The amendments are aimed at undoing the complications caused by the earlier amendments of 2004. Amongst other modifications, the 2006 amendments have broadened the definition of a promoter.
The definition of individual promoter has been altered to include a person who is in control of the target company or named as promoter in an offer document or shareholding pattern filed by the target company with the stock exchanges according to the listing agreement, whichever is later.
In case the promoter is a body corporate, a company, in which a group of individuals or companies hold 20 per cent or more of the equity share capital along with 20 per cent or more of the equity share capital in the target company, would qualify as part of the promoter group.
Additionally, a company in which the promoter itself holds 10 per cent or more of the equity share capital or a company that holds 10 per cent or more of the equity capital of the promoter, would be eligible to be part of the promoter group.
The 2006 amendments also seek to align the Takeover Regulations with recent changes to the listing agreement relating to minimum public shareholding.
The amendments propose that no acquirer, including people acting in concert, holding 55 per cent or more, but less than 75 per cent of the shares or voting rights in a target company, shall acquire any additional shares or voting rights, unless he makes a public announcement concerning such acquisition of shares in accordance with the Takeover Regulations.
However, in the event the target company obtains listing of its shares by making an offer of at least 10 per cent of the size of issue to public, the upper limit of share holding would increase to 90 per cent instead of 75 per cent.
The provisions that prohibit preferential allotments or market purchases of more than 55 per cent now stand deleted by virtue of the 2006 amendments. However, creeping acquisitions continue to be permitted at up to 5 per cent in a financial year up to a maximum limit of 55 per cent.
As per the Takeover Regulations, any offer higher than such prescribed limit would require an open offer.
The previous amendments to the Takeover Regulations in December, 2004, hampered activities relating to mergers & acquisitions in India and penalised people holding more than the 55 per cent in listed companies by preventing them from making a clean and complete exit.
With the Takeover Regulations prohibiting acquisition of more than 55 per cent through market purchase or preferential allotment and the listing agreement prescribing different levels of public share holding for different companies, lack of transparency in law led to a number of transactions having to be tortuously structured.
With inputs from B Sanjeev Jain, Associate, Titus & Co.
