Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Takeover code exemption for Satyam

I was interviewed yesterday on NDTV Profit, UTV and CNBC on the new takeover
for Satyam-like companies. The transcript
and video
of the CNBC interview and the video
of the NDTV interview are available on their respective websites. I
made the following main points:

  • The existing takeover code envisages a takeover process which is
    run by the buyer. The acquirer initiates the process and decides when
    to make an open offer. When a company is trying to sell itself, we
    want a process which is controlled by the seller. The seller would
    like to set a deadline for submission, evaluate all competing bids and
    choose the winner. The new norms are designed to facilitate this and
    this is good.
  • The takeover code proved inadequate to run a good auction of
    Satyam and if it failed in Satyam it could fail anywhere else where a
    company wants to sell itself. We should have recognized that and added
    a new chapter to the takeover code to facilitate this for all
    companies and not just for Satyam-like companies.
  • I am uncomfortable with the provision in the new norms saying that
    once the Board has chosen a bidder and this accepted by SEBI, then
    somebody else cannot make a competitive bid. What SEBI is really
    saying is trust the board, trust Sebi to find out who is the best
    buyer. Once they have done that nobody else can appeal above the
    board, above Sebi directly to the shareholders. I find this
    fundamentally unacceptable. The company belongs to the shareholders
    – anybody must have the right to go directly to the

While I did not explicitly mention it in the interviews, I was
thinking of Wells Fargo offering a higher price for Wachovia after the
regulators had sold it to Citi. Had the board been controlled by the
regulator and had the shareholders also been shut out of the decision
making, the Wells deal would obviously not have been possible.


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