Voluntary offer
Also written Voluntary open offer
An 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.
In plain language
Most open offers are compelled: the acquirer crossed 25%, crept more than 5% in a year, or took control. A voluntary offer is the other kind — a shareholder who is already substantial decides, of its own accord, to offer to buy more from everyone.
The code allows it because consolidation through a public offer is fairer to minority shareholders than piecemeal market purchases. But it fences the route in, so that a voluntary offer cannot be used to dodge the rules on creeping acquisition: the acquirer must not have been quietly buying in the previous year, and must stop buying for six months afterwards.
How it works
Who may make one (Chapter 7, section 7.2.2). An acquirer who, together with persons acting in concert, holds shares or voting rights entitling it to 25% or more but less than the maximum permissible non-public shareholding — provided its holding after the offer will not exceed that maximum.
Who may not.
- An acquirer, or any PAC, that has acquired shares in the preceding 52 weeks without attracting an open-offer obligation.
- A wilful defaulter (though it may make a competing offer).
- A fugitive economic offender (not even a competing offer).
Size. The offer must be for at least enough shares to carry an additional 10% of voting rights, and may not take the acquirer and PACs above the maximum permissible non-public shareholding. Under Rule 19A of the SCRR, every listed company other than a public sector company must maintain public shareholding of at least 25%, so for such a company the ceiling on non-public holding is 75%.
Timing. The public announcement is made on the same day the acquirer decides to make the voluntary offer.
Restrictions around it.
- During the offer period, the acquirer may not acquire shares otherwise than under the open offer.
- For six months after completion, the acquirer and PACs may not acquire shares except through another voluntary open offer — though they may still make a competing offer if someone else launches an open offer. Shares received through bonus issues or stock splits do not count against this.
- If a competing offer is made, the voluntary offeror may increase its offer size as it sees fit within 15 working days of the competing public announcement; if it does, its offer is treated as made under regulation 3(2) (the 5% creeping acquisition rule), and those provisions apply.
A worked example
Illustrative figures. The promoter group of Sahyadri Cements Ltd holds 62% of its 8 crore shares and wants to consolidate. It proposes a voluntary offer at Rs 540.
Is it eligible? It holds between 25% and 75%, so yes on holdings. But its treasury company bought 1% on the exchange 40 weeks ago — a purchase that did not trigger an open offer, because it was below the 5% annual creep. That is an acquisition in the preceding 52 weeks without an obligation, so the promoter group is not eligible until 52 weeks have passed since that purchase.
Twelve weeks later, it is eligible. How big can the offer be?
Minimum: additional 10% = 80 lakh shares × Rs 540 = Rs 432.0 crore
Maximum: up to 75% (62% + 13%) = 1.04 crore shares × Rs 540 = Rs 561.6 crore
Escrow on the maximum:
25% × first Rs 500 crore = Rs 125.00 crore
10% × balance Rs 61.6 crore = Rs 6.16 crore
Total = Rs 131.16 crore
After it completes. If only 5% is tendered, the group ends at 67%. For the next six months it may not buy a single share on the market — even though 67% is well under 75% — unless it launches another voluntary open offer. A 1:1 bonus issue in that window would double its shares without breaching the bar.
Why NISM asks about it
Chapter 7 (Other Merchant Banking Activities – Mergers, Acquisitions & Takeovers), 15% of the paper, has a dedicated section 7.2.2 on voluntary offers; Chapter 2 summarises Regulation 6.
Expect the eligibility band (25% up to the maximum non-public shareholding), the 52-week look-back, the six-month post-offer bar and the 10% minimum size.
Common exam traps
- Voluntary offers start at 25%. A 20% holder cannot make one; it would be making a triggered offer if it crossed 25%.
- The 52-week look-back disqualifies purchases that did not trigger an obligation — the very creeping purchases a consolidator is most likely to have made.
- Six months, not twelve, is the post-offer purchase bar — and another voluntary offer is the exception.
- Minimum size is an additional 10% of voting rights, not 26% of total shares as in a triggered offer.
- A wilful defaulter may still make a competing offer; a fugitive economic offender may not.
- An offer made within 15 working days of someone else's detailed public statement is a competing offer, and is expressly not regarded as a voluntary open offer.
- Bonus shares and stock splits do not breach the six-month bar.
Check yourself
1.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.
2.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.
3.An acquirer holding 40% of a target company bought 2% on the market eight months ago without triggering an open offer. It now wants to make a voluntary open offer. Is it eligible?
- a)No — an acquirer that acquired shares in the preceding 52 weeks without attracting the open-offer obligation is not eligible to make a voluntary offer
- b)Yes — any holder of 25% or more may make a voluntary offer
- c)Yes, provided the offer is for at least 26% of total shares
- d)No — voluntary offers are allowed only to holders of less than 25%
Show the answer
Answer: (a) No — an acquirer that acquired shares in the preceding 52 weeks without attracting the open-offer obligation is not eligible to make a voluntary offer
The 52-week look-back bars it. A holder of 25% or more but less than the maximum permissible non-public shareholding may make a voluntary offer, 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 to voluntarily make a public announcement of an open offer. Eight months is inside 52 weeks.
- Any 25%+ holder — ignores the 52-week bar.
- 26% size — the minimum for a voluntary offer is shares giving an additional 10% of the voting rights; size is not the problem here anyway.
- Below 25% only — the workbook's voluntary-offer rule is framed for holders of 25% or more.
During such an offer period, the acquirer shall not be entitled to acquire any shares otherwise than which is under the open offer.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Competing offerAn 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.
- 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.
- Persons acting in concertPersons 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.
- 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.
- 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.