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Experts to oversee hostile takeovers: Law likely by March

HARIS ZAMIR

KARACHI: KARACHI: Hostile takeovers would in future be regulated by a special panel comprising Governor State Bank of Pakistan, a retire High Court judge and nominees of some professional bodies like institutes of chartered acounts, business administration and cost management accounts to make the process transparent and beneficial for small investors.

The commission so constituted would receive application from the group or acquirer for the take-over of the company. The Commission would be associated with the Securities and Exchange Commission of Pakistan (SECP).

Such laws are in practice in several regional markets. The announcement of such law in India helped the Bombay Stock Exchange to record an unprecedented surge of at least 150 points in a single session.

It is expected that the proposals regarding the hostile takeovers, submitted by the Karachi Stock Exchange (KSE) would become law by March.

According to the proposed law, no acquirer shall acquire shares, or voting rights, which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise 10 percent 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 laws.

No acquirer, who, together with persons acting in concert with him, has acquired, in accordance with the provisions of the law, 10 percent or more but less than 51 percent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares, or voting rights, entitling him to exercise more than 5 percent of the voting rights, in a period of 12 months, unless such acquirer makes a public announcement.

The new law would consist of 'bail-out takeovers', too. This would help in acquisition of shares in a financially weak company. This law would be in pursuance of a scheme of rehabilitation approved by a financial institution or a scheduled bank of NBFI.

The lead institution shall appraise the financially weak company, taking into account the financial viability, and asses the requirement of funds for revival and draw up the rehabilitation package on the principle of protection of interests of minority shareholders, good management, effective revival and transparency.

The rehabilitation scheme shall also specifically provide the details of any change in management. The scheme may provide for acquisition of share in a financially weak company in any of the following manners: outright purchases of shares; exchange of share, or a combination of both.

Despite takeover by a group or acquirer, the commission would have the right to investigate and may appoint one or more competent persons as investigating officer.

The commission may investigate into the complaints received from investors, intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers.

The acquirer shall, as and by way of security for performance of his obligations under the Sections, deposit in an 'Escrow Account'. In case the account consists of securities, these shall not be returned by the commercial bank, investment bank or member of the stock exchange till after completion of obligations under the law.

In case there is any upward revision of offer, consequent upon a competitive bid or otherwise, the value of the Escrow Account shall be increased to equal the consideration payable upon such revision. Where the Escrow Account consist of securities, the acquirer shall also deposit with the bank a sum of at least 5 percent of the total consideration payable, as and by way of security for fulfilment of the obligations under the law by the acquirers.

The commission shall, in case of non-fulfilment of obligations under this law by the acquirer, forfeit the Escrow Account in full or in part.