An overhaul of the regulatory rules on takeovers would follow if the key recommendations of a high level panel are accepted. The Takeover Regulations Advisory Committee (TRAC), headed by C. Achuthan, submitted its report in the third week of July. A fresh look at the takeover regulations has become necessary for a number of reasons. Although the rules on takeovers were notified for the first time only 16 years ago, the exponential increase in the number and type of mergers and acquisitions (M&As) has necessitated frequent tinkering with the rules. There was a major review in 1997, and as many as 23 amendments since then. There is an increased awareness of the fact that the world over M&As represent by far the most common route of cross-border capital flows, far outstripping direct investments in green field ventures. India too gets a significant part of its capital inflows through M&As. Indian companies have also become adept at playing the M&A game on the global stage, what with the Tatas, the Aditya Vikram Birla group and several others acquiring foreign companies. Easy availability of finance is one significant factor contributing to the rise in M&As. Private equity, dedicated funds, and even traditional bank finance are now available for the takeovers.
The TRAC recommendations seek to make the rules more transparent and also balance the interests of the acquirer, the target company, and the shareholders. The open offer trigger limit has been increased from 15 per cent to 25 per cent. After mopping up 25 per cent of the target company's shares, the acquiring company has to make an offer for the remainder. Hitherto, the minimum open offer size was pegged at 20 per cent. The latest move will benefit small shareholders, who can tender their shares during the open offer and get the same price for their shares as the larger shareholders. While the hike in the open offer trigger limit will give a greater leeway to the acquiring company to arrange the finances, it is feared the new rules might make acquisitions more expensive and thereby restrict an important capital market activity. The TRAC wants the independent directors of the target company to give their opinion on the offer. That should enhance transparency and benefit the small shareholders. But, given the level of corporate governance and the less than stellar role the independent directors play in many companies, it is by no means certain that the presumed benefits will accrue automatically. The proposed regulatory regime harmonises takeover regulations with the stock exchange rules by compelling the acquirer to disclose upfront whether it intends to remain listed or not.