A committee tasked by the Securities and Exchange Board of India to examine takeover regulations has come out with recommendations with far-reaching consequences. First,they recommend that the threshold for takeovers the size of the holding that will trigger an open offer for more shares be raised from 15 per cent to 25 per cent. An acquirer,in addition to having to meet this higher threshold,will have to make a larger open offer: in fact,instead of being required to make an open offer for merely an additional 20 per cent,it is suggested that they offer for 100 per cent of the target companys equity. The most immediate consequence of these changes is that takeovers have become more expensive and difficult. This could be a problem: in too many Indian companies,promoters still exercise inefficient control through indirect control of a small block of shares; harder rules for acquisitions could protect these holders from efficiency-improving takeover threats. The committee would argue,however,that those concerns are outweighed by the benefits from the new rules: most importantly,that they ensure that only serious players will make takeover offers. Takeover artistes,people without deep pockets who would specialise in turning over undervalued and mis-managed companies,are presumably not serious enough. However,the raising of the trigger to 25 per cent means that private equity funds,for example,are more likely to invest in Indian companies than earlier,since they can now purchase larger stakes without triggering an open offer. There are indirect ways,too,in which greater private equity stakes could be argued to lead to more (and more efficient) takeovers,not less. In addition,the other focus of these moves is the protection of minority shareholders,which continues to be an important direction for equity regulation if we wish to ensure that a higher proportion of household saving is directly channelled to investments in listed companies. In particular,when a company changes hand,every shareholder should be given a chance to make the decision to sell out to the acquirer. Some recent,high-profile shares,featured a good price per share going to the promoters selling out but only to a fraction of the remaining shareholders. The new code wont let that happen.
