SEBI makes takeover of Satyam-like companies easier

14 Feb 2009,ET Bureau

MUMBAI: The battle for scam-tainted Satyam Computer Services is expected to hot up, with the Securities and Exchange Board (SEBI) announcing special norms for takeover of distressed companies the boards of which have been reconstituted with government nominees. The market regulator, in a circular released on Friday, has put the onus on the newly-appointed board of a troubled target company, such as Satyam, to find the right suitor.

If the regulator approves the investor, then certain takeover norms may be relaxed. More importantly, under such circumstances, no rival bidder can make an open offer once the acquirer, which has been approved by the board and SEBI, makes an open offer.

“I have not seen the SEBI order, but I’m glad that the regulator has moved promptly. It was necessary for us to move forward. We will now take a week to define the process,” Satyam chairman Kiran Karnik told ET.

WHAT’S NEXT FOR SATYAM : Assuming no one moves court against the SEBI order
Satyam board calls for bids, possibly for preferential share allotment, and selects a strategic investor. A preferential allotment will infuse funds into Satyam
It submits a proposal on the bidder to SEBI and also seeks exemptions of certain takeover rules like open offer pricing
SEBI decides whether exemptions sought are in the interest of the market and the shareholders
If satisfied, SEBI can lower the open offer price and even give other relaxations. No new bidder can step in once the offer opens


According to the SEBI order, competition in the takeover process can happen only till the board finalises the acquirer. “The key aspect of the new regulations is that the target company seeks the exemption, instead of the acquirer. Again, instead of the takeover panel giving exemptions, SEBI will directly consider applications from the target company,” said RS Loona, former legal head of SEBI.

The tricky issue in Satyam’s case has been a possible relaxation of the open offer price from the current norm of 26 weeks average.

Regarding pricing, SEBI has said it would allow “relaxation from strict compliance of provisions of Chapter III in certain cases”. Chapter III spells out, among other things, the pricing formula for a 20% open offer, which an acquirer has to make on purchase of 15% in a company.

So, in the case of Satyam, this would mean that the government-appointed board would consider the likely bids from parties like Larsen & Toubro, Tech Mahindra and Spice Group, which have, till now, shown interest in the troubled IT firm.

“It is a fairly positive move, particularly for Satyam. With this, the board will be able to create a mechanism to solicit bids from everybody. This will help create shareholder value and make the bid process more transparent, thereby reducing the chances of litigation,” said Akil Hirani, managing partner at law firm Majmudar & Co.


While the ban on competitive bidding, while the open offer is on, has not gone down well among certain sections of the market, securities lawyers feel that this would simplify things and save time. According to Nitin Potdar, partner, J Sagar Associates: “This is akin to government disinvestment, where no competitive bids are allowed after the selection of the acquirer. It will avoid multiple competitive bidding and confusion. SEBI did a smart job by restricting the eligibility criteria for enjoying such relaxation. It is unlikely that these norms would be misused.”

Some said the norms should have been designed on a broader bases. “This framework should not have been restricted only to companies, the boards of which have been superseded by the government, but should be extended to any situation where a fraud has been detected and where shareholders may have superseded the board,” said Somasekhar Sundaresan, partner at law firm J Sagar Associates.