HomeBUSINESSMint Explainer: What is an open offer, and how is it priced?

Mint Explainer: What is an open offer, and how is it priced?


Adani Group has acquired 29.18% in NDTV and, as required by rules, is making an open offer to the company’s public shareholders for 294 per share, which is a 28% discount to NDTV’s 376 closing price on Tuesday.

This has brought the focus back on open offers. Mint explains the process:

What is an open offer?

According to the Securities and Exchange Board of India (Sebi) an open offer is an offer made by the company which is acquiring shares (in this case, Adani) to the shareholders of the target company (NDTV), inviting them to sell their shares at a particular price. The purpose of an open offer is to provide an exit option to the company’s shareholders since there is a change in control or substantial acquisition of shares.

Under what circumstances is an open offer made?

An open offer to buy stocks from shareholders is made if an entity has acquired or agreed to acquire shares, voting rights, or control of a target company. Sebi defines control in basic metrics—acquisition of more than 25% shares, acquisition of more than 5% shares or voting rights in a financial year. In previous cases, it had become a point of legal battle where an acquiring shareholder has special rights in addition to veto rights. Veto rights essentially give the acquiring shareholder the right to block special resolutions. Special rights, in addition to veto rights, tend to include a say in the management and key appointments.

How are open offers priced?

Sebi’s takeover code has laid out a pricing formula for acquiring shares in an open offer—in the case of a direct or indirect acquisition. There are four pricing metrics—it has to be the higher of either (i) the volume weighted average price of a share over 52 weeks; (ii) the highest price paid by the acquirer in the 26 weeks before the announcement, (iii) the volume weighted average market price of the share in the 60 days preceding the announcement, or (iv) the highest negotiated price under the share purchase agreement.

What does the open offer price at a discount indicate?

Experts said that Adani’s intention to buy shares of NDTV at a 28% discount to Tuesday’s closing of 376 indicates that the group may not be immediately interested in purchasing more than the announced 29.18% shares. It is possible that the retail shareholders may not tender their shares at this lower price. However, an institutional shareholder could tender shares at this negotiated price.

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