Acquirer with 50% stake in a company exempt from making open offer under Takeover Code: SEBI

SEBI Informal Guidance no. SEBI/HOICFD/PoD-2/0W/P/2022/56639/1, Dated 07.11.2022

The SEBI, in its reply to an informal Guidance sought by Aura Weaving Pvt. Ltd. has stated that an Acquirer holding 50% stake in a Co. and its subsidiaries is exempted from making open offer under Takeover Code.

Query raised by the Applicant Company

The Applicant Company sought informal guidance on whether it can claim exemption from making an open offer as provided under regulation 10(1)(a)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Events occurred in the Applicant Company

Arvind Ltd was the target company, one of the shareholder of Arvind Ltd. was Aura securities Private Ltd (hereinafter referred as “Aura”) holding 35.93% shares of the target company forming part of the promoter and promoter group of Arvind Ltd.

The Shareholding pattern of Aura was as follows:

a) Sanjay Family Trust (SFT) holding 99.99% shares

b) Others holding 00.01% shares

The shareholders mentioned in a) & b) also forms the part of promoter group of Arvind Ltd.

Further, the Aura had two wholly owned subsidiaries companies namely:

a) Aura Weaving Pvt. Ltd. (Aura Weaving)

b) Shruti Trade Link Pvt. Ltd. (Shruti)

The transactions proposed were as follows:

First Transaction

Aura will transfer its entire equity shareholding in Aura Weaving and Shruti to SFT, and others. After the completion of the first stage, the 100% capital of Aura, Aura Weaving and Shruti will be held by the same set of promoters (i.e. SFT & Others)

Second Transaction

In the second stage, Aura intends to transfer its 35.93% equity shareholding in Arvind Ltd equally to Aura Weaving and Shruti (i.e. 17.965% each).

The company asked for guidance from SEBI on the following points:

a) Whether Aura weaving and Shruti would be required to make an open offer under the takeover regulation upon the acquisition of shares of Arvind from Aura?

b) Whether the above case is a fit for the exemption as provided under Regulation 10(1) (a) (iii) of the Takeover Regulations?

Regulatory provisions governing General exemptions under regulation 10(1)(a)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Regulation 10(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 deals with the exempts from the obligation to make an open offer for acquisition under regulation 3 and regulation 4.

The exemption as provided in Regulation 10(1)(a)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides that there is no need to make an open offer in case acquisition done by a company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than 50% of the equity shares of such company, other companies in which such persons hold not less than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons.

The SEBI’s observation

The SEBI was of the view that the SFT along with others exercise control over Aura, Aura Weaving and Shish, and are owing more than 50% shareholding of Aura, and would be holding more than 50% of Aura Weaving and Shruti as per the proposed transaction, the conditions stipulated in the regulation 10(1)(iii) of the Takeover Regulation would be fulfilled and the acquisition shall be exempted from the obligation to make an open offer.

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