Sebi allows put and call options in M&A deals

The move, which is likely to benefit investors, will spur investment activity in the country

GN Bureau | October 4, 2013



In a major fillip to investment activity, the securities and exchange board of India (Sebi) has allowed investors to buy and sell shares under share purchase agreements (mergers and acquisitions). The move to legalise put and call options in shareholders’ agreement is likely to benefit investors including private equity funds.

According to a statement issued by the markets watchdog on Thursday, the 10-year-old curbs on merger and acquisition deals were acting as a deterrent and the new norms will encourage investment activity.

"SEBI has issued a notification today, inter alia, permitting contracts for pre-emption including right of first refusal, tag-along or drag-along rights contained in the shareholders agreements or articles of association of companies. SEBI has also permitted contracts containing an option for purchase or sale of securities," Sebi said.

However, the regulator has allowed these facilities subject to various conditions which include— the seller should hold the ownership of the securities for at least a one-year period from the date of the contract, the pricing of the securities should be as per all the extant laws, and finally, the contract can be settled only after actual delivery of the securities.

Understanding the jargon

Put Option: Under this option, an investor has the right to sell his/her shares back to the company or to its promoter at a price that has been fixed before.

Call Option: Under this option, an investor has the right to buy shares held by the company or promoter at a pre-determined price.

Tag along rights: This gives a minority shareholder the right to sell his/her shares of a company on similar terms as those of the majority shareholders.

Drag along rights: This gives the majority shareholders a right to force minority shareholders to come together to off-load their shares on similar terms during the sale of a company.

Right of first refusal: Under this, an investor reserves the right to make a commitment (investment) at a later date after he/she is assured that the business will do well. Thus, they need not make an investment upfront.
 

Comments

 

Other News

Budget creates the ground – now it’s time for these steps

On February 1, finance minister Nirmala Sitharaman announced the Union Budget. As Dr. Rajiv Kumar, the Pahle India Foundation chairman and former NITI Aayog vice chairman, succinctly summed up, “Budget 2023 is a consolidation of the gains over the years, and a positive step towards sustained economic

Should India look for another capital?

The Indian Metropolis: Deconstructing India’s Urban Spaces By Feroze Varun Gandhi Rupa, 840 pages, Rs 1,500 Feroze Varun Gandhi, a Member of Parliament from the BJP, has been a published poet. He is also a policy expert – he had published &

Railways’ freight earnings up by 16%

On mission mode, Indian Railways` Freight loading for first ten months of this financial year 2022-23 has crossed last year’s loading and earnings for the same month. On cumulative basis from April 2022 to January 2023, freight loading of 1243.46 MT was achieved against last year&rsquo

BMC announces Rs 52,619.07 crore budget

Mumbai’s municipal commissioner and administrator Iqbal Singh Chahal on Saturday announced a Budget of Rs 52,619.07 crore for 2023-2024, an increase of 20.67% over a revised budget estimate of Rs 43607.10 crore for 2022-23. The overall budget size has doubled in five years. In 2017-18

Making sense of the ‘crisis of political representation’

Imprints of the Populist Time By Ranabir Samaddar Orient BlackSwan, 352 pages, Rs. 1105 The crisis of liberal democracy in the neoliberal world—marked by massive l

Budget: Highlights

Union minister of finance and corporate affairs Nirmala Sitharaman presented the Union Budget 2023-24 in Parliament on Wednesday. The highlights of the Budget are as follows: PART A     Per capita income has more than doubled to Rs 1.97 lakh in around

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now



Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter