Jet-Etihad: SEBI invokes open offer clause

The Securities and Exchange Board of India (SEBI) today made it clear that the Abu Dhabi carrier Etihad would have to make an open offer to the public shareholders of Jet Airways, in which it is acquiring a 24-per cent equity stake.

SEBI takeover regulations require any entity acquiring control of a listed Indian company to make an open offer to the company's public shareholders also.

The market regulator's statement comes amid a continuing stalemate over the proposed acquisition of stake in Jet Airways by Abu Dhabi carrier Etihad.

The takeover rules require that the acquirer make a similar offer to the target company's public shareholders as well, if effective ''control'' has been obtained without crossing the threshold shareholding limit (25 per cent), SEBI chairman U K Sinha said.

Without specifically commenting on the issues surrounding Jet-Etihad deal, Sinha said SEBI's position is very clear about any deals involving substantial acquisition of shares and takeovers.

"If somebody has acquired stake in a company beyond a certain threshold then the acquirer has to make an open offer to others. That is the first position.

The second position is that even if the acquirer has got less than the threshold but he has got the control over the company then also he has to make an open offer.

"SEBI will be looking into any case where there is a suspicion or belief that control has been acquired. SEBI will apply its tests and take a decision accordingly," he said.

As per SEBI's takeover regulations, any entity acquiring 25-per cent or more stake in a listed company needs to make a mandatory open offer for purchase of additional 26 per cent shares from the public shareholders.

However, according to SEBI, the open offer obligations also apply to the entities acquiring 'control' of a listed company with a stake less than the threshold 25 per cent.

SEBI defines 'control' as "the right to appoint majority of directors, or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholder agreements or voting agreements or in any other manner".

While Etihad, the Abu Dhabi carrier is acquiring 24-per cent stake in the Indian airliner, which is below the threshold limit of 25 per cent, there have, however, been concerns that Etihad was getting voting rights and other powers in excess of those equivalent to its proposed 24 per cent stake.

Jet has been saying that it would comply with all relevant regulations on this deal and the two have, in fact, diluted some clauses of the agreement in order to re-structure the deal to meet SEBI norms.

Under the reworked shareholder agreement Jet Airways, which holds a 51-per cent stake in the carrier, will retain some of the management rights awarded to its partner Etihad. The company, however, did not elaborate.
Etihad would hold 24 per cent stake while the public shareholders would hold the remaining 25 per cent stake.

Etihad Airways has, meanwhile, sought a reduction in the premium it would be paying for buying the shares of the Indian carrier, as a condition for extending the deadline for the agreement beyond its 31 July 2013 deadline.

Etihad struck a landmark agreement with Jet in April this year under which the Gulf-based carrier agreed to acquire 24 per cent of Jet for about $600 million. Etihad paid a premium of 34 per cent over the market price for the stake (See: Etihad Airways to buy 24% in Jet Airways for Rs2,061 crore).

Etihad, however, received some concessions from Jet Airways as a quid pro quo in the form of additional powers in the shareholder agreement.

SEBI, however, objected to the deal, especially the clauses in the agreement giving Etihad the power to approve a number of transactions.

Although the agreement does not confer the Abu Dhabi airliner any special rights or veto powers, it will have to be taken on board for most decisions, including routine ones, making Naresh Goel with 21 per cent equity stake a joint manager along with the appointee of the Gulf carrier.