Editor’s note: This is general educational information about how India’s takeover rules work. It is not investment advice, it does not describe any particular company or transaction, and it is based on the official sources listed at the end.
Buying a quarter of an Indian listed company is not a private transaction between the buyer and the seller. Once an acquirer, together with persons acting in concert, would hold twenty-five per cent or more of the voting rights in a target company, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 require a public announcement of an open offer to the rest of the shareholders before the acquisition can proceed. The threshold is not a disclosure trigger. It is a condition on the purchase itself.
The three triggers
Regulation 3(1) sets the entry threshold. No acquirer shall acquire shares or voting rights which, taken with those already held by the acquirer and persons acting in concert, entitle them to exercise twenty-five per cent or more of the voting rights, unless an open offer is announced. For a company listed on the Innovators Growth Platform, the same reference reads as forty-nine per cent.
Regulation 3(2) governs what happens afterwards. An acquirer already holding twenty-five per cent or more, but less than the maximum permissible non-public shareholding, cannot acquire more than five per cent of the voting rights within a financial year without triggering an open offer. The arithmetic is deliberately unforgiving: only gross acquisitions count, regardless of any fall in the holding during the year through sales or through dilution by a fresh issue, and where the acquirer subscribes to new shares, the difference between the pre-allotment and post-allotment percentage counts as the acquisition. Regulation 3(3) closes the obvious gap by applying the thresholds to an individual person’s holding even where the aggregate holding of the concert party does not change.
Regulation 4 is the trigger that has no percentage at all. Irrespective of any acquisition or holding of shares or voting rights, no acquirer shall acquire control over a target company without an open offer. Control can pass through a shareholders’ agreement or a board arrangement without a single share changing hands, and the regulation treats that as the same event. Regulation 5 extends both tests to indirect acquisitions, where the shares or control are acquired in some upstream entity that holds the target.
Two categories of acquirer are barred outright. A wilful defaulter cannot make an open offer or acquire shares of a target company, though the regulations allow a competing offer once someone else has launched one, and a fugitive economic offender cannot make a public announcement, a competing offer, or any transaction to acquire shares, voting rights or control.
How large the offer must be and at what price
Under regulation 7(1) an open offer under regulation 3 or regulation 4 must be for at least twenty six per cent of the total shares of the target company, measured as of the tenth working day from the closure of the tendering period, taking into account all potential increases in the share count contemplated at the date of the public announcement. If the count rises after the announcement in a way that was not contemplated, the offer size increases proportionately. A voluntary offer under regulation 6 works differently: it must be for at least an additional ten per cent of the voting rights and cannot take the acquirer above the maximum permissible non-public shareholding.
The price is a floor built from five or six reference points, and the highest of them wins. For a direct acquisition, regulation 8(2) takes the highest of the negotiated price per share under the agreement that triggered the offer, the volume-weighted average price paid by the acquirer or the concert parties over the fifty-two weeks before the public announcement, the highest price they paid in the twenty-six weeks before it, the volume-weighted average market price over the sixty trading days before it on the exchange with the maximum trading volume in the shares, provided the shares are frequently traded, and, where they are not frequently traded, a price determined by an independent registered valuer using book value, comparable trading multiples and other customary parameters.
The requirement that the valuation be done by an independent registered valuer, rather than by the acquirer and the manager to the offer, took effect on 03.01.2026, with ongoing assignments to be completed within nine months. For indirect acquisitions that do not meet the parameters in regulation 5(2), the same construction applies but the sixty day and fifty-two week windows run from the earlier of the date the primary acquisition was contracted and the date the intention to make it was announced publicly.
The timetable and the money behind it
The public announcement goes to all the stock exchanges where the shares are listed, and the exchanges disseminate it to the public immediately. A copy goes to SEBI and to the target company at its registered office within one working day. Not later than five working days after the announcement, the acquirer publishes a detailed public statement through the manager to the offer, in all editions of one English national daily, one Hindi national daily and one regional language daily where the target’s registered office is, plus one regional language daily at the place of the exchange with the maximum trading volume over the preceding sixty trading days. Within five working days of that statement, a draft letter of offer is filed with SEBI through the manager, with a fee. Neither the announcement, the statement, nor any advertisement or letter of offer may omit relevant information or contain anything misleading.
The money is committed before the shareholders are asked. The escrow requirement is twenty-five per cent of the consideration on the first five hundred crore rupees and a further ten per cent of the balance. Where the offer is conditional on a minimum level of acceptance, the deposit is the higher of the whole consideration payable for that minimum level or fifty per cent of the consideration payable under the offer, in cash. For indirect acquisitions announced under regulation 13(2)(e), the escrow is the entire consideration, and securities cannot be used to fund it. The escrow may otherwise be cash with a scheduled commercial bank, a bank guarantee in favour of the manager to the offer, or frequently traded and freely transferable securities with an appropriate margin, and it must be topped up before any upward revision of the price or the size takes effect.
Analysis: what the threshold is buying
The twenty-five per cent line is not an estimate of when someone controls a company. Regulation 4 already covers control directly. The line does a different job: it marks the point at which the identity of the largest shareholder becomes a fact that other shareholders bought into without agreeing to. The remedy the regulations provide is not a veto but an exit at a regulated price, and the size of that exit, at least twenty six per cent, is calibrated so that a meaningful proportion of the free float can leave rather than a token slice.
The pricing formula is where the protection is concentrated, and it is worth reading as an anti-avoidance device rather than as a valuation method. By taking the highest of a negotiated price, a fifty-two week volume-weighted average of the acquirer’s own purchases, the highest price paid in twenty-six weeks and a sixty trading day market average, regulation 8 sets the offer price at no less than the highest of those reference points, so prior purchases at higher prices carry into the price offered to the public. Each reference point closes a specific route: the negotiated price catches the control premium paid to a promoter, the fifty-two week and twenty-six week tests catch creeping accumulation, and the sixty day market average sets a floor when the acquirer has bought nothing.
The creeping acquisition rule in regulation 3(2) rewards the same close reading. Because only gross acquisitions count and dilution is ignored, an acquirer cannot reset the annual five per cent allowance by selling and rebuying, and participating in a preferential issue counts by the change in percentage rather than by shares bought. A reader following a live open offer would watch three documents in sequence: the public announcement for the trigger relied on, the detailed public statement for the offer price and the basis on which it was computed under regulation 8, and the letter of offer for the escrow arrangement and any minimum acceptance condition, since a conditional offer changes what a tendering shareholder is actually being promised. SEBI’s own investor education material makes the general point that the material facts about a security should be known and understood before any investment decision, and in an open offer those facts are published on a fixed schedule.
