In the world of mergers and acquisitions, the term “open offer” frequently makes headlines. If you’re an investor or someone trying to understand stock market developments, it’s important to know what an open offer means, how it works, and why it’s significant.
Let’s break down the concept of an open offer in simple terms, followed by a recent real-life example involving Bain Capital and Manappuram Finance.
What is an open offer in the stock market?
An open offer is a public offer made by a company or an acquirer to purchase shares from the existing shareholders of a listed company. This usually happens when the acquirer is planning to take control, or significantly increase their shareholding in the company. Open offers are regulated by the Securities and Exchange Board of India (SEBI) under its Substantial Acquisition of Shares and Takeovers (SAST) Regulations.
It becomes mandatory in most cases when someone acquires more than 25% of a company’s shares or takes control of the board or operations. The open offer gives existing shareholders a chance to sell their shares at a predetermined price, usually higher than the current market rate.
Open offer in simple terms:
Think of a company like a big apartment building. If someone wants to become a co-owner of the building (i.e., take significant control of the company), they not only buy a portion directly from the current owners but also have to make a fair offer to the other residents (shareholders) to buy their flats (shares) too — just in case they want to exit. This offer is called an open offer. It’s open to all shareholders and is meant to ensure fairness.
How does it work?
- The acquirer announces their plan to buy a certain percentage of shares.
- A fixed price is offered — usually higher than the average recent market price.
- Shareholders who wish to exit can tender their shares in the offer.
- Based on the response, the acquirer’s total shareholding may increase accordingly.
Real-life example: Bain Capital’s open offer for Manappuram Finance
A perfect example of an open offer in action is Bain Capital’s recent move involving Manappuram Finance, one of India’s leading non-banking financial companies (NBFCs) focused on gold loans.
- The Deal: Bain Capital plans to invest ₹4,385 crore to acquire an 18% stake in Manappuram Finance via preferential allotment at ₹236 per share, a 30% premium to the six-month average.
- Trigger for Open Offer: This acquisition crosses the regulatory threshold, prompting Bain Capital to make a mandatory open offer to acquire an additional 26% stake.
- Open Offer Price: Set at ₹236 per share — the same as the preferential allotment price.
- Potential Outcome: If fully subscribed, Bain Capital’s total stake could increase up to 41.7%.
This move is aimed at supporting the next growth phase for Manappuram Finance and signals Bain Capital’s strategic interest in India’s financial services sector.
An open offer serves as a vital tool to maintain transparency and protect shareholder interests during major acquisitions. It ensures that all shareholders are given a fair chance to exit or stay invested when there’s a change in ownership or control. With Bain Capital’s open offer for Manappuram Finance, we see how such mechanisms play out in real corporate actions and offer opportunities for both investors and companies to align interests.
