Open Offer in India: SEBI Takeover Code, the 25% Trigger and What Shareholders Should Do When One Is Announced

Trigger: acquiring 25% voting rights or control. Minimum offer size: 26% of shares. Creeping acquisition above 5% per year is allowed only between 25% and 75% holding.

An open offer in India is announced when a buyer takes a large stake or control of a listed company and must offer other shareholders a chance to sell. It protects minority investors, who would otherwise be left behind in a company with a new owner.

This guide explains when an open offer is triggered, how the price and size are set and what you can do as a shareholder when one is announced.

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What Is an Open Offer in India?

An open offer is a public offer to buy shares from the existing shareholders of a listed company, made by an acquirer who has crossed certain limits under the SEBI takeover code. The aim is to give public shareholders an exit at a fair price when ownership or control changes.

What Triggers an Open Offer?

• Acquiring 25% or more of the voting rights in the company, alone or with others acting in concert.
• Acquiring control over the company, even with less than 25%.
• Acquiring more than 5% in a financial year, when the acquirer already holds between 25% and 75%.
• Indirect acquisitions, where control passes through a change in the parent company.

The 5% yearly limit for holders in the 25% to 75% band is called creeping acquisition. Beyond it, a new open offer is needed. A rule on maximum non-public shareholding, set at 75%, also affects how far an acquirer can go.

How Big Is an Open Offer and How Is the Price Set?

The minimum size of the offer is 26% of the target company’s shares. The offer price must be at least the highest of several benchmarks, such as the highest price paid by the acquirer in a set period before the announcement, and the average market price over a defined period. This is meant to prevent public shareholders from receiving less than the acquirer paid.

Item	Rule
Trigger	25% voting rights or control
Minimum offer size	26% of the company’s shares
Offer price	At or above the highest of the benchmark prices
Creeping limit	Up to 5% a year for holders between 25% and 75%
Maximum non-public holding	75%

The Open Offer Process

1. The acquirer makes a public announcement to the stock exchanges.
2. A detailed public statement and the draft letter of offer are filed with SEBI.
3. A letter of offer goes to shareholders with the terms and dates.
4. A tendering window opens, during which shareholders can offer their shares.
5. Payment is made to those whose shares are accepted.

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The public announcement is the first formal step, and the date of the public announcement starts the timeline for the detailed statement and the offer. A late public announcement is itself a breach of the rules.

What Should Shareholders Do?

Compare the offer price with the current market price and with your view of the company’s value. If the price is well above the market price, tendering may be attractive. If you believe the stock is worth more, you can stay invested. If the offer is for 26% and many shareholders tender, only a part of your shares may be accepted.

Keep in mind that open offers often cause price swings in the stock. Large companies in the Nifty 50 have fewer such offers, but mid-caps see them often.

If the acquirer is buying from the promoter, the offer price often reflects the price paid to the promoter, and public shareholders get the same chance at a fair price.

Open Offer vs Delisting Offer

An open offer follows a change in control, and the company usually stays listed. A delisting offer aims to remove the company from the exchange. The rules, prices and outcomes differ, so read the letter of offer to understand which one you are dealing with.

Check your demat account for tender instructions, since shares are usually tendered through your broker. Missing the tendering window means you cannot take part in the offer.

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Conclusion

An open offer in India protects minority shareholders when control changes. It is triggered by crossing 25% of voting rights or gaining control, is for at least 26% of shares and carries a minimum price set by the SEBI takeover code.

Read the letter of offer, compare the price with your view of value and act within the tendering window if you wish to sell.

Frequently Asked Questions

What is an open offer in the stock market?

Ans. It is a public offer by an acquirer to buy shares from the existing shareholders of a listed company after crossing the limits set by the SEBI takeover code, so that minority holders can exit at a fair price.

What is the trigger for an open offer?

Ans. Acquiring 25% or more of the voting rights, or gaining control of the company, triggers an open offer. Buying more than 5% in a year, for holders between 25% and 75%, also triggers one.

How much of the company is covered in an open offer?

Ans. The minimum offer size is 26% of the shares of the target company. If more shares are tendered than the offer size, they are accepted proportionately.

Is the open offer price always higher than the market price?

Ans. Not always. The price must be at least the highest of the benchmark prices set by regulations. The market price can be above or below the offer price when the offer is open.

Do I have to tender my shares in an open offer?

Ans. No. Tendering is optional. You can keep your shares and stay invested in the company under its new owner.

What is creeping acquisition?

Ans. It is a way for an acquirer holding between 25% and 75% to buy up to 5% more in a financial year without making an open offer. Beyond this limit, an open offer is needed.

How do I tender shares in an open offer?

Ans. You tender through your broker during the tendering window, following the instructions in the letter of offer. Check the dates and the documents required, and keep the confirmation.