Takeover Code

1. What Is the Takeover Code?

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 — commonly called the Takeover Code — governs how investors can acquire control of listed Indian companies. It ensures that minority shareholders are treated fairly when control changes hands.

2. The 25% Trigger

The Takeover Code revolves around a critical threshold: 25% shareholding. When an acquirer (along with persons acting in concert) crosses 25%, they must make an open offer to buy at least 26% more from public shareholders.

This means if you acquire 25% of a company, you must offer to buy enough shares to potentially take your stake to 51% — a controlling majority.

3. The Open Offer Mechanics

• Offer price: Must be at least the highest price paid by the acquirer in the last 12 months, or a floor price calculated as per SEBI's formula (higher of the two)
• Offer size: Minimum 26% of voting capital from public shareholders
• Timeline: The offer must be completed within strict timelines (typically 57 working days from the public announcement)
• Escrow: The acquirer must deposit a portion of the offer value in escrow before making the public announcement

4. Persons Acting in Concert (PAC)

SEBI looks beyond the primary acquirer to identify persons acting in concert — entities with a common objective of acquiring control. PACs include:

• Companies under the same management or control
• Immediate relatives
• Entities with common directors or substantial shareholders
• Parties to an agreement to act together

The PAC concept prevents acquirers from splitting their stake among related entities to avoid the 25% trigger.

5. Creeping Acquisition

Once an acquirer holds 25% or more, they can increase their stake by up to 5% per financial year through market purchases without triggering another open offer. This is called creeping acquisition.

However, if they want to increase beyond this 5% annual limit, a fresh open offer is required.

6. Voluntary Offers and Delisting

An acquirer can also make a voluntary open offer even without crossing 25%, provided they already hold at least 25%. This is often used to consolidate control.

Delisting offers are a special category where the acquirer seeks to remove the company from stock exchanges. The offer price must be determined through a reverse book building process where shareholders indicate the price at which they're willing to sell.

7. How This Affects Minority Shareholders

The Takeover Code protects minority shareholders by:

• Ensuring they receive a fair exit price when control changes
• Preventing coercive acquisitions at unfair prices
• Mandating transparent disclosures of acquisition intentions
• Providing a mandatory exit opportunity through the open offer

8. Recent Cases and Trends

Recent high-profile takeovers include the Adani-Holcim cement deal, various pharma acquisitions, and the ongoing consolidation in India's financial services sector. In each case, the Takeover Code ensured minority shareholders received open offer exits.