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SECP Amends Listed Companies’ Takeovers Regulations, 2017

The Securities and Exchange Commission of Pakistan (SECP), through a notification dated January 24, 2024, has introduced amendments to Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2017 (the “Regulations”) which are available at www.secp.gov.pk.

These amendments have been made after consultation with key stakeholders and the general public and are in line with international good practices.

The Regulations make it mandatory for the Acquirer of a company to make a Public Offer to the Minority Shareholders of the Target Company at a price determined per the prescribed criteria. The purpose of the mandatory Public Offer is to provide a fair opportunity to the Minority Shareholders to take an exit from the company in case they intend to do so.

Through an earlier amendment made in the year 2022, the Acquirer was allowed to offer either cash or securities as payment to the Minority Shareholders who accepted the Public Offer. While the amendment provided flexibility to the Acquirer, the risk arose that an Acquirer might offer securities that were not as good as cash and were unacceptable to the Minority Shareholders who were otherwise inclined to accept the Public Offer. By offering inferior securities as payment, an Acquirer might defeat the purpose of Regulations i.e. to provide a fair exit opportunity to the Minority Shareholders of the target company.

This risk has been addressed by following the principle that the securities offered as payment to the Minority Shareholders must be as good as cash. Based on this principle, the amended Regulations allow the Acquirer to offer securities as an alternative to cash but leave the final decision, i.e. whether to accept cash or securities as payment, to the Minority Shareholders of the Target Company.

The amendment makes it difficult for an Acquirer to game the mandatory Public Offer and deprive the Minority Shareholders of the Target Company of a fair exit opportunity by offering inferior securities as payment.

The Regulations also prescribe various methods for determining the price to be offered by the Acquirer to the Minority Shareholders of the Target Company. The highest price determined through these methods becomes the Offer Price.

One of the prescribed pricing methods is the Net Asset Value of a company. In the case of frequently traded companies, Net Asset Value may not be a suitable measure for price determination. It disregards the premise that market price is the best measure to value such companies and discourages takeovers of frequently traded companies whose shares are trading at a discount to the Net Asset Value.

The amended regulations address this issue by excluding Net Asset Value from the prescribed methods for determining the Offer Price for frequently traded target companies.

The amended Regulations also contain improved definitions of various terms for clarity and consistency. These amendments are expected to help safeguard the interests of the Acquirers as well as the Minority Shareholders of Target Companies.

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