When an investor acquires a substantial stake in a listed company, the transaction may trigger an obligation to make an open offer to its public shareholders. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SEBI SAST Regulations”), govern such acquisitions and set out the circumstances in which an open offer is required.

An important development in this area is the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2025, notified on 3 December 2025 and effective from 2 January 2026. The amendment changes the approach to determining the open-offer price in specified situations by requiring an independent registered valuer to undertake the relevant valuation, replacing the earlier arrangement under which the acquirer and the manager to the open offer were responsible for certain valuations. The amendment also provides a transition period for specified ongoing valuation assignments.

ACQUISITIONS AND OPEN OFFERS
An acquisition generally involves obtaining shares, voting rights or control in a company. Under the SEBI SAST Regulations, the relevant question is whether the proposed transaction results in a substantial acquisition of shares or voting rights, or an acquisition of control over a listed company. The person or entity acquiring the shares, voting rights or control is known as the acquirer, while the listed company whose shares or control are being acquired is referred to as the target company. An acquirer may be an individual, a company, a private equity fund, another listed company or a group of investors.

The acquirer’s position cannot always be assessed in isolation. The regulations also recognise persons acting in concert (“PACs”), who cooperate with the acquirer pursuant to an agreement or understanding to acquire shares, voting rights or control over the target company. Where the applicable provisions require their holdings to be aggregated, the holdings of the acquirer and its PACs must be considered together when determining whether an open-offer obligation has arisen.

An open offer is an offer made by an acquirer to the shareholders of a listed company to purchase their shares at a specified price, in accordance with the applicable regulations. Its purpose is to give public shareholders an opportunity to exit their investment when a substantial acquisition or change in control takes place. This protection is important because a change in ownership or control may affect the target company’s management, board composition, business strategy and risk profile. An open offer allows eligible shareholders to decide whether they wish to tender their shares rather than continue holding an investment following a significant change in the company’s ownership or control.

WHEN DOES AN ACQUISITION TRIGGER AN OPEN OFFER?
The principal triggers are set out in Regulations 3 and 4 of the SEBI SAST Regulations. These provisions deal with acquisitions of shares or voting rights beyond prescribed thresholds and acquisitions of control.

Acquisition of 25% or More of the Voting Rights
Under Regulation 3(1), an acquirer who, together with persons acting in concert, acquires shares or voting rights entitling them to exercise 25% or more of the voting rights in a target company is generally required to make an open offer, subject to applicable exemptions. For example, suppose an investor holds 18% of the voting rights in a listed company and proposes to acquire another 8%. The resulting holding would be 26%, which would generally trigger an open-offer obligation. The parties must therefore consider the open-offer requirements while structuring the transaction. The timing of the public announcement and the acquisition must comply with the regulations; the acquirer cannot simply disregard the open-offer obligation and address it after completing the transaction.

Acquisition Beyond the Creeping-Acquisition Limit
An acquirer that already holds 25% or more of the voting rights may acquire additional shares without triggering an open offer only within the limits permitted by the regulations. The general creeping-acquisition limit is 5% of the voting rights in a financial year, subject to the applicable conditions and exceptions. This allows an existing substantial shareholder to increase its stake within the permitted limit without automatically triggering another open offer. For example, if an acquirer holds 30% of the voting rights and acquires an additional 4% during a financial year, the acquisition would generally remain within the annual creeping-acquisition limit, assuming the other regulatory conditions are satisfied. An acquisition beyond the applicable limit may trigger an open-offer obligation. The calculation must take into account the relevant voting rights and the applicable rules for aggregating the holdings of persons acting in concert. Acquirers should therefore assess their existing holdings and proposed acquisitions carefully before proceeding.

Acquisition of Control
An open offer may also be triggered where an acquirer obtains control over a target company, even if its shareholding remains below 25%. Control may arise through the right to appoint a majority of the directors or the ability to control management or policy decisions. Contractual arrangements, affirmative voting rights and veto rights may also need to be examined to determine whether they confer control. For instance, an investor holding 18% of a listed company may obtain rights that allow it to appoint a majority of the board. Although the investor has not crossed the 25% threshold, the rights acquired may raise a separate question of whether control has been obtained. However, not every veto right or contractual protection amounts to control. The nature of the rights, the decisions they cover and the overall arrangement must be assessed in light of the applicable legal principles and the SEBI SAST Regulations.

HOW LARGE MUST AN OPEN OFFER BE?
The minimum size of an open offer depends on whether it is mandatory or voluntary.

A mandatory open offer is generally required to cover at least 26% of the target company’s total shares, in accordance with the applicable provisions. This requirement ordinarily applies where an acquisition triggers an open offer under the takeover regulations.

A voluntary open offer is different. An eligible acquirer that already holds 25% or more of the voting rights, but remains below the maximum permissible non-public shareholding, may make a voluntary offer subject to the prescribed conditions. The minimum size of such an offer is generally 10%.

The distinction is important: a mandatory open offer arises because the regulations require it, whereas a voluntary open offer is initiated by an eligible shareholder who wishes to acquire additional shares. In both cases, the offer must comply with the applicable requirements governing its size and implementation.

WHAT HAS CHANGED UNDER THE 2025 AMENDMENT?
The 2025 amendment focuses on the valuation of shares for determining the open-offer price in specified situations. It does not replace the general 25% threshold for triggering an open offer.

Under the amended provisions, the relevant valuation must be undertaken by an independent registered valuer in specified circumstances. The term “valuer” is linked to the meaning assigned to it under Section 247 of the Companies Act, 2013.

The change is particularly relevant to situations involving infrequently traded shares, certain indirect acquisitions and other circumstances covered by the applicable pricing provisions. In these cases, the market price or the ordinary pricing parameters may not, on their own, provide the basis required under the regulations.

The amendment replaces the earlier references to the acquirer and the manager to the open offer undertaking certain valuations with a requirement for an independent registered valuer. It also provides a nine-month transition period, from the date the amendment came into force, for specified valuation assignments that were already underway before that date.

The registered-valuer requirement should not be interpreted as applying to every open offer. Whether an independent valuation is required depends on the relevant provision and the circumstances of the acquisition.

WHY DOES THE OPEN-OFFER PRICE MATTER?
The offer price is one of the most important commercial and regulatory aspects of a takeover transaction. It determines the consideration that public shareholders may receive if they tender their shares and those shares are accepted under the offer.

If the offer price is too low, shareholders may be reluctant to participate, and questions may arise about whether the offer complies with the applicable pricing requirements. An inadequately determined price may also expose the acquirer to regulatory scrutiny, disputes and reputational risks. On the other hand, a higher offer price increases the cost of the acquisition and may affect the transaction’s financial viability. The acquirer may need additional funding, and the transaction may no longer meet its original investment objectives.

The issue becomes more significant when shares are infrequently traded. Limited trading activity may mean that the quoted market price does not provide a reliable indication of value. Depending on the circumstances, the valuation may need to consider factors such as the company’s book value, earnings, cash flows, comparable-company multiples, comparable transactions, asset value and industry conditions.

The 2025 amendment strengthens the independence of the valuation process in the situations covered by the amended provisions. For acquirers, this makes it important to identify the applicable valuation requirements early in the transaction.

DIRECT AND INDIRECT ACQUISITIONS
A direct acquisition takes place when an acquirer directly acquires shares or voting rights in a listed company, or directly acquires control over it. For example, where a private equity fund purchases 27% of an Indian listed company from its promoter, the fund directly acquires shares in the listed company. An indirect acquisition occurs when an acquirer obtains an interest in a listed company through the acquisition of another entity that holds shares or control over the listed company.

For example, Company A may acquire Company B, which holds 35% of the shares in a listed Indian company. Although Company A has not directly purchased shares in the listed company, its acquisition of Company B may result in an indirect acquisition of shares or control. Depending on the circumstances and the applicable provisions, this may trigger an open-offer obligation.

Indirect acquisitions may involve more complex pricing considerations because the consideration paid for the entity being acquired may not directly reflect the value attributable to the listed target company. The SEBI SAST Regulations contain specific provisions for determining the offer price in such cases. Whether an independent registered valuer is required must be assessed under the relevant provisions of the amended regulations.

FREQUENTLY TRADED AND INFREQUENTLY TRADED SHARES
The distinction between frequently traded and infrequently traded shares is relevant to determining the open-offer price.

For frequently traded shares, market prices and trading data may provide a meaningful basis for applying the prescribed pricing parameters. For infrequently traded shares, limited trading activity may make market prices less reliable as an indicator of value. A low level of trading, limited liquidity or a small number of transactions may mean that the quoted price does not adequately reflect the company’s financial position. In such circumstances, the applicable pricing framework may require consideration of other financial and commercial factors.

The 2025 amendment is relevant because it provides for independent registered valuation in specified situations covered by the pricing provisions. The requirement must be assessed on the facts of the transaction rather than assumed to apply to all infrequently traded shares or all open offers without reference to the regulations.

HOW IS AN OPEN OFFER IMPLEMENTED?
The open-offer process begins with an assessment of the proposed acquisition. The acquirer must determine whether the transaction crosses the applicable shareholding threshold, exceeds the permitted creeping-acquisition limit or involves an acquisition of control. Any indirect acquisition and applicable exemptions must also be examined.

Once an open-offer obligation is identified, the required public announcement must be made in accordance with the applicable regulatory timeline. The announcement informs the target company and the public shareholders of the proposed acquisition and the open offer. The timing of the announcement depends on the nature of the transaction and the relevant provisions of the regulations.

The acquirer must appoint a SEBI-registered merchant banker to act as the manager to the open offer. The manager assists with the public announcement, regulatory filings, offer documentation, pricing analysis, coordination with SEBI, escrow arrangements and implementation of the offer.

The minimum offer price is then determined under Regulation 8 and the other applicable pricing provisions. Depending on the transaction, the relevant factors may include the negotiated acquisition price, prices paid for other acquisitions and prescribed market-price parameters. Where the regulations require an independent registered valuer, the valuation must be carried out in accordance with the amended provisions.

The manager to the open offer also coordinates the preparation and filing of the draft letter of offer with SEBI. This document contains information about the acquirer, the target company, the proposed acquisition, the offer price, the number of shares offered, the source of funds and the terms and conditions of the offer. It enables shareholders to assess the offer before deciding whether to tender their shares.

The acquirer must also arrange sufficient funding and comply with the applicable escrow requirements to secure its obligations. These arrangements are important because the acquirer must be able to pay the shareholders whose shares are accepted under the offer. During the offer period, public shareholders may tender their shares in accordance with the offer terms and the prescribed procedure. If the number of shares tendered exceeds the number that can be accepted, acceptance is determined in accordance with the applicable rules.

The process concludes with payment to the shareholders whose shares are accepted and completion of the transfer in accordance with the prescribed settlement requirements. Each stage must be coordinated with the applicable regulatory timelines and the terms of the acquisition.

CONCLUSION
The SEBI SAST Regulations are an important part of the framework governing acquisitions of shares, voting rights and control in listed companies. The open-offer mechanism gives public shareholders an opportunity to exit their investment in specified circumstances involving substantial acquisitions or changes in control. The 2025 amendment introduces a more independent approach to valuation in the situations covered by the revised pricing provisions. For acquirers and transaction advisers, the change highlights the importance of determining the appropriate open-offer price and identifying any registered-valuer requirement at an early stage. A takeover transaction therefore requires more than checking whether the acquirer has crossed the 25% threshold. The parties must also consider the acquisition of control, creeping-acquisition limits, the minimum offer size, pricing requirements, funding arrangements and regulatory timelines. Assessing these issues before the transaction is finalised can help parties understand their obligations, estimate the financial implications and structure the acquisition in compliance with the applicable takeover regulations.

By - Diya Khanna & Ayushi Mahawar