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 acquiring company the customer of Target Company becomes the customer of acquiring company.
- Tax exemptions: As takeover leads to transfer of all assets and liability to acquiring company which will lead to capital gain under this tax authority gives tax exemption.
- Increase in Human resource: As takeover leads to acquiring of a target company, then human resource becomes the resource of acquiring company
- Increase in revenue: 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 intend to acquiring
- 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
âž² Once acquirer with his person acting in concern touch the touches or hit the trigger point (i.e acquire 25% voting rights of the target company) on the same day acquirer with his merchant banker give public announcement (PA) to stock exchange about and stock exchange disseminate the information in public
âž² In within, one day from Public announcement (PA)acquirer shall file PA to SEBI and target company
âž² Acquirer with his merchant banker gives detailed public statement (DPS) in 3-4 newspaper
âž² The acquirer shall open Escrow account at least 2 days before the DPS
âž² Within a maximum of 15 working days, the target company will give counter bid to acquirer’s offer and the upward revision of bidding can be done until the next 14 working days by both parties.
âž² Within 5 days from the date, from DPS acquirer shall file a draft Letter of Offer (LOO) to SEBI along with non-refundable fees and simultaneously file a draft of LOO to concern stock exchange and target company.
âž² Board of director of the target company shall constitute a committee of Ids and such committee shall give 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
âž² Within 15 working days after receiving of LOO SEBI will comment on the draft and if SEBI remains silent it is deemed that LOO is okay.
âž² In within 7 working days of SEBI approval on LOO acquirer shall dispatch final LOO to all shareholders of the target company and its custodian of ADR/GDR
âž² Within 12 working days from approval of LOO acquirer should open the tendering period of offer and upward revision is allowed, 3 days before tendering of the offer.
âž² 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 to SEBI, Target Company and to concern stock exchange
âž² The tendering period should be open for a minimum of 10 working days and no upward revision of bidding is allowed in this period.
âž² The acquirer shall complete all legal requirement including payment to concern member of a target company in within 10 working days from the date of closure of tendering period
âž² Within 5 working days from the date of completion of the legal requirement, the acquirer shall issue post-offer advertisement in the same newspaper in which DPS was issued and file to SEBI as well
âž² Within 15 working days from the closing of tendering period manger to offer shall file a final report to SEBI.