Understanding Open Offer Regulations

Open offer regulations

An open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. The primary purpose of an open offer is to provide an exit option to the shareholders of the target company on account of the change in control or substantial acquisition of shares, occurring in the target company.

Who are required to make open offer?

Acquisition of 25% or more shares or voting rights: An acquirer, who (along with PACs, if any) holds less than 25% shares or voting rights in a target company and agrees to acquire shares or acquires shares which along with his/ PAC’s existing shareholding would entitle him to exercise 25% or more shares or voting rights in a target company, will need to make an open offer before acquiring such additional shares.

Acquisition of more than 5% shares or voting rights in a financial year: An acquirer who (along with PACs, if any) holds 25% or more but less than the maximum permissible non-public shareholding in a target company, can acquire additional shares in the target company as would entitle him to exercise more than 5% of the voting rights in any financial year ending March 31, only after making an open offer.

Sometimes an entity is required to make an open offer voluntarily without mandatory triggering of thresholds. It is termed as voluntary open offer.

A voluntary open offer under Regulation 6, is an offer made by a person who himself or through Persons acting in concert, if any, holds 25% or more shares or voting rights in the target company but less than the maximum permissible non-public shareholding limit

Open offer process:

1.     Appointment of Merchant Banker

2.     Trigger Event (Share Purchase Agreement/ Resolution for allotment of Securities/ Acquisition of Shares beyond Threshold)

3.     Submission of Public Announcement

4.     Escrow Account For takeover transaction

5.     Publication of Detailed Public Statement

6.     Public Announcement of Open Offer

7.     Recommendation by the BOD of the target company

8.     Filing of Letter of Offer with the SEBI

9.     Incorporation of Observations of SEBI

10.  Dispatch of Offer Document/ Letter of Offer to shareholders

11.  Opening of Offer

12.  Post offer advertisement

13.  Settlement through Special Escrow Account

14.  Acquisition of shares and submission of Post Offer Monitoring report