January to December 2017 saw 56[1] tender offers/open offers made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), 41 of which have been completed. This compares to 63 open offers made in the calendar year 2016.

For 2017, the total value of open offers made to the shareholders was Rs. 2,015[2] crores as against Rs. 9,676 crores for 2016. In 2017, no open offers were made by a private equity fund as compared to three made in 2016.[3]

Companies in the non-banking financial companies (NBFCs) space saw a particularly high number of open offers (11 in all). Some of these were open offers for Upasana Finance Limited, Capital India Finance Limited, Dhanvarsha Finvest Limited, Golden Goenka Fincorp Limited, Lark Trading and Finance Limited, Chokhani Securities Limited and TRC Financial Services Limited. However, some of these have not closed, probably due to delays in receiving regulatory approval for change in control of the NBFCs.

Direct Acquisitions and Change in Control

Most of the open offers were triggered by direct acquisitions under Regulation 3(1) of the Takeover Regulations (i.e., acquisition of 25% or more of shares or voting rights) and Regulation 4 of the Takeover Regulations.[4] However, there have been instances where open offers were triggered purely as a consequence of Regulation 3(1) – for example, Ishan Dyes and Chemicals Limited, Choice International Limited, UV Boards Limited and Pioneer Agro Extracts Limited.

Two open offers were made under Regulation 3(2) of the Takeover Regulations 2011, in the case of Expo Gas Limited and Choice International Limited, following the conversion of equity share warrants by the promoters.[5]

The open offer in Calcutta Jute Manufacturing Company Limited[6] saw a direct delisting offer being made, i.e., a delisting offer which if unsuccessful flips into an open offer under the Takeover Regulations. CAM advised the Damani family in their direct delisting of Bombay Swadeshi Stores Limited in 2015, the first and only successful direct delisting to date.

Indirect Open Offers and Deemed Direct Open Offers

Two open offers were made under Regulation 5(1) (pure indirect open offer) in the case of Igarashi Motors India Limited and SQS India BFSI Limited. Three open offers were made under Regulation 5(2) (deemed direct open offer) viz. for Tasty Bite Eatables Limited, Accelya Kale Solutions Limited and Saptarishi Agro Industries Limited.[7]

Closing the Underlying Transaction Before the Open Offer

Six open offers saw the acquirers taking advantage of Regulation 22(2) of the Takeover Regulations (depositing in escrow 100% of the total open offer consideration in cash) and closing the underlying negotiated share acquisition deal prior to completion of the open offer. They were Aurum Soft Systems Limited, Sona Koyo Steering Systems Limited, Tasty Bite Eatables Limited, Accelya Kale Solutions Limited, Worldwide Leather Exports Limited and Calcutta Jute Manufacturing Company Limited.

Re-classification of Promoters as Public Shareholders

In certain transactions, promoters were re-classified as public shareholders as their shareholding became insignificant after the open offer in accordance with the procedure set out in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), 2015. Examples are Shiva Cement Limited, Sona Koyo Steering Systems Limited, Gokaldas Exports Limited and a re-classification has also been proposed in Combat Drugs Limited.

Amendments to the Takeover Regulations

The Takeover Regulations were amended in 2017 exempting lenders/acquirers of distressed companies from making tender offers if certain prescribed conditions are met.[8]

Changing Paradigm on Open Offers

  • Xchanging Solutions Limited

Computer Sciences Limited (CSC), a listed company in the USA, indirectly owned 78.77% of Xchanging Solutions Limited (XSL). CSC was considering a merger of equals under the laws of the USA with an indirect subsidiary of Hewlett Packard Enterprise Limited, a listed company in the USA.

The question before SEBI was whether the proposed merger would trigger an open offer. SEBI in its interpretative letter under the SEBI (Informal Guidance) Scheme, 2003, indicated that the proposed merger will trigger an indirect open offer as the exemption for a merger not involving the target company was not available.

SEBI did not proffer any reasons for its views, which is surprising. Interestingly, Xchanging

Technology Services India Private Limited, the promoter of XSL, made a public announcement on November 17, 2017, which was delayed by more than a year as the public announcement should have been made within four working days from May 24, 2016, the date on which the decision or intention of the underlying transaction triggering the indirect acquisition was made available in the public domain. The open offer documents set out an interest of 10% per annum payable to the shareholders of the target company from May 24, 2016, till the date of the detailed public statement to be issued by the acquirer.[9] SEBI might initiate separate proceedings imposing a penalty for the delay.

Broadly, there are two views on this informal guidance:

  1. The SEBI decision was correct since: (a) there was an indirect change in control of XSL since HPE shareholders effectively control XSL; and (b) the fact that there is no identified acquirer doesn’t detract from the change in control which is the trigger for an Open Offer.
  2. The alternate view is that the change in control of XSL was triggered by a set of public HPE shareholders and, therefore, no open offer should be triggered since a change of control, by definition, means that some identified person has acquired control (and that person should make the Open Offer).[10]
  • Linde India Limited

Linde AG (Linde), a German company, is the ultimate parent of Linde India Limited (Linde India), a listed Indian company. Linde indirectly holds 75% shareholding in Linde India. Linde is proposing to enter into a merger of equals with Paraxir Inc. (Paraxir), an American listed company. The following chart sets out the pre-merger and post-merger structure of Linde and Paraxir.

The query before SEBI was whether this proposed merger is an exempted transaction under Regulation 10(1)(d)(iii) of the Takeover Regulations (merger pursuant to an order of the court) despite the fact that the proposed merger was to be undertaken by way of a merger agreement. SEBI informed the applicant in its interpretative letter under the SEBI (Informal Guidance) Scheme, 2003, that since the proposed merger is not getting approved by a competent court/authority overseas, it is not an exempted transaction.

It remains anybody’s guess as to what SEBI’s reaction would have been if the application had referred to all the arguments set out in the application seeking SEBI’s informal guidance in Xchanging Solutions Limited (i.e. no open offer is triggered since that there would be no change in control of Linde India). We believe that if confronted with this question, SEBI may have taken a different view.


We believe that 2018 will continue to see a fair traction on open offers and M&A in sectors such as NBFCs, retail and healthcare. We expect a slew of takeovers in distressed assets but no open offers given lenders/acquirers of distressed companies have an exemption from making tender offers.

* The authors were assisted by Gagan Sharma, Principal Associate and Upamanyu Talukdar, Associate.


[1]       As per the data available on the SEBI website as on January 8, 2018.

[2]       Upto November 30, 2017.

[3]       3 last year being: (1) Blackstone for Mphasis Limited, (2) Advent and Temasek for Crompton Greaves Consumer Electricals Limited, and (3) WestBridge for DFM Foods Limited.

[4]       Acquisition of control of the target company.

[5]       Breaching the annual 5% creeping acquisition limit.

[6]       Yet to be completed.

[7]       Deemed direct offers follow the same sequence/timing as direct offer even though triggered by an indirect acquisition.

[8]       Such as compliance with RBI stipulated guidelines on the purchase price and lock-in of these shares for at least 3 years.

[9]       Regulation 8(12) of the Takeover Regulations.

[10]       Each of the authors of this article is a proponent of one of the views.