The Capital Markets Supervision Board of the Securities and Exchange Commission of Thailand (SEC) issued a new notification (Regulation) under the Securities and Exchange Act B.E. 2535 (1992) (SEC Act) which introduced provisions into the Thai Takeover Code restricting actions by a target company aimed at frustrating a takeover bid, i.e., anti-takeover or frustrating actions.

The Regulation brings the Thai Takeover Code in line with many other countries with developed Takeover Codes which also restrict, to varying degrees, “frustrating actions”. Particular care must be taken by the boards of Thai companies which are subject to hostile takeover bids to ensure that their defensive strategies and actions do not breach the new “frustrating actions” rules. Counterparties, such as banks, suppliers and customers, should also be aware of the possible impact of the Regulation on transactions with listed companies which are subject to takeover bids.

What does the Regulation do?

The Regulation introduced prohibitions against a target company undertaking any of the specified “frustrating actions” during the prescribed “restricted period” (Please see below).

For the purposes of this article company means a company listed on the Stock Exchange of Thailand.

When does the Regulation take effect?

The Regulation came into effect on 16 March 2009.

What constitutes a “frustrating action”?

The Regulation prescribes an exhaustive list of “frustrating actions”, which are:

  • sending a notice to convene a shareholders’ meeting to approve (i) an increase of registered capital of the target company or (ii) an issue of convertible securities by the target company, in either case without disclosing, in the notice, details of the tender offer and the effect of the increase of registered capital or the issue of convertible securities on the tender offer;
  • an acquisition or disposal of assets by a target company which are “material” to its operations (using the materiality threshold set out in the relevant notification of the SEC);
  • the target company assuming material obligations, or entering into, amending or terminating a material contract, in any case otherwise than in the ordinary course;
  • the target company establishing a share repurchase program or causing or encouraging its subsidiary or associated company to purchase its shares; and
  • payment of an interim dividend by the target company, otherwise than in the ordinary course.

What constitutes a “restricted period”?

Unless the requisite approval or waiver is obtained (please see below), “frustrating actions” are prohibited during the “restricted period”, which:

  • commences on the earlier of (i) the date the tender offer is publicly announced by the bidder, (ii) the date the bidder submits the statement of intention to make a tender offer to the SEC and (iii) the first day of the tender offer period; and
  • ends on the earlier of (i) the date the bidder submits a statement to the SEC declining to make a tender offer, (ii) the date the bidder submits a notice to cancel a tender offer (Cancellation Notice) to the SEC and (iii) the day immediately following the last day of the tender offer period.

A Cancellation Notice is not effective, and therefore a tender offer cannot be cancelled, if the SEC rejects the Cancellation Notice. Under the SEC Act, the SEC is empowered to reject a Cancellation Notice within three business days after receipt by the SEC. As such, there is risk if a “frustration action” will be undertaken on the date the bidder submits a Cancellation Notice.

When is a “frustrating action” permitted?

A target company is permitted to undertake a “frustrating action” during the “restricted period” if it obtains:

  • a prior approval of its shareholders; or
  • a prior waiver from the SEC; or
  • a prior written consent of the bidder.

As part of the application for a waiver from the SEC, the target company must show that (i) there are circumstances which restrict its ability to convene a shareholders’ meeting and (ii) there was no intention to frustrate the tender offer.

What is the consequence of undertaking a “frustrating action”?

The consequences of a “frustrating action” undertaken during the “restricted period” without the requisite approval or waiver (described above) are:

  • the “frustrating action” will not be binding on the target company;
  • both the target company and its directors will be subject to a fine; and
  • the directors of the target company may be liable for damages suffered by a third party acting in good faith and who has paid valuable consideration.

If the target company undertakes a “frustrating action” with the prior approval of its shareholders, the bidder will be entitled to either cancel the tender offer or reduce the tender offer price IF all of the three conditions set out below are met.

  • the tender offer document expressly provides that the bidder may cancel the tender offer or reduce the tender offer price if the target company undertakes a “frustrating action” with the approval of its shareholders;
  • the bidder notifies the SEC of its intention to cancel the tender offer or reduce the tender offer price and the SEC does not object (under the SEC Act, the SEC has three business days to object); and
  • the bidder, its concert parties and related persons did not vote in favour of the “frustrating action” in the shareholders’ meeting.