9911796707
TMI Blog2001 (4) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Castrol (India) Ltd are listed on the Stock Exchange, Mumbai and also permitted for trading on the National Stock Exchange. 2. On 14.3.2000 Appellant No. 1 issued a press announcement stating that subject to certain pre-conditions being met, it was prepared to make an offer in the United Kingdom for the acquisition of the entire share capital of Burmah Castrol Plc. It was also stated in the announcement that the offer would only be made if the following pre-conditions were satisfied that (i) all applicable waiting periods under the Hart-Scott Rodino Antitrust Improvement Act, 1976 and the regulations thereunder expiring, lapsing or otherwise terminating; and (ii) the European Commission issuing a decision declaring the merger to be compatible with the common market, and that if EEC or the FTC refused to grant the regulatory approvals, the offer would lapse. On receipt of the requisite approvals from the concerned authorities, Appellant No. 1, posted the first formal letter of offer to the shareholders of Burmah Castrol Plc on 8.6.2000. The offer so made was subject to certain conditions which included (i) the condition that the Appellant would be bound by the offer on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 16.2.2001 inter alia directed the Appellants to revise the minimum offer price taking 14.3.2000 as the relevant date and also to correspondingly increase the deposit in the escrow account. The Appellants are not agreeable to take 14.3.2000 as the relevant date for the purpose. They have therefore challenged the said decision of the Respondent in the present appeal. 3. Shri A.M.Setalvad, learned Senior Counsel, appearing for the Appellants explained the background of the appeal and stated that acquisition of control over Castrol India Ltd., was not intended but only incidental to the acquisition of the shares of Burmah Castrol. According to him the crucial point required to be considered in the present appeal is as to what is the relevant date to be taken for the purpose of deciding the minimum offer price. According to the learned Senior Counsel the Respondent's order directing to take 14.3.2000 as the relevant date for the purpose was not tenable. Quoting the provisions of regulation 14(3) Shri Setalvad stated that the announcement of the offer made by the Appellant on 14.3.2000 was preconditional on obtaining approvals of the EEC and the FTC that if such approvals had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of one authority defying the other. 5. Referring to sub regulation (3) of regulation 14 relied on by the Respondent, the learned Senior Counsel submitted that the said regulation requires an offer to be made within four days of deciding change or changes that would result in the acquisition of control over the target company i.e., Castrol (India) Ltd in the instant case. According to the learned Senior Counsel, the sub regulation therefore covers cases where a decision is taken on the target company, that the expression 'decided' referred to in the regulation refers to some definitive action which has the effect of such a change. According to him a mere decision to make announcement of a pre-conditional offer to the shareholders of Burmah Castrol, cannot be viewed as decision as such to acquire the shares of or control over Castrol (India) Ltd. Learned Senior Counsel submitted that the decision to make change in the control of Castrol (India) Ltd., as a result of acquiring the shares of Burmah Castrol must be a clear, definite and binding decision. It is not merely the intention to change the control of Castrol (India) Ltd that is determinitive. According to him it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that would have lead to obligation on Appellant No. 1 to release a public announcement under regulation 14 (3) by 20.3.2000 and in terms of regulation 22(4) the offer would need to have opened on 19.5.2000 and would have to close on 17.6.2000 as per regulation 22 (5). In such a situation the offer for 20% of Castrol India would have closed about three weeks before the outcome of the main offer was known (i.e., 7.7.2000) and this would possibly have led to the result that the Appellant would have owned 20% of Castrol India Ltd, without holding any share of Burmah Castrol, should the main offer have failed. Learned Senior Counsel submitted that this is not the intention of the said regulations and would not have been in the interest of the Appellants, Burmah Castrol, and Castrol India or the public shareholders of Castrol (India) Ltd. He further stated that there was also the risk that a competing third party offer might have been made for Burmah Castrol and in that event both offering parties would have been obliged by the Respondent's interpretation of regulation 14 (3) to make an offer for 20% of Castrol India. This might have resulted in Appellant No. 1 holding 20% of Castr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to in regulation 12 is required to be made not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the Target Company by the acquirer. 13. Learned Senior Counsel submitted that the take over Regulations have a particular scheme. Regulation 10 provides that no acquirer shall acquire shares or voting rights which entitle such acquirer to exercise 15% or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations. Regulation 12 follows the same pattern, thereunder irrespective of whether or not there has been acquisition of shares or voting rights, the prohibition is on acquiring control. Learned Senior Counsel submitted that in regulation 12 the operative words are 'acquirer' and 'acquire'. 14. According to him the definition of the expression 'acquirer' in regulation 2 (1)(b) covers not only completed acquisition but also agreement to acquire, and it also covers direct and indirect acquisitions. The moment the acquirer sets into motion the process of acquiring shares or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnouncement to acquire the shares of such a company, in accordance with the Regulations. Thus regulation 10 is categorical in its language. But, regulation 12 provides that irrespective of whether or not there has been any acquisition of shares or voting rights in a company no acquirer shall acquire control over the target company unless such person makes a public announcement. The word 'unless' used in the regulation indicates that a public announcement is a necessary pre-condition for the acquisition of shares/voting rights in or control over the Target Company. He further submitted that under regulation 27 (1) (b), a public announcement may be withdrawn if the necessary statutory approvals have been refused and similarly regulation 27 (1) (d) provides for withdrawal in such circumstances as in the opinion of SEBI merits. He submitted that if for any reason the acquisition did not materialise, Appellant No. 1 was entitled to take recourse to withdraw the public announcement under regulation 27. 17. Learned Senior Counsel, referring to the Appellant's contention that the Respondent had taken a view inconsistent with the view taken by it on 7.8.2000 in the matter, po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Castrol, intention to acquire Castrol (India) Ltd., also took place, albeit indirectly and therefore the Appellant ought to have made a public announcement to acquire a minimum of 20% of the shares of the said Castrol (India) Ltd., in accordance with the regulations arriving at the offer price by taking 14.3.2000 as the relevant date. He submitted the contention that the offer would have been wholly in operative, had the Appellant received the shares carrying less than 51% of the voting rights in Burmah Castrol is of no force. In terms of regulation 12, an acquirer is prohibited from acquiring control over the Target Company unless he makes a public announcement to acquire the shares of the Target Company. It was always open for Appellant No. 1 to make a public announcement to acquire the shares of the target company, simultaneous to the acquisition of the shares of Burmah Castrol and making it dependent upon completion of conditions, in respect of acquiring the shares of Burmah Castrol. It cannot be said that the obligation to make public announcement only arose when the acquisition of Burmah Castrol became complete. Learned Senior Counsel further submitted that the Regulations d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptance, then the Appellant need not have proceeded with the offer process as regulation 27 can be resorted to take care of such an eventuality. According to the learned Senior Counsel it cannot be said that the obligation to make public announcement only arose when the acquisition of Burmah Castrol became complete. 22. I have very carefully considered the submissions put forth by the parties in their written as well as oral submissions. At least on one issue there is consensus, that is the main issue required to be considered in the appeal is determination of the relevant date for the purpose of calculating the minimum offer price required to be offered to the share holders of Castrol (India) Ltd. In this case, relevant date factor is very important from the point of view of the Appellants as well as the public shareholders of Castrol India for the reason that it has a strong bearing on the financial burden on the Appellants and financial benefit to the share holders of Castrol (India) Ltd. In case it is decided that the relevant date is 14.3.2000, the minimum offer price would be around Rs. 350.08 per share, thereby requiring the acquirer to shell out more. If 7.7.2000 is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i. Equality of treatment and opportunity to all shareholders. ii. Protection of interests of shareholders iii. Fair and truthful disclosure of all material information by the acquirer in all public announcements and offer documents. iv. No information to be furnished by the acquirer and other parties to an offer exclusively to any one group of shareholders. v. Availability of sufficient time to shareholders for making informed decisions. vi. An offer to be announced only after most careful and responsible consideration. vii. The acquirer and all other intermediaries professionally involved in the offer, to exercise highest standards of care and accuracy in preparing offer documents. viii. Recognition by all persons connected with the process of substantial acquisition of shares that there are bound to be limitations on their freedom of action and on the manner in which the pursuit of their interests can be carried out during the offer period. ix. All parties to an offer to refrain from creating a false market in securities of the target company. x. No action to be taken by the target company to frustrate an offer without the approval of the shareholders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert with the acquirer. 30. The Regulations also provide a time frame to be followed in the process. Regulation 14 (3) refers to the public announcement of offer required to be made in the context of acquisition covered under regulation 12. As per regulation 14(3) requisite public announcement is required to be made by the merchant banker (appointed by the acquirer) not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer. 31. Regulation 16 lists the contents of the public announcement of offers referred to in regulations 10, 11, and 12. As per the said regulation one of the particulars to be stated in the announcement is the minimum offer price for each fully paid up or partly paid up share . The manner in which the minimum offer price is required to be arrived at has been explained in detail in regulation 20. In the case of the shares of a listed company (Castrol India is a listed company), in terms of clause (d) of sub regulation (2) of regulation 20, the minimum offer price shall be the highest of the average of the weekly high and low of the closing price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant No. 1 issued the public announcement stating therein the decision of Appellant No. 1 to acquire Burmah Castrol for 3($ 4.7) billion, as agreed to between the said parties. 36. I have already stated the requirements of regulation 12, in the brief survey of the applicable statutory provisions to the case, in the preceding paras. It could be seen therefrom that there is a prohibition on the acquirer that no acquirer shall acquire control over the Target Company, unless such person makes a public announcement to acquire shares in accordance with the regulation and acquires such shares in accordance with the regulations . Thus the regulation not only mandates issuance of public announcement by the acquirer but also requires the acquirer to acquire such shares in accordance with the Regulations. It is clear that issuance of public announcement is not a post acquisition requirement, but definitely a pre-acquisition requirement. In the light of such a clear requirement of the regulation, it is difficult to subscribe to the Appellant's view that its obligation to issue public announcement arose only on completing the acquisition on 7.7.2000. On a perusal of the said regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llment of certain pre-conditions. The letter of offer issued to the shareholders of Burmah Castrol also had put certain pre-conditions. But whether such conditional announcement or offer make any difference as far as the obligation to take 14.3.2000 as the relevant date for deciding the offer price? To my mind the answer is in the negative. 38. As already stated in the light of the provisions of regulation 12 read with regulation 2 (1) (b), if a person agrees to acquire shares in or control over the Target Company he becomes an acquirer and is obliged to issue a public announcement in the circumstances stated in regulations 10, 11 or 12 as the case may be. The Appellants contention that the public announcement issued on 14.3.2000 was merely an expression of intent and there was no agreement as such between the parties to acquire shares at that point of time is contrary to the facts available before me. In the press release of the announcement issued by Appellant No. 1 on 14.3.2000, a copy of which has been filed as Exhibit A to the appeal, it has been stated in bold letters that: BP AMOCO AGREES RECOMMENDED CASH OFFER TO BUY BURMAH CASTROL FOR 3 ($ 4.7) BILLION 39. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the valuation of the said company had been completed, as could be seen from the unambiguous statement in the announcement with reference to the valuation of the shares in the following words - This represents (i.e., value of the shares) a premium of 61% over the average closing price of Burmah Castrol shares for the three months to March 10, 2000 (the last day preceding the announcement that BP Amoco and Castrol were in discussions about a possible offer) The premium is 74 percent over the closing price for Burmah Castrol shares on March 10, 2000. Burmah Castrol shareholders will retain the right to receive the final dividend 31.9 percent shares declared on February 28, 2000 . 40. On a query from the Tribunal as to the meaning of the expression agree and agreement appearing in the announcement, the learned Senior Counsel had stated that it was only a loose expression used in a mere press release. I find extremely difficult to view it in that manner, as one cannot expect loose expressions repeatedly used in such an important document. The said press announcement cannot be considered as a routine press release of no significance. It is evident that this press release was is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiaries including Castrol (India) Ltd remained unchanged. The Appellant cannot be unaware of the same. In this context it is also pertinent to refer to the Material Adverse Change Condition referred to para 5 (f) that no material adverse change having occurred in the business, assets, financial or trading position or profits of any member of the Burmah Castrol Group which is material in the context of the Burmah Castrol Group taken as a whole . It is an admitted fact that the Castrol (India) Ltd is a member of the Burmah Castrol Group and that acquisition of the group companies covered the said Castrol (India) Ltd also is clear from the scheme of acquisition of the shares of Burmah Castrol. Therefore though the public announcement dated 14.3.2000 was directed towards the acquisition of shares of Burmah Castrol, it also covered acquisition of control of subsidiaries of said Burmah Castrol, including control over Castrol India. The Appellant has stated in para 5 (g) of the appeal (at pg.5 of the paper book) that on 7th July, 2000, upon receipt of acceptance from more than 50 percent of the share holders of Burmah Castrol Plc, the Appellant No. 1 waived the Acceptance Condition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l its subsidiary companies including the Indian subsidiary viz. Castrol (India) Ltd on the same day itself i.e. 14.3.2000. 43. In this context it is also to be noted that in the public announcement dated 14.3.2000, with reference to the Appellant's offer of 16.75 in cash for each Burmah Castrol share, it has been stated that this represents a premium of 61% over the average closing price for Burmah Castrol shares for the three months to March 10, 2000 (the last day preceding the announcement that BP Amoco and Burmah Castrol were in discussion about a possible offer) . (emphasis supplied). Thus the offer price to shareholders of Burmah Castrol has been worked out on the basis of the regime in vogue in the United Kingdom. That being the case, it is untenable to say, especially when the provisions of the Regulations are clear, that offer price to the public share holders of Castrol (India) Ltd will be referable to the date on which the acquisition of Burmah Castrol, the ultimate holding company of Castrol (India) Ltd is completed. In this context one has to remember the Bhagwati Committee's recommendation (supra) that one of the principles to be followed in acquisitions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant at all on 14.3.2000 and no question can possibly arise of there being any decision on that date, is not a proposition gaining support from the Regulations. I have already explained the requirements of the regulation 12 and 14 (3) and these regulations do not in any way even suggest that a public announcement or offer should be unconditional and should be relatable to a concluded acquisition. It could be seen from regulation 16 (xviii) and 22 (8) etc., that public announcement of offer to acquire the shares of the target company with conditions has been recognised by the Regulations. In this context it is pertinent to mention that at present we are not on a dispute arising out of the breach of a contract, but on the question of compliance of the statutory requirements as laid down in the Regulations. Appellant's view that for the purpose of deciding the minimum offer price to the shareholders of Castrol (India) Ltd, the relevant date should be taken as 7.7.2000 is not supported by the Regulations. I do not find any regulation to which the said date can be linked. 46. The Appellant's contention that in the draft letter of offer submitted to the Respondent on 20.12.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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