SEBI
Topic48 SAST Voluntary Open Offer Regulation 6
Voluntary Open Offer under SAST Regulations 2011
Topic 48 — Regulation 6: Conditions, Restrictions, Offer Size & Comparison with Mandatory Offer | SEBI Law Officer
Regulation 6 of the SAST Regulations, 2011 specifically provides for voluntary open offers — a mechanism introduced for the first time in the 2011 Code (not present in the 1997 Code). A voluntary open offer allows a person who holds 25% or more (but wishes to acquire more than what creeping acquisition permits) to make a voluntary offer to public shareholders — without being compelled by a specific triggering event. Understanding the conditions, restrictions, and strategic uses of voluntary open offers is important for the SEBI Law Officer examination.
1. Regulation 6(1) — Voluntary Open Offer Provision
Regulation 6(1): An acquirer, who together with persons acting in concert with him holds shares or voting rights entitling them to exercise twenty-five per cent or more but less than the maximum permissible non-public shareholding, shall be entitled to voluntarily make a public announcement of an open offer for acquiring additional shares subject to their aggregate shareholding after completion of the open offer not exceeding the maximum permissible non-public shareholding. |
Key elements of Regulation 6(1):
- Pre-existing holding: 25% to 74.99%, The voluntary offer is available ONLY to those who already hold 25% or more — not to persons below the 25% threshold.
- 'Entitled to voluntarily make': Voluntary — no external trigger required. The acquirer chooses to make the offer.
- Upper limit: Post-offer holding must not exceed 74.99% (maximum permissible non-public shareholding).
2. Regulation 6(2) — Minimum Offer Size
Regulation 6(2): An open offer under this regulation shall be for a minimum of ten per cent of the total shares of the target company. |
Voluntary offer size — 10% minimum vs mandatory offer 26% minimum:
Feature | Voluntary Open Offer (Reg 6) | Mandatory Open Offer (Reg 3/4) |
|---|---|---|
Minimum offer size | 10% of total shares | 26% of total shares |
Maximum offer size | Cannot take total holding above 74.99% | Cannot take total holding above 74.99% |
Trigger | Voluntary — acquirer's choice | Mandatory — triggered by 25% breach or control acquisition |
Who can make | Person already holding 25%–74.99% | Any acquirer who triggers the threshold |
Purpose | Increase stake beyond creeping limits; consolidate holding | Exit opportunity for public shareholders on change of control |
Same offer procedures? | Yes — PA, DPS, LoO, escrow, same timelines | Yes — identical procedural requirements |
3. Regulation 6(3) — Restriction on Voluntary Offer: No Competing Open Offer
Regulation 6(3): No person shall make a voluntary open offer under this regulation if such person or any person acting in concert with him has acquired any shares of the target company during the fifty-two weeks immediately preceding the date of the public announcement of the voluntary open offer. |
Regulation 6(3) contains a critical restriction — the 52-week look-back period:
- If the acquirer (or any PAC) has bought shares in the target company in the 52 weeks before announcing the voluntary offer — the voluntary offer is NOT permitted.
- Purpose: Prevent acquirers from combining creeping acquisition (stealthy market purchases) with a voluntary offer at a potentially lower price than what creeping purchases established as market price.
- Practical implication: An acquirer planning a voluntary offer must 'clear' a 52-week period without any purchases — ensuring the voluntary offer price is genuinely determined by market conditions, not artificially suppressed by prior off-market purchases.
4. Regulation 6(4) — Restriction During Voluntary Offer Period
Regulation 6(4): After making the public announcement of the voluntary open offer, the acquirer shall not acquire shares of the target company otherwise than under the open offer until the expiry of six months after the completion of the open offer. |
After announcing a voluntary offer, the acquirer cannot buy shares outside the offer for six months post-completion. This prevents:
- Manipulating the open offer price by buying in the market (which would drive up prices).
- Making the offer look uncompetitive by buying at a lower price outside the offer.
- Using the open offer as a cover for a series of market acquisitions.
5. Strategic Uses of Voluntary Open Offer
Promoters and controlling shareholders use voluntary open offers for several strategic purposes:
- Consolidation of holding: Increase promoter holding from, say, 50% to 65% — beyond what creeping acquisition's 5% limit allows in a single year.
- Defensive measure: Pre-empt a hostile takeover by increasing controlling stake — making it harder for a potential acquirer to reach 25%.
- Signal of confidence: A voluntary offer signals promoter confidence in the company's prospects — can be a positive market signal.
- Price benchmarking: Establishes a transparent, regulated price for acquisition — avoiding accusations of off-market manipulation.
6. Voluntary vs Mandatory Open Offer — Complete Comparison
Aspect | Voluntary (Regulation 6) | Mandatory (Regulations 3 & 4) |
|---|---|---|
Initiating party | Acquirer (holding 25%-74.99%) — own choice | Required by law — triggered by threshold breach |
Trigger | None — voluntary | 25% shareholding or control acquisition |
Minimum offer size | 10% of total shares | 26% of total shares |
52-week restriction | Cannot have bought in last 52 weeks before announcement | No such restriction — triggered by current acquisition |
Post-offer restriction | No further purchases for 6 months after completion | No equivalent blanket restriction |
Offer price | Same formula as mandatory — Regulation 8 applies | Same formula — Regulation 8 |
Escrow | Same requirements | Same requirements |
Procedure (PA/DPS/LoO) | Identical to mandatory offer procedure | Identical to voluntary offer procedure |
Purpose (primarily) | Acquirer's stake consolidation | Exit opportunity for public shareholders |
7. Model Examination Questions
Q1. What is a voluntary open offer under Regulation 6 of the SAST Regulations, 2011? Discuss the conditions and restrictions applicable to it.
Voluntary Open Offer — Regulation 6 SAST 2011 Model Answer — Regulation 6(1) permits a person holding 25% to 74.99% (with PAC) to voluntarily make a public announcement of an open offer for additional shares of the target company — without being triggered by any external event. Minimum offer size: 10% of total shares (Regulation 6(2)) — lower than mandatory offer's 26%. Post-offer holding cannot exceed 74.99%. Restrictions: (i) Regulation 6(3) — 52-week look-back: the acquirer (or any PAC) must not have acquired any shares in the target in the 52 weeks before the voluntary PA. This prevents combination of prior market purchases (at lower prices) with a voluntary offer. (ii) Regulation 6(4) — post-offer restriction: for 6 months after offer completion, the acquirer cannot acquire shares outside the open offer. The voluntary offer procedure is identical to the mandatory offer — PA, DPS, draft LoO filed with SEBI, SEBI observations, final LoO, tendering period, payment, escrow. Strategic uses: consolidate promoter holding beyond 5%/year creeping limit; defensive takeover measure; signal confidence in company. Comparison with mandatory offer: mandatory triggered by law (25% threshold or control); voluntary at acquirer's initiative; mandatory = 26% minimum; voluntary = 10% minimum. |
🎯 EXAM POINTERS — Topic 48: Voluntary Open Offer [Regulation 6]
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← Topic 47: Mandatory Open Offer [Regulations 3 & 4] | Next → Topic 49: Offer Price Determination [Regulation 8]
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