Introduction

On 24th March, 2015, through various notifications, SEBI has amended SEBI (Buy Back of Securities) Regulations, 1998, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI (Delisting of Equity Shares) Regulations, 2009. Amongst various other changes, an important change that has been notified is the ability to use the stock exchange platform for tendering shares while participating in open offers, buybacks and delisting offers by companies. Earlier, even though these transactions were regulated by SEBI, they were off market transactions and hence no Securities Transaction Tax (“STT”) was applicable, but capital gain was levied. Now that these transactions can be settled through the stock exchange mechanism, the tax impact will be substantially lower. This move would encourage wider participation from investors. Now, via circular dated 13th April, 2015, SEBI has prescribed the mechanism for acquisition of such shares, pursuant to Tender offers under Takeovers, Buy-Back and Delisting, through Stock Exchange. This article explains the procedure of tendering and settlement of shares, pursuant to Tender offers under Takeovers, Buy-Back and Delisting, through Stock Exchange, through Stock Exchange.

Applicability

1. Applicable for: all the offers for which Public Announcement is made on or after July 01, 2015.
2. For all impending offers: acquirer/ promoter/ company shall have the option to follow the mechanism prescribed herein or the existing one.
3. When the existing method (tender offer method) will be followed:
   1. In case the person who proposes to acquire shares under the offer is not eligible to acquire shares through stock exchange due to operation of any other law, or
   2. In case of competing offers under Regulation 20 of the Takeover Regulations, in order to have a level playing field, in the event one of the acquirers is ineligible to acquire shares through stock exchange mechanism, then all acquirers shall follow the existing ‘tender offer method.

Procedure for tendering and settlement of shares through Stock Exchange

1. Acquisition window
   1. This facility for buying shares through stock exchange mechanism for such offers will be available on stock exchanges having nationwide trading terminals in the form of a separate window (“Acquisition Window”).
   2. If Acquisition Window is provided at more than one Stock Exchange having nationwide trading terminal, one of the exchanges shall be chosen as the “Designated Stock Exchange”(DSE).
   3. The Recognised Stock Exchanges having nationwide trading terminals shall also facilitate acquirers to provide the platform in case of companies exclusively listed on Recognised Regional Stock Exchanges.
   4. In case of competing offers, each acquirer will apply for and use separate Acquisition Window during the tendering period. Also, the acquirers may choose to use Acquisition Window at different stock exchanges.
2. Placing of orders and basis of acceptance
   1. The acquirer/ company shall appoint a stock broker registered with the Board for the offer.
   2. At the beginning of the tendering period, the order for buying the required number of shares shall be placed by acquirer/ company through his stock broker.
   3. During the tendering period, the order for selling the shares will be placed by eligible sellers through their respective stock brokers.
   4. Such shares would be transferred to a special account of the clearing corporation specifically created for this purpose prior to placing the bid.
   5. On the basis of shares transferred to the special account of the clearing corporation, the Stock Exchanges, during the tendering period, shall make available online to the market the cumulative quantity tendered.
3. Finalization of basis of acceptance
   1. In case of offer under Takeover Regulations: Merchant Banker shall finalize the basis of acceptance of the shares depending upon the level of acceptances received in the offer.
   2. In case of offer under Buy Back Regulations:
      1. The company is required to announce a Record Date for determining the security holders who are eligible to participate in the proposed Buy-Back.
      2. Based on this information, eligible shareholders can tender shares in the Buy-Back using the Acquisition Window of the Stock Exchanges through selling brokers.
      3. Reconciliation for acceptances shall be conducted by the Merchant banker and the Registrar after closing of the Offer and the final list shall be provided to the Stock Exchanges to facilitate settlement.

4. Execution of trades and settlement
   1. On finalization of the basis of acceptance, the clearing corporation would facilitate execution and settlement of trades by transferring the required number of shares from the special account to the escrow account of the acquirer/ company.
   2. The trades shall be carried out in the manner similar to settlement of trades in the secondary market process including providing an option for direct payout to the shareholders. This would include settlement of trades of physical shares as well.
   3. Excess shares, if any, would be returned to the seller brokers by Clearing Corporation.
   4. The seller broker would then issue contract note for the shares accepted and also return the balance to their respective clients.
5. Disclosures – Certain additional disclosures will be required to be made in Detailed Public Statement, Letter of Offer for Takeover Regulations, in Public Announcement for Buyback Regulations and Delisting Regulations. The additional disclosure would include:
   1. Name and address of stock broker of the Acquirer/ Company,
   2. Name of the Recognised Stock Exchanges where the Acquisition Window
   3. Name of the Designated Stock Exchange, if applicable,
   4. Methodology for placement of orders, acceptances and settlement of shares held in demat form and physical form, and
   5. Details of the special account opened with Clearing Corporation.

6. Tendering of Locked in-shares – For shares which are locked-in, the selling shareholder can tender the same in the existing method i.e. through off-market.