Introduction
Extended application
Mandatory offer
Unusual market activity
Higher threshold for voluntary offers
Representation on offeree board
Persons acting in concert
Settlement of consideration
Voting rights
Partial offers
Independent adviser
Takeover via assets and liabilities route
The long-awaited new Code on Takeovers and Mergers 2010 came into force on December 15 2010, replacing the Code on Takeovers and Mergers 1998.
At the same time, pursuant to Section 377 of the Capital Markets and Services Act 2007, the Securities Commission issued the practice notes for the 2010 code and the Guidelines on Contents of Applications relating to Takeovers and Mergers to replace the practice notes for the 1998 code and the Guidelines on Offer Documentation and the Format and Contents of Applications, respectively.
This update looks at the salient changes introduced by the 2010 code.
The 1998 code applied only to companies incorporated under the Companies Act 1965. The 2010 code extends the definition of a 'company' in Section 216(1) of the Capital Markets and Services Act to include a real estate investment trust and a foreign incorporated company, where such trust or foreign company is listed on a stock exchange in Malaysia.
In case of a real estate investment trust, all references in the 2010 code to the board of directors of the offeree shall refer to the board of directors of the trustee.
Both the 1998 code and the 2010 code oblige an acquirer that acquires control of a company to make a mandatory offer to acquire the remaining shares or voting rights in the company.
The 2010 code makes clear that this obligation arises irrespective of how the control or acquisition is effected, including by way of a scheme of arrangement, compromise, amalgamation or selective capital reduction.
To prevent the creation of a false market in an offeree's shares, the 2010 code requires a potential offeror to announce whether there is a takeover or possible takeover offer where there is untoward movement or an increase in the traded volume of shares of an offeree.
If a potential offeror announces that it does not intend to make a takeover offer or that there is no possible takeover offer for it to make, the potential offeror and all persons acting in concert with it will be prohibited from acquiring voting shares or voting rights in the offeree that will give rise to an obligation to make a mandatory offer under the 2010 code for a period of six months from the date of the announcement.
During the six-month period, the potential offeror and all persons acting in concert with it will also be prohibited from procuring an irrevocable commitment to acquire shares of the offeree which will in aggregate carry more than 33% of the voting shares or voting rights of the offeree.
The efficacy of these new provisions remains to be seen.
Higher threshold for voluntary offers
Both the 1998 code and the 2010 code require a voluntary offer to be conditional on the offeror receiving acceptances that would result in it holding in aggregate more than 50% of the voting shares or voting rights of the offeree.
The 2010 code expressly allows the Securities Commission to permit a voluntary offer to be conditional on a higher level of acceptances if the offeror can satisfy the commission that it is acting in good faith in imposing such a higher level of acceptances.
This new provision may enable an offeror to make a voluntary offer which is conditional on the offeror receiving acceptances of 90% of the voting shares or voting rights which are the subject of the offer. If the 90% acceptance level is achieved, the offeror will be entitled to invoke the compulsory acquisition provisions in Section 222 of the Capital Markets and Services Act to acquire the voting shares or voting rights of the offerees that have not accepted the offer, thereby resulting in the offeror and the persons acting in concert with it holding all of the voting shares or voting rights in the offeree.
Although on several occasions under the 1998 code the Securities Commission allowed a voluntary offer to be made conditional on a minimum acceptance level that exceeded 50%, the 2010 code has removed any doubt that it is possible to adopt this approach.
Representation on offeree board
The 2010 code permits the offeror and persons acting in concert with it to appoint directors to the board of directors of the offeree if the following two conditions are fulfilled:
- The offeror and persons acting in concert with it hold more than 50% of the voting shares or voting rights in the offeree before the offer document is dispatched; and
- The offeror has obtained the consent of the Securities Commission for such appointment.
The 1998 code did not permit the offeror and persons acting in concert with it to appoint directors to the offeree's board before the dispatch of the offer document. Although in certain instances the Securities Commission waived this prohibition under the 1998 code, the clarification of the legal position under the 2010 code is welcomed.
The 2010 code also introduces two new categories of 'persons acting in concert':
- a company and its directors and shareholders where an agreement, arrangement or understanding exists between the company or its directors and its shareholders which restricts the director or shareholder from offering or accepting a takeover offer for the voting shares or voting rights of the company; and
- a person who is a partner of a partnership (ie, where two or more persons have a business arrangement and common interest in several companies between them).
The 2010 code reduces the settlement period for acceptances received pursuant to a takeover offer from 21 days to 10 days for offers that involve only a cash consideration, and to 14 days where the consideration comprises securities or a combination of cash and securities.
The 2010 code prohibits an offeror and persons acting in concert with it from exercising the voting rights attached to the shares received through acceptances of the takeover offer before the consideration has been settled in full.
On the other hand, the 1998 code prohibits an acquirer in a mandatory offer from exercising the voting rights attached to the voting shares acquired by it before the offer document has been dispatched to the offeree's shareholders.
In a partial offer both the 2010 code and the 1998 code provide that:
- the offeror shall accept all acceptances from all offeree shareholders that wish to accept the takeover offer up to the percentage of voting shares or voting rights proposed to be acquired by the offeror; and
- where the offeror receives acceptances totalling more than the percentage of voting shares or voting rights offered to be acquired under the offer, the offeror shall accept the voting shares or voting rights in the same proportion from each offeree shareholder to enable the offeror to obtain that percentage of voting shares or voting rights which it has offered to acquire.
The 1998 code further required an offeror to offer to acquire the same percentage of voting shares from the offeree shareholders. This provision is inconsistent with the aforementioned provisions and has been omitted from the 2010 code.
The 2010 code dispenses with the requirement under the 1998 code for the Securities Commission to approve the appointment of an independent adviser for the offeree.
Takeover via assets and liabilities route
In recent years the purchase of company assets and liabilities has become a common method of effecting an indirect takeover of a listed company, as the disposal of assets and liabilities requires only the approval of a simple majority of members of the vendor in a general meeting.
The 2010 code does not regulate this method of taking over a company. On January 28 2011 Bursa Malaysia Securities Berhad amended the Main Market Listing Requirements and the ACE Market Listing Requirements to regulate the 'major disposal' of assets by a listed company.
For further information on this topic please contact Kok Chee Kheong at Skrine by telephone (+60 3 2081 3999), fax (+60 3 2094 3211) or email ([email protected]).