A day before curtains rise on the Burman family’s open offer for Religare Enterprises Ltd, Indian-American businessman Digvijay Danny Gaekwad sought to expand his counter-offer for the financial conglomerate; however, the late entry may not pass regulatory muster, said two people close to decision-making at the Securities and Exchange Board of India (Sebi), and three experts in securities law.
Gaekwad, who wrote to Sebi chair Madhabi Puri Buch on Friday for permission to launch an open offer for 26% in Religare on Sunday revised his offer to at least 55%. At ₹275 a share, Gaekwad’s competing offer is 17% more than the Burmans’ offer of ₹235, and will involve investment of ₹5,000crore. On Friday, Religare shares closed at ₹249.35, against ₹275 a day before the Burmans first announced their open offer plan.
However, according to the people cited above, Sebi is unlikely to allow Gaekwad to go ahead.
“This is first because, as per the extant takeover code of Sebi, any counteroffer is to be made within 15 days of the detailed public statement regarding an open offer by the original acquirer, or within 20 days under Section 20 of the SAST regulations under cases involving the White Knight defence provisions in the takeover,” said the first person. SAST stands for Substantial Acquisition of Shares and Takeovers.
Queries emailed to Sebi and Religare remained unanswered. Calls, text messages and an email sent to Gaekwad did not elicit a response.
The Burman family already holds above 25.18% in Religare, and if public shareholders fully accept the upcoming tender offer, the family’s holding will total 53.94%. Gaekwad expanded his offer on Sunday, since takeover norms stipulate that any rival bid should be for more shares than proposed by the original acquirer.
Potential hurdle
Another potential hurdle is the timing.
“There are clear timelines under Regulation 20 of the SAST regulations for competing bids, and strict adherence to these timelines are critical in such public offers. It has not been followed in Gaekwad’s competing offer,” said Ramesh Vaidyanathan, managing partner of corporate law firm BTG Advaya. “Secondly, the timing of the competing offer is questionable. It has been made just a day before the Burman family’s open offer on Monday, which suggests that this may not be a bona fide competing offer, but merely a red herring with some other objective. Also, the due process meant to be followed in competing offers, which establishes the credentials of the funds and the competing acquirer, is not complied with by the Gaekwad entity. So, this competing offer proposal is unlikely to be approved or go any further,” Vaidyanathan added.
Religare owns Care Health Insurance Ltd, India’s second-largest private standalone health insurer worth at least ₹10,000 crore, boasting a stellar growth story over the past seven years. The board of Religare, after initially welcoming the Burman offer in 2023, turned around to oppose it, citing the allegedly low price on offer, and questioned the fit-and-proper status of the Burmans. While the Burmans have accused Religare and its chairperson Rashmi Saluja of various misdemeanours, the company has staunchly defended her and denied the charges. After securing clearances from India’s banking, markets and insurance regulators, the open offer is set to hit the market on Monday.
“There is a formal procedure for making a competing offer and only then can it be accepted. The veracity of the competing offer, credentials of the acquirer and the source of funds are all part of that formal procedure. Such an offer could have been made even at this stage. Since Gaekwad’s competing offer proposal has been made merely through a letter it has no legal validity,” said Sandeep Parekh, managing partner at Finsec Law Advisors.
Lack of information
Another cause of concern is the lack of information on how Gaekwad will finance the open offer.
“The entity is neither a foreign portfolio investor nor has a meaningful business presence in India. One does not know the antecedent of this Gaekwad entity, the source of its funds and the ultimate beneficiary owner. This is just another ploy to derail the takeover offer by the Burman group,” said Shriram Subramanian, founder and managing director of proxy advisory InGovern Research Services.
“Sebi has many grounds to reject Gaekwad’s offer. Firstly, any competing offer was to be made within 15 days of the public announcement made in 2023. Secondly, any competing offer has to be made through a merchant banker along with proof of funds. The Gaekwad entity has not followed any process, which shows the non-seriousness of the competing offer and raises questions on the entity’s credibility,” said Subramanian.
He said Gaekwad’s attempt raises more questions since Religare’s board has resisted a takeover by the Burmans. “As a responsible market regulator, Sebi cannot allow abrupt competing offers that defy all procedures and regulations when an existing open offer is launched by a credible entity that owns 25% shareholding,” Subramanian added.
Hitting back
On Sunday, the Burmans hit back at Gaekwad’s plan.
“Gaekwad had to make the competing offer, if at all, within 15 days from the date of public statement, which was made by the Burman Group on 4 October, 2023 but he did not do so. Over 400 days have now elapsed for entitling anyone to make a valid competing open offer. The request for permission is entirely lacking in substance, bona fides, and offers no indication of any source of funds or even the capacity to purchase the proposed shares. The fact that this purported letter, lacking any bona-fides has been disseminated by REL to the stock exchanges, without undertaking any diligence, reeks of connivance, deceit and gross recklessness amongst the executive leadership at REL. It is clearly done with the aim of misleading the public shareholdersofREL,” the Burman family said in a statement.
However, some Religare investors feel even the ₹235 per share offered by the Burman family may attract only a handful of shareholders. “At ₹235, the open offer may attract only a few who bought shares at a much cheaper rate. Religare share price has moved up significantly since the original offer was made in 2023 by the Burman family. So, the price ideally could have been bettered,” a Religare shareholder said on the condition of anonymity.
The intention behind Gaekwad’s competing offer at this stage is not very clear, but the offer price of ₹275 may just be an attempt to plant doubts in the minds of prospective public investors tendering their shares in the open offer. After Gaekwad’s offer, they may think that in future, their shares may be offered an even higher price by someone else than the ₹235 offer made by the Burman family. And that may influence the decision of some of the shareholders to tender their shares in the offer made by the Burman family,” Vaidyanathan of BTG Advaya said.
Source:https://www.livemint.com/companies/danny-gaekwads-5-000-crore-counter-offer-to-buy-religare-may-hit-sebi-wall-11737886070897.html