6A.6 Open offers and delisting · M06A Events, sectors, factors

Motivation

When control of a listed company changes, minority shareholders get a right to exit at a regulated price. When a promoter wants to take a company private, the minority decides the price through a reverse auction. Both are events with exact payoffs.

6A.6.1Open offers under SAST#

Setup: SEBISAST) Regulations 2011 (checked 6 Nov 2026; confirm in the current text

Triggers. Acquiring 25% or more of voting rights (Reg. 3(1)); for a holder already at 25% or more, acquiring more than 5% in a financial year ("creeping acquisition", Reg. 3(2)), up to the maximum permitted non-public shareholding of 75%; or acquiring control, whatever the percentage (Reg. 4).
Offer size. At least 26% of the total shares (Reg. 7(1)). If acceptances push the acquirer above 75%, it must restore 25% public shareholding within the prescribed time.
Offer price (Reg. 8(2), frequently traded shares). The highest of: (a) the highest negotiated price under the agreement that triggered the offer; (b) the volume-weighted average price paid by the acquirer in the 52 weeks before the announcement; (c) the highest price paid by the acquirer in the 26 weeks before; and (d) the volume-weighted average market price over the 60 trading days before the announcement, on the exchange with the highest volume [V for (a) and (d): SEBI offer documents; (b)–(c) from the regulation as commonly summarised]. Since 2022 limb (d) does not apply to the disinvestment of a public-sector company by government¹.

Proposition 6A.8payoff of tendering in an open offer

Let the offer be for a fraction $f$ of total shares at price $P_o$ , let a fraction $t \ge f$ of total shares be tendered, and let the post-offer price be $P_1$ . Each tendered share is accepted with probability (proportion) $a = f/t$ . The value of tendering one share is

a P_o + (1 - a) P_1, \tag{6A.10}

and tendering a share bought at $P_0$ breaks even when $P_1 = (P_0 - aP_o)/(1 - a)$ .

Proof

Acceptance is proportionate: of each tendered share, a fraction $a$ is bought at $P_o$ and $1-a$ is returned and must be sold (or held) at $P_1$ . Set (6A.10) equal to $P_0$ and solve.∎

Worked example

An acquirer buys a promoter's stake at ₹500 and makes an open offer for 26% at ₹500. Public shareholders hold 40% and all tender, so $a = 0.65$ . If the price after the offer settles at ₹420, a tendered share is worth $0.65 \times 500 + 0.35 \times 420 = \text{₹}472$ . Buying at ₹485 in anticipation loses 2.7%. The cap on the offer size, not the offer price, drives the outcome.

6A.6.2Delisting by reverse book building#

Setup: SEBI (Delisting of Equity Shares) Regulations 2021, as amended 25 September 2024

Reverse book building (RBB). Public shareholders bid the price at which they will sell, at or above a floor price (computed like the SAST offer price, with adjustments; the 2024 amendment added an adjusted book value test). The discovered price is the price at which the acquirer's holding, with shares tendered at or below that price, reaches 90% of the total.
Acceptance or counter-offer. The acquirer may accept the discovered price, or reject it and (since the 2024 amendment) make a counter-offer if its holding would reach at least 75% and at least 50% of the public shareholding has been tendered; the counter-offer price must be at least the higher of the volume-weighted average price of shares tendered in the RBB and any indicative price the acquirer announced. Delisting succeeds if the counter-offer takes the holding to 90%².
Fixed-price route (frequently traded shares): the acquirer can instead offer a fixed price at least 15% above the floor price³.

Proposition 6A.9the discovered price is a quantile

Let the acquirer hold $h < 0.9$ of the shares and let public holders' minimum acceptable prices have holdings-weighted distribution function $F$ on the public float $1 - h$ . If every public holder bids their minimum price and all tender, the discovered price is

P^* = F^{-1}\!\left(\frac{0.9 - h}{1 - h}\right). \tag{6A.11}

Proof

At price $p$ the shares offered at or below $p$ are $(1 - h)F(p)$ . The acquirer reaches 90% when $h + (1 - h)F(p) \ge 0.9$ . The smallest such $p$ is the quantile in (6A.11).∎

With a promoter at 75%, the discovered price is the 60th percentile of the public's reservation prices; at 80% it is the median. A fund holding more than $1 - 0.9 = 10\%$ of the company can block delisting on its own, so its bid sets the price: this hold-out power is why delisting premia in India are large and attempts sometimes fail (Vedanta's 2020 attempt failed to reach the threshold [S]).

Practitioner notes

Open-offer and delisting arbitrage are binary-outcome trades like merger arbitrage (6A.7): the downside is the price if the event fails or the post-offer price, which is usually lower than the pre-announcement price once the exit demand is absorbed.
Regulations change: the counter-offer threshold, the fixed-price route and the floor-price test all changed in 2024. Recheck before every trade.