Competing offer
An open offer made by another person within 15 working days of the first acquirer's detailed public statement, for at least as many shares as the first acquirer would end up holding.
In plain language
The first acquirer to announce an open offer does not get the target to itself. For a short window, anyone else may step in with a rival open offer, and shareholders then choose between them. That rival bid is a competing offer.
The code shapes the contest so that it is fair and finite: rivals must come in quickly, must bid for at least as much of the company as the first acquirer, must run on identical timelines, and may improve their terms — but only in the shareholders' favour.
How it works
The window (Chapter 7). Once a public announcement of an open offer has been made, any person other than that acquirer may make a public announcement of an open offer within 15 working days of the date of the detailed public statement made by the first acquirer. Every such offer, and the first offer, are then competing offers.
After the window. No one may announce an open offer, or enter into a transaction that would trigger one, after those 15 working days and until the expiry of the offer period.
When there can be no competition. Until the offer period expires, no person may announce or trigger an open offer where the first offer is pursuant to disinvestment, or pursuant to a relaxation from strict compliance granted by SEBI.
Size. The competing offer must be for at least enough shares that, together with the shares already held by the competing acquirer and its PACs, it is at least equal to the holding of the first acquirer — including the shares the first acquirer proposes to acquire under its offer and under its underlying agreement.
Not voluntary. An open offer made within the 15-working-day period is not regarded as a voluntary open offer.
Running the contest.
| Rule | Detail |
|---|---|
| Timelines | Schedule of activities and tendering period identical for all; the last tendering date of every offer moves to that of the offer made last |
| SEBI comments | On the draft letter of offer of each competing offer on the same day |
| Revising terms | An earlier offeror may revise its terms after a later competing offer — only if more favourable to shareholders |
| Price revisions | Upward revisions allowed up to 1 working day before tendering starts |
| Conditionality | A competing offer may be conditional on minimum acceptance only if the first offer was conditional |
| Voluntary first offer | Its maker may increase its offer size within 15 working days of the competing announcement |
Who may compete. A wilful defaulter, barred from making open offers, may still make a competing offer; a fugitive economic offender may not. A voluntary offeror still inside its six-month purchase bar may also make a competing offer.
A worked example
Illustrative figures. Kokan Ports Ltd has 10 crore shares.
First acquirer A signs an agreement with the promoters for 30% and announces an open offer for 26% at Rs 150. If fully accepted, A will hold:
30% (agreement) + 26% (open offer) = 56% = 5.6 crore shares
Rival B, which already holds 4% (40 lakh shares), wants to compete. Its offer must, together with its existing holding, at least equal A's 5.6 crore:
Minimum competing offer = 5.6 crore − 0.4 crore = 5.2 crore shares (52%)
B bids Rs 165:
Consideration at full acceptance = 5.2 crore × Rs 165 = Rs 858 crore
Escrow = 25% × 500 + 10% × 358 = Rs 125 crore + Rs 35.8 crore = Rs 160.8 crore
The deadline. B's public announcement must come within 15 working days of A's detailed public statement. A third bidder on the sixteenth working day is shut out until the offer period ends.
The response. A may now raise its price above Rs 165 — any time up to one working day before tendering opens — because the revision is more favourable to shareholders. Both offers tender on the same dates, and if B's announcement came later, A's last tendering date moves to B's.
What B cannot do. A's offer was unconditional, so B cannot make its offer conditional on a minimum level of acceptance.
Why NISM asks about it
Chapter 7 (Other Merchant Banking Activities – Mergers, Acquisitions & Takeovers), 15% of the paper, sets out the competing offer procedure in full.
The 15 working days, the size rule (at least the first acquirer's total post-offer holding) and the "conditional only if the first was conditional" rule are the most testable points.
Common exam traps
- 15 working days from the first acquirer's detailed public statement, not from its public announcement.
- Size is measured against the first acquirer's total — existing holding, agreement shares and open-offer shares — not just its 26%.
- The competing acquirer's existing holding counts towards reaching that figure.
- A competing offer is not a voluntary offer, even if the rival held 25%+ already.
- No competition where the first offer is pursuant to disinvestment or a SEBI relaxation.
- Revisions must be more favourable to shareholders; the last upward price revision is one working day before tendering.
- Wilful defaulter: may compete. Fugitive economic offender: may not.
Check yourself
1.Within what period may a competing offer be announced, and what must its size be?
- a)Within 15 working days of the first acquirer's detailed public statement, for at least the first acquirer's holding including the shares it proposes to acquire
- b)Within 15 calendar days of the first public announcement, for at least 26% of total shares
- c)At any time before the tendering period closes, for any size
- d)Within 5 working days of the first detailed public statement, for the same size as the first offer
Show the answer
Answer: (a) Within 15 working days of the first acquirer's detailed public statement, for at least the first acquirer's holding including the shares it proposes to acquire
When a public announcement of an open offer for acquiring shares of a target company is made, any person, other than the acquirer who has made such public announcement, is entitled to make a public announcement of an open offer within 15 working days of the date of the detailed public statement made by the acquirer who has made the first public announcement.
Working days, and from the detailed public statement — not the public announcement.
The size: the open offer made shall be for such number of shares which, when taken together with shares held by the acquirer along with persons acting in concert with him, shall be at least equal to the holding of the acquirer who has made the first public announcement, including the number of shares proposed to be acquired by him under the offer and any underlying agreement for the sale of shares of the target company.
So the competing bid must be able to match the first bidder's eventual position — a genuine contest, not a token gesture.
Option C ignores the closing of the window: nobody is entitled to make a public announcement of an open offer for acquiring shares, or enter into any transaction that would attract the obligation to make a public announcement of an open offer... after the period of fifteen working days and until the expiry of the offer period.
And two kinds of offer admit no competition at all — where the open offer is for acquisition of shares pursuant to disinvestment or pursuant to a relaxation from strict compliance as granted by SEBI.
Once there are competing offers they run together: the schedule of activities and the tendering period for all competing offers shall be carried out with identical timelines. The last date for tendering shares in acceptance of every competing offer shall stand revised to the last date for tendering shares in acceptance of the competing offer last made.
Revisions must improve terms: an earlier competing acquirer may revise provided the revised terms are more favourable to the shareholders of the target company, and all may raise the price at any time up to 1 working day prior to the commencement of the tendering period.
And conditionality follows the first offer: unless the open offer first made is an open offer conditional as to the minimum level of acceptances, no acquirer making a competing offer may be made conditional as to the minimum level of acceptances.
A competing offer is not a voluntary offer — and a wilful defaulter, otherwise barred, may make one.
2.What is the minimum size of a mandatory open offer, and of a voluntary open offer?
- a)Both must be for at least 26% of total shares
- b)A mandatory offer must be for at least 26% of total shares as on the tenth working day from closure of the tendering period; a voluntary offer for at least such number as would give an additional 10% of the voting rights
- c)A mandatory offer for 25% and a voluntary offer for 20%
- d)There is no minimum in either case
Show the answer
Answer: (b) A mandatory offer must be for at least 26% of total shares as on the tenth working day from closure of the tendering period; a voluntary offer for at least such number as would give an additional 10% of the voting rights
The open offer for acquiring shares to be made by the acquirer and persons acting in concert with him shall be for at least 26% of total shares of the target company, as on 10th working day from the closure of the tendering period.
The open offer shall be for acquisition of at least such number of shares as would entitle the holder thereof to exercise an additional 10% of the voting rights in the target company, and shall not exceed such number of shares as would result in the post-acquisition holding of the acquirer and persons acting in concert with him exceeding the maximum permissible non-public shareholding.
The 26% count is forward-looking: it shall take into account all potential increases in the number of outstanding shares during the offer period contemplated as of the date of the public announcement, and the offer size shall be proportionately increased in case of an increase in total number of shares, after the public announcement which is not contemplated on the date of the public announcement.
Option C confuses the 25% trigger with the offer size.
A voluntary offer has its own eligibility conditions. It is open to an acquirer holding 25% or more but less than the maximum permissible non-public shareholding, but where the acquirer or any person acting in concert with him has acquired shares of the target company in the preceding 52 weeks without attracting the obligation to make a public announcement of an open offer, he shall not be eligible.
And it carries a cooling-off: no further acquisitions for a period of six months after completion of the open offer except pursuant to another voluntary open offer — with shares acquired through bonus issue or stock splits excluded from the count.
On a competing offer, a voluntary offeror may enlarge: it shall be entitled to increase the number of shares... to such number of shares as he deems fit, within a period of 15 working days from the public announcement of a competing offer.
And breaching the public shareholding limit has consequences — sell down under the SCRR, and no voluntary delisting unless a period of 12 months has elapsed from the date of the completion of the offer period.
3.The detailed public statement is published on 1 September. When must the draft letter of offer be filed, and how long does SEBI have to comment?
- a)Within 5 working days of the detailed public statement; SEBI has not later than fifteen working days, after which it is deemed to have no comments
- b)Within 15 working days; SEBI has thirty days
- c)Within 21 working days; SEBI has no fixed period
- d)Before the detailed public statement; SEBI has ten working days
Show the answer
Answer: (a) Within 5 working days of the detailed public statement; SEBI has not later than fifteen working days, after which it is deemed to have no comments
Within 5 working days from the date of the detailed public statement made the acquirer shall, through the manager to the open offer, file with SEBI, a draft of the letter of offer containing information as may be specified along with a non-refundable fee.
SEBI shall give its comments on the draft letter of offer as expeditiously as possible but not later than fifteen working days of the receipt of the draft letter of offer and in the event of no comments being issued by the SEBI within such period, it shall be deemed that the SEBI does not have comments to offer.
The deeming provision matters — the offer does not stall for want of a response.
With one extension: in the event the SEBI has sought clarifications or additional information from the manager to the open offer, the period for issuance of comments shall be extended to the fifth working day from the date of receipt of satisfactory reply.
The steps around it. The detailed public statement itself must come not later than 5 working days of the public announcement, and copies of the draft letter of offer go simultaneously... to the target company at its registered office address and to all stock exchanges.
Then dispatch: the letter of offer goes to shareholders on the register as of the identified date not later than seven working days from the receipt of comments from SEBI or where no comments are offered by SEBI, within 7 working days from the expiry of the period as stipulated.
Then tendering: it shall start within 12 working days from date of receipt of comments from SEBI and shall remain open for 10 working days.
Then payment: within 10 working days from the last date of the tendering period.
For competing offers SEBI aligns its comments: it shall provide its comments on the draft letter of offer in respect of each competing offer on the same day.
And if the disclosures are poor: in the event the disclosures in the draft letter of offer are inadequate SEBI may call for a revised letter of offer.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Conditional offerAn open offer made subject to a minimum level of acceptance — if that level is not reached, the acquirer buys nothing under the offer and the underlying agreement is rescinded.
- DisinvestmentThe direct or indirect sale by the Central Government, a State Government or a government company of shares, voting rights or control in a public sector undertaking.
- Escrow accountThe security an acquirer must deposit before a takeover open offer — 25% of the first Rs 500 crore of consideration plus 10% of the balance — so that the money to pay tendering shareholders is ring-fenced.
- Offer periodUnder the SAST Regulations, the period from the agreement or public announcement that triggers an open offer until consideration is paid to accepting shareholders, or the offer is withdrawn.
- TakeoverThe acquisition of substantial shares or voting rights in a company for the purpose of seeking management control — regulated for listed companies by the SEBI (SAST) Regulations, 2011.
- Voluntary offerAn open offer that an acquirer already holding 25% or more (but below the maximum permissible non-public shareholding) chooses to make to consolidate its stake, without any trigger forcing it.
- AcquirerUnder the SEBI takeover code, any person who acquires — or agrees to acquire — shares, voting rights or control over a target company, alone, through another, or with persons acting in concert.