Completing of Acquisition
Regulation 21. Payment of Consideration
21(1).
The open offer involves payment in cash to shareholders.
The acquirer must open a special escrow account.
This account must be opened with a banker to an issue registered with the Securities and Exchange Board of India.
The acquirer must deposit money into this account.
The total deposit must ensure full payment of consideration to shareholders.
This amount will include the following components:
Cash already transferred under regulation 17(10)(b), plus
Additional amount needed to make up the entire payable consideration.
The acquirer must also authorize the manager to the offer to operate this special escrow account.
The manager will operate it on behalf of the acquire for purposes under the regulations.
So , a fully funded special escrow account must be created and controlled by the manager to ensure complete and secure payment to shareholders.
21(2).
After the tendering period ends the acquirer must complete payment of consideration.
This payment can be in different forms cash, or issue, exchange, or transfer of securities.
It must be made to all shareholders who tendered and whose shares are accepted.
The payment of consideration must be made within 10 working days from the expiry of the tendering period.
This is subject to the provisions of Regulation 18(11).
So , regardless of the form of consideration, payment must be completed within 10 working days after tendering closes.
21(3).
A special escrow account is created for payment to shareholders.
Sometimes, some amounts remain unclaimed.
These unclaimed amounts stay in the escrow account.
A long time limit is given: 7 years from the date of deposit.
After 7 years, if the money is still unclaimed it must be transferred.
The transfer is made to the Investor Protection and Education Fund.
This fund is established under the relevant SEBI regulations.
So , unclaimed escrow money is not kept indefinitely and it is moved to the Investor Protection Fund after 7 years.
Regulation 22. Completing of Acquisition
22(1).
Suppose, The acquirer plans to acquire shares, or voting rights, or control over the target company.
This acquisition may be through:
Subscription to shares, or
Purchase of shares triggering an open offer.
However, there is a restriction.
The acquirer cannot complete the acquisition immediately.
The acquisition must be kept pending.
It can be completed only after the expiry of the offer period.
So , the acquirer must wait until the open offer process is fully over before completing the acquisition.
Normally, the acquirer must wait until the offer period ends to complete acquisition
But there is a special exception.
When the open offer is made under regulation 20(1) and arises due to a preferential allotment then:
In such cases, the timeline is different.
The offer must be completed: within the time limit specified under the SEBI (ICDR) Regulations, 2018.
This is subject to: the overriding (non-obstante) clause in regulation 7(4).
So , in preferential allotment cases, completion follows ICDR timelines instead of the general waiting rule, subject to overriding provisions.
In case of a delisting offer under regulation 5A:
The acquirer may be required to make an open offer due to acquisition:
Under Regulation 3, or Regulation 4, or Regulation 5.
However, there is a restriction on completing such acquisition.
The acquirer cannot complete the acquisition immediately.
First, the acquirer must make a public announcement of success of the delisting proposal.
This announcement must be made in accordance with regulation 17(4) of the Delisting Regulations.
Only after this announcement the acquirer can complete the acquisition.
In delisting cases, acquisition is allowed only after successful delisting is publicly confirmed.
22(2).
There is an exception to the general rule that acquisition must wait till offer period ends.
So , notwithstanding anything in 22(1):
The acquirer must first ensure full financial security
This is done by:
Depositing cash, or
Providing an unconditional and irrevocable bank guarantee
Issued by a scheduled commercial bank
With approval of the Reserve Bank of India
The amount must be:
Equal to 100% of the total consideration payable
Assuming full acceptance of the open offer
Once this is done, within 21 working days the acquirer must pass from the date of the detailed public statement
After this:
The parties can act upon the agreement.
The acquirer can complete acquisition of shares, voting rights, or control.
Early completion of acquisition is allowed after 21 working days, but only if full consideration is secured in escrow (or via bank guarantee).
Explanation:
With respect to bank guarantees used for escrow under 22(2):
Not all banks can issue such guarantees.
The bank must be a scheduled commercial bank.
It must have a ‘AAA’ credit rating.
The rating must be on its long-term debt instruments.
The rating must be given by a credit rating agency registered with the Securities and Exchange Board of India.
So , only highly rated (AAA) banks approved by SEBI-registered rating agencies can issue valid bank guarantees for this purpose.
Sometimes, the number of shares to be acquired is reduced proportionately.
This happens as in accordance with (4) of Regulation 7(4).
Due to this, the acquisition size becomes smaller than originally planned.
Even after such reduction the acquirer cannot withdraw or avoid the transaction.
The acquirer must complete the acquisition but only to the reduced (scaled-down) extent.
So , if shares are reduced proportionately, the acquirer must still go ahead and complete the acquisition for the reduced quantity.
22(2A).
Normally, the acquirer cannot complete acquisition before the offer period ends.
But there is an exception.
The acquirer may acquire shares through preferential issue, or through the stock exchange settlement process
However, this is allowed only if certain conditions are met:
(i)
The acquired shares must be kept in an escrow account.
(ii)
The acquirer must not exercise any voting rights over such shares.
So, ownership may pass, but control cannot be exercised yet.
So , early acquisition is allowed, but shares must be parked in escrow without voting rights until permitted.
These shares can be transferred to the acquirer’s own account
But this is not automatic:
The acquirer must comply with requirements under 22(2).
So , shares can move from escrow to the acquirer’s account, but only after meeting the prescribed conditions.
22(3).
Suppose , the acquirer enters into an agreement to acquire shares/control.
This agreement triggers the obligation to make an open offer.
After the open offer process is completed there is a deadline to finish the acquisition.
The acquisition must be completed within 26 weeks and counted from the expiry of the offer period.
This applies to acquisitions contracted under the agreement.
Once the offer period ends, the acquirer must complete the agreed acquisition within 26 weeks.
Normally, the acquirer must complete the acquisition within 26 weeks from the expiry of the offer period
But there is an exception:
If there are extraordinary circumstances, and such circumstances arise later (supervening),
And these make it impossible to complete the acquisition on time
Then the Securities and Exchange Board of India can step in.
SEBI may grant an extension of time.
This extension will be for a period SEBI considers appropriate.
SEBI must also publish the reasons for granting such extension.
The decision must be in the interest of investors and the securities market.
So , delay is allowed only in exceptional cases, with SEBI approval and recorded reasons, to protect investor interests.
