sebi:CO/463/TO/01/2003

SEBI · SEBI · 2002-09-09 · G.N. Bajpai, Chairman

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Facts / Headnote

Direction issued to the Acquirers to justify the offer price and open the offer within 45 days, with conditional penalties for non-compliance

Provisions invoked

• s. 11
• s. 24

Regulations

• Reg. 7
• Reg. 6
• Reg. 11
• Reg. 8
• Reg. 200
• Reg. 44
• Reg. 2
• Reg. 14
• Reg. 10
• Reg. 22
• Reg. 27
• Reg. 11(1)
• Reg. 20
• Reg. 11(2)
• Reg. 22(1)
• Reg. 4
• Reg. 26
• Reg. 20(2)
• Reg. 20(3)
• Reg. 28(11)

Parties

• Acquirers

Holding

The Acquirers failed to justify the offer price of Rs 5.50 per share in terms of the Regulations and were directed to justify the offer price under regulation 20(6) considering both regulation 20(2) and 20(3) parameters and open the offer within 45 days, failing which forfeiture of escrow, trading ban, and restoration of status quo ante would follow.

Full text

offer price of Rs 5.50 per share is justified in terms of the Regulations. 2.0 SHOW CAUSE NOTICE 2.1 Since the offer price in terms of the Regulations could not be justified, a show cause notice was issued to the Acquirers on 05.08.02, inter alia stating - 2.2 that in the draft offer document the offer price was Rs.5.50 whereas the book value per share as per the audited financial results as on 31.03.2001 was Rs.86.04. (book value almost 16 times the offer price) 2.3 the shares were stated to be frequently traded in terms of explanation to Regulation 20(3) [prior to the amendment dated 9.9.2002 to the Regulations] as the annualised trading turnover is 3.12% in ICSE and infrequently traded in CSE and MSE. Therefore, offer price is required to be justified under regulation 20(2) & 20(3) [prior to the amendment dated 9.9.2002 to the Regulations] but the same is justified only under regulation 20(2). 2.4 Therefore there is, prima facie, violation of regulations 20(3), 26 and 22 by the Acquirers. Thus, the Acquirers were called upon to show cause as to why one or more or all action(s) under Regulation 22(15), 28(11), 44, and 45(6) of the Regulations and Section 11 of Securities and Exchange Board of India Act 1992 (hereinafter referred to as "SEBI Act" ) should not be initiated against them. 3.0 REPLY / HEARING 3.1 The Acquirers replied to the show cause notice vide their letter dated 29.08.02. Since the submissions of Acquirer were not found to be satisfactory an opportunity of p

traded in ICSE. Accordingly, the weekly high and low of the closing price of the shares during the 26 weeks preceding the date of public announcement is Rs 5.41 per share. In this context where the price under regulation 20(2)(a) is Rs 5.41 per share and regulation 20(2)(b) and regulation 20(2)(c) are inapplicable, the Acquirer had adopted the offer price of Rs 5.50 per share, which in their submission is in accordance with regulation 20(2). 4.10 In SEBI communication dated 10th Dec 2001 to the merchant banker, the view has been taken that the offer price is required to be justified under regulation 20(2) and also under regulation 20(3). The only reason stated for this view in the said communication is that the shares are infrequently traded in CSE and MSE. 4.11 The expression "Infrequently Traded" is defined in the explanation given in regulation 20(3). As per that definition, shares will be deemed to be "infrequently traded" if on the Stock Exchange the annualized trading turnover in the preceding six calendar months prior to the month in which the public announcement is made is less than 2% by number of shares of the Listed Shares. The definition contemplates trading, but trading in volume which is infrequent by being less than 2%. The definition does not contemplate `Nil Trading’ or `No Trading’. Therefore, a situation where there is no trading at all, cannot be categorized as "infrequently traded". In CSE and MSE, the Target company’s shares have no trading in the releva

6.1 First Issue 6.1.1 It is observed from the Draft Letter of Offer submitted by the merchant banker on 19.11.01 that shares of the Target company are infrequently traded in CSE and MSE and stated to be frequently traded on ICSE. The annualized trading turnover of the shares of the Target company on ICSE was stated to be 3.12%. The weekly high and low of the closing price of the shares of the Target company during the 26 weeks preceding the date of public announcement dated 19.11.2001 is Rs 5.41 per share. It is also observed that the Acquirers have agreed to acquire shares from D Ramakrishnan and V Palaniswamy at Rs 5.45 per share. It is also observed that SEBI had communicated its preliminary observations to the merchant banker on 10th December 2001. Pursuant to the aforesaid letter of SEBI, the merchant banker had vide letter dated 24.12.01 and 08.07.02 submitted the comments in respect of justification for the offer price of Rs 5.45 per share. 6.1.2 Before dealing with the issue it will be pertinent to advert to the relevant regulations:- Regulation 20. Minimum Offer Price 20(2) For purposes of sub-regulation (1), the minimum offer price shall be the highest of – (a) the negotiated price under the agreement referred to in sub-regulation (1) of regulation 14; (b) the highest price paid by the acquirer or persons acting in concert with him for any acquisitions, including by way of allotment in a public or rights issue, if any, during the 26 week period prior to the date of

Source: SecMarx — sebi:CO/463/TO/01/2003. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.