Tushar Pundir, B.A.LL.B (Hons.) at National Law University, Jodhpur
Riddhi Pandey, B.A.LL.B (Hons.) at National Law University, Jodhpur
ABSTRACT
Despite its varied manifestations across all jurisdictions, the Mandatory Bid Rule (“MBR”) essentially states that when an acquirer acquires adequate shares so as to obtain ‘control’ over the target, the acquirer has to offer to buy out the remaining noncontrolling shareholders for cash at no less than the price at which it acquired control. The goal of any takeover regulation would be striking a balance between the twin objectives of facilitating a market for corporate control as well as safeguarding the interests of the shareholders in the target company. This article seeks to analyse how well has the Indian MBR regime has functioned in that regard.
Through this article, we first seek to analyse what the theoretical and practical justifications and the necessity behind having such a rule in the first place as well as the objectives it seeks to achieve. Next, the article will be analysing the problems and issues that arise due to and in the operation of such a rule. The first of these would be the criticism that the operation of this rule increases the cost of acquisitions and prevents value enhancing acquisitions, since the MBR compels all the acquirer to pay the same premium to the controlling shareholders as well as the minority shareholders and acquire shares from all shareholders on the same terms. Thus, we will analyse the contention that the MBR on a policy level prioritises shareholder equality over efficiency. The article will then analyse the reason behind having 25% as the current threshold level and its associated problems, as well as discuss what the ideal threshold ought to be. The next problem we will be examining is the definition of ‘control’ in the SEBI Takeover Regulations, and whether the ideal definition ought to be qualitative, quantitative, or a mix of both. Next, we will examine how the current numerical thresholds in the MBR regime contribute to the problem of creeping acquisitions by providing a leeway to the promoters who might continue to purchase a certain number of shares without triggering the MBR. Lastly, we will be discussing some of the policy proposals advanced to rectify such problems, including the recommendation to remove the MBR itself.
Keywords: Control, Mandatory Bid, Company, Shares, SEBI, Takeover
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