PFC not to make open offer to REC’s minority shareholders after acquisition

PFC not to make open offer to REC’s minority shareholders after acquisition
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New Delhi, Dec 9: Power Finance Company (PFC) will not be required to make an open offer to minority shareholders of REC after buying out the government’s 52.63 per cent stake in the company as it is a related party transaction, an official said.
The Cabinet Committee on Economic Affairs (CCEA) on December 6 gave in-principle approval to the acquisition of the government stake in Rural Electrification Corporation(REC) by PFC.
REC will continue to be a separate listed company.
“We understand that an open offer is not required because the management complexion is not changing. It is a related party transaction. We will seek exemption from Sebi,” the official said.
As per Sebi’s takeover code, if a company acquires more than 25 per cent in another listed company, it has to make an open offer to minority shareholders to buy at least 26 per cent more in the target firm.
The government holds 52.63 per cent stake in REC and 65.64 per cent in PFC.
According to the official, a related party transaction does not trigger takeover code unless the valuations are absurd. “If the premium for the deal is less than 25 per cent in a related party transaction, then it does not trigger a takeover code.”
Based on the market price of REC on December 6, the government stake in REC would be valued at around Rs 105 billion.
The quantum of premium which PFC will pay to the government for its stake in REC would be decided around January, he said.
PFC-REC deal is the second acquisition transaction among Central Public Sector Enterprises (CPSEs).
In January, ONGC bought the government’s entire 51.11 per cent stake in oil refiner HPCL for Rs 369.15 billion. ONGC, too, was exempted from making an open offer to minority shareholders of HPCL.