Open Offer Under SEBI SAST Regulations In 2025

Understanding Open Offer Under SEBI SAST Regulations: A Complete Guide– When a company undergoes a significant change in ownership, minority shareholders often face uncertainty. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) are designed to protect them by mandating an Open Offer in certain scenarios. But what exactly triggers an open offer? How is it executed? What are the timelines and compliance requirements?

In this blog, we aim to simplify the complexities of open offer regulations, covering everything from when an offer is triggered, how to comply with SEBI guidelines, real-life case studies, templates for regulatory filings, and a step-by-step guide to the process. Whether you’re an investor, a company executive, or a finance professional, this blog will help you understand every aspect of open offers under SAST in a clear, practical, and structured manner.

How to Make an Open Offer? (With Case Study and Timelines)

An Open Offer is a mandatory process under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) when an acquirer crosses a certain threshold of shareholding in a company. Below is a systematic guide explaining the process, with an illustration of a real-life case study, timelines, and relevant regulatory provisions.

Step-by-Step Process of an Open Offer

Step 1: Triggering the Open Offer

An open offer is triggered under the following conditions:

1. Acquisition of 25% or more voting rights (Regulation 3(1)).
2. Creeping acquisition beyond 5% in a financial year when holding is between 25%-75% (Regulation 3(2)).
3. Indirect acquisition of control of the company (Regulation 4).

Step 2: Public Announcement (PA) – Day 0

• The acquirer must make a Public Announcement (PA) within one working day of triggering the open offer.
• The PA is published in newspapers as per Regulation 14(3).

Example:
On March 15, 2025, XYZ Ltd. acquires 26% stake in ABC Ltd.. As per SEBI regulations, an open offer is triggered, and the company makes a public announcement on March 16, 2025.

Step 3: Submission to SEBI & Stock Exchanges – Within 2 Days (T+2 Days)

• A detailed Public Announcement must be submitted to SEBI and stock exchanges within 2 working days of the event triggering the open offer.
• The company also informs Board of Directors of ABC Ltd. about the offer.

Example:
On March 18, 2025, XYZ Ltd. submits the PA to SEBI and the stock exchanges.

Step 4: Appointment of Merchant Banker – Within 5 Days (T+5 Days)

• The acquirer must appoint a SEBI-registered Merchant Banker to manage the offer.
• The merchant banker is responsible for due diligence, pricing, and ensuring compliance with SEBI regulations.

Example:
By March 21, 2025, XYZ Ltd. appoints ABC Capital Pvt. Ltd. as the merchant banker.

Step 5: Draft Letter of Offer (DLOF) – Within 10 Days (T+10 Days)

• Within 10 working days of PA, the acquirer must submit a Draft Letter of Offer (DLOF) to SEBI.
• The letter includes the offer price, financial arrangements, and terms of the offer.
• SEBI reviews the document and may request modifications.

Example:
On March 26, 2025, XYZ Ltd. submits the Draft Letter of Offer to SEBI.

Step 6: SEBI Review – Within 15 Days (T+25 Days)

• SEBI examines the DLOF and provides comments within 15 working days.
• If SEBI requests modifications, the acquirer must incorporate them.

Example:
SEBI reviews the offer and provides comments by April 10, 2025.

Step 7: Dispatch of Final Letter of Offer – Within 12 Days (T+37 Days)

• After SEBI’s approval, the final Letter of Offer (LOF) is dispatched to the shareholders within 12 working days.
• This letter provides shareholders with details of the offer, timelines, and the process for tendering shares.

Example:
On April 22, 2025, XYZ Ltd. dispatches the final Letter of Offer to ABC Ltd.’s shareholders.

Step 8: Open Offer Period (Tendering Window) – Minimum 10 Days (T+47 to T+57 Days)

• The offer remains open for 10 working days, allowing shareholders to tender their shares.

Example:
The offer opens on May 2, 2025, and closes on May 16, 2025.

Step 9: Payment & Completion – Within 10 Working Days (T+67 Days)

• The acquirer must complete payment to shareholders within 10 working days after the offer closes.
• Remaining shares (if any) are transferred to the acquirer.

Example:
On May 30, 2025, XYZ Ltd. completes payments to the shareholders.

Illustrative Case Study – Open Offer by XYZ Ltd. for ABC Ltd.

Regulatory Provisions Covered

1. Regulation 3(1) – Open offer is triggered when shareholding crosses 25%.
2. Regulation 3(2) – Creeping acquisition limit of 5% per year applies for existing shareholders with 25% to 75% stake.
3. Regulation 4 – Open offer is required in case of an indirect acquisition of control.
4. Regulation 14 – Public Announcement (PA) must be made within 1 day of a triggering event.
5. Regulation 17 – Acquirer must appoint a Merchant Banker within 5 working days.
6. Regulation 18 – Submission of Draft Letter of Offer (DLOF) to SEBI within 10 working days.
7. Regulation 24 – SEBI reviews and provides comments within 15 working days.
8. Regulation 22 – The open offer period must be at least 10 working days.
9. Regulation 25 – Payments to shareholders must be completed within 10 working days of the offer closing.

Open Offer Trigger Under SEBI (SAST) Regulations: Acquisition of 25% or More Voting Rights (Regulation 3(1))

Introduction

Under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (commonly known as SEBI SAST Regulations), an Open Offer is a mandatory requirement when an entity acquires a substantial stake in a listed company. One of the key triggers for an open offer is when an acquirer, along with persons acting in concert (PAC), acquires 25% or more of the voting rights in a target company. This is covered under Regulation 3(1) of the SEBI SAST Regulations.

This regulation aims to protect minority shareholders by giving them an opportunity to exit when there is a significant change in ownership or control of a company.

Key Provision: Regulation 3(1) – 25% Threshold

According to Regulation 3(1) of SEBI SAST Regulations, 2011:

“No acquirer shall acquire shares or voting rights in a target company which, taken together with shares or voting rights, if any, held by him and by persons acting in concert with him, entitle them to exercise twenty-five percent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.”

This means that if an individual, company, or group of persons acting in concert (PAC) acquires 25% or more of the voting rights in a listed company, they are required to make an open offer for at least 26% of the remaining shares from public shareholders.

Case Study: XYZ Ltd.’s Acquisition in ABC Ltd.

Scenario:

XYZ Ltd. is looking to expand its business by acquiring a controlling stake in ABC Ltd., a publicly traded company.

Step 1: Initial Shareholding of XYZ Ltd.

• As of March 1, 2025, XYZ Ltd. holds 23% of ABC Ltd.’s total shareholding.
• At this stage, no open offer is required, as XYZ’s holding is below 25%.

Step 2: Acquisition That Triggers an Open Offer

• On March 5, 2025, XYZ Ltd. acquires an additional 5% stake in ABC Ltd.
• As a result, XYZ Ltd.’s total shareholding increases from 23% to 28%.
• Since the total shareholding now exceeds 25%, an open offer is triggered as per Regulation 3(1).

Step 3: Open Offer Obligation

• XYZ Ltd. must now make an open offer for at least 26% of the remaining shares from public shareholders.
• The open offer must be made following the timelines and procedural requirements under SEBI SAST Regulations.

Other Possible Cases Where Regulation 3(1) Applies

Case 1: Direct Purchase from the Market

• Suppose on April 1, 2025, an acquirer directly buys 5% shares of ABC Ltd. in a bulk deal from the stock market.
• If the acquirer already held 21% shares, this new purchase increases their holding to 26%.
• Since it crosses 25%, the acquirer must make an open offer for at least 26% of the remaining public shares.

Case 2: Off-Market Acquisition (Private Deal with Existing Shareholder)

• On May 10, 2025, XYZ Ltd. negotiates a private deal with a major shareholder of ABC Ltd. to buy 10% stake.
• Before this deal, XYZ Ltd. held 16% shares in ABC Ltd.
• After acquiring 10% more, XYZ Ltd.’s total stake reaches 26%.
• Since the holding exceeds 25%, XYZ Ltd. must make an open offer.

Case 3: Acquisition by Persons Acting in Concert (PAC)

• Suppose XYZ Ltd. owns 22% in ABC Ltd., and its subsidiary, XYZ Investments Ltd., buys 4% additional stake.
• Even though the purchases were made by different entities, they are acting in concert (PAC).
• Their combined holding becomes 26%, which triggers an open offer.

Case 4: Conversion of Convertible Securities (Warrants, Debentures, etc.)

• XYZ Ltd. owns 22% stake in ABC Ltd. and has convertible warrants that can be converted into equity shares.
• On June 1, 2025, XYZ Ltd. exercises its warrants and gets 5% additional shares, increasing its total stake to 27%.
• Since the total holding now exceeds 25%, an open offer must be made.

Key Timelines & Process After the Open Offer Trigger

Regulation 3(1) of SEBI SAST Regulations ensures fairness and transparency in takeovers by requiring an open offer whenever an acquirer crosses 25% voting rights in a listed company. This provision protects minority shareholders by giving them an opportunity to exit when there is a major change in shareholding.

Key Takeaways:
✅ If an acquirer, along with PAC, crosses 25% holding, an open offer is mandatory.
✅ The minimum open offer size is 26% of the remaining shares.
✅ The open offer process must follow SEBI timelines for public announcements, offer periods, and payments.
✅ Open offers apply to direct market purchases, private deals, PAC acquisitions, and conversion of warrants/debentures.

By understanding these provisions, investors and corporate entities can make informed decisions when planning share acquisitions or responding to takeover situations.

When to Make an Open Offer?

An Open Offer is required when an acquirer or a group of persons acting in concert (PAC) crosses a specific shareholding threshold or gains control over a company under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations).

1. Open Offer Triggers Under SEBI SAST Regulations

An open offer is triggered in the following scenarios:

(A) Acquisition of 25% or More Voting Rights (Regulation 3(1))

• If an acquirer, along with PAC, acquires 25% or more of a listed company’s voting rights, they must make an open offer for at least 26% of the remaining shares from public shareholders.
• Example:
  • On March 1, 2025, XYZ Ltd. holds 23% stake in ABC Ltd..
  • On March 5, 2025, XYZ acquires an additional 5% stake, bringing total shareholding to 28%.
  • Since it crosses 25%, XYZ Ltd. must make an open offer for at least 26% of the remaining shares.

(B) Creeping Acquisition (Beyond 5% in a Financial Year) – Regulation 3(2)

• If an acquirer (holding 25% to 75%) acquires more than 5% additional shares in a financial year, they must make an open offer.
• Example:
  • On April 1, 2025, XYZ Ltd. holds 40% stake in ABC Ltd..
  • Between April and September 2025, XYZ buys 4% more shares – No open offer is required.
  • In October 2025, XYZ acquires an additional 3%. Now, the total acquisition in the year is 7%, exceeding the 5% limit.
  • Since 5% limit is breached, XYZ must make an open offer.

(C) Indirect Acquisition of Control (Regulation 4)

• If an acquirer gains control over a listed company indirectly (e.g., through buying a parent company), an open offer must be made.
• Example:
  • XYZ Ltd. acquires 100% stake in PQR Ltd., which holds 51% in ABC Ltd.
  • Even though XYZ did not directly buy ABC Ltd.’s shares, it gained control over it.
  • XYZ must make an open offer to ABC Ltd.’s shareholders.

(D) Voluntary Open Offer (Regulation 6)

• An acquirer who already holds 25% or more can voluntarily make an open offer for at least 10% more shares.
• Example:
  • XYZ Ltd. holds 35% in ABC Ltd. and wants to increase its holding to 50%.
  • XYZ can voluntarily make an open offer for at least 10% of shares.

(E) Breach of Maximum Non-Public Shareholding (Regulation 7(1))

• If an acquisition breaches the maximum permissible non-public shareholding (usually 75%), the acquirer must bring down the stake to 75% within 12 months.
• Example:
  • XYZ Ltd. holds 74% in ABC Ltd.
  • If XYZ acquires 2% more shares, total holding becomes 76%, exceeding the limit.
  • SEBI may ask XYZ to reduce shareholding or make an open offer to public shareholders.