Structures and applicable lawTypes of transaction
How may publicly listed businesses combine?
The transactions for acquiring a public listed company are normally structured as a tender offer, merger, share exchange, demerger or asset sale. General descriptions of these transaction types are given below.
A tender offer is available and commonly conducted for acquiring listed shares. Pursuant to the Securities and Exchange Act and the Regulations Governing Public Tender Offers for Securities of Public Companies, a mandatory tender offer bid is required for an acquisition of 20 per cent or more of the total issued shares of a public company within 50 days, which can be extended to another 50 days if regulatory approval required for completion of the tender offer is not obtained within the initial 50 days or there is a competing bid. A tender offer can be conducted by a foreign company directly or by a special purpose vehicle set up by the foreign company in Taiwan.
A straight one-step merger is also available for acquiring a listed company. A cross-border merger between a Taiwanese company and a foreign company is feasible as long as the surviving entity takes the form of a company limited by shares. If the consideration for the cross-border merger is the newly issued shares or assets of a foreign entity, additional qualifications are needed, such as the foreign entity being a company with actual business operations, or a multinational company with operations in at least two countries or areas. In a statutory merger, special approval of the board and shareholders at the meeting of each of the participating parties is required.
A listed company may be acquired by another company or a newly incorporated company by a share exchange, whereby the acquiring company issues new shares or pays cash or a combination of cash and shares to the shareholders of the listed company in exchange for their shares in the listed company, which will result in the acquiring company holding 100 per cent of the issued shares of the listed company, and the shareholders will either be flipped to hold shares of the acquiring company or cashed out depending on the form of consideration paid. A cross-border share exchange between a Taiwanese company and a foreign company with shares as consideration is feasible as long as the foreign entity that issues new shares is a company:
- having operated continuously for at least one year with fixed assets, owned or leased, and having the employees to manufacture or sell products or render services, or having at least two operating subsidiaries or branches;
- publicly traded on a stock exchange other than a stock exchange in China; or
- within the same group as the counterparty of the transaction in Taiwan.
In a statutory share exchange, special approval of the board and shareholders at the meeting of each of the participating parties is required.
A demerger is also an available option for acquiring part of the business of a listed company. According to the Enterprise Mergers and Acquisitions Act, a demerger refers to a transaction whereby a company transfers a part of or its entire business unit, which can be operated independently, to a newly incorporated or an existing company, and the latter company issues new shares or pays cash or other properties to the former company or the shareholders of the former company. A demerger requires a special approval of the shareholders of the parties participating in the demerger. However, if a listed company cannot meet certain financial criteria after the demerger, its listing status will be terminated by the Taiwan Stock Exchange or Taipei Exchange.
This type of transaction refers to a transaction in which a company:
- assumes all of the assets of another company (general assumption);
- transfers all of its assets to another company (general business transfer);
- transfers all or a substantial part of the business or assets to another company; or
- assumes all of the business or assets of another company that would have a material impact on the company’s operation.
Special approval of the shareholders of the parties participating in the transaction is required.Statutes and regulations
What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?
For acquiring public listed companies in Taiwan, the main applicable laws and regulations are:
- the Company Act;
- the Enterprise Mergers and Acquisitions Act;
- the Securities and Exchange Act;
- the Statute for Investment By Foreign Nationals;
- the Regulations Governing Public Tender Offers for Securities of Public Companies;
- the Operating Rules of the Taiwan Stock Exchange Corporation;
- the Taipei Exchange Rules on Securities Trading on TPEx; and
- the Fair Trade Act.
For acquiring listed companies in regulated industries, such as the financial industry, telecommunications industry and broadcasting industry, special laws also apply.Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
There is no specific law or regulation on cross-border transactions. The Enterprise Mergers and Acquisitions Act applies to local transactions as well as cross-border transactions. If the buyer is a foreign entity, the Statute for Investment by Foreign Nationals will also apply.
For a cross-border transaction, the foreign entity involved in the transaction, which will use its shares or assets as consideration, will have to meet any of the following conditions:
- it is a company having operated continuously for at least one year with fixed assets, owned or leased, and having the employees to manufacture or sell products or render services, or having at least two operating subsidiaries or branches;
- it is publicly traded on a stock exchange other than a stock exchange in China; or
- the counterparty of the transaction is its affiliate in Taiwan.
Are companies in specific industries subject to additional regulations and statutes?
Companies in specific industries may be subject to additional regulations and statutes. For example, the Financial Institutions Merger Act states that a merger between or among financial institutions is subject to the approval of the Financial Supervisory Commission, and the Cable Radio and Television Act states that a system operator must obtain the National Communications Commission’s approval for the transfer or assumption of business, merger with another system operator or investment in another system operator, either directly or via its affiliate.
If the operation of a target company requires a special licence, the acquiring party should evaluate whether any regulations or statutes require the party to obtain the approval beforehand.Transaction agreements
Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?
For acquiring a public listed company, the transaction agreements are generally concluded and signed when the boards of both the acquirer and the target company approve the transaction, but the transaction agreements take effect only after the requisite corporate actions are duly taken and the approval thereof is obtained.
For a cross-border transaction, although there is no statutory requirement, the governing law of the transaction agreements is usually Taiwan law.
Filings and disclosureFilings and fees
Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?
Regulatory filings must be made with:
- the Investment Commission for acquiring a public listed company by a foreignn investor;
- the Taiwan Fair Trade Commission for merger clearance if the parties meet the filing thresholds;
- the Taiwan Stock Exchange or Taipei Exchange for delisting the target company as a result of the acquisition; and
- the Financial Supervisory Commission for cancelling the target’s public reporting status.
For certain regulated industries, such as telecommunications, broadcasting and finance, additional filings with the competent authorities are required.
In general, there are no government fees for regulatory filings in Taiwan.Information to be disclosed
What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?
The information required to be disclosed to the public depends on the deal structure. If the transaction is structured as a public tender offer, the information required to be disclosed includes:
- basic information on the offeror;
- terms and conditions of the tender offer;
- type and source of the purchase price for the tender offer;
- risks for participation and non-participation in the tender offer;
- status of the offeror’s shareholding in the target company;
- the agreement signed by the offeror and the target company or the management team or shareholders of the target company within the two years before the filing of the tender offer;
- the offeror’s business plan for the target company;
- the offeror’s board resolution; and
- fairness opinion on the purchase price.
If the transaction is structured as a merger, share exchange or demerger, the information required to be disclosed to public includes the transaction agreement, the board resolution, the special committee’s resolution of the target company and the fairness opinion issued by an independent third party on the transaction consideration.Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?
According to Taiwan law, an investor who acquires, either individually or jointly, more than 10 per cent of the total issued shares of a Taiwanese public company is required to file a report with the Financial Supervisory Commission. A report must also be filed with the Financial Supervisory Commission for any change in shareholdings owing to either acquisition or disposal of reaching 1 per cent of the shareholdings in the public company. A report must be filed within 10 days of acquiring more than 10 per cent of the total issued shares of a public company, and within two days of any change to shareholding reaching 1 per cent of the shareholdings in the public company. The aforesaid disclosing requirement is more rigid if the listed company is a financial holding company, which would be required to file a disclosure report when the shareholding percentage exceeds 5 per cent.
A shareholder who is a corporate insider or a shareholder holding more than 10 per cent of shares in a public company must file a shareholding report prior to the fifth day of the following month to the company.
The aforesaid requirements still apply if the company is a party to a business combination.
Law stated dateCorrect on
Give the date on which the above content is accurate.
28 April 2020.