
VOLUME WEIGHTED AVERAGE
PRICE (TOTAL OF 3/TOTAL OF 2)
Rs.150.68
57. 18-02-2016 17:47:48 57
The highest price paid or payable for any acquisition by the acquirer or
PAC during the preceding 26 weeks preceding date of PA
DATE OF ACQUISTION PRICE PER
SHARE(Rs.)
NO OF SHARES
ACQUIRED
7.4.2015 160 150
26.4.2015 150 200
24.5.2015 140 100
3.7.2015 155 50
Highest price paid Rs.160
58. 18-02-2016 17:47:48 58
Volume-weighted average market price of such shares for a
period of 60 trading days preceding date of PA
DATE PRICE PER
SHARE(RS.) (1)
NO. OF
SHARES
TRADED
(2)
CONSIDERATION
(3=1*2)
Rs. (₹)
27.7.2015 154 12542 19,31,468
12.8.2015 153 9751 14,91,903
20.8.2015 157 7220 11,33,540
Total 42181 45,56,911
Volume weighted average market
price
(total of 3/ total of 2 )
Rs.108.03
59. 18-02-2016 17:47:48 59
MINIMUM OFFER PRICE INFREQUENTLY TRADED
SHARES
The offer price is the highest of the following:
Highest negotiated price per share under the share purchase agreement (SPA)
triggering the offer,
Volume weighted average price of shares acquired by the acquirer during 52
weeks preceding the public announcement (PA),
Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA,
The price determined by the acquirer and the manager to the open offer after
taking into account valuation parameters including book value, comparable
trading multiples, and such other parameters that are customary for valuation
of shares of such companies
60. Market Capitalization of a Company
Debt + Minority Interest + Preferred
shares
Total Cash + Cash Equivalents
ENTERPRISE VALUE
18-02-2016 17:47:48 60
61. ENTERPRISE VALUE IN RS. (₹)
1) Paid up capital (Number of shares) 20,000
2) Closing Price of preceding day ₹ 10
3) Market Capitalization (1*2) ₹ 2,00,000
4) Debt (Add) ₹ 5,000
5) Minority Interest (Add) ₹10,000
6) Preferred shares (1000*10) (Add) ₹ 10,000
7) Cash and Cash equivalents (Less) ₹ 4,000
8) Enterprise Value (3+4+5+6-7) in Rs. (₹) ₹ 2,21,000
18-02-2016 17:47:48 61
ENTERPRISE VALUE
63. SEBI (Sast
Regulation)
1997
Initial Threshold
Limit >= 15%
Offer Size – 20 %for
all remaining shares of
Voting Capital
Non Compete Fees –
permissible upto 25%
of offer price
No Separate provision
for Voluntary open
offer
TRAC
Report
Initial Threshold
Limit >= 25%
Offer Size – 100%for
all remaining shares of
the company
No Provision
Separate provision
introduced with prior
holding of >=25% and
Minimum offer size of
10%
SEBI (Sast
Regulation)
2011
Initial Threshold
Limit >= 25%
Offer Size – 26 %for
all remaining shares of
Voting Capital
Provision Accepted
(no compete fees)
Voluntary open offer
provisions introduced
subject to certain
conditions
18-02-2016 17:47:48 63
64. NON-COMPETE FEE
Non-compete fee is paid to selling promoters, so that they do not re-enter the business
and pose competition to the acquired company.
• Example - acquisition of controlling stake in Cairn India by Vedanta Resources in
2010, a non-compete fee of Rs. 50 has been added to the acquisition price (Rs 355) to
be paid to the selling promoters — Cairn Energy Plc.
As per SEBI Guideline 1997 – Non-compete Fee was Max 25% of the offer price
As per SEBI Guideline 2011 - Any Non Compete fee to be paid should be included
in the offer price paid to Public Shareholders also.
• Objective – To treat all shareholders at par.
18-02-2016 17:47:48 64
66. RATIONALE
SEBI (SAST) Regulations, 2011 endeavors to protect the interest of the
investors of a listed company
An exit opportunity given to the public shareholders at a highest possible
price where there is a substantial acquisition or Take over
The new Takeover Regulations sought to better ensure that the takeover
markets operate in a fair, equitable and transparent manner.
18-02-2016 17:47:48 66
67. TYPES OF OFFER
OPEN OFFER
MANDATORY/
TRIGGERED OFFER
Acquisition of
Shares
Acquisition of
Control
Indirect
Acquisition of
Shares or
Control
VOLUNTARY OFFER
18-02-2016 17:47:48 67
68. MANDATORY /TRIGGERED OPEN
OFFER
SEBI (SAST) Regulations, 2011 provides the triggering events on which the
acquirer is required to give an open offer to the shareholders of the Target
Company.
The event may be signing of Share Purchase Agreement or actual acquisition of
shares from the market or passing of special resolution for preferential basis.
Once the intention of the acquirer goes beyond the threshold limits mentioned in
the regulations, the acquirer is required to give an open offer to the shareholders
of the Target
18-02-2016 17:47:48 68
69. ACQUISITION OF SHARES
(REGULATION 3)
Initial Threshold Limit
• when the Acquirer after his acquisition along with his initial shareholding
is entitled to have more than 25% or more of the voting rights in the
target company.
Creeping Acquisition Limit
• holding more than 25% but less than 75% shares or voting rights in the
Target Company.
• acquire further upto 5% shares or voting rights in the financial year .
• allowable acquisition of 5% is popularly known as'Creeping Acquisition‘.
Global Trend
Indonesia 50%
France 33%
Hong Kong 30%
UK 30%
Singapore 30%
Australia 20%
India 25%
Global Trend
Indonesia 10%
France 2%
Hong Kong 2%
UK -
Singapore 1% (in 6 months)
Australia 3% (in 6 months)
India 5%
18-02-2016 17:47:48 69
70. 18-02-2016 17:47:48 70
SEBI TAKEOVER RESOLUTION, 1997
15%
55%
75%1st Trigger
2nd Trigger Creeping
Acquisition 5% in a F.Y.
3rd Trigger
25%
75%
1st Trigger
2nd Trigger Creeping
Acquisition 5% in a F.Y.
SEBI TAKEOVER RESOLUTION, 2011
71. QUANTUM OF ACQUISITION
OF ADDITIONAL VOTING RIGHTS
1. No Netting off Allowed
• Example :
• where an acquirer holding 56% shares have acquired further 4%
shares in the company during the financial year 2012-13 and sold
of 2% shares in the same financial year, then he can further
acquired only 1% shares without making the Public
Announcement regardless of the fact that he has sold of 2% shares
in the financial year 2012-13.
18-02-2016 17:47:48 71
72. CONTD.
2. Acquisition of shares by way of issue of new shares
• Difference between the pre-allotment and the post-allotment percentage
voting rights.
PARTICULARS PRE
SHAREHOLDING
SHARES TO BE
ALLOTTED
PURSUANT TO
PREFERENTIAL
ALLOTMENT
POST
SHAREHOLDING
CHANGES
NO. OF
SHARE
S
% NO. OF
SHARES
% NO. OF
SHARES
% NO. OF
SHARES
%
ACQUIRERS 70 58.3 16 11.99 86 63.33 16 5
OTHERS 50 41.67 50 36.67 0 (5)
TOTAL 120 100 136 100 16 0.00
18-02-2016 17:47:48 72
QUANTUM OF ACQUISITION
OF ADDITIONAL VOTING RIGHTS
73. CONTD.
3. Individual shareholding of Acquirer to be considered
the Individual Acquirer Shareholding shall also be considered for determining the Open
Offer Trigger Points apart from consolidated shareholding of Acquirer and PAC.
ACQUIRER PRE HOLDING CREEPING
ACQUISITION
POST
HOLDING
APPLICABILIT
Y OF SEBI
(SAST)
REGULATIONS
, 2011
A 23% 3% 26% OPEN OFFER
OBLIGATIONS
B 7% 2% 9% -
TOTAL 30% 5% 35% -
18-02-2016 17:47:49 73
QUANTUM OF ACQUISITION
OF ADDITIONAL VOTING RIGHTS
74. ACQUISITION OF CONTROL (REGULATION 4)
Any acquirer including PAC acquires control over the Target Company
irrespective of the fact whether there has been any acquisition of shares or
not, then he has to give public announcement to acquire shares from
shareholders of the Target Company.
18-02-2016 17:47:49 74
75. 18-02-2016 17:47:49
INDIRECT ACQUISITION OF SHARES AND
CONTROL(REGULATION 5)
Acquisition of Voting Rights or control over other entity that enable
the Acquirer to exercise of such percentage of voting or control over
Target Company
Acquirer B UK Ltd.
Global
Offer
100% 72.93%
Control
Indirect acquistion of 72.93%
of the Target Company
Trigger Open Offer
Target Company
75
76. 18-02-2016 17:47:49 76
In case of an indirect acquisition where:
• the proportionate net asset value of the target company as a percentage
of the consolidated net asset value of the entity or business being
acquired;
• the proportionate sales turnover of the target company as a percentage
of the consolidated sales turnover of the entity or business being
acquired; or
• the proportionate market capitalisation of the target company as a
percentage of the enterprise value for the entity or business being
acquired
Is greater than 80%, on the basis of the most recent audited annual
financial statements, such indirect acquisition shall be regarded as a direct
acquisition
77. VOLUNTARY OPEN OFFER (REGULATION 6)
ELIGIBILITY
• Prior holding of atleast 25% or more shares
• No acquisition during the preceding 52 weeks except by way of Open Offer.
OFFER SIZE
• Minimum of 10% of the total shares of the Target company
CONDITION
• The aggregate share holding not to exceed the maximum permissible non-public
shareholding
RESTRICTION
• No further acquisition of shares for a period of six months after completion of the
open offer except by way of
• voluntary open offer or
• competing offer.
18-02-2016 17:47:49 77
78. MODE OF PAYMENT (REGULATION 9)
The offer price may be paid in
1. By Cash
2. By way of Issue, exchange or transfer of Equity share capital of the acquirer or
any PAC.
3. By way of Issue, exchange or transfer of secured debt instruments issued by the
acquirer or PAC. Also the instrument should not be rated inferior by a credit
rating agency registered with SEBI.
4. By way of Issue, exchange or transfer of Convertible Debt Securities entitling the
holder to acquire shares in the Equity share capital of the Acquirer or PAC.
5. A combination of all of the above.
18-02-2016 17:47:49 78
79. ESCROW ACCOUNT (REGULATION 17)
An escrow account is a temporary pass through account held by a third party during the
process of a transaction between two parties.
Create an escrow account 2 days before the date of public statement of open offer of
acquiring shares.
The escrow account may be in the form of:
• Cash deposited with any scheduled commercial bank
• Bank guarantee issued in favour of the Merchant banker by any scheduled commercial
bank
• Deposit of frequently traded and freely transferable equity shares or other freely
transferable securities.
Sl.
No.
Consideration payable under the Open
Offer Escrow Amount
1On the first 500 crore rupees An amount equal to 25% of the consideration
2On the balance consideration An additional amount equal to 10% of the consideration
18-02-2016 17:47:49 79
80. The escrow account deposited with the bank in cash shall be released only in the
following manner:
• the entire amount to the acquirer upon withdrawal of offer
• For transfer to the special escrow account, provided the amount so transferred
shall not exceed 90% of the cash deposit
• The acquirer shall get the balance of 10% of the cash deposit on the expiry of 30
days from the completion of payment of consideration to shareholders who have
tendered their shares in acceptance of the open offer.
• If the open offer is for exchange of shares or other secured instruments, the
acquirer gets the entire amount upon the expiry of 30 days from the completion of
payment of consideration to shareholders, upon certification by the Merchant
Banker
18-02-2016 17:47:49 80
CONTD.ESCROW ACCOUNT (REGULATION 17)
81. FAILURE OF PAYMENT
Failure of Payment
In case of non-fulfilment of any of the obligations under these regulations, Merchant
Banker has a right to forfeit the escrow account and distribute the proceeds in the
following way:-
• 1/3rd of the escrow account to the target company
• 1/3rd of the escrow account to the Investor Protection and Education Fund
established under the Securities and Exchange Board of India Regulations, 2009
• 1/3 to be distributed on pro rata basis among the shareholders who have accepted
the open offer.
18-02-2016 17:47:49 81
82. PAYMENT OF CONSIDERATION
(REGULATION 21)
For the amount of consideration payable in cash, the acquirer shall open
a special escrow account with a banker to an issue registered with SEBI
The Acquirer shall complete the payment to the shareholders who have
tendered their shares within 10 working days of the expiry of the
tendering period.
Any unclaimed balances left in the Special escrow Account shall be
transferred to the Investor Protection and Education Fund established
under the SEBI at the end of 7 years from the date of deposit
18-02-2016 17:47:49 82
83. DISCLOSURES
Disclosure of Acquisition and Disposal
18-02-2016 17:47:49 83
TRIGGERING EVENT
DISCLOSURE
BY
DISCLOSURE
TO
TIME PERIOD
Acquisition of 5% or more
shares or voting rights
Acquirer &
PACs
Target c/o
&
stock exchange
(s)
Within 2 working days of:
• receipt of intimation of
allotment of shares; or
• acquisition of shares
or voting rights
Acquisition or disposal of 2%
or more shares or voting rights
by the acquirer already holding
5% or more shares or voting
rights
Creation or invocation or
release of encumbrance* on the
shares held by promoter or
PACs
Promoter &
PACs
Target c/o
&
stock exchange
(s)
Within 7 working days from
the event
84. • Continual Disclosures
18-02-2016 17:47:49 84
DISCLOSURES
18-02-2016 17:47:49 84
DISCLOSURE BY DISCLOSURE TO TIME PERIOD
Acquirer holding 25% or more
shares or voting rights Target c/o
&
stock exchange
(s)
Within 7 working days
from the end of financial
year i.e. 31st March
Promoter and PACs
85. • Encumbered Shares
18-02-2016 17:47:49 85
DISCLOSURE BY
DISCLOSURE
TO
TIME PERIOD
The promoter of every target
company shall disclose details
of shares in such target
company encumbered or
Invocation or release of such
encumbrance of shares by him
or by persons acting in concert
with him in such form
as may be specified.
Target c/o
&
stock exchange
(s)
Within 7 working days
from the creation or
invocation or release of
Encumbrance
DISCLOSURES
86. 18-02-2016 17:47:49 86
The Following shall be exempt from the obligation to make an open offer :-
Inter Se transfer of shares among qualifying persons
• Immediate Relatives
• Promoters identified in the shareholding pattern filed by the target company
under the listing agreement or Takeover Code for not less than 3 years prior to
the acquisition.
• Persons acting in concert for not less than 3 years prior to the proposed
acquisition, and disclosed as such pursuant to filings under the listing agreement
EXEMPTIONS
87. • Looks into application seeking exemption from mandatory open offer to
be made to minority shareholders by the Acquirer.
• Aims at making norms easier and protecting interest of minority
investors.
• The first four member Panel constituted in 2007.
• SEBI reconstituted its Takeover Panel – Newly Notified panel to be
chaired by N.K.Sodhi.
8718-02-2016 17:47:49
TAKE OVER PANEL
88. Procedure
• The Board shall for the purposes of this regulation constitute a panel of majority
of independent persons
• The acquirer shall file an application with the Board, giving details of the
proposed acquisition and the grounds on which the exemption has been sought.
• Pay a fee of Rs. 1,00,000 to the Board, either by a bankers cheque or demand
draft in favor of the SEBI, payable at Mumbai.
• The Board shall within 5 days of the receipt of an application, forward the
application to the Panel
18-02-2016 17:47:49 88
TAKE OVER PANEL
89. • The Panel shall within 15 days from the date of receipt of application make a
recommendation on the application to the Board
• The Board shall after affording reasonable opportunity to the concerned parties
and after considering all the relevant facts including the recommendations, if any,
pass a reasoned order on the application, within 30 days thereof.
• The order of the Board is then published.
18-02-2016 17:47:49 89
TAKE OVER PANEL
90. The term Competing Offers refers to an offer given by any other person
(Competitor Acquirer) after an offer has already been given by an acquirer to the
shareholders of the Target Company to acquire the shares held by them
E.g. If ‘A’ (Acquirer) has already given an Open Offer in terms of SEBI (SAST)
Regulations, 2011 to the shareholders of X Ltd. (Target Company) , B (any other
person) also gives the similar offer to the shareholders of the Target Company, then
offer given by B shall be termed as ‘Competing Offer’ in terms of these regulations
18-02-2016 17:47:49 90
COMPETING OFFER
91. Made within 15 working days from the date of detailed public statement
Unless the 1st open offer first made is a conditional offer, no acquirer making a
competing offer may be made conditional as to the minimum level of
acceptances
The 1st acquirer has a right to revise its offer up to 3 working days prior to the
opening of the offer
Schedule of activities and the offer opening and closing of all competing offers
shall be carried out with identical timelines
18-02-2016 17:47:49 91
COMPETING OFFER
93. An open offer once made shall not be withdrawn , except for the
following circumstances:-
1. If statutory approvals required to make the open offer mention in the
detailed public statement letter of open offer have been refused , or are
subject to approval.
2. If the acquirer ,being a natural person has died.
3. Any condition stipulated in the agreement for acquisition attracting the
obligation to make an open offer is not met for reasons beyond control
of the acquirer and the conditions have been mentioned in the letter of
offer.
4. Or any other circumstances in which the SEBI board may approve
Withdrawal
18-02-2016 17:47:49 93
WITHDRAWAL OF OPEN OFFER
94. In the event of withdrawal: (within 2 working days)
1. They must make an announcement in the same newspapers where the
open offer was made. It must also provide the reasons for withdrawal
of offer
2. Simultaneously they must inform SEBI, Stock exchanges and the
target company at its registered office.
18-02-2016 17:47:49 94
WITHDRAWAL OF OPEN OFFER
95. Must ensure availability of financial arrangements to pay of any
obligations under the open offer and statutory dues that may arise due to
open offer.
Alienation of assets: debarred for 2 years
exception : if required , has to be done by passing special
resolution by postal ballot by shareholders of target co
Must ensure that PA, DPS, letter of offer,& post Offer advertisement are
fair and true and not misleading.
The Acquirer and PAC with him shall not sell shares of the target
company held by them, during the offer period.
The acquirer and persons acting in concert with him shall be jointly and
severally responsible for fulfillment of applicable obligations under these
regulations
18-02-2016 17:47:49 95
OBLIGATION OF ACQUIRER
96. After PA has been made, during the offer period the BOD should ensure that the
business is conducted in the ordinary and usual manner and must be consistent
with past practice.
During the offer BOD of target company & its subsidiaries ,without special
resolution by postal ballot cannot
(a) alienate material assets
(b) take any material borrowings from outside
(c) Issue or allot any new security bearing voting rights .
However, (target company or its subsidiaries)
may issue any securities which are in accordance with the new takeover deal.
may issue shares by way of public issue for which RHP has been filled
with ROC before the PA of open offer.
(iii) may issue shares under any rights issue whose record date was
before the PA of open offer
18-02-2016 17:47:49 96
OBLIGATION OF TARGET COMPANY
97. (d)cannot implement buy back of shares or effect any other capital structure of
the target company.
(e) cannot enter/amend/ terminate any material contracts in which the target co.
or its subsidiaries are parties.
(3) The target company shall furnish to the acquirer within 2 working days from
the identified date, a list of shareholders and a list of persons whose applications,
if any, for registration of transfer of shares.
(4) After closure of the open offer, the target company is required to provide
assistance to the acquirer in verification of the shares tendered for acceptance
under the open offer
(5) on receipt of the detailed public statement, the board of directors of the target
company shall constitute a committee of independent directors to provide
reasoned recommendations on such open offer, and the target company shall
publish such recommendations in the same paper as the DPS.
Must also be submitted to SEBI, Stock Exchanges and manager to the offer
18-02-2016 17:47:49 97
98. Prior to PA , manager must ensure & verify that the Acquirer has
adequate funds to meet the obligation under the open offer, & that he will
be able to implement such offer.
Shall furnish the due diligence certificate & draft Letter of offer filed
under regulation 16 with SEBI
Shall not deal on his own account during the offer period in the shares of
the target company.
Must exercise care and diligence and professional judgment to ensure
compliance with these regulations
Within 15 working days from the expiry of the tending period manager
must file a report with SEBI containing details about confirming the
status of completion of the various open offer requirements.
18-02-2016 17:47:49 98
OBLIGATION OF MANAGER
( MERCHANT MANAGER)
99. For any non compliance under the SAST code SEBI may:-
• Direct disinvestment of the shares acquired either through public auction
or open market.
• Direct the transfer of shares or any proceeds from the directed sale of
shares to the investor protection fund ESTD. By SEBI
• Direct the target Co. or any depository not to give effect to any transfer
of shares acquired under the violations
• Directing any Acquirer , PAC, Nominee or Proxy not to exercise any
voting rights attached to the shares acquired.
• Debar any person from accessing the capital market or dealing in
securities for the period directed by SEBI depending on the gravity of
non compliance
18-02-2016 17:47:49 99
PENALTIES OF NON COMPLIANCE
100. Directing the acquirer to make an open offer for acquiring the shares at
such price as directed by SEBI in accordance with the regulations of the
SAST code.
Direct the acquirer not to sell or , direct the target company or any of its
subsidiaries not to effect any sale of assets contrary to the contents of the
offer letter.
Direct the acquirer who has failed/delayed to make an open offer, to pay
interest @ rate set by SEBI in accordance with the offer price.
Incase of direction for divestiture of shares acquired by the acquirer and
PAC with him , such divestiture will be limited to the maximum
permissible non public shareholding.
18-02-2016 17:47:49 100
101. ‘King of Good Times;
Hands over Crown Jewel to
Diageo
18-02-2016 17:47:49 101
102. On July 4, 2013, the Diageo Group, a British multinational alcohol
beverages group completed acquisition of United Spirits Limited, a listed
Indian company.
The deal valued at about INR 52 Billion.
The deal was one of the largest transactions especially in the food and
beverages industry, not just in India but across the world.
The deal gave the Diageo Group a much anticipated entry into one of the
world’s fastest growing liquor market (India)
18-02-2016 17:47:49 102
OVERVIEW
103. It also saw the maker of leading and marquee global brands such as
Smirnoff, Johnnie Walker, Bailey and Guinness, extend its holding to
brands such as Black Dog, Bagpiper and McDowell’s.
The consummation of the deal was not without its fair share of
challenges. The deal was subjected to a detailed scrutiny by the SEBI as
well as the CCI. Apart from the regulatory scrutiny, the deal was also
challenged before the Courts by the lenders of the Sellers (especially the
Promoter Group).
The deal has been much in discussions, not only because of the legal,
regulatory and commercial issues involved, but also due to the high
profile promoter, Dr. Vijay Mallya, who many speculated was
sanctioning the sale to ease the rising debt in both United Spirits Limited
and Kingfisher Airlines.
18-02-2016 17:47:49 103
104. United Spirits' top brands
* McDowell's No 1 Whisky
* McDowell's No 1 Rum
* McDowell's Signature
* Bagpiper
* Old Tavern
Diageo's India brands
* Johnnie Walker
* Johnnie Walker Reserve
* Smirnoff Vodka
* Captain Morgan
* Rowsons Reserve(IMFL)
* VAT 69
* Romanov
OVERVIEW
OVERVIEWTOP BRANDS
105. 1. Target (United Spirits Limited)
The Target was incorporated as a public limited company on March 31, 1999
under the Cos Act as ‘McDowell Spirits Limited’
Subsequently, its name was changed to ‘McDowell & Company Limited’ and
eventually changed to ‘United Spirits Limited’ on October 17, 2006
It is the flagship company for the spirits business of the UB Group
The Target is engaged in the business of manufacturing and bottling of ‘Indian
made – foreign liquor’ (IMFL). It is the largest spirits company in the world by
volume
18-02-2016 17:47:49 105
PARTIES INVOLVED
106. 2. Sellers
A. UBHL- UBHL is the principal (but not the only) holding company for
the UB Group.
UBHL holds significant stakes in the following companies:
The Target;
United Breweries Limited17 (upto 12.6% of the share capital);
Kingfisher Airlines Limited(upto 60.58% of the share capital); and
Aventis Pharma Limited. (upto 10.22% of the share capital).
B. KFIL (Kingfisher Finvest India Limited)- Held 4.09% stake in the Target
C. SWEW (SWEW Benefit Company)- Held 0.10% of the share capital of
the Target
18-02-2016 17:47:49 106
107. D. United Spirits Limited Benefit Trust - Held 2.64% of the shares of the
Target and was not classified as part of the Promoter Group
E. PIGL(Palmer Investment Group Limited) - Held 3.35% of the shares of
the Target and was not categorized as part of the Promoter Group
F. UB Sports – Held 0.42% of the shares of the Target
18-02-2016 17:47:49 107
108. 3. Acquirer
A. Acquirer
The Acquirer (Relay BV) was a wholly owned subsidiary of PAC 1 and
was incorporated on July 13, 2012 in the Netherlands.
It appears that the Acquirer was incorporated as a SPV for the purposes
of the Deal.
B. PAC 1 (Diageo Plc)
PAC 1 is a leading premium alcoholic beverage maker with its presence
spanning across 180 countries.
It is listed on the London Stock Exchange and the New York Stock
Exchange. In India, PAC 1 is present through its wholly owned
subsidiary Diageo India. Diageo India has less than 3% of the market
share in India.
PAC 1 is parent company of the Acquirer, PAC 2, PAC 3 and PAC 4.
18-02-2016 17:47:49 108
109. C. PAC 2 (Diageo Finance Plc)
PAC 2 was incorporated as a public limited liability company in England
and Wales.
It is a wholly owned subsidiary of PAC 1.
PAC 2, along with certain other companies of the Diageo Group, assists
in raising external debt financing for the Diageo Group.
The funds available with PAC 2 are lent to companies of the Diageo
Group for their operational or other requirements.
It is likely that PAC 2 may have provided the necessary financial
assistance for the Deal.
D. PAC 3 (Diageo Capital Plc)
PAC 3 was incorporated as wholly owned subsidiary of PAC 1 in
Scotland.
PAC 3 performs the same role as PAC 2 for the Diageo Group and may
have likely provided the financial assistance for the Deal.
18-02-2016 17:47:49 109
110. E. PAC 4 (Tanqueray Gordan and Company Limited)
PAC 4 was incorporated as a wholly owned subsidiary of PAC 1 in
England and Wales.
PAC 4’s principal source of income is the dividend it receives from its
subsidiaries.
Thus, the cash lying on its books is likely to have been used for the Deal.
18-02-2016 17:47:49 110
111.
112. 18-02-2016 17:47:49 112
DEAL CONSIDERED BY CCI
Presence of other Competitors in Market
There were multiple other players and brands that should be able to compete
with the Target and Diageo Group
No Overlap Between Products
CCI further found that the Target and Diageo Group were mostly present in different price
spectrums in the branded spirits market with negligible overlap between their products in
each of the branded spirits segment
New Products & Benefit of Consumer
CCI was of the view that the Deal would bring new products and more variants of
the existing brands at different price points which would ultimately enable the
consumer to expand their choice set
113. 18-02-2016 17:47:49 113
DEAL CONSIDERED BY KARNATAKA HC
The lenders to the UB Group were also able to pose a serious challenge to the
Deal as the Sale Shares were pledged with the lenders.
In the end, the UB Group was able to obtain a clearance from the Karnatak
HC to sell the Sale Shares on the condition that the Sellers would deposit INR 2.5
billion in a nationalized bank as security
114. 18-02-2016 17:47:49 114
TAX CONSIDERATION
Why did Diageo Group use an Intermediary Entity (Relay B.V.) as the
Acquirer Situated in Netherlands for the Deal?
Primary advantage (especially from a commercial standpoint) is that
Netherlands is a developed and stable economy with no significant exchange
controls regulations, thus, making movement of funds into and out of
Netherlands easy
Netherlands is ranked 29th on the “Ease of Doing Business” parameter
(compared to India’s 132nd rank)
Netherlands also has a wide range of bilateral investment treaties (around
105)as well as a good network of tax treaties that allow it to operate
harmoniously with various jurisdictions
Netherlands enjoys a favorable tax treaty with India as well allowing for a sale
by a Netherlands parent company of shares of an Indian company to any non-
resident to be taxed only in Netherlands (and not India)
115. 18-02-2016 17:47:49 115
MODES OF ACQUISITION PROPOSED
Secondary Purchase
Acquisition of Sale Shares by Acquirer from the Sellers under the SPA representing
17.36% of the Emerging Voting Capital of the Target.
Primary Subscription
Allotment of Subscription Shares by the Target under the PAA representing 10% of
the Emerging Voting Capital.
Open Offer
Open Offer made by Diageo to the Public Shareholders of the Target under the
Takeover Code for the acquisition of 26% shares in the Target.
JM Financials was selected as manager of the open offer.
116. 18-02-2016 17:47:49 116
1st OPEN OFFER
Diageo acquired 10% stake for Rs 2902 Cr in USL
The open offer for 26 % was unsuccessful as they acquired only 58668
shares as opposed to 3.8 Cr shares in the offer , being a mere 0.2% stake
@RS1440/share
117. 18-02-2016 17:47:49 117
WHY 1st OPEN OFFER FAILED
The Target, had moved the price of the Target’s shares to INR 1,815.25,
which continued to climb and reached INR 2,045.25 per share at the time
of expiry of the offer period resulting in an average market price during
open offer period of a whooping INR 2,011.66 per share, a near 47%
increase over market price at the time of public announcement
It was unlikely that any shareholder would tender his / her shares for Open
Offer on a stock of a company when:
(i) the offer price was well below the market price at the time of tender; and
(ii) the prospects from the company (in this case the Target) were only likely
to improve as a new and more experienced management, especially a global
liquor giant like Diageo Group, took over
118. November 2013 it bought 1.96 million shares from the open market at
Rs 2,400 per share valuing the transaction at Rs 472.31 crore . Part of
the stake was acquired through a bulk deal from Morgan Stanley Asia
(Singapore) Pte, which sold off 3.9 million shares on the BSE. This has
taken its holding to 26.3 per cent.
In January 2014 it hiked its stake in United Spirits again by acquiring 2.4
per cent more from a foreign portfolio investor for Rs 866 crore , taking
its holding to 28.7 per cent. The British firm has shelled out around
$1.09 billion to buy 28.7 per cent of United Spirits
BEFORE 2nd OFFER
119. Although Diageo could not manage to buy half of the Indian firm earlier, as
envisaged, by virtue of being the single-largest shareholder and having
presence in the board with its nominees, Diageo was already in the driver’s
seat.
In the original agreement, it had ensured that if Diageo is unable to obtain
majority shareholding, UB Holdings will vote as directed by Diageo for a
four‐year period.
120. 18-02-2016 17:47:49 120
2nd OPEN OFFER
In April 2014, Diageo made its second open offer for United Spirits
Diageo had offered to buy shares at Rs 3,030 a share in the open offer
The offer opened on 6 June 2014 and will end today, 19 June 2014
121. 18-02-2016 17:47:49 121
POST 2nd OPEN OFFER
On 2nd July 2014 ,Relay B.V acquired 377,85,214 equity shares
representing 26% equity share capital through open offer.
As a result of open offer Relay B.V holds 54.78 % equity share capital of
USL.
122. 18-02-2016 17:47:49 122
SYNERGY BENEFIT
USL has 40% Market Share
USL has strong sales & distribution network in India
Diageo’s market share increased from 12% to 17% because of distribution
provided by USL
PAC s are individual(s) /company(ies)/ any other legal entity(ies) who are acting together for a common objective or for a purpose of substantial acquisition of shares or voting rights or gaining control over the target company pursuant to an agreement or understanding whether formal or informal. Acting in concert would imply co-operation, co-ordination for acquisition of voting rights or control, either direct or indirect.
The concept of PAC assumes significance in the context of substantial acquisition of shares since it is possible for an acquirer to acquire shares or voting rights in a company “in concert” with any other person in such a manner that the acquisition made by them may remain individually below the threshold limit but collectively may exceed the threshold limit.
Unless the contrary is established certain entities are deemed to be persons acting in concert like companies with its holding company or subsidiary company, mutual fund s with its sponsor / trustee / asset management company, etc.
SEBI (SAST) Regulations, 2011 endeavors to protect the interest of the investors of a listed company and make sure that an exit opportunity is given to the public shareholders at a highest possible price where there is a substantial acquisition of shares or voting rights or control over a listed company, consolidation of holdings by existing shareholders.
The new Takeover Regulations sought to better ensure that the takeover markets operate in a fair, equitable and transparent manner.
Selling assets that are put up for collateral. The alienation clause usually prohibits this.
