Key Takeaways

  • SEBI's Consultation Paper proposes a comprehensive review of counter-offer mechanism, counter-offer price discovery mechanism, fixed price mechanism, floor price and reference date
  • Fixed price delisting, largely regarded as a welcome move, fails to excite us and appears lackluster against the present reverse book building mechanism due to absence of a counter-offer mechanism
  • Revised counter-offer price discovery mechanism unlikely to serve the purpose and might result in a price which may be unworkable after all
  • Addition of "Adjusted Book Value" as a component for determination of floor price is a positive move for the shareholders of asset-heavy companies where market linked pricing may not always be the best benchmark of floor price
  • Adjusting the reference date to coincide with the date of the initial public announcement appears more optimal than using the date when stock exchange(s) were required to be notified of the board's approval for delisting

Introduction

A lot has been written about SEBI's recent consultation paper on voluntary delisting norms ("Consultation Paper") on the SEBI (Delisting of Equity Shares) Regulations, 2021 ("Delisting Regulations"). The Consultation Paper introduces alternatives to the existing reverse book building ("RBB") process for delisting: the much talked about fixed price mechanism and review of the counter-offer mechanism under RBB. SEBI also proposed a change in the reference date for determination of "floor price" and a review of the "reference date" for determination of such floor price.

In this piece, we analyse SEBI's proposals from the perspective of an acquirer. SEBI suggests that a fixed price mechanism offers an advantage to acquirers by providing certainty regarding the exit offer price in advance, facilitating funding arrangement for delisting offers. However, our analysis contends that this mechanism may not really deliver tangible benefits to either acquirers or public shareholders.

"Floor price" is sought to be determined separately under the Delisting Regulations, which would also include "Adjusted Book Value", an additional component. Hence, understanding the nuances of book value1 versus market value becomes pivotal, particularly in assessing asset-heavy companies and holding companies.

While acknowledging the potential benefits of adjusting the "reference date" for floor price calculation, our view on the counter-offer mechanism is divided. While we support changes in counter-offer thresholds, we challenge the necessity of introducing a price discovery mechanism for counter-offers.

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Footnote

1. Regulation 22(5) of the Delisting Regulations explains that the book value shall be computed on the basis of both consolidated and standalone financial statements as per the latest quarterly financial results filed by the company on the stock exchange(s) as on the date of public announcement for counter offer, and the higher of the values so computed shall be treated as the book value.

Originally published February 20, 2024

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