sebi:WTM/PS/199/CFD/MAR/2016
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Facts / Headnote
Application for exemption from open offer obligation under regulation 3(1) of the Takeover Regulations rejected
Provisions invoked
- s. 58A
- s. 74
Regulations
- Reg. 11
- Reg. 10
- Reg. 3(1)
Holding
SEBI rejected the application filed by the proposed acquirers (promoters) seeking exemption from the obligation to make an open offer under regulation 3(1) of the Takeover Regulations in respect of their proposed acquisition of Series II warrants convertible into equity shares that would increase their shareholding from 24.90% to 28.28%.
Full text
Page 2 of 15 (f) The warrants are proposed to be issued to the proposed acquirers in two tranches – Series I and Series II warrants. (g) After conversion of Series I warrants into equity, the promoters’ holding will increase to 24.90% which is within the threshold of 25%. Their shareholding would increase to 28.28% after the conversion of Series II warrants. The same would trigger regulation 3(1) of the Takeover Regulations. (h) Grounds: i. The financial condition and performance of the target company has been deteriorating over the past few years and the Company has suffered losses. Unfortunately, fire broke out in the Lypholization plant of the Company situated at Ankleshwar causing loss of approximately Rs.4.5 crore in October 2013. The same had further worsened the financial situation of the company. The accumulated losses of the company is 42.97 crore as at June 30, 2014 and the preferential allotment was for survival and strengthening the financial position of the target company. ii. The main object of the proposed acquisition of warrants of the target company by the acquirers is to satisfy the stipulation of the lenders for disbursement of advances for the working capital. Increase of the promoters’ stake by way of acquisition of further equity is only incidental. iii. The proposed acquirers are the original promoters of the target company and were holding more than 50% shares. Their shareholding was reduced below 25% because of preferential allotment to institutional
Page 3 of 15 health of the promoters is equally weak and they cannot afford to make open offer at this stage. vi. The proposed acquisition will not result in any change in the management of the company. vii. The proposed acquisition would not affect the rights of existing shareholders and the same shall help the company to run its business more effectively and efficiently by raising additional finance to meet its working capital requirements and improve the financial health of the company.
Page 4 of 15 d. The claim that the financial health of the promoters is weak and they cannot afford to make open offer at this stage is not a valid ground for claiming exemption from the obligation to make an open offer.
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Source: SecMarx — sebi:WTM/PS/199/CFD/MAR/2016. 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.