Creeping Acquisition

Creeping acquisition is a concept within SEBI's Takeover Code that strikes a balance between allowing substantial shareholders to increase their stake through market purchases and ensuring that rapid accumulation of control does not bypass the open offer requirement. Without a creeping acquisition provision, any acquisition of a single share by a holder of more than twenty-five percent would technically be a "further acquisition" triggering an open offer. The creeping acquisition window recognises that orderly, gradual stake building is a normal market activity that should not be over-regulated.

Under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, a person or entity that holds twenty-five percent or more but less than seventy-five percent of the shares or voting rights of a listed company may acquire additional shares representing up to five percent of the total shares or voting rights of the company in any given financial year (April to March), without triggering the mandatory open offer obligation. If the acquirer wishes to exceed this five percent annual limit, the excess acquisition triggers the mandatory open offer requirement.

The five percent annual limit is tracked on a cumulative basis across all acquisitions in the financial year, including secondary market purchases, block deals, off-market transactions, and conversions of convertible instruments. Acquirers approaching this limit must carefully monitor their aggregate purchases to avoid inadvertently crossing the threshold. SEBI requires timely disclosures under Regulation 29 of the Takeover Code when an acquirer's shareholding crosses two percent or five percent in either direction (above or below these thresholds), and detailed disclosures upon crossing the twenty-five, fifty, and seventy-five percent marks.

The creeping acquisition window has important practical implications for promoters. Many Indian promoter groups periodically increase their stake in their listed companies through market purchases within the creeping acquisition limit, signalling confidence in the company's prospects without the cost and procedural complexity of an open offer. These purchases must comply with SEBI's Insider Trading Regulations as well — promoters must ensure they are not in possession of unpublished price-sensitive information (UPSI) at the time of purchase.

Entities that have crossed the maximum permissible non-public shareholding threshold of seventy-five percent are required to reduce their holding to comply with the minimum public shareholding (MPS) requirement of twenty-five percent. In such cases, creeping acquisition is no longer permissible, and the entity must instead divest shares. The MPS requirement, enforced by SEBI and the stock exchanges, ensures that there remains an adequate free float for price discovery and liquidity in the market.