The 30% Line
An acquirer, Indus Building Materials (IBM), holds 27.4% of listed cement company Kohistan Cement. On 3 April, IBM agrees to buy a 4.2% block from a local mutual fund at a 12% premium to the last closing price. On 5 April, a family trust controlled by IBM's chairman transfers a 1.1% stake to IBM as a gift. On 8–10 April, IBM buys another 0.9% in the open market. IBM's advisers say no mandatory offer is needed because no single purchase crossed 30% and the gift was not a purchase. IBM also wants to vote the new shares at the 22 April EGM to approve a related-party transaction. The free float is 40%.
1. Apply the takeover threshold and aggregation rules to these facts.
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The starting point is IBM's existing 27.4%. The 4.2% block takes it to 31.6%; the 1.1% gift takes it to 32.7%; the 0.9% market purchase takes it to 33.6%. Under the Listed Companies (Substantial Acquisition of Shares and Takeovers) Regulations, 2017, an acquisition that takes the acquirer to 30% or more of the voting rights triggers a mandatory public offer to the remaining shareholders. The advisers' "no single purchase" argument is wrong because the regulations aggregate acquisitions and look at the acquirer's holding after the acquisition, not only at each transaction in isolation.
The gift needs careful analysis. A transfer of voting rights, even for no consideration, can count as an acquisition for threshold purposes, and the family trust may be treated as acting in concert with IBM. The mutual fund block is a purchase. The open-market purchases add further shares.
The acquirer should have made public announcement and proceeded to an offer rather than continuing to accumulate. The free float affects the offer mechanics but does not excuse the threshold breach.
2. Can IBM vote the new shares at the 22 April EGM before making an offer?
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IBM should not assume it can vote the shares acquired in breach of the mandatory-offer regime. The regulations restrict the exercise of voting rights attached to shares acquired in contravention, and SECP can give directions, require an offer, or challenge the validity of resolutions passed with improperly voted shares. The safer legal position is that the shares above the threshold should not be voted until the offer process is regularised or SECP directs otherwise.
The board of Kohistan Cement should also scrutinise the EGM. If the related-party transaction requires shareholder approval, the votes of the acquirer and its concert parties may need to be excluded or separately disclosed. The board should obtain independent advice and ensure that minority shareholders receive full information.
The reasoning is that a mandatory offer is not a technical filing; it protects minorities by giving them an exit at a fair price. Allowing the acquirer to vote first would let it consolidate control before minorities receive that protection.
3. What should the acquirer and the target board do now?
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The acquirer should stop further acquisitions, disclose its aggregated holding and concert-party relationships, announce a mandatory offer, and obtain a valuation or pricing determination consistent with the regulations. It should not proceed with the EGM vote in reliance on the disputed shares. It should also disclose the gift from the chairman's trust and explain the relationship.
The target board should form an independent committee, disclose the takeover situation to shareholders, and obtain a fairness opinion on the offer price if required. It should not take actions that frustrate the offer without shareholder approval, and it should ensure that the related-party transaction is separately approved by disinterested shareholders.
The regulator may require the acquirer to make the offer at a price reflecting the highest price paid in the relevant look-back period. The lesson is that control can be built in steps, and the threshold test applies to the aggregate result.