SEBI amends takeover norms for Satyam like companies

Securities and Exchange Board of India (SEBI) has made a significant amendment in the takeover norms. The amendment was declared on February 13, 2009 on SEBI's webiste.

The amendment was triggered by the sale of scam-hit Satyam Computer Services Ltd. After the fraud was disclosed by Satyam's founder in January 2009, the stock had fallen more than 90%. However, with the interest of getting a buyer the stock has gone up but is still down by more than 70% when compared to pre-crisis period. The current situation of Satyam demands an urgent restoration of customer's faith which can be brought if a well established player buys Satyam. Many corporates have shown interest in buying Satyam's business as it is currently available at huge discount to its peers. However, the uncertainty over the law-suits which Satyam may face is restricting the buyers. L&T, iGate Global Solutions Ltd., & Spice are the front runners in the race to acquire Satyam. L&T has gone ahead and bought 12% stake from public. To gain management control it has to buy more shares. By the current norms any company acquiring more than 15% stake in any publicly listed company has to give an open offer to the public for buying additional 20% shares. There is some regulatory restrictions on the price of open offer. Simply stated, the price has to be more than the six months average trading price, which in the case of Satyam will be about Rs 250 per share whereas its current market price is about Rs 50 per share. This would be a significant premium to its current market price as the value of Satyam has eroded significantly post the fraud-disclosure. No buyer would be keen on paying such a higher price as indicated by the SEBI's open offer regulations.

To meet this challenge SEBI had two options: make Satyam an exceptional case or amend the regulation to suit such cases. SEBI has gone forward and relaxed the regulations for Satyam like cases. SEBI has added the following sub-regulations:

"
(i). No public announcement for a competitive bid shall be made after an acquirer has already made the public announcement pursuant to relaxation granted by the Board in terms of regulation 29A.
(ii) Relaxation from the strict compliance of provisions of Chapter III in certain cases.
The Board may, on an application made by a target company, relax any or more of the provisions of this Chapter, subject to such conditions as it may deem fit, if it is satisfied that –
(a) the Central Government or State Government or any other regulatory authority has removed the board of directors of the target company and has appointed other persons to hold office as directors thereof under any law for the time being in force for orderly conduct of the affairs of the target company;
(b) such directors have devised a plan which provides for transparent, open, and competitive process for continued operation of the target company in the interests of all stakeholders in the target company and such plan does not further the interests of any particular acquirer;
(c) the conditions and requirements of the competitive process are reasonable and fair;
(d) the process provides for details including the time when the public offer would be made, completed and the manner in which the change in control would be effected;
(e) the provisions of this Chapter are likely to act as impediment to implementation of the plan of the target company and relaxation from one or more of such provisions is in public interest, the interest of investors and the securities market.
”

Source: SEBI Act.

Though this will make the way clear for Satyam bidders, this amendment is highly unlikely to be applicable for other cases as the conditions required are very narrow and unlikely to be met by even a similar company in future.