SECP Alters Listed Companies’ Takeovers Regulations 2017.

SECP Strengthens Takeover Rules in Pakistan: More Choice and Protection for Minority Shareholders!

The Securities and Exchange Commission of Pakistan (SECP) has revised the takeover regulations for listed companies, effective January 24, 2024.

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These changes aim to enhance transparency, fairness, and investor protection in the market.

Key Highlights:

• Mandatory Public Offer: When acquiring a company, the buyer (Acquirer) must now offer to purchase shares from minority shareholders (Minority Shareholders) at a fair price. This ensures they have an exit option if desired.
• Cash or Securities: Previously, the Acquirer could offer either cash or securities as payment. However, concerns arose about potentially unfair deals involving less desirable securities.
• Minority Choice, Not Acquirer: The revised regulations address this by granting Minority Shareholders the ultimate decision on whether to accept cash or securities. This empowers them and prevents unfair tactics.
• Methods for Fair Pricing: The regulations clarify how the Acquirer determines the offer price using transparent methods, ensuring a fair deal for all shareholders.

Overall, these amendments:

• Promote transparency and accountability in takeovers.
• Empower Minority Shareholders with more choices and control.
• Protect Minority Shareholders from potentially unfair offers.
• Strengthen corporate governance and investor confidence in the Pakistani market.

The Securities and Exchange Commission of Pakistan (SECP) has further refined its takeover regulations, striking a balance between investor interests and fairness.

Key Point:

• Net Asset Value (NAV) no longer mandatory for valuing frequently traded companies: Recognizing its limitations for these companies, the SECP has removed NAV from the mandatory pricing methods.

Why?

• NAV doesn’t reflect market realities – Market price is a better indicator for frequently traded companies.
• Discouraging takeovers at discounts – Companies trading below NAV could become less attractive, hindering potential deals.

Additional Improvements:

• Clearer definitions: Enhanced clarity and consistency in key terms ensure better understanding for all parties involved.
• Balancing interests: The changes aim to safeguard the interests of both acquirers (buyers) and minority shareholders (sellers) involved in takeovers.

Overall impact:

• More informed pricing: Eliminating NAV for specific cases allows for fairer and more accurate price determination.
• Enhanced transparency: Clearer definitions contribute to better understanding and smoother transactions.
• Balanced market: The revised regulations promote a market environment that protects both acquirers and minority shareholders.

This development signifies the SECP’s commitment to fostering a dynamic and investor-friendly market in Pakistan.

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