Acquirer's Rs.113.62/share offer upheld; regulation 20(12) mandates better of parent and indirect-target announcement values and refines 'acting in concert' test

The SC allowed the appeals, holding the acquirer's offer price of Rs.113.62 per share was fairly and lawfully calculated and setting aside the Appellate Tribunal's contrary decision. The Court construed regulation 20(12) to require offering shareholders the better of values on the parent and indirect-target announcement dates, and clarified that "persons acting in concert" is determined by whether the other party was acting in concert at the time of its share purchases, not necessarily at the announcement date. Earlier separate purchases can be brought within the concept by a later express agreement. No order as to costs.

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Issues Involved:
1. Whether the offer price of Rs. 113.62 per share made by the appellant for the shares of Zenotech Laboratories Ltd. was fair and lawful.
2. Whether the offer price should have been at least Rs. 160 per share.
3. Proper construction and understanding of the SEBI Takeover Regulations, 1997.

Issue-wise Detailed Analysis:

1. Fairness and Lawfulness of the Offer Price of Rs. 113.62 per Share:
The primary question was whether the offer price of Rs. 113.62 per share made by Daiichi Sankyo Company Ltd. in its public announcement dated January 19, 2009, for the acquisition of shares of Zenotech Laboratories Ltd. was fair and lawful. This required a proper construction and understanding of the SEBI Takeover Regulations, 1997. The appellant contended that the offer price was determined based on the stock exchange prices of Zenotech shares and complied with regulation 20(4)(c) of the SEBI Takeover Regulations. The price of Rs. 113.62 was the highest among the prices calculated using different methods prescribed by the regulations.

2. Requirement of Offer Price of Rs. 160 per Share:
The respondents argued that the offer price should not be less than Rs. 160 per share, which was the price paid by Ranbaxy for Zenotech shares in January 2008. They contended that Daiichi and Ranbaxy were "persons acting in concert" as per regulation 2(e) of the Takeover Code, and hence, the price paid by Ranbaxy within the twenty-six weeks prior to the public announcement for Ranbaxy shares (June 16, 2008) should be considered for determining the offer price. The Securities Appellate Tribunal upheld this contention, directing Daiichi to offer Rs. 160 per share.

3. Proper Construction and Understanding of SEBI Takeover Regulations, 1997:
The Supreme Court examined the relevant provisions of the SEBI Takeover Regulations, particularly regulations 2(b), 2(e), 10, 11, 14, and 20. The Court noted that the concept of "persons acting in concert" under regulation 2(e)(1) is based on a target company and two or more persons coming together with a shared common objective or purpose of substantial acquisition of shares of the target company. The relationship of "persons acting in concert" is not a fortuitous relationship but comes into being by design and shared common objective or purpose. The Court held that the mere relationship of a holding company and a subsidiary company does not automatically make them "persons acting in concert" unless there is a shared common objective or purpose of substantial acquisition of shares of a target company.

The Court also clarified that the deeming provision under regulation 2(e)(2) operates prospectively and not retrospectively. The presumption of "persons acting in concert" arises only from the date two or more persons come together in one of the specified relationships and not from any earlier date. Therefore, Ranbaxy's purchase of Zenotech shares in January 2008 could not be considered as a purchase by a "person acting in concert" with Daiichi.

The Court concluded that the offer price of Rs. 113.62 per share was correctly worked out in compliance with regulation 20(4)(c) of the Takeover Code. The judgment of the Securities Appellate Tribunal was found to be unsustainable and was set aside.

Conclusion:
The appeals were allowed, and the offer price of Rs. 113.62 per share made by Daiichi was deemed fair and lawful. The judgment of the Securities Appellate Tribunal was set aside, and the Court emphasized the importance of proper construction and understanding of the SEBI Takeover Regulations. The Court also suggested the inclusion of an "object and purpose" clause in delegated legislations to aid in their proper interpretation.

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