GACL and ACC — Revisiting the takeover code

The Gujarat Ambuja group's takeover of ACC has continued to be controversial even though the regulator, the Securities and Exchange Board of India, gave the deal a clean chit at that time. The controversy, if it can be summarised in a nutshell, relates to the acquisition of the entire 14.4 per cent stake held by the Tatas by the Gujarat Ambuja group at Rs. 370 a share. A year ago, the SEBI had ruled that the transaction need not trigger the takeover code's requirement of an open offer , which the acquirer should make to the other shareholders of ACC.

In the process, Gujarat Ambuja stood to gain by not having to go through with an open offer, while the other shareholders of ACC lost an opportunity to encash their shares at a good price. The price the Tatas received was way above the then prevailing market price of Rs. 125 to Rs. 130. The acquirer appeared to be well within the takeover code's trigger point of 15 per cent of the share capital, but as many experts had pointed out; and (a) the law and regulations on the subject are just evolving in this country. (b) The regulatory ruling was on the premise that there was no change in control at ACC consequent on the transfer of the Tatas' holdings to Gujarat Ambuja. Hence there was no need to make an open offer. That point, more than the percentage yardstick, was bound to be controversial in its interpretation. Interestingly at the time of the transaction Gujarat Ambuja and ACC had talked of a strategic alliance and not a takeover.

The SEBI's acquiescence to the transaction has been questioned notably at the appellate level. Recently the Securities and Appellate Tribunal (SAT) has asked the regulator to review its decision.

The SATs well-reasoned arguments ( will enhance the quality of capital market regulation in this country. But for the ACC shareholders, there may not be any gain even if the SEBI after a reconsideration orders an open offer. This is because of the lapse of time and the inevitable change in the shareholders' list.

However, the SAT's decision will be relevant for other companies, which do not have a readily identified promoter group? There are many "professionally managed'' companies whose ownership and control will be interpreted by the SEBI's takeover code. The outstanding example of course has been L&T. The Aditya Birla group has just announced an open offer after buying a chunk of shares from Reliance and later consolidating through market purchases. Will the L&T deal also come under scrutiny? After all the Aditya Birla group paid the premium to acquire Reliance's sizable holdings of L&T shares. The open offer now being made is priced way below what Reliance got per share. Was there no change of control at ACC? The SAT's detailed arguments do not reflect well on the SEBI's method of arriving at a conclusion that favoured Gujarat Ambuja. Specifically, as SAT points out, de facto control over a company can be exercised in many ways. Controlling a majority of shares is just one of them.

The SEBI ought to have relied on many other sources besides the immediately affected parties. Most relevantly, why should the acquirer pay a stiff premium to acquire a chunk of shares if it is not for exercising control?

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