Voluntary Offer & Offer Size
Regulation 6. Voluntary Offer
6(1).
If an acquirer, together with persons acting in concert with him, holds shares or voting rights in a target company amounting to twenty-five per cent or more.
Such shareholding, however, is less than the maximum permissible non-public shareholding allowed under law.
In this situation, the acquirer is entitled to voluntarily make a public announcement of an open offer.
The purpose of such an open offer is to acquire additional shares of the target company.
The open offer must be made in accordance with the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.
After the completion of the open offer, the aggregate shareholding of the acquirer and persons acting in concert must not exceed the maximum permissible non-public shareholding.
Example:
ABC Ltd. is a listed company.
Mr. X (along with PAC) holds 40% shares in ABC Ltd.
His shareholding is more than 25% but less than 75% (MPS). He decides to increase his stake further in the company.
He is not required to make an open offer but is permitted to voluntarily make one under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Mr. X makes an open offer to acquire an additional 20% shares.
After completion of the open offer:
Existing holding = 40%
Additional shares acquired = 20%
Total holding = 60%
The total shareholding remains within 75% (MPS).
Therefore, the acquisition is valid and compliant with law.
If an acquirer or persons acting in concert (PAC) have acquired shares in the target company in the last 52 weeks:
And those acquisitions did not trigger a mandatory open offer
Then the acquirer is not allowed to make a voluntary open offer
This restriction prevents misuse of voluntary open offer after gradual share purchases.
However, this restriction was temporarily relaxed
The relaxation was valid up to March 31, 2021
During the relaxation period, such acquirers were allowed to make a voluntary open offer even if they had acquired shares in the preceding 52 weeks.
During the offer period, the acquirer is subject to restrictions.
The acquirer cannot buy shares through any other method.
All acquisitions must be made only through the open offer.
Off-market purchases, market purchases, or private deals are not allowed.
6(2).
After completing an open offer, the acquirer and persons acting in concert (PAC) face a restriction.
They cannot acquire any shares of the target company for the next 6 months.
This restriction applies after completion of the open offer.
They are barred from buying shares through any mode during this period.
Exception: That said , they can acquire shares only if it is through another voluntary open offer.
6(3).
Shares received through a bonus issue are ignored for this restriction.
Shares received due to stock split are also ignored.
These types of shares are not treated as fresh acquisitions by the acquirer.
Therefore, they will not lead to disqualification or restriction under this regulation.
6(4).
With respect to companies listed on the Innovators Growth Platform (IGP).
The usual threshold of 25% is modified for such companies.
Wherever “25%” is mentioned in this regulation.
It will be read as “49%” instead.
This means higher shareholding is allowed before triggering or applying this regulation.
The change applies only to companies listed on the Innovators Growth Platform.
For all other listed companies, the normal 25% threshold continues to apply.
(6A).
A wilful defaulter is not allowed to make a public announcement of an open offer.
This restriction applies regardless of anything else in the regulations.
Such a person cannot directly initiate an open offer.
Such a person also cannot enter into any transaction that would trigger a mandatory open offer.
In short, a wilful defaulter is completely barred from acquiring shares in a way that leads to an open offer obligation.
Exception:
A wilful defaulter is still allowed to make a competing offer
This is allowed only when another person has already made an open offer.
The competing offer must be made in accordance with Regulation 20.
So, although generally barred, a wilful defaulter can participate only as a competing bidder in an existing open offer situation.
(6B).
A fugitive economic offender is completely prohibited under these regulations.
Such a person cannot make a public announcement of an open offer.
Such a person cannot make a competing offer.
Such a person cannot enter into any transaction to acquire shares.
The restriction applies to both direct and indirect acquisitions.
It also covers acquisition of shares, voting rights, or control of the target company.
This restriction overrides all other provisions of the regulations.
Regulation 7. Offer Size
7(1).
When an open offer is made under Regulation 3 or Regulation 4:
The acquirer along with persons acting in concert (PAC) must offer to acquire at least 26% of the total shares.
This 26% is the minimum size of the open offer.
The total shares are calculated as on the 10th working day after the closure of the tendering period.
So, the offer size is linked to the share capital position at that specific date.
Example:
Suppose a target company has 1,00,00,000 (1 crore) total shares as on the 10th working day after closure of tendering period
Minimum open offer size = 26% of 1 crore
26% of 1,00,00,000 = 26,00,000 shares
So, the acquirer must offer to buy at least 26 lakh shares from the public
Even if the acquirer wants, they cannot make an open offer for less than this minimum
If total shares change (due to allotment, conversion, etc.), the 26% will be calculated on the updated total shares as on that date
Total shares are calculated as on the 10th working day after closure of the tendering period.
While calculating, you must include any possible increase in total shares.
This includes potential increases that were already contemplated at the time of public announcement.
Such increases may arise during the offer period.
Examples include conversion of convertible securities, warrants, or employee stock options.
So, not only existing shares but also expected increases are considered.
If & when total shares increase after the public announcement.
The increase must be one that was not anticipated at the time of the public announcement.
In such cases, the open offer size must be increased.
The increase in offer size will be proportionate to the increase in total shares.
This ensures the 26% requirement is maintained even after unexpected changes.
So, the acquirer cannot keep the same offer size if share capital increases unexpectedly.
7(2).
When an open offer is made under Regulation 6 (voluntary open offer):
The offer must be for at least that number of shares which gives an additional 10% voting rights
So, the acquirer should increase their voting rights by at least 10%
The offer size cannot be less than what gives this 10% increase
At the same time, there is an upper limit:
The acquirer’s total holding after the open offer must not exceed the maximum permissible non-public shareholding.
So, the offer size is bounded by:
Minimum: Enough to gain 10% additional voting rights.
Maximum: Limit up to the non-public shareholding cap. (75%)
When a competing offer is made by another acquirer:
The original acquirer had made a voluntary open offer under Regulation 6.
In such a situation, the original acquirer is given flexibility.
He can increase the number of shares in his open offer.
The increase can be to any extent he considers appropriate.
There is no fixed cap mentioned for such increase in this case.
This allows the original acquirer to stay competitive against the rival offer.
When the acquirer wants to increase the offer size due to a competing offer:
The increase must be made within 15 working days from the public announcement of the competing offer
This is a strict time limit
If the acquirer does not increase the offer size within this period
Then he loses the right to increase the offer size later
So, timely action is mandatory to revise the offer size
7(3).
When the acquirer increases the offer size under 7(2):
Once the offer size is increased, its nature changes.
The open offer is then treated as if it were made under Regulation 3(2).
So, it is no longer treated purely as a voluntary open offer under Regulation 6.
All provisions applicable to Regulation 3(2) will now apply.
The acquirer must comply with the rules relevant to that regulation.
So, increasing the offer size converts the offer into a Regulation 3(2) type open offer.
7(4).
After completion of the open offer:
The shares accepted in the open offer increase the acquirer’s shareholding.
If the acquirer along with PAC ends up holding more than the maximum permissible non-public shareholding.
Then a corrective action is required.
The acquirer must reduce the excess shareholding.
The reduction must be done to bring it within the permitted limit.
This must be done in accordance with the Securities Contracts (Regulation) Rules, 1957.
The reduction must be completed within the time period specified under these rules.
So, exceeding the limit is allowed temporarily, but must be corrected within the prescribed time.
Exception the general rule of Open Offers:
When an open offer is made under Regulation 3(1) , 4 , 5:
The acquirer must have clearly stated upfront that it intends to keep the company listed.
This intention must be disclosed in both the public announcement and detailed public statement.
In such a case, the acquirer has an alternative option:
Instead of exceeding the maximum permissible non-public shareholding
The acquirer can proportionately reduce:
Shares to be acquired under the underlying agreement
Shares tendered in the open offer
This reduction is done after completion of the open offer
The purpose is to ensure that the final shareholding of the acquirer stays within the permitted limit.
The limit is as prescribed under the Securities Contracts (Regulation) Rules, 1957.
So, the acquirer avoids breaching public shareholding norms while still completing the transaction.
Under circumstances there is a a preferential allotment under a Share Subscription Agreement:
Such allotment may trigger an open offer.
In this situation, proper disclosures must be ensured.
The Board Resolution must be properly drafted.
The shareholder resolution must also be properly drafted.
Both resolutions must clearly mention:
The effective date of allocation/allotment.
The exact quantum (number/extent) of shares to be allotted
7(5).
When the acquirer’s shareholding exceeds the maximum permissible non-public shareholding after an open offer:
Then such an open offer would be subject to Regulation 5A.
In such a case, the acquirer cannot immediately proceed with delisting.
The acquirer is not allowed to make a voluntary delisting offer under the SEBI Delisting Regulations.
A waiting period is imposed:
The acquirer must wait for at least 12 months.
The 12 months are counted from the date of completion of the offer period.
Only after this period can the acquirer proceed with a voluntary delisting offer.
7(6).
An open offer must be made to all shareholders of the target company.
Certain persons are excluded from receiving the offer.
The acquirer is not eligible to participate.
Persons acting in concert (PAC) with the acquirer are also excluded.
Parties to any underlying agreement for sale of shares are excluded.
Persons deemed to be acting in concert with such parties are also excluded.
So, the offer is meant only for public shareholders other than these excluded categories.
