The market regulator, in a landmark judgement, has held that the Autoriders' open offer for 20 per cent of the cement firm's equity is "not as per regulations" since it failed to take into account an expansion in equity through preferential allotments to Saurashtra promoters, the Mehtas.

Concluding that omission of the names of allottees from mandatory corporate disclosures was not appropriate, the Mehtas, who used a series of preferential allotments to keep the Patels of the Autoriders group under check, have been asked to make an open offer through their private investment firms through which they increased their stake.

But the Mehtas will not be competing with thescotched Autoriders open offer price of Rs 75. Since Autoriders' open offer has been held bad in law, the Saurashtra Cement promoters will have to make an open offer of around Rs 30, the price range arrived at on the basis of Sebi takeover regulations.

The Autoriders' open offer has been held invalid owing to an eight-day gap between a preferential allotment made by Saurashtra Cement to its promoters and the open offer. This implied that the equity base had expanded, although, since information was provided to Bombay Stock Exchange later, with explanations for such delay attached, the Autoriders group did not know at the point of its open offer of the preferential allotment.

"Even though it is stated by the acquirer that they were not aware of the voting capital of Saurasthra Cement at the time of making public announcement, there was nothing which prevented them from revising their offer so as to increase it to acquire an aggregate minimum of 20 per cent of the actual voting capital as soon as theacquirer came to know of the same. The acquirer has chosen not to revise the offer," Sebi said.

Saurashtra promoters, meanwhile, are being held ineligible for exemption from making an open offer in case of preferential allotments, because during the company's annual general meeting, the shareholders were not adequately informed. On this issue, Sebi says in the order: "It was necessary that the AGM notice must a required by regulation 3(1)(C), inter alia, give the identity of the allottee, the price and the consequent changes in shareholding pattern after the preferential allotment if such allotment were to increase the holding of the allotted to 5 per cent or more of the post-issue capital. As the notice did not have this information, the preferential allotment does not get the benefit of non-applicability clause mentioned in regulation 3 of the Sebi takeover guidelines."

The market regulator further says: "Besides, to claim non-applicability of regulations 10, 11 and 12, the acquirers are required tofile with Sebi a report within 21 days of the date of acquisition for acquiring preferential shares which will entitle such person to exercise 10 per cent or more of the voting rights of the target company, under regulation 3(4) which the five preferential allottees failed to do. As the provision of regulation 3(1)(C) were not complied the provisions of the takeover regulations would be triggered."