Open Offer is a part of the Takeover Code as defined by the Securities and Exchange Board of India (SEBI). When a company acquires up to a certain percent stake in another listed entity, an open offer gets triggered. This means the acquiring company must make an offer to existing shareholders to buy an additional defined per cent stake in the company. And, it is typically kept open for about a month, from the date of announcement. It is aimed at providing the shareholders an exit option, as there may be a management change post-acquisition and investors may perceive potential risks in the business.
The ratio between total shares tendered (offered for sale to the acquirer by the existing shareholders) and those accepted by the acquirer is termed as the acceptance ratio. Simply put, the share acceptance by the acquirer is done on a proportionate basis.
The acquirer, in concert with the merchant banker, considers the following parameters while determining the offer price: negotiated price under the agreement that triggered the open offer; price paid by the acquirer for allotment in a public or rights or preferential issue during the 26-week period prior to the relevant date or the date when the open offer was triggered; and the average of the weekly high and low of the closing prices of the shares during the six months. Or, the average of the daily high and low prices of the shares during the two weeks preceding the relevant date. The highest price of these is considered. And, it has to be mentioned in the letter of offer, along with a justification.
The acquirer has to publish a ‘Public Announcement’ in newspapers. It can be also viewed on the SEBI website, along with the ‘Detailed Public Statement’ and ‘Letter of Offer’ and form of acceptance. The letter of offer is a document addressed to shareholders of the target company. It contains disclosures of the acquirer, details about the offer price, number of shares to be acquired, purpose of acquisition and future plans of the acquirer. It also specifies the procedure for accepting the shares tendered by the shareholders. The public announcement will also specify the procedure for tendering your shares, in case you do not receive the letter of offer.
Chartered Finance Management Limited (CFML) is a financial services firm specializing in investment banking and merchant banking activities such as Initial Public Offering (IPOs), Follow-on Public Offerings (FPOs), Rights Issue, Private Placement, Open Offers, Takeovers, Buybacks, Delisting, Mergers and Acquisitions etc.