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      What is an open offer?  
An Open Offer can take place if any of the promoters of a company want to increase their stake or if non-promoters increase their stake to 15% or the company is going to delist from the stock exchange. An open offer is nothing but the exit route, which is given to the existing shareholders by the acquirer of shares through a public announcement.

When the acquiring company increases its stake to 5% or 10% or 14%, it needs to disclose its holdings at every stage to the target company and also to respective stock exchanges. But once the total holding reaches 15%, the acquirer has to come out with an open offer for existing shareholders.

According to the current rule, an acquirer is required to make an open offer for at least 20% additional shares once its holding reaches 15%. The price for open offer should not be below the average price for the last 26 weeks.

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What are the requirements for making an open offer?
For making an open offer, an acquirer is required to make a public announcement, which should include offer price, number of shares to be acquired from the public, purpose of acquisition, identity of the acquirer, future plans, details about Target Company, procedure of accepting the shares and the time period for this.
The acquirer is supposed to pay the consideration to shareholders within 15 days from the date of closing of the offer. For any delay, the acquirer is required to pay interest on the amount.

What is the difference between open offer and rights issue?
Rights issue is made to raise funds, while in an open offer there is a cash outflow. Generally, the rights issue price is lower than prevailing price in the secondary market. In an open offer, price is fixed based on the average price for the last six months and usually the price is higher than the prevailing market price, which is a motivation to current shareholders to sell their shares. Unlike the rights issue, shares bought in an open offer are not traded in the secondary market. Open offer decreases the holding of general shareholders while rights issue increases their holdings in terms of number of shares.
Why are open offers in the news?
After the request received from the board of Satyam Computer Services, the Securities & Exchange Board of India (Sebi) has decided to amend the regulation on pricing of an open offer. Larsen & Toubro has bought more than 12% stake in Satyam. According to current regulation, if it increases its stake to 15% it will have to come out with an open offer to buy another 20% of shares from existing shareholders in the secondary market. According to existing pricing rules the offer price will be much higher than the current market price of the fraud-hit company.