SEBI offers shield against M&A Price Disruptions

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 21st May 2024 - 06:03 pm

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Significance of Amendment Proposal

Significant changes to takeover laws have been implemented by Securities & Exchange Board of India (Sebi), which may reduce price of mergers & acquisitions (M&A) for India Inc.

According to market regulator, sensitive information breaches or stock price fluctuations brought on by news stories would not be taken into account when determining open offer price.

This modification is component of new rumour verification system that Sebi is implementing as of June 1. In this sense, industry participants are still anticipating pretty clear structure. 

Using volume-weighted average sixty days before announcement is essential formula to figure out open offer price. Nonetheless, prior to formal announcement, information about possible M&A frequently leaks to media, which drives up stock price of target business.

Effect of it if it happens
As result, open offer price rises, making it comparatively costly for acquirer. Legal experts think that these adjustments will provide corporations peace of mind that deals won't be jeopardized & stock prices won't be impacted by premature leaks. " framework for price protection is positive development. 

Statutory links between pre-deal announcement trading price & pricing of listed business deals, as well as effect of rumour verification on deal pricing, were among industry's main worries. Anchal Dhir, partner at Cyril Amarchand Mangaldas, stated, "This is step in right direction, while we await details of framework for calculation of unaffected price.

"Top 100 listed businesses will be required, starting on June 1, to verify, refute, or provide clarification regarding any information disclosed in media that causes substantial shift in share price within day of trigger.
Starting on December 1, 2024, top 250 listed companies will also be subject to this criterion.

To Summarize

According to source, this modification is component of SEBI's new rumor verification structure, which will take effect on June 1, 2024. Commencing on June 1st, top 100 listed businesses will be required to validate, refute, or elucidate any material released by media that causes notable shift in share price within 24-hour period of trigger.  According to article, this requirement will now apply to top 250 listed companies as of December 1. standards were originally scheduled to go into effect in February but were postponed. Preferential issues, open offers, & other transactions are priced in accordance with Sebi regulations using volume-weighted average price (VWAP), which determines stock's average price over time while accounting for trading activity.

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