Voluntary Delisting and Exit Offer Process under SEBI Regulations

Understand Voluntary Delisting and Exit Offer Process

Key rules to remember

Shareholder approval

Public shareholders' votes in favour ≥ 2 × public shareholders' votes against

Special resolution through postal ballot and e-voting. The two-times test applies to votes cast by public shareholders.

Success threshold

(Promoter and acquirer holding + shares accepted in offer) ÷ Total share capital × 100 ≥ 90

Total share capital as per the regulations. Both the 90% test and the minimum public participation test must be met.

Shares needed to reach 90%

Shares required = 90% × Total shares − Existing promoter and acquirer shares

Use this first in numerical questions. It tells you how many shares must be tendered.

Discovered price (reverse book building)

Lowest bid price at which cumulative shares tendered (from the lowest bid upward) ≥ shares required

Sellers accept any price at or above their bid, so add up bids from the lowest price upward.

Consideration payable

Exit price × Number of shares accepted

The acquirer pays the exit price to all who tendered at or below it.

Penalty for breach of delisting conditions (SCRA s. 23E)

Not less than ₹5,00,000; may extend to ₹25,00,00,000

Applies to a company that fails to comply with listing or delisting conditions or grounds.

How to solve Voluntary Delisting and Exit Offer Process questions

1. 1State what the question asks: the procedure, the approvals, or a calculation of exit price and success.
2. 2Check eligibility first. For example, shares listed for a very short period or outstanding convertible instruments can bar delisting. Check the regulations for the exact bars.
3. 3Write the approvals in order: board of directors, special resolution by postal ballot and e-voting with the public shareholders' two-times vote test, then in-principle approval of the stock exchange.
4. 4Describe the exit offer: public announcement, floor price, bidding period, reverse book building and the discovered price.
5. 5For a numerical question, compute shares needed for 90%, add up bids from the lowest price upward, and fix the discovered price.
6. 6Test the two success conditions: 90% reached and the minimum public participation met. Then note whether the acquirer accepts the price or counter-offers.
7. 7Write the conclusion: delisting succeeds or fails, what happens to the shares and money, and the continuing right of remaining holders to sell at the exit price for a period after delisting.
8. 8Add the consequence of default: penalty under section 23E of the SCRA, 1956 where relevant.

Quickest way: Three-line numerical method for reverse book building

Common mistakes in Voluntary Delisting and Exit Offer Process

• Adding bids from the highest price downward

  Students confuse reverse book building with an ordinary auction, where the highest bid wins.

  Fix: In reverse book building sellers name their minimum price. Accumulate from the lowest price upward and stop when the shares needed are reached.

• Treating 90% as 90% of public shares

  The word 'threshold' is read as applying only to the offer.

  Fix: The 90% is of the total share capital, counting the promoter and acquirer's existing holding plus the shares accepted.

• Saying a simple majority or the ordinary two-thirds vote is enough for approval

  Students remember only the special resolution rule from the Companies Act.

  Fix: Add the extra test: public shareholders' votes in favour must be at least twice their votes against. Say it is by postal ballot and e-voting.

• Forgetting the floor price and the counter-offer

  Notes often stress only the discovered price.

  Fix: State that the floor price is the minimum, and that the acquirer may accept the discovered price or counter-offer a higher one. The exit price cannot be below the floor.

• Ending the answer when the offer closes

  Students think delisting ends all duties once the shares are delisted.

  Fix: Add that remaining public shareholders can still tender to the acquirer at the exit price for a period after delisting, and that failure means the shares stay listed.

• Mixing voluntary and compulsory delisting

  Both sit in the same chapter and use the word 'delisting'.

  Fix: Voluntary means the company applies, with shareholder approval and an exit offer. Compulsory means the exchange acts for non-compliance. Name which one the question asks about.

Worked examples