SEBI Takeover Code: When an Open Offer Is Triggered
Buying a large stake in a listed company isn't just a private transaction between buyer and seller — cross certain thresholds, and SEBI's Takeover Code obligates the acquirer to make the same offer available to every other public shareholder too.
The core policy idea
SEBI's Substantial Acquisition of Shares and Takeovers (SAST) Regulations exist to ensure that when an acquirer gains a substantial stake or control in a listed company, public shareholders get a genuine exit opportunity at a comparable price — rather than only the seller of a large block benefiting from a control-premium price while remaining minority shareholders are left holding shares in a company now controlled by a new party they never got a chance to exit from on similar terms.
The primary trigger: 25% threshold
An acquirer whose shareholding or voting rights (along with persons acting in concert) reaches 25% of the target company — whether through a single acquisition or a series of acquisitions — triggers a mandatory obligation to make a public open offer to acquire a minimum of 26% additional shares from public shareholders.
The "creeping acquisition" limit
An acquirer who already holds between 25% and 75% can acquire up to 5% additional shares per financial year without triggering a fresh open offer — this "creeping acquisition" allowance exists to let an existing substantial shareholder gradually increase their stake through ordinary market purchases without the disruption and cost of repeated open offers for relatively small incremental acquisitions, while still capping how much can be quietly accumulated in any single year.
Minimum offer price
The open offer price must be at least the highest of several specified benchmarks — including the price paid by the acquirer for the triggering acquisition, the volume-weighted average market price over specified trading periods before the trigger, and other prescribed valuation parameters — ensuring public shareholders receive a price that is not artificially undercut relative to what the acquirer actually paid or the recent trading price.
Exemptions from the mandatory open offer
Certain categories of acquisition are exempted from triggering a mandatory open offer — including specified intra-group/inter-se transfers among promoters (subject to conditions), acquisitions pursuant to a SEBI-approved scheme of arrangement, and a small number of other defined categories — these exemptions are narrowly drawn and fact-specific, not a general escape route from the open offer obligation.
What this means for a strategic buyer planning a control acquisition
A buyer negotiating to acquire a substantial or controlling stake in a listed company needs to build the open offer's cost and timeline (the open offer process itself takes several months from trigger to completion, including regulatory filings, offer document preparation, and the offer period itself) into the overall transaction plan from the outset — this is a materially different (and more expensive, since more shares typically need to be funded) transaction than acquiring the same stake in a private, unlisted company.