SEBI amends takeover regulations to mitigate M&A stock price disruptions: Report

The Securities and Exchange Board of India (SEBI) has amended takeover regulations to address stock price disruptions caused by mergers and acquisitions (M&A) announcements. This change is part of SEBI’s new rumour verification framework, effective June 1, 2024, as reported by Business Standard.

Starting June 1, the top 100 listed companies must confirm, deny, or clarify any media-reported information that leads to significant share price movements within 24 hours of the trigger. From December 1, this requirement will extend to the top 250 listed companies. This framework aims to reduce the impact of media leaks on stock prices, which often inflate the cost of acquisitions.

Currently, the open offer price in M&A deals is determined by the volume-weighted average price (VWAP) over the 60 days preceding the announcement. Media speculation can drive up the target company’s stock price before the formal announcement, leading to a higher open offer price and increased acquisition costs for the acquirer.

To address this, SEBI will exclude stock price disruptions caused by news reports or leaks of sensitive information when determining the open offer price. This adjustment aims to make M&A transactions more cost-effective for companies.

Initially set to be implemented in February, these regulations were postponed and will now take effect in June. SEBI has proposed using the “unaffected price” to calculate the pricing for preferential issues, open offers, and other transactions, ensuring fairer and more stable pricing mechanisms.