SEBI’s delisting norms make sense – The Economic Times

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The proposed changes would allow an acquirer to launch an open offer and initiate delisting simultaneously by announcing a takeover price and a higher delisting price. This is welcome.

Capital markets regulator Sebi is seeking to improve the market for corporate control by rationalising transaction costs and changing the norms for open offer and delisting. The proposed changes would allow an acquirer to launch an open offer and initiate delisting simultaneously by announcing a takeover price and a higher delisting price. This is welcome.

The extant takeover rules on open offer are long-winded and rather tedious. They call for three separate public transactions to increase stake, dilute and then increase again, which are clearly directionally contradictory and involve high transaction costs. And, Sebi has proposed a fixed higher-price concept that an acquirer would offer to pay shareholders for delisting, instead of going through a tortuous long-winded price-discovery process as per the reverse book-building method. Some investors have raised objections, on the ground that this would erode the bargaining power of minority shareholders. This objection does not really hold water: if only holders of 90% voting power agree to the higher delisting price can the acquirer go through with a one-step acquisition and delisting. If a bunch of minority shareholders believe that the price on offer undervalues their stake, they are free to carry out a campaign to convince fellow shareholders of the validity of their position. There is something to be said about developing shareholder democracy. We recently saw an activist investor in ExxonMobil with a shareholding of a fraction of 1% forcing the election of three of its nominees to the company’s board, to pursue climate-friendly policies on which it felt the company was deficient. The activist investor achieved this feat via vigorous mobilisation of proxies.

Just as LIC scuppered a delisting move byVedantaNSE 1.10 %, by demanding a price thrice the offer price, those who want a delisting price should stage a convincing campaign for a higher delisting price. A quasi-reverse book-building exercise can be part of it. It is time shareholders woke up to the information age.

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