New takeover code: India Inc may have to live with hostile bids now

Sebi’s new takeover code may put corporate groups with promoter holdings below 30 per cent at risk of losing majority. Though Indian corporate sector has not witnessed any major hostile takeover so far,it could happen in the new scenario. “Trading values of many a company may not be high,making them easy targets for a hostile bid,” said Shardull Shroff,managing partner of Amarchand Mangaldas.

In Infosys Technologies,promoters hold just about 16 per cent,but then it can attempt a fight back drawing strength from its phenomenal reserves of over $3 billion. As per the new takeover code,an acquirer can quietly build up 25 per cent stake in Infy from the market,then make an open offer for 26 per cent to take a majority 51 per cent control. In Infy’s case,it won’t be cheap since this will require Rs 80,000 crore given the current market price.

But a Mahindra & Mahindra,where the promoter holding is 24.86 per cent,will be vulnerable to a hostile takeover bid. In the case of some other companies such as Larsen & Toubro and ITC,there are no promoters. As financial institutions hold major stakes in these companies,acquirers can take control of these through some systematic manoeuvring,say experts.

The trigger point has been moved from 15 per cent to 25 per cent and the mandatory open offer size increased to 26 per cent from 20 per cent.

“This presents to a potential acquirer a simple majority of 51 per cent,” Shroff says,hinting that the move has left sections of the Indian industry worried.