Description

SEBI amends takeover regulations to mandate independent registered valuers for share valuation in cases where shares are not frequently traded, replacing the acquirer-manager determined pricing mechanism.

Summary

SEBI has notified the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2025, effective from the third day of publication in the Official Gazette (December 3, 2025). The key amendment mandates the use of independent registered valuers for determining offer prices in cases where shares are not frequently traded, replacing the previous system where acquirers and open offer managers determined pricing based on valuation parameters.

Key Points

  • New definition of “Valuer” added, referring to valuers as defined under Section 247 of the Companies Act, 2013
  • Independent registered valuers must now determine offer prices for infrequently traded shares
  • Valuation parameters include book value, comparable trading multiples, and other customary parameters for such companies
  • Transitional provision: Ongoing valuations initiated before these regulations take effect must be completed within nine months from the effective date
  • Amendment applies to both Regulation 8(2)(e) and Regulation 8(4) of the principal regulations
  • Replaces acquirer and open offer manager determined pricing with independent valuer mechanism

Regulatory Changes

Amendment to Regulation 2(1) - Addition of new clause (ya) defining “Valuer”:

  • Valuer shall have the same meaning as assigned under Section 247 of the Companies Act, 2013 (as amended from time to time)

Amendment to Regulation 8(2)(e) - Pricing for infrequently traded shares:

  • Previous provision: Price determined by acquirer and open offer manager considering valuation parameters including book value, comparable trading multiples, and other customary parameters
  • New provision: Price determined by independent registered valuer based on valuation parameters such as book value, comparable trading multiples, and other parameters generally adopted for valuation of shares of such companies
  • Includes transitional proviso for ongoing valuations

Amendment to Regulation 8(4) - Fair price determination:

  • Previous provision: When offer price cannot be determined under any parameter in sub-regulation (3), fair price determined by acquirer and open offer manager considering valuation parameters
  • New provision: Fair price to be determined by independent registered valuer based on valuation parameters including book value, comparable trading multiples, and other customary parameters, while complying with requirements of sub-regulation (5)

Compliance Requirements

For Acquirers and Open Offer Managers:

  • Must engage independent registered valuers (as per Companies Act, 2013, Section 247) for determining offer prices when shares are not frequently traded
  • Cannot self-determine pricing for infrequently traded shares
  • Must ensure valuer independence and registration status
  • For ongoing valuations initiated before the amendment: Complete valuation within nine months from December 6, 2025 (effective date)

Valuation Methodology:

  • Valuers must consider appropriate parameters including:
    • Book value
    • Comparable trading multiples
    • Other parameters customarily adopted for such company valuations
  • Valuation must comply with requirements under sub-regulation (5) of Regulation 8

Important Dates

  • Notification Date: December 3, 2025 (published in Official Gazette)
  • Effective Date: December 6, 2025 (third day from publication)
  • Transitional Period: Nine months from effective date (until September 6, 2026) for completing ongoing valuations initiated before the amendment

Impact Assessment

Market Impact:

  • Increases transparency and objectivity in open offer pricing for unlisted and infrequently traded companies
  • May result in more realistic valuations as independent valuers replace interested party determinations
  • Could impact timelines for open offers due to requirement for independent valuation process

Operational Impact:

  • Acquirers must factor in additional time and cost for engaging independent registered valuers
  • Open offer managers need to coordinate with independent valuers instead of self-determining prices
  • Valuation profession will see increased demand for registered valuers in M&A transactions
  • Enhanced scrutiny and accountability in valuation process

Compliance Impact:

  • All pending and future open offers for companies with infrequently traded shares must comply
  • Transitional provision provides nine-month window for ongoing valuations, preventing immediate disruption
  • Reduces potential conflicts of interest in pricing determination
  • Aligns takeover regulations with Companies Act framework for valuation

Impact Justification

Significant change in takeover pricing methodology requiring mandatory independent valuation for infrequently traded shares, affecting all open offer transactions and substantial acquisitions