The MAS Consultation Paper is proposing to update parts of the Singapore Code on Take-Overs and Mergers in view of market innovations and evolving international practices.
On 6 July, the Securities Industry Council (SIC) issued its Consultation Paper on Revision of the Singapore Code on Take-overs and Mergers (Consultation Paper) to refine and update certain areas of the Singapore Code on Take-Overs and Mergers (Code) that was introduced in 1974 (and last revised in 2012) in light of market innovations and evolving international practices.
The deadline for public feedback on the Consultation Paper is 6 August, and we are happy to assist our clients with consolidating comments on the proposed changes to the Code. Accordingly, if you wish to provide any feedback on the Consultation Paper for consolidation with other clients’ feedback for submission to the SIC, please send us your comments by 30 July.
The key proposals in the Consultation Paper (discussed in further detail below) are as follows:
- Alignment of offer timetable in competing offers
- Adoption of auction procedure to resolve competitive situations
- Guidance on when potential competing offerors are required to clarify their intentions
- Guidance on board conduct during an offer
- Clarification on the setting aside of no increase and no extension statements
- Requirement of settlement of acceptances within seven business days
- Requirement of prompt disclosure of any material changes in previously published information
- Clarification of requirements relating to conditions in preconditional offers
ALIGNMENT OF TIMETABLE IN COMPETING OFFERS
Under Rule 22.9 of the Code, the final day on which an offer can become or be declared unconditional as to acceptances is normally the 60th day after the posting of the offer document (Day 60). The Day 60 time limit prevents the offeree company from being in a prolonged “siege,” because the uncertainty that arises from an offer can have a destabilising effect on the offeree company. In the case of competing offers, the offeree company would in any case be under “siege” by the second offeror.
To provide greater clarity, SIC proposes to state in the Code that all offerors will be bound by the timetable established by the despatch of the latest competing offer document in competitive situations.
AUCTION PROCEDURE TO RESOLVE COMPETITIVE SITUATIONS
SIC proposes to prescribe an auction procedure if a competitive situation exists in the later stages of an offer period unless alternative procedures are agreed on between parties to the offers. The proposed auction procedure is designed to achieve finality and an orderly conclusion to the competitive situation in an open and transparent manner. The objective is not to identify a winner but to ensure that shareholders can decide on the outcome of a competitive situation with the benefit of final offers from the competing offerors.
The key features of the proposed auction procedure are
- a maximum of five bidding rounds over five consecutive business days;
- both competing offerors would be permitted to announce a revised offer in the first round of the auction;
- a competing offeror would be permitted to announce a revised offer only if the other competing offeror has announced a revised offer in the previous round;
- both offerors would be entitled to announce a revised offer in the fifth and final round of the auction;
- no minimum increment in an amount greater than the value of the other offeror’s last revised offer, and flexibility to include new forms of consideration; and
- no formula bids.
POTENTIAL COMPETING OFFERORS TO CLARIFY INTENSTIONS
Where an offeror (Offeror 1) has announced a firm intention to make an offer and a potential competing offeror (Offeror 2) becomes the subject of a possible offer announcement, Offeror 2’s intentions cannot remain unclarified, as they have a significant impact on the decision of offeree company shareholders to accept Offeror 1’s offer.
Given the need for offeree company shareholders to have timely and sufficient information as well as the need not to disturb the existing tactical balance between Offeror 1 and Offeror 2, SIC proposes that Offeror 2 clarifies its intentions (“put up or shut up” or PUSU) by either announcing a firm intention to make an offer or making a “no intention to bid” statement. The deadline for PUSU in the case of a contractual offer is proposed to be the 53rd day from the date that the first offeror despatches its initial offer document, and the deadline for PUSU in the case of a scheme of arrangement, a trust scheme, or an amalgamation, is proposed to be no later than the seventh day prior to the date of the shareholders’ meeting to approve the relevant scheme or amalgamation.
BOARD CONDUCT DURING AN OFFER
Under Rule 7.1 and Rule 24.1(b) of the Code, the offeree board must obtain competent independent advice on a take-over offer and the substance of such advice must be made known to shareholders in the offeree board circular. In addition, the offeree board circular should indicate whether the offeree board directors recommend shareholders to accept the offer. So far there have been few dissenting offeree boards, and offeree boards generally do not solicit competing offers.
SIC proposes to clarify that offeree boards may consider the feasibility of soliciting a competing offer or running a sale process and that doing so will not amount to frustration of the initial offer. SIC also proposes to state that an offeree board may consider the availability of management projections and forecasts that can be shared with an independent financial adviser for the purpose of the latter’s advice about an offer.
NO INCREASE AND NO EXTENSION STATEMENTS
Under Rule 20.2 of the Code, when an offeror issues a no increase statement, it can only amend the terms of the offer under exceptional circumstances or where the right to do so has been specifically reserved. Similar terms apply in a situation where an offeror issues a no extension statement under Rule 22.7.
Rule 22.8 states that, except with SIC’s consent, an offeree board should not announce any material new information 39 days after the posting of the initial offer document (Day 39). In the case where an offeree board announces material new information after Day 39, SIC proposes that an offeror should be permitted to set aside its no increase or no extension statement because the offeror could be disadvantaged by the late announcement of material information by the offeree company.
SETTLEMENT OF ACCEPTANCES WITHIN SEVEN BUSINESS DAYS
Rule 30 requires an offeror to settle acceptances of shares within 10 calendar days after an offer becomes unconditional or after the receipt of valid acceptances where such acceptances were tendered after an offer has become unconditional. Because this could impose practical difficulties for an offeror when part of the 10 calendar day settlement period currently prescribed coincides with public holidays, SIC proposes to adopt a seven business day payment period instead.
PROMPT DISCLOSURE OF MATERIAL CHANGES IN PREVIOUSLY PUBLISHED INFORMATION
Under Note 1 on Rule 8.1, information regarding any material changes to information published previously by or on behalf of a relevant company during an offer period must be included in the next document published. As the next document might be published much later, a gap between the time of the material change in information and its disclosure can occur.
To ensure that shareholders and investors are apprised of material information on a timely basis, SIC proposes an amendment to Rule 8.1 of the Code to require prompt disclosure of (a) any material changes to information previously published in connection with an offer and (b) any material new information that would have been required to be disclosed in any previous document or announcement published during an offer period, had it been known at the time.
CONDITIONS IN PRECONDITIONAL OFFERS
Rule 15.1 sets out the requirements for conditions that an offeror might impose on its voluntary offer. In some cases, the offeror may subject the making of a voluntary offer to preconditions, which, upon fulfilment, obliges an offeror to announce a firm intention to make a voluntary offer. However, the Code currently does not prescribe any requirements on such preconditions.
In practice, SIC has required such preconditions to meet the standards set out in Note 1 on Rule 14.2 regarding conditional agreements and put and call option agreements. The fulfilment of such conditions cannot depend to an unacceptable degree on the subjective judgement of an offeror. In addition, an offeror should not invoke any such condition for the purpose of causing the offer to lapse unless the circumstances that give rise to the right to invoke the condition are of material significance to the offeror with respect to the offer. SIC proposes to codify this practice by introducing a new Note to Rule 15.1.
OTHER PROPOSED AMENDMENTS
SIC also proposes to make the following changes for clarification:
- The inclusion of an additional condition that a potential competing offeror must not have acquired an interest in any shares of an offeree company after making a no intention to bid statement (as it would be contrary to the objective of requiring such offeror to clarify its position) if the competing offeror wishes to subsequently seek SIC’s approval to make an offer with the agreement of the offeree board within a six-month period from the date of such statement
- The inclusion of a new Note on Rule 22.1 to allow, in the case of a preconditional offer, an offeree company to seek approval for the posting of the offer document before 14 days following the date of announcement of a firm intention to make an offer, so that the offeree company may sooner prepare its offeree circular containing, among other things, its recommendation regarding the offer and the advice of the independent financial adviser
- Amendments to Note 1 on Rule 18 to state that reference will be made to market prices in determining the ratio of offer values in the case of offers involving two or more classes of equity share capital
- The inclusion of new Notes to Rules 3.1, 3.2, and 3.3 to clarify that a paid press notice refers to a paid advertisement in two leading English-language national newspapers published daily and circulating generally
Read more about the Consultation Paper.