Acquirer

Under India's takeover code the buyer has a formal name. It is the acquirer. The company being bought is the target company.

The definition is drawn very wide on purpose. An acquirer is anyone who acquires shares, voting rights or control over a target company. It also covers anyone who merely agrees to acquire them. The route does not matter. It can be direct or indirect. The person can act alone, act through somebody else, or act with persons acting in concert.

Why so wide? The takeover code exists to give public shareholders an exit when control changes hands. A buyer who could dodge the label would defeat that. So splitting a stake across friends does not help. Nor does buying the holding company instead of the listed company.

Being the acquirer is what triggers everything else. The open offer, the escrow, the disclosures and the manager to the open offer all follow from it.

The definition (Chapter 7). Acquirer means any person who, directly or indirectly, acquires or agrees to acquire — whether by himself, or through, or with persons acting in concert with him — shares or voting rights in, or control over, a target company.

There are three separate objects in that sentence: shares, voting rights and control. Control has its own definition: the right to appoint a majority of the directors, or to control the management or policy decisions. It can arise from shareholding, management rights, a shareholders agreement, a voting agreement, or in any other manner. A director or officer of the target company is not in control merely by virtue of holding that position.

What the code fixes on the acquirer.

Three counting rules candidates get wrong.

1. Gross acquisitions alone count for the additional-voting-rights test. An intermittent fall in shareholding is ignored, whether it came from disposing of shares or from dilution by a fresh issue.
2. Where the target company issues new shares, the quantum of additional acquisition is the difference between the pre-allotment and the post-allotment percentage of voting rights.
3. An acquisition that takes one person's individual shareholding past the stipulated threshold attracts the open offer obligation irrespective of whether the aggregate shareholding with persons acting in concert changed.

Who may not be an acquirer at all. A wilful defaulter may not make a public announcement of an open offer, and may not enter into any transaction that would attract one — but is not prohibited from making a competing offer once somebody else has bid. A fugitive economic offender may not make an open offer, may not make a competing offer, and may not enter into any transaction, directly or indirectly, for acquiring shares, voting rights or control of a target company.

After the offer. Any open offer is made to all shareholders of the target company other than the acquirer, the persons acting in concert with him, and the parties to any underlying agreement for the sale of the target's shares, including persons deemed to be acting in concert with those parties. If acceptances push the acquirer above the maximum permissible non-public shareholding, it must bring the non-public shareholding back down within the level and time permitted under the SC(R)R, 1957 — and it is not eligible to make a voluntary delisting offer until 12 months have elapsed from the completion of the offer period.

One acquirer that is exempt. An acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 is exempt: even where the SAST thresholds are exceeded by the acquirer of the distressed company, no open offer obligation arises towards the minority shareholders.

Illustrative figures. Narmada Chemicals Ltd is listed and has 50 crore shares. Suryan Holdings Pvt Ltd already holds 13 crore shares, or 26%, along with one person acting in concert.

Test 1 — the creeping limit runs on gross acquisitions. During one financial year Suryan trades as follows:

Net addition over the year is 2.5 crore shares, or 5.0% — apparently inside the limit. But only gross acquisitions count, and the July disposal is ignored:

So an open offer was required, and the public announcement had to be made before the December purchase order was placed. The December buy cost 1.5 crore × Rs 280 = Rs 420 crore, and it bought a breach of the takeover code along with the shares.

Test 2 — a fresh issue. Instead, Narmada makes a preferential allotment to Suryan. Pre-allotment Suryan holds 26%; post-allotment it holds 29.5%. The quantum of additional acquisition is the difference — 3.5% — not the new shares measured against the enlarged capital.

Test 3 — an individual crossing. In a different company, Kaveri Textiles Ltd, two persons acting in concert hold 30% between them: Firm A 24% and Firm B 6%. Firm A buys 2% from Firm B. The aggregate holding of the two is unchanged at 30%, so nothing appears to have happened. But Firm A's individual shareholding has gone from 24% to 26%, past the 25% threshold — and the obligation is attracted irrespective of the unchanged aggregate.

The open offer that follows in Test 1.

Before the announcement is made, the manager to the open offer must satisfy itself that Suryan can implement the offer and that firm arrangements for funds through verifiable means are in place for that Rs 3,640 crore. The acquirer's name on the announcement is a funding statement, not an intention.

Chapter 7 (Other Merchant Banking Activities – Mergers, Acquisitions & Takeovers) is 15% of the paper, and acquirer is the first of the SAST definitions it sets out — followed by control, frequently traded shares, offer period and persons acting in concert. Chapter 2 (Introduction to the Merchant Banking), another 15%, introduces the SAST Regulations among the core regulations.

The definition itself is a recall question. The examinable words are directly or indirectly, acquires or agrees to acquire, by himself or through or with persons acting in concert, and the three objects — shares, voting rights or control. The gross-acquisition rule and the pre-allotment versus post-allotment rule are the two calculation items. The wilful defaulter and fugitive economic offender bars make ready-made True/False questions, and the discriminator is that a wilful defaulter may still make a competing offer while a fugitive economic offender may not.

• Agreeing to acquire is enough. The definition catches a person who has only signed an agreement, before a single share moves.
• Control is a separate object with no percentage attached. Acquiring control needs an open offer even far below 25%.
• A director or officer of the target is not in control merely by holding that position — the workbook says so inside the definition of control.
• Gross acquisitions only, for the additional-acquisition test. A disposal in between creates no headroom, and neither does dilution by a fresh issue.
• For a fresh issue, the acquisition is the pre-allotment to post-allotment percentage difference, not the new shares measured against the enlarged capital.
• An individual crossing a threshold counts even when the group aggregate does not move.
• A wilful defaulter may make a competing offer; a fugitive economic offender may not. One bar has a carve-out, the other does not.
• The open offer excludes the acquirer, the persons acting in concert and the parties to the underlying sale agreement. It is not made to every shareholder without qualification.
• An IBC section 31 resolution plan acquisition is exempt, so an acquirer of a distressed company crossing the thresholds owes the minority no open offer.
• Do not confuse the acquirer with the manager to the open offer. The manager is the merchant banker; the acquirer is its client.