Mumbai: A few proposals in Sebi's draft takeover code, announced on Monday, could open up the doors for prospective acquirers with deep pockets to buy out substantial chunks in Indian companies and drive out the existing promoters in case the latter do not agree to such moves. In any case, market players TOI spoke to said that if the proposals in the takeover code are made into a law, they have the potential to boost mergers & acquisitions (M&As) in India.

One of the important proposals that could boost hostile takeovers, so far a rare event in the Indian corporate sector, is that the code mandates an acquirer to launch an open offer to buy all the shares (100%) of the company, up from the 20% level where one could stop currently. "With this revision, we may be about to witness an 'era of takeovers' in India. If promoters co-operate, takeovers will be friendly. Otherwise, the takeovers can be hostile.

Either way, the stage is all set for 'takeovers' in India," a research report on the effect of the new Sebi draft code, by domestic broking house SMC Global, noted.

The report pointed out that looking at the shareholding patterns of Indian companies, several of the top ones are looking vulnerable to takeovers. For instance, in the BSE 500 companies, in the case of 215 companies the promoters own less than 50% stake making them good candidates for takeovers. And out of these 215 companies, in 76 companies, at least single (non-promoter) shareholder owns between 10% to 49.99%. Hence, in the case of those 76 companies, the vulnerability of being taken over is quite high, the report pointed out.

For example, in Moser Baer, the promoter holding is 16.3% while the largest shareholder, Warburg Pincus, holds 13.1%. "In such cases, the vulnerability of the company significantly goes up," the SMC Global report noted.

Interestingly, the proposal to hike the open offer limit to 100% from 20% was proposed at least a decade ago by Nimesh Kampani, chairman, JM Financials, one of the country's top investment bankers. Then a member of the Justice Bhawati panel that framed Sebi's first Takeover Code in 1997, Kampani had issued a note of dissent when the code was made public.

At that time he was against the proposal that the acquirer was required to make an open offer for 20% of the target company and wanted it to be fixed at 100%.