IDBI Bank Open Offer by LIC

Reg. Open Offer for IDBI Bank—irregularities

With deep anguish I wish to state that SEBI is urning a blind eye towards the illegalities committed by Government of India (GoI) owned institutions.  The basic objective of SEBI is investor protection. Investors cannot be allowed to be  short changed simply because on the other side there is a Government owned body. The Acquirer is  pulling wool over your eyes.  

My main contention is that the GoI had acquired 1,09,73,26,649 Equity shares of the Target Company at a price of Rs.71.82  per share aggregating to Rs. 7881 crore, on 25^th  May 2018 and on 4^th October 2018, LIC, a GoI body announced an open Offer @ 61.73.

As per SAST 2011 Reg. 8(2)(c), the highest price paid for acquisition by the Acquirer or PAC, will have to be paid.

In this case the GoI is an Acquirer /PAC and the highest price paid of 71.82 on  25^th  May 2018 is applicable and should be paid. The definition of Acquirer u/r 2(1) (a) and that of PAC u/r/2(1)(q) should be examined in detail. It is obvious that GoI is an Acquirer/PAC. The GoI has played a duel role here—both of an Acquirer and that of a PAC. “Acquirer” means any person who directly or indirectly acquires shares or voting rights  by himself or through a PAC.  In this case GoI is acquiring through its PAC- LIC. 

The Acquirers have countered this argument by stating:

1.      In the shareholding pattern of IDBI, The acquirer (LIC)  is categorised as a “public shareholder” and the GoI is classified as “promoter” of the target company. ( MB Letter dated November 21, 2018)

2.      The GoI and LIC are not PAC because the GoI is “relinquishing management control “and LIC is “acquiring control”. They do not share a “Common Objective or Purpose” ( MB Letter dated November 21, 2018)

Both the above arguments are hollow.  Shareholding pattern submitted to a stock exchange  is not the place to find and determine if the 2 parties are PAC. Moreover it is a self declaration. Any mistake, purposely or otherwise cannot change the legal position and legal liability.   

Your kind attention is drawn to SAST 2011 Regulation 2 (1)(q)(2):

(2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,—

SAST 2011 Regulation 2 (1)(q)(2)(i)

(i) a company, its holding company, subsidiary company and any company under the same management or control;

SAST 2011 Regulation 2 (1)(q)(2)(iv)

(iv) promoters and members of the promoter group;

This is a deeming provision. A plain reading of the above is clear that “unless the contrary is established”  must be read in the context of 2 (1)(q)(2) only.

Unless it is proved that  LIC is NOT  under the same management or control, or unless it is proved that LIC is NOT a member of the promoter or promoter group, it will be deemed to be a PAC.

DEFINITION OF PROMOTER

(Kindly not that for the sake of simplicity full text of the relevant regulation has not been reproduced here, You may refer to the same if so desired)

SAST 2011, Reg. 2 (1) defines PROMOTER as:

(s) ―promoter‖ has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and includes a member of the promoter group;

(t) ―promoter group‖ has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; Section 2(1) defines “Promoter” and “Promoter Group” as follows:

(za) ―promoter‖ includes:

(i) the person or persons who are in control of the issuer;

(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;

(iii)the person or persons named in the offer document as promoters:

(zb) ―promoter group‖ includes:

(i) the promoter;

(ii) an immediate relative of the promoter (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and

…………………..

…………………..

 (iv) in case the promoter is an individual:

(A) any body corporate in which ten per cent. or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided

In the present case the President of India is holding the shares and control of both the entities—the Acquirer—LIC  and the Target company –IDBI. There is no doubt that the above provisions are attracted and GoI and LIC are Promoters/ PAC.

As far as the argument by the Acquirers that the  “Common Objective or Purpose”  is  absent is concerned, since GoI is “relinquishing management control”  and LIC is “Acquiring control” it is not relevant here. It is  relevant only in cases attracting SAST 2011 Regulation 2 (1)(q)(1).

Even if for the sake of argument, without admitting, if the Acquirer’s contention is accepted, even then it cannot be said that they have absolutely opposite intention and objective. They still have the same common objective of  enhancing their shareholding in the target company and to continue to control the management of the same.   Moreover an Open offer is triggered not only on Acquisition of shares but also on acquisition of control. These two situation may be independent to each other.

SAST 2011, Regulation 3 deals with Substantial acquisition of shares or voting rights.

 There is no denying the fact that there has been a substantial acquisition of shares and voting rights which has triggered the mandatory Open Offer.   

SAST 2011, Regulation 4 deals with Acquisition of control.

In this case there is no acquisition of control. The Control was already with the GoI, the main promoter of LIC. The GoI of India decided that rather than controlling IDBI directly, henceforth it  will control the IDBI through LIC.

For the ease of better understanding, let us draw an analogy.

Let us say TATA sons (GOI) having subsidiary Tata steel (IDBI Bank) (73% holding)  and another company Tata Defence Ltd(100 % owned by Tata sons)(LIC of India).

Now Tata Defence )(LIC of India) taking over management control with fresh equity infusion upto 51 % in Tata Steel (IDBI Bank) and TATA sons (GOI) relinguishes management control in Tata steel (IDBI Bank. Then whether Tata Sons (GOI)  is PAC or not for PA for open offer by Tata Defence Ltd (LIC of India).

Unfortunately, small investors do not have any wherewithal to effectively fight  the mighty corporates and solely depend on SEBI for a fair treatment. I can only request you once again to not belie the hope and expectations of the investors and protect the interest of small investors by directing the LIC to revise the offer price to Rs. 71.82

OPEN OFFER OF FORTIS

Reg. Open Offer for Fortis Healthcare Limited

The investors and shareholders of the company are suffering a lot because of the delaying in completion of the above offer. The offer announced on July 13, 2018 was originally to be completed and investors would have received their payments by October 16, 2018. This date was subsequently revised to January 15, 2019. However there seems to be an indefinite delay in completion of the offer. The Merchant bankers have issued an Announcement dated December 15, 2018 Stating :

“The Equity Shareholders are requested to note that, on December 14, 2018, the Honorable Supreme Court of India has passed an order in the matter of Mr. Vinay Prakash Singh v. Sameer Gehlaut & Ors., whereby they have issued the following direction: “Status quo with regard to sale of the controlling stake in Fortis Healthcare to Malaysian IHH Healthcare Berhad be maintained”. In light of the above, the Acquirer and PACs will not be able to proceed with the Open Offer as per the timeline set out in the “Schedule of Major Activities of the Offer” contained in page 3 of the LOF. Once further order(s)/ clarification(s)/ direction(s) are issued by the Honorable Supreme Court of India and/ or SEBI, the Acquirer and PACs will decide on the next steps and the Equity Shareholders will be intimated accordingly”

You are requested to act immediately to protect the interest of the investors and issue necessary clarifications and directions to Merchant bankers/ Acquirer to complete the Offer formalities at the earliest. If so thought fit you may kindly seek clarifications form the Hon’ble Supreme Court. The points to be noted here are:

1.       The order is not any way restrains the Open Offer.  The SC order says  “Status quo with regard to sale of the controlling stake in Fortis Healthcare to Malaysian IHH Healthcare Berhad be maintained”.    By the Open offer the investors are not selling any CONTROLLING STAKE.

2.      The Open offer was triggered on July 13, 2018 when the Acquirers agreed  to acquire 31.1% shares in the target company. There have been several court rulings which said that actual acquisition may or may not be done but the fact of Agreeing to acquire is what triggers the Open offer.  This AGREEMENT  to acquire cannot be denied.

3.      CONTROLLING STAKE  has already been sold. The SC has not cancelled it but rather asked to maintain the STATUS QUO.

4.      This Open offer is a mandatory legal compliance and cannot be wished away. The Acquirers will have to complete this offer.

5.      The shareholders and small investors have been suffering a lot due to the notorious management and have seen the value erosion in their shares from 226.80 on May 2, 2017 to the current level of 135. If the Acquirers –IHH are not allowed to complete the Open offer the value will erode much further.

For the period of delay, the acquirer must be directed to pay adequately compensate the shareholders by paying interest at least @ 10% p.a.