Introduction
A situation where a company overtakes the control of another company is called take over. A takeover occurs when one company makes a bid to gain ownership of or purchase another, often by purchasing a majority stake in the target company. The company making the bid is the acquirer in the takeover process while the company that it wishes to take control of is called the target. Takeovers for a smaller one are usually conducted by a larger corporation. They can be voluntary, which means they are the product of a joint agreement between the two companies. In other situations, they may be rejected, in which case, without his knowledge, the larger organization goes after the target.
Types Of Takeover
Friendly Takeover:
In friendly takeover promoters of Target Company voluntarily sell off their shares to the acquirer at an attractive price offered by acquirer and promoters quit from their own company. In this promoter of the target, company gifts away from the control and ownership to the acquirer at an attractive price. Some of the friendly takeovers like Idea did a friendly takeover of Spice, Daiichi sankyo did a takeover of Ranbaxy
Hostile Takeover:
In a hostile takeover, the acquirer intends to acquire the target company and he gives detailed public statements (DPS) to acquire the shares of the target company at price better than the prevailing market price of such shares. On another hand promoter of the target, the company doesn’t want to give away the ownership and control of their company and they fight back to defend their ownership and control over the target company. The promoter of the target company gives a counter bid to protect themself.
Benefits of Takeover
- Market Expansion: Takeover leads to market expansion as Target Company’s member becomes members of the acquirer and all assets and liabilities transfer to the acquirer.
- Increase in the customer base: As the target company becomes an asset of the acquiring company, the customer of the target company becomes the customer of the acquiring company.
- Tax exemptions: As takeover leads to transfer of all assets and liability to the acquiring company, which will lead to capital gain under this tax authority, it gives a tax exemption.
- Increase in Human Resources: As takeover leads to acquiring of a target company, then human resources become the resource of the acquiring company
- Increase in revenue: A takeover leads to an increase in resource production and expansion, which may lead to an increase in revenue.
Terminologies & Prerequisite
Terminologies:
- Acquirer: Acquirer means any person who acquires or intends to acquire
- The shares
- Voting rights
- Control of target company
- Target Company: Target company means the listed Indian company
Pre-requisite
- Do the due diligence of the target company
b. Appointing Merchant Banker
Process of takeover
Once acquirer,irer, with his person acting in concern, touches or hits the trigger point (i.e., acquiresres 25% voting rights of the target company) the same day acquirer with his merchant banker givess a public announcement (PA) to the stock exchange, thee stock exchange disseminates the information in public.
Within one day from the public announcement (PA), the acquirer shall file a PA to SEBI and the target company.
The acquirer with his merchant banker gives a detailed public statement (DPS) in 3-4 newspapers.
The acquirer shall open an escrow account at least 2 days before the DPS.
Within a maximum of 15 working days, the target company will give a counterbid to the acquirer's offer, and the upward revision of bidding can be done until the next 14 working days by both parties.
Within 5 days from the date, the DPS acquirer shall file a draft Letter of Offer (LOO) to SEBI along with non-refundable fees and simultaneously file a draft of the LOO to the concerned stock exchange and target company.
The board of directors of the target company shall constitute a committee of IDs, and such committee shall give a reasoned recommendation on such open offer, and such recommendation shall be published in the same newspaper at least 2 working days before the opening of the offer.
With 15 working days after receiving the LOO, SEBI will comment on the draft, and if SEBI remains silent, it is deemed that the LOO is okay.
Within 7 working days of SEBI approval, the LOO, the acquirer, shall dispatch the final LOO to all shareholders of the target company and its custodian of ADR/GDR.
Within 12 working days from approval of the LOO, the acquirer should open the tendering period of the offer, and upward revision is allowed 3 days before tendering of the offer.
One day before the opening of tendering period acquirer shall issue an advertisement disclosing the schedule of activity in the same newspaper and file a copy of such advertisement with SEBI, the target company, and the concerned stakeholder...
The tendering period should be open for a minimum of 10 working days; no upward revision of bidding is allowed in this period.
The acquirer shall complete all legal requirements, including payment to the concerned member of a target company, within 10 working days from the date of closure of tendering period.
Within 5 working days from the date of completion of the legal requirement, the acquirer shall issue a post-offer advertisement in the same newspaper in which DPS was issued and file it with SEBI as well...
Within 15 working days from the closing of the tendering period, the manager to offer shall file a final report to SEBI.