A lacklustre merger & acquisition (M&A) market and fewer promoters consolidating their holding in a listed firm have resulted in 30 per cent drop in the open offers during the financial year ended March 31, 2012, over the year-ago period. The sharp drop has also taken the total number of open offers to the lowest level since FY 2005, which marked the start of the bull run in Indian equities.

There were a total of 71 open offers in FY12 as compared to 102 in the previous year. This was both due to decline in number of open offers triggered by change in control or M&A or due to consolidation of holdings and substantial acquisition by promoters or other investors, as per data collated by market regulator SEBI.

Some prominent open offers last fiscal included Cairn India (Vedanta Group), Patni Computers (iGate), Bombay Rayon (by Anders Povlsen, the man behind Danish clothing retailer Best Seller), Andhra Paper (International Paper) and KSK Energy Ventures.

Vikas Khemani, president and head of wholesale capital markets division at Edelweiss Financial Services Ltd., says there are multiple reasons why open offers have seen a drop. “Global M&As volumes have seen a dip and until now de-listing has been the flavour which has also gone slow and all this has led to the drop,” he said.

An open offer is made by the acquirer to the existing shareholders of a public company when it purchases more than the stipulated per cent stake in the firm. Until the new takeover code announced by SEBI came into force, the limit was 15 per cent and acquirers had to come up with an offer to buy at least 20 per cent more in the open offer from the existing shareholders.

The new takeover guidelines which became effective last October reset the trigger for open offers at 25 per cent from 15 per cent and pegged the process of tendering shares in open offers to 10 days. The norms stipulate the minimum size of an open offer at 26 per cent, up from the earlier 20 per cent.

This would affect the open offer activity feel i-bankers. “With acquirers being allowed to hold more than 15 per cent without triggering open offer has in itself eliminated chances of many open offers, more so, the requirement of 26 per cent will also lead to fewer open offers as not many acquirers will be ready to buyout that much,” a senior equity capital markets official with a foreign investment bank said on condition of anonymity as he is not authorised to speak to media.

The new norms however benefits private equity investments in listed firms. Listed firms looking to raise large quantum of PE money without ceding control used to find it difficult to get PE money as PE firms were averse to making an open offer. With the revised upper ceiling for open offers now PE firms can invest upto 25 per cent which can allow them to invest more growth capital in small and mid-size firms without having to go through the process of an open offer.

Open offers are also made when promoters are consolidating their holdings in a listed firm by buying more than a stipulated limited through the creeping acquisition route as also by others who make voluntary open offer for buying a substantial stake.

Bankers say another reason for lesser number of open offers is that many acquirers are going for ‘asset stripping’ deals where they circumvent the open offer rule by not acquiring a large stake in the company but a substantial part of the business of that firm. In some such deals listed firms have sold business units accounting for over half of their revenues without benefitting the public shareholder through an open offer.

Besides these factors, a large number of MNCs have already delisted their Indian arms from local bourses and that has also brought down such open offers.

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