Competing Offers & Rights of Shareholders under SAST 2011

Topic 52 — Regulations 20-26: Competing Open Offers, Withdrawal Rights, Shareholder Protections | SEBI Law Officer

Once a mandatory or voluntary open offer is announced in a listed company, other persons may be motivated to make competing offers for the same target company — presenting shareholders with a choice of bidders. Regulations 20 to 26 of the SAST Regulations govern this competition framework: who can make a competing offer, on what terms, how a competing offer affects the original offer, and what rights shareholders have to withdraw acceptance and re-tender to a competing bid. These provisions are important for SEBI Law Officer and Judiciary aspirants.

1. Regulation 20 — Right to Make Competing Offer

Regulation 20(1): Any person other than the acquirer who has made a public announcement of an open offer may make a competing offer for acquiring shares of the same target company within fifteen working days of the public announcement by the acquirer, subject to compliance with these regulations.

Key features of the competing offer right:

Who can make a competing offer: Any person — including existing shareholders, rival companies, private equity firms, or anyone except the original acquirer.
Deadline: 15 working days from the original PA. After 15 WD, no competing offer can be announced.
Same or better terms: A competing offer must be for at least the same number of shares as the original offer (26% minimum) — and the competing offer price typically needs to be higher than the original to attract shareholders.

2. Regulation 20(2) — Competing Offer Conditions

A competing offer must comply with all SAST Regulations — including:

Making a public announcement within the 15 WD window.
Offer size: minimum 26% of total shares.
Offer price: minimum as per Regulation 8 formula — typically higher than the original offer to attract shareholders.
Escrow: same requirements as original offer.
Same procedure: DPS, draft LoO, SEBI observations, final LoO, tendering period.

3. Regulation 24 — Effect on Original Offer After Competing Offer

Regulation 24(1): Where a competing offer has been made, the acquirer who made the original public announcement shall be entitled to revise the offer price upward within fifteen working days of the public announcement of the competing offer.

Once a competing offer is announced:

The original acquirer can revise their offer price UPWARD within 15 WD of the competing PA.
The competing offeror can also revise their price upward — creating a bidding dynamic.
Neither can revise downward — protecting shareholders from a 'race to the bottom'.
Shareholders benefit from the competition — higher prices emerge through the competitive bidding process.

4. Shareholders' Right to Withdraw Acceptance — Regulation 18(9)

Regulation 18(9): Where an offer has been made, a shareholder who has tendered shares in acceptance of an offer shall be entitled to withdraw such acceptance during the tendering period.

Shareholders can withdraw their acceptance at any time during the tendering period — a crucial protection:

Withdrawal allows shareholders to reconsider — particularly if a competing offer with a higher price is announced.
Withdrawal must be made within the tendering period — once the tendering period closes, acceptances are irrevocable.
Withdrawal process: shareholder submits a withdrawal request to the registrar/manager to the offer.

5. Regulation 23 — Withdrawal of Open Offer by the Acquirer

Regulation 23(1): An acquirer may withdraw the open offer only under the following circumstances: (a) statutory approval required for the acquisition has been refused; (b) a sole target company director or the target company is incapacitated; (c) any condition specified in the PA is not fulfilled; or (d) such circumstances as in the opinion of SEBI merit withdrawal.

The acquirer's right to withdraw is strictly limited — once a PA is made, the acquirer cannot simply back out:

Statutory approval refused: CCI refuses competition approval, FEMA clearance denied, sectoral regulatory approval refused.
Conditions in PA not fulfilled: If the PA contained specific conditions (common in conditional offers — e.g., minimum tendering condition), and those conditions are not met, the acquirer can withdraw.
SEBI approval required: Withdrawal is NOT automatic — even in permitted circumstances, SEBI's approval is required for withdrawal.

6. Rights of Non-Tendering Shareholders

Shareholders are not compelled to tender their shares in an open offer. Shareholders who do not tender:

Retain their shares — the acquirer cannot force them to sell.
Remain as minority shareholders in the company post-offer.
Benefit from SEBI's minimum public shareholding protection — if acquirer's post-offer holding would exceed 74.99%, SEBI can compel divestiture to maintain 25% public float.
Delisting protection: if the acquirer's post-offer holding exceeds 90%, they may be required to proceed with delisting under SEBI (Delisting) Regulations 2021 — ensuring remaining shareholders receive a fair exit price.

7. Landmark Cases

📖 SEBI v. Akshya Infrastructure Pvt. Ltd. SAT Order, 2015

Facts: Challenge to SEBI's decision to reject a withdrawal application by an acquirer who sought to withdraw an open offer after market conditions changed significantly post-announcement.

Held: SAT upheld SEBI's rejection. Withdrawal of open offer is strictly limited to the grounds in Regulation 23(1). A change in market conditions or the acquirer's financial position is NOT a permitted ground for withdrawal. The announcement creates binding obligations to shareholders who have relied on it.

Ratio: Once a PA is made, the acquirer is bound to proceed — subject only to the narrow exceptions in Regulation 23(1). Market conditions changing is NOT a valid ground for withdrawal. Shareholders' reliance on the PA creates enforceable expectations.

📖 Daiichi Sankyo v. Zenotech Laboratories Ltd. SAT Order, 2009

Facts: Question of whether an acquirer who had already crossed 25% could delay making a PA while waiting for regulatory approvals — specifically CCI and FEMA clearances.

Held: SAT held that the PA must be made within 2 WD of the triggering event — it cannot be delayed pending regulatory approvals. Regulatory approvals can be made conditions of the open offer (subject to Regulation 23(1)) — but the PA itself cannot be delayed.

Ratio: The PA is unconditional as to timing — 2 WD from the triggering event is mandatory. Regulatory approvals (CCI, FEMA) can be built in as conditions of the offer, enabling withdrawal if they are refused, but do not excuse delay in making the PA.

8. Model Examination Questions

Q1. What is a competing open offer under the SAST Regulations? What are the rights of shareholders whose shares are tendered when a competing offer is made?

Competing Offers & Shareholder Rights under SAST 2011

Model Answer — COMPETING OFFER (Regulation 20): Any person (except the original acquirer) can make a competing offer within 15 WORKING DAYS of the original PA. Conditions: minimum 26% of total shares; offer price per Regulation 8 formula (typically higher to attract shareholders); same escrow and procedural requirements. Effect of competing offer: original acquirer can revise price upward within 15 WD (Regulation 24); competing offeror can also revise — creating competitive bidding dynamics benefiting shareholders. SHAREHOLDER RIGHTS: (i) Right to withdraw acceptance (Regulation 18(9)) — shareholders can withdraw at any time DURING the tendering period; particularly relevant when a higher competing offer is announced. (ii) No compulsion to tender — shareholders may retain shares. (iii) If post-offer acquirer holding exceeds 74.99% — SEBI compels divestiture to maintain 25% public float. (iv) Delisting protection if post-offer holding exceeds 90%. WITHDRAWAL BY ACQUIRER (Regulation 23): Strictly limited to: statutory approval refused; specified condition not fulfilled; SEBI-recognised circumstance. Market conditions change is NOT a valid ground — SEBI v. Akshya Infrastructure (SAT 2015). PA cannot be delayed pending regulatory approvals — Daiichi Sankyo v. Zenotech (SAT 2009).

🎯 EXAM POINTERS — Topic 52: Competing Offers & Shareholders' Rights

Regulation 20: Competing offer — any person (not the original acquirer) within 15 WD of original PA.
Competing offer: minimum 26% of total shares; same Regulation 8 price formula; same escrow/procedure.
Regulation 24: Original acquirer can revise price upward within 15 WD of competing PA.
Price revision: UPWARD ONLY — neither original acquirer nor competing offeror can reduce price.
Regulation 18(9): Shareholders can WITHDRAW acceptance during tendering period — protect against tendering to lower offer when competing offer at higher price is made.
Regulation 23: Acquirer withdrawal — STRICTLY LIMITED: (a) statutory approval refused; (b) condition unfulfilled; (c) SEBI approval.
Market condition changes = NOT valid ground for acquirer withdrawal — SEBI v. Akshya Infrastructure (SAT 2015).
PA cannot be delayed for regulatory approvals — Daiichi Sankyo v. Zenotech (SAT 2009).
Non-tendering shareholders: retain shares; remain as minority; protected by 25% public float rule.
Post-offer holding exceeds 90% → acquirer may be required to proceed with delisting (SEBI Delisting Regs 2021).

← Topic 51: Exemptions from Open Offer [Regulation 10] | Next → Topic 53: Disinvestment & Government Acquisitions

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