Today, SEBI has laid down new guidelines tweeking the way open offers are made in India by an acquirer. Until today an acquirer, who already owned 15% of a company, could increase the stake by making a 20% open offer to the general public. This didn't provide 100% exit option to the general public. To provide the retail shareholder an equitable opportunity to exit the company, the SEBI panel is planning to make it mandatory for the acquirer to make an 100% open offer to the general public.
Fundamentaly, this is a positive reform, as it provides the retail shareholder a level playing field. But is India ready for this?
First, there would be financing issues in an 100% open offer. The acquirer will have to generate sufficient cash to acquire the company if the public is willing to sell all the shares. For this to materialize there will have to be sufficient liquidity in the particular economy.
Second, due to the huge dependence on debt to finance the acquisition, we may see a slow down in the aquisitions going forward. This might inturn eat into the M&A revenues of an investment bank going forward.
Though the reform is fudamentally very positive we will have to wait to see how well it fructifies?
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