The Securities and Exchange Board of India (SEBI) has issued a directive to Religare Enterprises Ltd (REL), compelling the company to proceed with an open offer from the Burman family of the Dabur group. This decision marks a significant development in the ongoing acquisition attempt, which has faced resistance from the current REL board.
Background of the Dispute
The Burman family, already holding a 21.54% stake in REL, had purchased an additional 5.27% of the company’s shares on September 25, 2023, at a price not exceeding ₹235 per share. This acquisition raised their total stake above 25%, triggering a regulatory obligation to make an open offer to all REL shareholders. Consequently, the Burmans proposed an open offer to acquire 9 crore equity shares of REL, representing 26% of the company's equity, for ₹235 per share, totaling ₹2,115 crore.
However, the current board of REL has opposed the takeover attempt, arguing that SEBI's directive to apply for statutory approvals, including from the Reserve Bank of India (RBI) and other regulatory bodies, was unwarranted and overstepped the regulatory boundaries.
SEBI’s Interim Order
In its interim order, SEBI has mandated REL to submit an undertaking by July 12, 2024, ensuring that it will apply for all necessary statutory approvals required for the open offer. SEBI’s directive also includes a request for REL to form a Committee of Independent Directors, as per Regulation 26(6) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), if not already constituted.
SEBI’s order highlights that REL and its Independent Directors have previously contended that SEBI's advice to apply for approvals from various regulatory authorities was an overreach and interfered with the board’s jurisdiction. REL argued that the issues regarding the “fit and proper” criteria and approval for change in control should be determined by the relevant sectoral regulators rather than SEBI.
Regulatory and Market Reactions
SEBI’s order underscores that while the right of shareholders to an open offer is crucial, it cannot be impeded by the existing management’s reluctance or apparent hostility towards the acquirers. SEBI’s stance is that such rights must not be compromised due to the management’s conflict of interest or obstructive behavior.
In response to SEBI’s directive, a spokesperson for REL confirmed that the company will comply with the regulator’s advisory and apply for the required approvals from the RBI and other authorities.
The Burmans had attempted to gain approval for the change in control but faced hurdles, including the RBI’s refusal to process their application on the grounds that only the target company (REL) could make such an application according to the Master Circular issued by the RBI on October 19, 2023.
SEBI’s Justification and Implications
SEBI's order reinforces the importance of protecting shareholder rights and ensuring that open offers are conducted in a fair and transparent manner. By directing REL to facilitate the statutory approval process, SEBI aims to uphold the principles of market integrity and prevent the existing management from obstructing legitimate acquisition processes.
The regulator also emphasizes that once an open offer is made, it can only be withdrawn under specific circumstances, ensuring that shareholders have a reliable exit option. SEBI’s involvement is primarily to ensure that regulatory procedures are followed and that the process does not get hindered by management conflicts or resistance.
Conclusion
SEBI’s intervention in the REL-Burman acquisition saga highlights the regulator's commitment to maintaining market fairness and protecting shareholder interests. The directive to REL underscores the need for compliance with regulatory requirements and ensures that open offers are executed in accordance with the established regulations. As the situation unfolds, the involvement of various regulatory bodies will be crucial in determining the final outcome of this high-profile acquisition.