Persons acting in concert
Also written PAC
Persons who, with a common objective of acquiring shares, voting rights or control of a target company, co-operate under a formal or informal agreement — plus categories the SAST Regulations deem to act in concert.
In plain language
If the takeover code only counted the shares in the acquirer's own name, a buyer could split its purchases across a subsidiary, a friendly fund and a director's family and stay under every threshold while still ending up in control.
Persons acting in concert (PAC) stops that. Holdings of everyone acting together towards the same acquisition are added up for the 25% and 5% triggers, and all of them share the acquirer's restrictions. The definition has two layers: a functional test (are they actually co-operating with a common objective?) and a list of relationships that are deemed to be acting in concert whatever they say.
How it works
The functional test (Chapter 7). Persons who, with a common objective or purpose of acquiring shares or voting rights in, or exercising control over, a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for that acquisition or control.
Deemed persons acting in concert.
- a company, its holding company, subsidiary and any company under the same management or control;
- a company, its directors, and any person entrusted with its management;
- directors of those companies and their associates;
- promoters and members of the promoter group;
- immediate relatives;
- a mutual fund, its sponsor, trustees, trustee company and AMC;
- a collective investment scheme and its management company, trustees and trustee company;
- a venture capital fund and its sponsor, trustees, trustee company and AMC; an AIF and its sponsor, trustees, trustee company and manager;
- a merchant banker and its client who is an acquirer;
- a portfolio manager and its client who is an acquirer;
- banks, financial advisors and stock brokers of the acquirer (or of its holding company or subsidiary, or of the immediate relative of an individual acquirer);
- an investment company or fund and any person holding not less than 10% of its paid-up or unit capital, and any other investment company or fund in which that person or its associate holds not less than 10%.
How it bites.
| Rule | Effect of PAC status | Chapter |
|---|---|---|
| 25% and 5% triggers | Holdings of the acquirer and PACs are aggregated; an individual crossing a threshold also triggers, even if the group total is unchanged | 7 |
| Offer price | Prices paid by PACs count in the 52-week VWAP and 26-week highest price | 7 |
| Who the offer is made to | All shareholders other than the acquirer, PACs and parties to the underlying agreement | 7 |
| During the offer period | Every acquisition by the acquirer or a PAC disclosed within 24 hours; no buying or selling from 3 working days before tendering starts until it ends | 7 |
| Inter-se transfer exemption | Available between persons who have been PACs for not less than 3 years, disclosed as such | 2, 7 |
| Delisting | A promoter or PAC with a promoter may not bid in the offer | 8 |
| QIB-route offer for sale caps | 20% holding computed individually or with PACs | 5 |
A worked example
Illustrative figures. Tapti Textiles Ltd has 10 crore shares. The shareholder register shows:
| Holder | Relationship to the acquirer, Nirmal Industries | Holding |
|---|---|---|
| Nirmal Industries Ltd | Acquirer | 14.0% |
| Nirmal Agro Ltd | Its subsidiary — deemed PAC | 6.0% |
| Nirmal's stock broker (proprietary book) | Stock broker of the acquirer — deemed PAC | 0.5% |
| A mutual fund with no link to Nirmal | Not a PAC on these facts | 4.0% |
| Acquirer + PACs | 20.5% |
Nirmal now agrees to buy 4.6% from a family shareholder. Standing alone that is 18.6%; with its PACs it is 25.1% — so the open-offer obligation is triggered, and the public announcement must come on the date of agreeing to acquire.
Minimum offer size = 26% × 10 crore = 2.6 crore shares
Offer price (say) = Rs 150
Consideration = 2.6 crore × Rs 150 = Rs 390 crore
Escrow (first slab) = 25% × Rs 390 crore = Rs 97.5 crore
The offer goes to every shareholder except Nirmal, Nirmal Agro, the broker and the selling family shareholder (a party to the underlying agreement). And if Nirmal Agro had bought shares in the market at Rs 158 in the previous 26 weeks, the offer price could not be Rs 150 — a PAC's purchase price sets the floor as surely as the acquirer's own.
Why NISM asks about it
Chapter 7 (Other Merchant Banking Activities – Mergers, Acquisitions & Takeovers), 15% of the paper, carries the full definition; Chapter 2 introduces it as one of the key SAST terms; Chapter 5 and Chapter 8 use it in the offer-for-sale caps and delisting.
Expect a "which of the following is deemed to be acting in concert" question — a merchant banker and its acquirer client, a mutual fund and its AMC, promoters and the promoter group — and aggregation arithmetic against the 25% trigger.
Common exam traps
- Informal understandings count. The agreement may be "formal or informal", direct or indirect.
- Deemed categories do not need proof of co-operation — the relationship is enough.
- A merchant banker is a PAC only with a client who is an acquirer, and so is a portfolio manager.
- The 10% link for investment companies and funds is "not less than 10%".
- Aggregation does not shelter an individual. If one person's own holding crosses 25% or the 5% creep, the obligation arises even if the group total did not move.
- PACs are excluded from receiving the open offer along with the acquirer and the parties to the agreement.
- The workbook skips item (xii) in its numbered list of deemed PACs — the list runs from (xi) to (xiii). Nothing is missing from the substance; do not hunt for a thirteenth category.
Check yourself
1.The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ensure greater transparency, fairness and equitable treatment to all investors. True or false?
- a)True
- b)False — they regulate only the acquirer's conduct
- c)False — they apply only to unlisted companies
- d)False — they deal only with disclosure, not fairness
Show the answer
Answer: (a) True
The SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011... ensure greater transparency, fairness, and equitable treatment to all investors, timeliness and accuracy of disclosure of information, prevention of frivolous offers and enforcement against violations.
Five stated aims — transparency, fairness, equitable treatment, timely and accurate disclosure, and prevention of frivolous offers.
So option D understates the scope, and option B misses the point: the regulations do regulate the acquirer, but for the benefit of the minority.
Option C reverses the position. Any acquisitions of shares or control in listed Indian companies are governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011. Unlisted transactions fall to the Companies Act, which governs mergers, amalgamations, de-mergers, acquisitions of business units or divisions.
The central purpose: the major thrust of these Regulations is to ensure that when a large number of shares changes hands, that is, one group sells a substantial or controlling block of shares to another; the minority shareholders also get the opportunity to sell their shares at the fair price.
And the problem being solved: in absence of this Code, an existing group, say A, could sell the controlling stake to another group, say B, and the common shareholders would simply continue to hold the shares without getting the right to participate in the sale that happened.
Three kinds of acquisition are within scope: (a) Change in Control of Management (b) Consolidation of Holdings (c) Substantial Acquisition of shares or voting rights.
The mechanics that deliver fairness are the mandatory offer at at least 26% of total shares, made to all shareholders of the target company, other than the acquirer, persons acting in concert with him and the parties to any underlying agreement, at a price that is the highest of the parameters — including any control premium or... non-compete fees paid to the selling promoter.
And "prevention of frivolous offers" explains the escrow — security for performance of his obligations.
2.At what shareholding must an acquirer make a public announcement of an open offer under the SAST Regulations?
- a)25% or more of the voting rights, read as 49% for a company listed on the Innovators Growth Platform
- b)10% or more of the voting rights
- c)26% or more of the voting rights
- d)51% or more of the voting rights
Show the answer
Answer: (a) 25% or more of the voting rights, read as 49% for a company listed on the Innovators Growth Platform
An acquirer shall not acquire shares or voting rights in a target company which entitle them (acquirer and persons acting in concert) to exercise 25% or more of the voting rights in the target company unless they have made a public announcement of an open offer for acquiring shares of such target company.
And the IGP variation: any reference to "twenty-five per cent" in case of listed entity which has listed its specified securities on Innovators Growth Platform shall be read as "forty-nine per cent". This has been made to make the platform more accessible to companies in view of the evolving start-ups ecosystem.
Option C confuses the trigger with the offer size. The open offer... 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 — 25% triggers, 26% is the size.
The second threshold is the creeping acquisition limit. An acquirer already at 25% or more... but less than the maximum permissible non-public shareholding may not acquire within any financial year additional shares or voting rights... entitling them to exercise more than 5% of the voting rights without an offer — counted on gross acquisitions alone.
And the third trigger has no threshold at all: unless the public announcement of an open offer for acquiring shares of the target company is made, no acquirer shall acquire directly or indirectly control over such target company.
Note that the thresholds bite individually too: acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation... irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.
One exemption from the ceiling on total holding: acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 — in such resolution cases, even if the thresholds mentioned in the SAST are exceeded..., no open offer obligation arises towards the minority shareholders.
3.For the inter se transfer exemption, persons named as promoters in the target's shareholding pattern are 'qualifying persons' if they have been so named for at least how long before the proposed acquisition?
- a)One year
- b)Three years
- c)Five years
- d)Six months
Show the answer
Answer: (b) Three years
Three years. Qualifying persons include (2) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing regulations or as the case may be, the listing agreement or the SAST regulations for not less than 3 years prior to the proposed acquisition, and (4) persons acting in concert for not less than 3 years prior to the proposed acquisition, and disclosed as such. Immediate relatives qualify without a time test.
- One year, five years, six months — none is the period the workbook gives.
The group-company limb uses a not less than 50% equity test, with control over such qualifying persons exclusively held by the same persons.
Where this is taught
Free preparation for NISM Series IXRelated terms
- 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.
- Manager to the open offerThe SEBI-registered merchant banker, not an associate of the acquirer, appointed before the public announcement to run an open offer and answer to SEBI for its funding, disclosures and escrow.
- 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.
- Promoter groupThe promoter plus immediate relatives and the connected companies, HUFs and firms defined by 20% shareholding links — the circle whose holdings the ICDR Regulations treat together with the promoter's.
- 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.
- PromoterUnder the ICDR Regulations, a person named as promoter in the offer document or annual return, or who controls the issuer's affairs, or on whose advice the board is accustomed to act.
- SR equity sharesSuperior voting right equity shares issued to promoter-founders of a technology-intensive company — same face value and economics as ordinary shares, but 2 to 10 votes per share.
- Frequently traded sharesShares whose traded turnover over a set look-back is at least 10% of the total shares of that class — 240 trading days under the ICDR Regulations, twelve calendar months under the SAST Regulations.
- AssociateFor a merchant banker: an entity linked to the issuer by 10% or more of voting rights, by control, or by a common director. An associate may not lead manage the issue, only market it.
- MergerA combination of two or more companies into a single entity in which one or both lose their identity — not necessarily between companies of equal or comparable stature.
- 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.