The Securities Industry Council (SIC) is consulting on how the Singapore Code on Take-overs and Mergers (Takeover Code) should apply to a company with dual classes of shares (a DCS company), that is, a company with shares carrying multiple votes (MV Shares) as well as shares carrying one vote (OV Shares). This is pursuant to the changes to the Listing Manual which came into effect on 26 June 2018 allowing DCS companies to be listed on the Main Board of the Singapore Exchange.

The obligation to make a general offer

Under Rule 14 of the Takeover Code, a shareholder must make a general offer for the company if its percentage of voting rights (taken together with those of the persons acting in concert with it) increases past the specified thresholds. In a DCS company, a shareholder’s percentage of voting rights may increase not as a result of any acquisition of shares by it or by persons acting in concert with it but as a result of changes in the number of votes carried by MV Shares. For example, a holder of MV Shares may voluntary seek to reduce the number of votes per MV Share; or an MV Share would automatically convert to an OV Share upon the occurrence of certain events (such as the death of the holder of MV Shares or the sale of the MV Shares).

The following example of Company A shows how this would impact the percentage of voting rights of a holder of OV Shares. In this example, a reduction in the number of votes per MV Share from 5 to 3 results in an increase in Shareholder A’s percentage of voting rights to 36%, while a reduction from 5 to 1 results in an increase Shareholder A’s percentage of voting rights to 48%.This increase occurs even though the number of shares held by Shareholder A does not change.

Obligation to make a general offer will not apply under certain circumstances

Ordinarily, an increase past the threshold of 30% would, under Rule 14, result in a shareholder coming under an obligation to make a general offer for the shares of the company. The SIC is proposing that if a change in the votes per MV share results in a shareholder (a Triggering Shareholder) coming under such an obligation, the Triggering Shareholder will not be required to make a general offer for the company if the change occurred independently of it.

If the change is not independent of the Triggering Shareholder, the Triggering Shareholder must make a general offer within six months of the date the change occurred. The exceptions are if:

  • The independent shareholders of the company, within three months of the date of the change, approve a resolution waiving the requirement to make a general offer; or
  • The Triggering Shareholder disposes of a sufficient quantity of shares as to bring its total percentage of votes below the specified thresholds.

Offer price for the shares if the Triggering Shareholder makes a general offer

If the Triggering Shareholder proceeds to make a general offer, it must offer to buy the shares of the company at the highest price that it (or its concert parties) paid for voting rights in the company in the six months prior to the date of the change. If there had not been any purchases, the SIC will generally require the offer price to be the simple average of the daily volume weighted average traded prices of the company on either the latest 20 trading days or whatever number of trading days there were within the 30 calendar days prior to the date of the change.

Offer price for MV Shares and OV Shares to be comparable

Where a shareholder comes under an obligation to make a general offer for a company, Rule 18 of the Takeover Code states that, “Where a company has more than one class of equity share capital, a comparable offer must be made for each class”. The SIC proposes that where an offer is made for MV Shares and OV Shares and the shares differ only in their voting rights, the offer will be comparable if the ratio of the offer values is equal to one.