An announcement reaches the exchange at half past eight in the evening. The family that has run a mid-sized company for two generations has agreed to sell its entire fifty-one per cent to a listed group from another state. The stock opens sharply higher the next morning. Then, for several weeks, nothing — no email, no message, no instruction from anybody. And then a thick envelope arrives by post containing a document called a letter of offer, a form with a tear-off portion, a price and a set of dates. Nobody has asked whether you wanted the company sold, because that was never a question you were going to be asked. What the envelope contains is the one thing the law does give you, and it is narrower and more precise than it looks.
You and your brother own a shop, half each. Without discussing it, he sells his half to a stranger at a good price and walks away. You now have a business partner you did not choose, in a shop you cannot easily leave, and you were not offered the price he took. In an ordinary partnership there is no rule that rescues you from this. You are simply stuck with the new man.
On a listed company the law gives you the door that partnership does not. Control cannot change hands over the heads of the public shareholders without an offer being made to them, at a price computed from what the departing seller got. Read it in the right direction: the offer is not a courtesy the acquirer extends after buying the stake. It is a condition of being allowed to buy the stake at all.
What actually triggers an offer
The obligation sits in SEBI's takeover regulations, and it fires on arithmetic and on control rather than on anybody's intentions. Three routes lead to the same place.
| What the acquirer does | Why it triggers an offer | The part people miss |
|---|---|---|
| Crosses the shareholding threshold — acquires shares or voting rights that take it to twenty-five per cent or more | At that level a holder can block the resolutions that need a three-quarters majority, so the regulations treat it as the point at which the character of the company's ownership changes | It counts the holding of the acquirer together with persons acting in concert with it. A group of related entities each buying a modest slice is one acquirer for this purpose, and structuring around the threshold that way is the specific thing the concept exists to prevent |
| Creeps upward — already holds twenty-five per cent or more and acquires more than five per cent of voting rights within a financial year | Otherwise a holder just below the takeover threshold could accumulate control quietly, a few per cent a year, and never make an offer | The five per cent is measured across the financial year, not per transaction. A series of small purchases adds up, and the disclosure obligations mean the running total is public |
| Acquires control, whatever its shareholding | Control can be bought without shares — through the right to appoint a majority of the board, or through agreements that decide policy | This is the trigger with no number attached, and it is where the genuinely contested cases sit. An acquirer holding well under the threshold can still owe an offer if what it has acquired amounts to control |
The price, and where it comes from
The offer price is not negotiated with you and is not chosen by the acquirer. It is computed, as the highest of a set of benchmarks the regulations prescribe: what the acquirer agreed to pay the outgoing seller under the deal, the highest price it paid for shares of the company over a defined recent period, a volume-weighted average of its own acquisitions over a longer look-back, and a volume-weighted average of the market price over a defined number of recent trading days. Taking the highest of several benchmarks is the whole design. It stops an acquirer paying a control premium to a promoter privately and then offering the public a market price that does not contain it.
- It is a floor, not a ceiling. The acquirer may offer more, and sometimes does — to make an unwilling target agree, or to see off a rival. It may not offer less than the computed figure.
- It can exceed what the promoter got. If the market price ran up over the look-back window, the market-price benchmark can be the highest of the set, and the public is then offered more per share than the family that sold control. This surprises people, and it is the benchmark structure working exactly as intended.
- The money is secured before the offer is announced to you. The acquirer must place cash or acceptable security in an escrow arrangement before the detailed public statement goes into the newspapers. An open offer is therefore not a promise to pay; it is a promise already funded, which is why they very rarely fail for want of money.
- A rival may come in. The regulations allow a competing offer within a prescribed period after the public statement, which is the mechanism behind the occasional bidding contest. Where one appears, the dates in your envelope change and a fresh letter follows.
The size: a quarter of the company, not all of your holding
This is the single most misread feature of an open offer, and it is misread because the announcement quotes one price and says nothing about quantity. A mandatory open offer must be for at least twenty-six per cent of the company's shares. It is not an undertaking to buy out everybody who wants to leave. If shareholders tender more than the offer is for, every tender is scaled down in the same proportion and the balance comes back. One distinction to keep separate from that number: twenty-six per cent is the floor for the offer the regulations force. A holder who already has a qualifying stake may also choose to make a voluntary open offer, and that is a different instrument with a much smaller minimum — a tenth of the shares — and its own conditions attached. So an open offer for ten per cent is not evidence that the rule above is wrong. It is evidence that you are reading about the other kind.
When control changes and no offer comes
The regulations carry a long list of exemptions, and it is worth knowing that the list exists, because the commonest reaction to a change of control with no offer attached is to assume something improper has happened. Three of the exemptions matter to an ordinary holder.
- Transfers within the promoter group. A transfer between persons who have been part of the promoter group for the prescribed period, or between immediate relatives, is exempt subject to conditions. The economics of who runs the company may change completely at a family settlement, and no offer is owed, because as a matter of law control has not passed to anybody new.
- A scheme sanctioned by a tribunal. An acquisition made under a scheme of arrangement approved by the tribunal is exempt. This is the single largest gap between what feels like a takeover and what triggers an offer, and it is the subject of the next lesson: the biggest changes of ownership in Indian markets arrive as a notice of a meeting rather than as a cheque.
- An acquisition under an approved insolvency resolution plan. Where a company has gone through the insolvency process and a resolution plan has been approved, the incoming owner is exempt. Existing equity in those cases has usually been reduced or cancelled by the plan itself, so there is generally nothing left to make an offer for.
The sequence, and the only decision you make
- 1The public announcement
Made to the exchanges on the day the agreement is entered into. It states the acquirer, the size of the offer and the price. This is the document the market prices; the stock generally settles somewhere near the offer price within a day, and thereafter behaves less like a share and more like a bet on the offer completing.
- 2The detailed public statement, in newspapers
Follows within a few working days, after the escrow is in place. It is longer, and it is the first place the conditions attached to the offer are set out.
- 3SEBI sees the draft, and comments
A draft letter of offer goes to SEBI, which issues comments the acquirer must incorporate. This is where most of the elapsed time goes, and it is why weeks pass between the announcement and anything reaching your address.
- 4The letter of offer reaches you, and the window opens
The tendering window is short — ten working days under the current regulations. It is the only period in which the decision can be made, and a holding sitting in a demat account whose registered email address is three years out of date is a holding whose owner will hear about it afterwards.
- 5Tender, or do nothing
Bids go in through your broker; the shares are blocked while tendered; accepted shares are paid for and unaccepted ones released, within the periods the regulations prescribe. Doing nothing is a complete answer and frequently the right one — but it should be a decision rather than a consequence of not having opened the envelope.
The window opens and the market price is above the offer price
The computed offer price is ₹536. By the time the tendering window opens the shares are trading at ₹551, because the market expects either a revised offer or a competing bid. Your 800 shares cost ₹410 and you have decided you no longer want to hold the company.
An acquirer agrees to buy 54% of a company from its promoter and makes the mandatory open offer for 26% of the shares at ₹610. You tender 1,200 shares. Public shareholders together tender shares equal to 39% of the company. How many of your shares are bought at ₹610?
Promoter family ne apne 51% — 10.2 crore share — ₹520 mein bech diye. Aapse koi nahi poocha, aur poocha bhi nahi jaayega. Par kanoon ek darwaza deta hai: open offer, aur uska daam bhi tay hota hai — kai benchmarks mein se sabse ooncha, isliye kabhi kabhi public ko promoter se zyada milta hai. Yahan ₹536, jab family ko ₹520 mila. Ab woh baat jo zyaadatar log samajhte hi nahi: offer aapki poori holding ke liye nahi hota — kam se kam 26% company ka hota hai. 20 crore share ki company mein 5.2 crore. Public ne 7.6 crore tender kiye, toh acceptance = 5.2 ÷ 7.6 = kareeb 68.4%. Aapke 800 share mein se 547 gaye ₹536 pe = ₹2,93,192, aur 253 wapas aa gaye — inka koi khaas daam nahi, jo market de. ₹498 pe beche toh ₹1,25,994, kul ₹4,19,186 = ₹524 per share, headline ₹536 nahi. Ek cheez diary mein likh lo: acquirer ab 51 + 26 = 77% pe hai, public sirf 23% — 25% ka niyam todta hai, isliye usko aage share bechne hi padenge, tay tareekh ke andar. Aur aakhri baat: agar window ke waqt market ₹551 chal raha hai aur offer ₹536 hai, toh tender karna ulta ghaata hai — jitne share offer uthaayega, sab ₹536 pe hi jaayenge, jabki ₹551 aaj poori holding pe mil raha hai.
- An offer is triggered by crossing the shareholding threshold, by creeping up beyond the permitted annual amount, or by acquiring control — and holdings of persons acting in concert are counted together.
- The price is computed as the highest of prescribed benchmarks, is a floor rather than a ceiling, and can exceed what the outgoing promoter received.
- A mandatory offer must be for at least twenty-six per cent of the company, so tenders are scaled down proportionately and the balance returns to you — a voluntary offer is a separate instrument with a much smaller minimum.
- An open offer is not a delisting and is not a floor under your whole holding.
- Promoter-group transfers, tribunal-sanctioned schemes and insolvency resolution plans are exempt — control can change with no offer at all.
Mark it done to track your progress through the curriculum.