Takeover code exemption for Satyam

I was interviewed yesterday on NDTV Profit, UTV and CNBC on the new takeover norms for Satyam-like companies. The transcript and video of the CNBC interview and the video of the NDTV interview are available on their respective websites. I made the following main points:

• The existing takeover code envisages a takeover process which is run by the buyer. The acquirer initiates the process and decides when to make an open offer. When a company is trying to sell itself, we want a process which is controlled by the seller. The seller would like to set a deadline for submission, evaluate all competing bids and choose the winner. The new norms are designed to facilitate this and this is good.
• The takeover code proved inadequate to run a good auction of Satyam and if it failed in Satyam it could fail anywhere else where a company wants to sell itself. We should have recognized that and added a new chapter to the takeover code to facilitate this for all companies and not just for Satyam-like companies.
• I am uncomfortable with the provision in the new norms saying that once the Board has chosen a bidder and this accepted by SEBI, then somebody else cannot make a competitive bid. What SEBI is really saying is trust the board, trust Sebi to find out who is the best buyer. Once they have done that nobody else can appeal above the board, above Sebi directly to the shareholders. I find this fundamentally unacceptable. The company belongs to the shareholders – anybody must have the right to go directly to the shareholders.

While I did not explicitly mention it in the interviews, I was thinking of Wells Fargo offering a higher price for Wachovia after the regulators had sold it to Citi. Had the board been controlled by the regulator and had the shareholders also been shut out of the decision making, the Wells deal would obviously not have been possible.

Posted at 8:56 pm IST on Sat, 14 Feb 2009         permanent link

Categories: corporate governance, regulation

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