India May Ease Takeover Rules for ‘Special Cases’

Feb. 2 (Bloomberg) -- India’s market regulator said it will look at easing takeover rules in “special cases,” ahead of a possible acquisition of Satyam Computer Services Ltd., the software company at the center of India’s biggest fraud inquiry.

Satyam’s board has asked for exemptions from the takeover rules, Securities and Exchange Board of India Chairman C.B. Bhave said at a press briefing after the regulator’s board meeting in Mumbai today. Buyers must now offer to pay the higher of the average share price for the past 26 weeks or two weeks.

A relaxation of the rules will make it easier for suitors including Larsen & Toubro Ltd., India’s biggest engineering company, to bid for Hyderabad-based Satyam. Larsen is among at least four bidders that want to buy a controlling stake.

“We recognize the need for this and will look to make amendments for such special cases,” Bhave said.

Larsen may lift its holding in Satyam to 15 percent, betting the value will rise, Larsen Chairman A.M. Naik said on Jan. 27. The Mumbai-based company said after trading ended on Jan. 23 it tripled its stake in Satyam to 12 percent to have a greater say in the company’s rescue plan. A 15 percent stake is the threshold for a mandatory offer to buy 20 percent more from minority holders.

Spice Offer

Spice Corp. Chairman B. K. Modi has offered 20 billion rupees ($408 million) for Satyam, joining Larsen in the race for the software exporter. Holding company Spice Innovation made a preliminary cash offer for preference shares in Satyam, Modi said in a telephone interview from New Delhi on Jan. 30.

The regulator also tightened rules for warrant subscriptions, raising the upfront payment for buying warrants to 25 percent from 10 percent. It also eased rules for pricing equity offerings by allowing companies to set the price two days before the opening date of a public offer.

Rules for bonus share offerings were also modified, with the regulator stipulating all offers where shareholder approval is not required should be completed in 15 days.

The regulator last month tightened disclosure rules for founders of companies asking them to reveal shares pledged in return for loans. Pressure to make more information available to investors has increased since Satyam’s former chairman Ramalinga Raju said he falsified accounts for several years.

The botched attempt to force through the takeover of Raju’s family construction companies in December sparked a 31 percent one-day drop in Satyam’s stock. That triggered so-called margin calls as lenders that held Raju’s stock as collateral for loans demanded more cash to compensate for the slump in value.

Raju said on Jan. 7 the bid to sell the building companies to Satyam was a last attempt to conceal the false accounting. His inability to raise funds to repay loans triggered sales of his shares by the lenders, cutting his family’s stake to 2.34 percent by Jan. 8 from 8.3 percent in December.