(Follow up to the part I of this article)
Takeover means acquisition of a company which is already registered, through the purchase or exchange of shares by any entity like individual /company/firm etc. Takeover occures usually by acquiiring or purchasing from the shareholder of a company their shares at a specified price to the extent of needed % of controlling interest in order to gain control of that company. Thus the management of a company may be acquired by acquiring the majority stake in the share capital of a company. The acquisition could take place through different methods.
Takeovers are taking place all over the world and the companies whose shares are under quoted on the stock market are under a constant threat of takeover.Takeover strategy has been conceived to improve corporate value. Takeover is a corporate device whereby one company acquires control over another company.
In india, if any entity acquires 15% of share capital of any target company, then it is said to have controlling interest. Then it has to offer purchase of shares at the price in which he acquired 15% controlling interest to other shareholders of the target company. The open offer is for purchase of additional 20% of shares of the target company at the price he acquired controlling interst of 15%. If shares offered is more than 20%, then prorata acceptence of shares will be decided by the entity.
The takeover strategy has been conceived to improve corporate value, achieve better productivity and profitability by making optimum use of the available resources in the form of men, material and machines.If the target company is a good company but market price is very low as compared to book value ( taking note of land value , fixed asset value, good will etc.), then the entity which is targeting to purchase it by way of controlling interest ( having only 15% in total of share capital )by investing 20% more in open offer. Thus it can control board thereby controlling the business of the target company. There is no toil in getting started with men, material etc. and it is a gift on platter. If it wants , it can sell land etc. at premium etc.
But many companies opined that 15% will not consitute controlling interest and hence it should be increased to 50%. Now Take over panel committee appointed by SEBI has recommended 25% as controlling interest for triggering open offer to other shareholders.
C.R. Venkata Ramani