1

2
3
4
5
6
Underwriting and Bought Out Deals
A Bought Deal or Bought out Deal is when a company’s entire public offer of stocks is
confirmed to be bought by the investment bank. When an entire issue or new share offer is
purchased by a single Investment Bank or Underwriter, such an offering is called Bought
Deal or Bought out Deal. The investment bank or underwriter buys the entire offering to sell
it later to other buyers at profit.
Features of a Bought Deal:
Key features of a Bought Deal:
1. Generally, a bought deal is offered to the investment bank or investor’s syndicate at a
discounted price.
2. Underwriter has an opportunity to sell it at a higher value later.
3. It is profitable for both as, for the issuer, there is no risk of under subscription and for the
underwriter, and the acquisition price is at a discount.
Disadvantage of Bought Deal:
Some limitations of a Bought Deal are:
1. Investment banks will have to hold the securities in order to make profits if not sold
immediately to prospective buyers.
2. As it is a guaranteed deal, the issuer has no motivation for marketing or publicizing the
offering.
Example of a Bought Deal

An issuer company is looking to offer 40 million shares. The projected market value per
share is $10, but there is no guarantee that all shares of the issuer company would be
purchased. In order to avoid financing risk (the risk of not being able to sell all of its shares at
the market price), the issuer company engages in a bought deal with its underwriters. The
underwriters and the issuer company come to a heavily discounted consensus price of $6 per
share, and the underwriters purchase the entire offering at $240 million (40 million shares at
$6 per share).

As the underwriters now own the entire offering, they must resell the issuer’s shares at a price
of at least $6 per share or face the risk of generating a net loss. The issuer company is
alleviated of financing risk but receives financing at a discounted price per share ($6) as
opposed to the market value per share ($10).

Advantages to Underwriters

 The underwriters are able to purchase the offering at a steep discount to market value;
and
 The higher the price that the underwriters are able to resell on the market, the greater
the profits realized by the underwriters.
Disadvantages to Underwriters

 The underwriters see their capital tied up, which potentially could’ve otherwise been
put to better use; and
 The underwriters face the risk of not being able to resell the issue;
Corporate Debt Restructuring:
Corporate Debt Restructuring refers to the realignment of a business entity which is under
fiscal distress due to its outstanding commitments and obligations and to infuse liquidity into
business operations to keep it afloat. This process is generally done by the creditors and the
management of the company, which is under distress.
Creditors of corporates are generally banks and non-banking financial companies (NBFCs).
The Corporate Debt Restructuring is done by lowering the amount of payable towards the
debt. Also, the interest rate is lowered. However, the repayment tenure is enhanced, which
would help the company in paying the outstanding dues.
At times, a part of the company’s debt would be waived off by the creditors. But, that would
be in exchange for equities of the company. Nevertheless, this kind of arrangement is more
favourable for the distressed company as compared to declaring themselves to be bankrupt
and undergo tedious procedures.
Breaking Down Corporate Debt Restructuring:
The requirement for a company to undergo corporate debt restructuring generally arises if a
company is going through fiscal difficulties, and is finding it challenging to stand by and
fulfil its obligations and fiscal commitments like repayment of a loan.
In simple words, a company owing to higher debt than its potential income. If the companies
see that they are going to experience difficulties that may lead them towards bankruptcy, then
they may initiate negotiation with their lenders and creditors and decrease their burden and,
thereby, avoiding the chances of being bankrupt.
Corporate Restructuring
Takeover, Buy Back &
Delisting

Presented by – Manoj Kumar

Introduction

Takeovers, Buy Back & Delisting are key tools of Corporate Restructuring and Planning which
are facilitated by Company Law and in case of Listed Company also governed by SEBI Laws
What is Takeover?

Acquisition of Substantial Shares and Control over a Target Company to expand

the business in an inorganic manner.
 Ensure Fair Exit Opportunity to the

public shareholders;
Purpose of Takeover Code?
Provide Fair Play in exit opportunity

of the Company;

Timely Information Dissemination

about change in shareholding of

Listed companies
 How Takeover Code evolved?
In year 1991 - Announcement of Policy of
Globalisation in India;

In year 1992 - Change in India’s Capital

Market Scenario;

SEBI enacted SEBI (SAST) Regulations,

1994 initially;

Then, SEBI enacted SEBI (SAST)

Regulations, 1997;
Later, Takeover Regulations Advisory
Committee (“TRAC”) was formed under
the chairmanship of Late C. Achuthan;
SEBI notified SEBI (SAST) Regulations,
2011;
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011
Listed Company?

The term Company is defined under the provisions of Companies Act, 2013;

Company means a company incorporated under this Act or under any other company law;

Listed Company means a company of which any of its securities listed on any recognized stock exchange;

Takeover Code only deals with Companies of which Equity/Voting Shares are listed
Acquirer?

Means any person who directly or indirectly acquires or agrees to acquire

whether by himself or through with Person Acting in Concert shares or voting
rights or control over the Target Company.
Person acting in Concert?

Persons who for a common objective acquire shares or voting rights or

control over Target Company, pursuant to an agreement or understanding,
formal or informal, directly or indirectly co-operate for acquisition of shares
or voting rights or control over the Target Company.
Acquisition?

Acquiring or agreeing to acquire

Shares or Voting Rights in or Control

Over the Target Company

Directly or Indirectly
Define Shares?

Shares means shares in the equity share capital of a target company carrying voting rights, and includes

any security which entitles the holder thereof to exercise voting rights;

Explanation  For the purpose of this clause shares will include all depository receipts carrying

entitlement to exercise voting rights in all the Target Company.

Control?

It is very Subjective, inclusively defined

Right to appoint majority of the directors; or

Right to control the management; or

Right to policy decisions exercisable;

May be Direct or Indirect

Type of Acquisition

Direct Indirect
Acquisition Acquisition
Direct Acquisition

Direct Acquisition

Creeping
Acquisition or
Initial Threshold Change in Control
Consolidation of
holding
Direct Acquisition

Initial Threshold – 25% of the voting rights in Target Company

Creeping Acquisition or Consolidation of holdings – [if already holds 25% or more but less than 75%] in

excess of 5% of voting rights in any financial year

Acquisition of Control – irrespective of any shares or voting

Indirect Acquisition

Acquisition of voting rights or control over other entity that enable the Acquirer to exercise such

percentage of voting or control over the Target Company.

Type of Offer

Mandatory Voluntary
Offer Offer
Size of Takeover Open Offer

Mandatory Offer – Offer Size shall be 26% of the capital of Target Company

Voluntary Offer – Offer Size shall be 10% of the capital of Target Company
 Public
Process of Takeover Announcement

Completion of Publication of
transaction Detailed Public
triggered Statement

Payment to
Filing of Draft
shareholders and
Letter of Offer
completion of
with SEBI
offer process

Tendering Period – Observation letter

10 WD from SEBI
Type of Takeovers

Hostile Friendly
Fair Play in Acquisition

Fair Offer Price

Opportunity of Competitive Bids;

No Change in Control or of Shares during Competitive Bid Period

No Negative Action by Target Company during Offer

 Reg. Provisions Triggers To whom &
Duration
29(1) Acquirer along with PAC Acquires 5% of Stock
shares Exchange;
Target
Fair Disclosures 29(2) Acquirer along with PAC Change in the Company
already holds 5% or more shareholding (Within two
exceeds 2% working days)

30(1) Person along PAC already As on end of Stock

holds more than 25% financial year Exchange;
Target
30(2) Promoter along with PAC As on end of Company
shall disclose aggregate financial year (Within seven
shareholding working days)

31(1) Promoter shall disclose Immediately on Stock

& creation, invocation and creation, invocation Exchange;
31(2) release of encumbered and release Target
shares Company
(Within seven
working days)
What is Buy Back?

Buying back of Company’s own shares from the

existing shareholders
Governing Provisions

Companies Act, 2013

&
SEBI (Buy Back of Securities) Regulations, 1998
Why to Buy Back
Rationalize the capital structure by writing off capital not
represented by available assets.

To encourage faith in the minds of shareholders at the

time of slump in the market price

To pay surplus cash not required by business

 Methods of Buy
How Buy Back is done? Back

Open Market Buy Back from

Tender Offer
Method odd-lot holders

Book-Building Stock Exchange

Legal Requirements

Authorization in AOA
Board Resolution – In case buy back is ≤10% total paid up equity capital and free reserves
Special Resolution – In case buy back is ≤25% of the paid up capital (equity plus preference shares) and
free reserves
Debt equity ratio should not be more than the 2:1 after such buy-back
Filing of Declaration of Solvency with the Registrar and SEBI
All the shares or other specified securities for buy-back are fully paid-up
To be completed within twelve months from the date of passing the BR or SR
Minimum time gap of 365 days between two Buy Back offers
Sources of funds?

Free Reserves
Securities Premium Account
Proceeds of any shares or other specified securities
Restrictions?
Buy-back shall not be done for delisting of securities
Buy-back shall not be done from any person through negotiated deals, spot transactions and private
arrangements
No issuance and allotment of any Equity Shares shall be done
In Market Purchase -Promoters & Controlling persons cannot participate
Promoters shall not deal in shares or other specifies securities during the Offer period
The consideration shall be paid only by way of cash
Restrictions?
Company shall not withdraw the offer of buy back after the public announcement is made

The company shall not buy back the locked in shares or other specified securities and non-transferable
shares or other specified securities

No fresh issue of Equity Shares or other specified securities from the date of closure of Buy Back upto
six months [except by way of bonus issue or in the discharge of subsisting obligations such as
conversions of warrants, stock options schemes, sweat equity or conversion of preference shares or
debentures into equity shares]
What is Delisting?

Delisting

Listing
 How Delisting Regulations evolved?

SEBI Later, SEBI

introduced Then, SEBI introduced SEBI
replaced it from (Delisting of
Delisting Delisting Equity Shares)
Guidelines Guidelines, 2003 Regulations,
1998 2009
SEBI (Delisting of Equity Shares) Regulations, 2009
Methods of Delisting?

Compulsory
Delisting Voluntary
Delisting
Compulsory Delisting?

Due to the non-compliance of various

regulations, stock exchange may ask for
compulsory delisting for the shares of
certain companies, whose listing can be
risky for the investors.
Voluntary Delisting?

True Value not getting reflected in Market

No liquidity or very few shareholders
Promoters’ Strategic planning
How to Delisting?

Voluntary Delisting
Compulsory Delisting Exit opportunity
from all exchanges

Delisting
Voluntary Delisting
from all exchange but
Voluntary Delisting No exit opportunity
remains on STX having
NTT

Small company No bidding but exit

delisting opportunity is there
 Promoters
willing to
Process of Delisting Approval of delist Board
delisting by approves the
St Ex Delisting

Shareholders
Payment to
pass SR
shareholders
through PB

Acceptance In principle
of Price by approval of
Promoters St. Ex

Reverse Book Floor Price &

Building Escrow A/c
Process creation
Manoj Kumar
Partner and Head - M&A and Transactions
D-28, South Extn. Part- I,
New Delhi – 110049
M: +91 9910688433
T: +91 11 40622228 (D)
manoj@[Link]
[Link]