INDIA BUSINESS WORLD - MAY - JUNE 2007
The Month that was ...

SUPREME COURT HAS RULED SEBI CANNOT DECIDE TAKEOVER PRICE

THE Supreme Court has ruled the Sebi cannot object to the price offered by the acquirer of shares unless it has reason to suspect that the price offered has not been determined fairly. At best, the market regulator may get the shared revalued by a merchant banker or chartered accountant. If the valuation determined by the acquirer or his merchant banker is in consonance with the valuation by the regulator, Sebi has to accept the offer price of the acquirer, the apex court said.

A Bench comprising Justice BP Singh and Justice Altamas Kabir said, "The board must approve the price offered unless it is shown that the valuation must be faulted for noncompliance with the regulations which lay down the norms and parameters that must be observed. It cannot be lost sight of that the scheme of the regulations is to permit an intending acquirer to make his offer to the shareholders whose shares are sought to be acquired. Despite the regulatory powers of the board, the offer still remains that of the acquirer and not the board. The board has only to be satisfied that the offer made is reasonable and fair, and in the interest of the shareholders. In case of doubt, it may seek the opinion of another expert valuer."

"If the valuation determined by the acquirer or his merchant banker agrees with the valuation of the board's valuer, more or less, then the board has no option but to accept the offer price of the acquirer. It may suggest changes in the draft letter of offer, but it is doubtful if it can compel the acquirer to improve his offer even if the offer price is found to be fairly arrived at after due consideration of the matters enumerated in the regulation," the court said.

The court dismissed a bunch of appeals that said the market regulator had failed to deliver on its duty in valuation of shares under the takeover scheme. The appellants said Sebi as well as the merchant banker had not properly valued the shares of the target company in accordance with the parameters laid down in the Securities & Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997. However, the acquirers said the valuation of shares had been done in accordance with the parameters laid down under the Takeover Code, and the board had taken necessary precautions to safeguard the interest of the shareholders to ensure payment of best price for the shares to be sold by them.

The court said Regulation 20(5) of the takeover code mandates the offer price shall be determined by the acquirer and the merchant banker taking into account the factors mentioned. Sebi is not bound to accept the offer price if it suspects the price does not truly represent the fair value of the shares determined in accordance with Regulation 20(5), Justice Singh said while writing the verdict.