New takeover norms for special cases like Satyam

MUMBAI - With a view to helping companies like fraud-hit Satyam Computer Services, India’s markets watchdog Friday relaxed takeover norms, giving their reconstituted boards the power to lower the target price for open offers.

The Securities and Exchange Board of India (SEBI) also said that the exceptional relaxation of takeover norms through open offers will only apply where the central or state governments replace the target company’s board.

Importantly, no competitive bid for the target firm can be made once the potential acquirer has made a public announcement, following an approval from board to relax the takeover price, said the notice from SEBI Chairman C.B. Bhave.

‘The process provides for details, including the time when the public offer would be made, completed and the manner in which the change in control (of management) would be effected,’ Bhave added.

He said the board also needed to device an open, transparent and competitive process to ensure continued operations of the company and be satisfied that conditions of the competitive process were reasonable and fair.

The guidelines pertaining to an open offer, under normal circumstances, require the offer price to be fixed at the average of past 26 weeks, or two immediately preceding weeks prior to the open offer, whichever is higher.

As per the code on takeovers and acquisitions, an investor must also make an open offer for 20 percent additional equity in a company once it has acquired 15-percent stake in it.

In the case of Satyam, the average price for 26 weeks is a little over Rs.250, while the current price is hovering around Rs.45. Therefore, the offer price would have to be five-six times the present value.

The Serious Frauds Investigation Office under the ministry of corporate affairs is investigating Satyam, after its founder and former chairman B. Ramalinga Raju admitted to fudging accounts and other books.

Satyam’s newly-appointed chairman Kiran Karnik welcomed the measures announced by the watchdog, even though he refused to be drawn into specific offers made by suitors like Larsen and Toubro and the B.K. Modi-controlled Spice group.

‘This is a generic order. It is not specific to Satyam. And it makes eminent sense. Whenever it is required it is good to have the flexibility,’ Karnik said.

‘We will look at various options. We have been discussing. We will make the process as transparent as possible. We are in the process of defining further steps. I am sure there will be more suitors once the process is defined,’ he added.

‘After all, Satyam is a great company.’