Voluntary delisting norms: M&A deal activity may improve post Sebi tweaks

Markets regulator Sebi has introduced fixed price process as an alternative to reverse book building process (RBB) for delisting of companies, whose shares are frequently traded on stock exchanges BSE and NSE. As per Sebi, the fixed price offered by an acquirer should be with at least 15 per cent premium over the floor price as determined under Delisting Regulations.

Introduction of an alternate delisting framework for listed investment holding companies (IHC) through scheme of arrangement by way of selective capital reduction has also been announced by Sebi. 

The moves are seen as 'game changer' as they are likely to facilitate ease of doing business, protect investor and offer flexibility in the voluntary delisting framework

Abhishek Dadoo, Partner, Khaitan & Co for your reference said: "The old regime enabled delisting through a reverse book build process which often resulted in extraordinarily high prices – rendering the delisting commercially unviable. The new regime permits a fixed price delisting offer at a fifteen per cent or more premium to the regulatory floor price – this makes the delisting process a lot simpler with the public shareholders being given a binary option to accept or reject the offer at a reasonable fixed price.”

Dadoo said the new fixed price delisting regime is certain to boost public M&A deal activity. It seeks to simplify the road to delisting, which has so far been highly elusive on account of the reverse book build method for price determination, he said.

"The new regime envisages delisting of operating companies at a minimum 15 per cent premium to the regulatory floor price, as well as investment holding companies through a scheme of arrangement involving transfer of underlying listed equity shares and cash in lieu of assets (land, buildings, etc.) directly to public shareholders,” he added.  

Makarand M Joshi, Founder MMJC & Associates, a corporate compliance firm, said: "It is a good initiative by Sebi considering all those entities who attempted delisting in the past few years and were not successful. These entities may make an attempt again for delisting. With the amended delisting framework, now even if the entity fails to acquire 90 per cent of total share capital but if the majority of public shareholders are ready to offer shares, then the delisting process can be successful."

As per Sebi, a listed IHC that has at least 75 per cent of fair value (net of liabilities) comprising direct investments in equity shares of other listed companies will be permitted to transfer the underlying equity shares held by it in other listed companies to its public shareholders proportionately. It will be permitted to make proportionate cash payments to its public shareholders against other assets including investments in land, building and unlisted companies, as per Sebi.

On entire public shareholding being extinguished, the IHC would be delisted. The delisting of an IHC would be in compliance with requirements as specified by its financial sector regulator, if any, Sebi said.

In the case of modification of the counter-offer mechanism in case of delisting through RBB process, there has been a reduction in threshold for making a counter-offer from existing 90 per cent to 75 per cent provided that at least 50 per cent of public shareholding has been tendered.

"The counter-offer price shall not be less than the higher of (i) the volume weighted average price (VWAP) of the shares tendered/offered under the RBB process, and (ii) indicative price, if any, offered by the acquirer," Sebi said. 

The delisting would be successful only when the post-offer aggregate shareholding of acquirer reaches 90 per cent, Sebi added. "Listing had become a no-exit entry. With this framework entry and exit both will be possible and realistic," Joshi said.