Takeover code: Minority shareholders give a thumbs-down

Minority shareholders are disappointed after the Securities and Exchange Board of India (Sebi) increased the size of the mandatory open offer from 20 per cent to 26 per cent, ignoring the Achuthan panel's recommendation of giving all shareholders an exit option.

The rationale for 26 per cent open offer size was to create a level-playing field for all potential acquirers, according to Sebi chairman U K Sinha. "In the absence of acquisition finance in our country, it was felt that (100 per cent offer size) would give outside acquirers an advantage," said Sinha.

"While it is desirable, the decision was likely to have helped only one set of entities," he said. However, experts believe that limiting open offer size to minimum 26 per cent is not in the interest of minority shareholders as they will not get complete exit opportunity in case they don't like the incumbent management.

"If it's a 100 per cent open offer, all the shareholders get a chance to exit. Here, they are forced to stay if they don't like the new management," said Nimesh Kampani, founder and chairman of JM Financial Group. "Of course, they can sell their shares in the open market, but they may

not get the fair price by doing so," he said.

Agrees Ashok Wadhwa, group CEO, Ambit. "The original proposal of the committee took care of minority shareholders' concerns when it said open offer should be for all outstanding shares," he said.

Officials at leading shareholder associations say mandating open offer for just 26 per cent of shares is too low. "It should have been at least 75 per cent, if not 100 per cent," said Hinesh Doshi, vice-president of the Investors' Grievances Forum (IGF). "In the 26 per cent open offer, first preference should be given to retail investors. Once their shares are accepted, institutional shareholders should be considered."

"There should be 100 per cent acceptance for shares tendered by retail investors within the 26 per cent open offer size," said AP Bakliwal, president of the Bombay Shareholders' Association.

Some are hopeful that Sebi will gradually increase the open offer size to 100 per cent. "I am happy that Sebi has accepted most of the recommendations of the takeover panel," said A K Narayan, president of the Tamil Nadu Investors' Association and one of the members of Sebi's takover panel.

'We are expecting Sebi to give a road map to increase the open offer size from 26 per cent to 100 per cent," he said.