Structures and applicable lawTypes of transaction
How may publicly listed businesses combine?
The transactions for acquiring a publicly 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 for a year or more, or having at least two operating branches or subsidiaries. In a statutory merger, special approval of the board and (or) 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 (or) 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 board and (or) 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 publicly 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 publicly 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 publicly listed company by a foreign 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 the 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. Moreover, if a director has any interests in the transaction, the nature of the interests and the director’s view on the transaction have to be disclosed in the notice to the shareholders.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.
Directors’ and shareholders’ duties and rightsDuties of directors and controlling shareholders
What duties do the directors or managers of a publicly traded company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination or sale? Do controlling shareholders have similar duties?
Generally, directors and managers have a duty to faithfully conduct the business of the company and have a duty of care and a fiduciary duty to act as good administrators. If they breach this duty, thereby causing loss or damage to the company, they should be liable to the company for loss or damage. Further, they have a duty to comply with the relevant laws and regulations in operating the company’s business; if they breach this duty thereby causing loss or damage to any third party, they and the company will be jointly and severally liable for the loss or damage.
In addition, the directors should also comply with the relevant laws and regulations, the company’s articles of incorporation and shareholders’ resolutions. If any board resolution fails to comply with the aforesaid and causes loss or damage to the company, those directors who voted for the adoption of this resolution (as recorded in the meeting minutes) will be liable for compensating the company for the loss or damage. The aforesaid duties also apply to a business combination or sale.
Controlling shareholders who have seats on the board of the public company bear the aforesaid duties.Approval and appraisal rights
What approval rights do shareholders have over business combinations or sales of a public company? Do shareholders have appraisal or similar rights in these transactions?
For conducting a business combination via a merger or share exchange, the resolution of the shareholders’ meeting shall be adopted by the majority of the shares representing at least two-thirds of the total outstanding shares, or at least two-thirds of the shares representing the majority of the total outstanding shares of a public company.
According to the Enterprise Mergers and Acquisitions Act, in a merger, share exchange or demerger, a shareholder who has expressed his or her objection in writing or verbally (as recorded in the meeting minutes or other documents) before or during the shareholders’ meeting, and voted against the transaction or waived his or her right to vote, may exercise dissenting shareholders ‘ right. The shareholder exercising the dissenting right prior to or at the shareholders’ meeting, as described above, must submit his or her request in writing within 20 days of the shareholders’ meeting, specify the price for the buy-back and deliver to the company the share certificates representing his or her shares in the company. If a shareholder fails to do so, he or she will be deemed to have waived his or her dissenting right.
Completing the transactionHostile transactions
What are the special considerations for unsolicited transactions for public companies?
The hostile takeover of public companies is less common in Taiwan as the regulators may be concerned with such transactions. Although the regulators may hold the neutral view and not proactively stop such a transaction, it may raise a lot of questions during the regulatory filing process, which may prolong the approval process or even cause the transaction to fall through.
In addition, in terms of the merger filing, the Taiwan Fair Trade Act stipulates that the Taiwan Fair Trade Commission must provide sufficient information to the target company in a hostile transaction and give the target company an opportunity to express its view on the transaction. This process may also prolong the transaction schedule and cause the transaction to fall through if it is conducted via a tender offer.Break-up fees – frustration of additional bidders
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?
The deal protection mechanisms that we have seen in Taiwan include break-up fees and having the major shareholders sign a side agreement committing to support the deal at the shareholders’ meeting (and to tender the shares if the deal is structured as a tender offer). There is no legal restriction for a publicly listed company to pay break-up fees or reverse break-up fees, and such an arrangement has been seen in Taiwan public company deals in recent years.
When a publicly listed company buys back its shares to create difficulties for third-party bidders to acquire shares from the open market, the buy-back transaction is subject to the following restrictions:
- the number of shares bought back may not exceed 10 per cent of the total number of issued and outstanding shares of the company; and
- the total amount of the shares bought back may not exceed the amount of retained earnings plus capital surplus plus realised capital reserve.
Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?
All foreign investments in Taiwan are subject to the approval of the Investment Commission of the Ministry of Economic Affairs. As long as a foreign investment is not in any of the industries in which foreign investments are restricted, the Investment Commission will grant its approval. Nonetheless, if the target company’s market cap is in the top 100 companies in the Taiwan listed market, the transaction would be subject to a more stringent government agency review.
Nevertheless, in the case of a Chinese investor, according to the Measures for Granting Investment Permits to the People of Mainland Area, the Investment Commission will deny an application if the investor is invested by the Communist Party, Chinese military, administration or other political entities or organisations, and may deny an application if the proposed investment:
- is in a company having a monopoly or oligopoly economic power;
- is sensitive in terms of politics, society and culture or national security; or
- may have an adverse impact on local economic development or financial stability.
What conditions to a tender offer, exchange offer, merger, plan or scheme of arrangement or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?
An acquirer may suspend a tender offer for the following reasons:
- there is a material adverse change to the financial or business conditions of the target, and this change has been proven by the acquirer;
- the acquirer is declared bankrupt, is dead or is ordered for guardianship or, if a company, is ordered to be reorganised; and
- in any of the other situations announced by the Financial Supervisory Commission.
In a tender offer, an acquirer may set the minimum number of shares to be acquired and will be obligated to close the transaction when the number of the tendered shares reaches the minimum number of shares and the approval, consent or clearance, or report to the competent authorities, if necessary, has been obtained or completed. Unless an acquirer fails to acquire the minimum number of shares to be acquired or obtain the required government approval, it cannot refuse to close the tender offer. When launching a tender offer, an acquirer has to present evidence showing that it is financially capable of paying the tender offer consideration, which is usually in the form of a bank guarantee or the full amount of advanced payment to the tender offer agent.
In a merger, spin-off or share exchange, the parties may stipulate conditions precedent, including but not limited to regulatory approvals and financing conditions, to the closing in the transaction documents, which will have to be approved by the board meeting or the shareholders’ meeting, where applicable.Financing
If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?
If a buyer needs to obtain financing for a transaction, in practice, the seller would usually require the buyer to obtain a commitment letter from the lender (eg, financial institution) upon the execution of the transaction documents if the buyer has not executed a loan agreement with the lender. In addition, the parties may agree that the closing will be conditioned on the buyer being fully financed and that the buyer may be liable for liquidated damages if the closing does not occur because of the buyer’s failure to obtain the financing.
Moreover, if a buyer creates any mortgage, pledge or any other encumbrance on the target company’s assets to secure its financing after the closing, the seller would usually assist the buyer and the lender in evaluating the target company’s assets beforehand.Minority squeeze-out
May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?
A major shareholder may squeeze out minority shareholders by means of a merger or share exchange for which the consideration should be in the form of cash.
A merger or share exchange will be approved at a board meeting if the major shareholder holds 90 per cent or more of the shares in the company, and at a shareholders’ meeting if the major shareholder holds less than 90 per cent of the shares in the company. A notice for convening a board meeting has to be sent to the board of directors seven days before the meeting, and a notice for convening a shareholders’ meeting has to be sent to the shareholders 30 days (for an annual meeting) or 15 days (for an extraordinary general meeting) before the shareholders’ meeting. In addition, the shareholders that are entitled to attend the shareholders’ meeting will be determined based on the roster of shareholders 60 days (for an annual meeting) or 30 days (for an extraordinary meeting) prior to the shareholders’ meeting.Waiting or notification periods
Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?
If a foreign entity is involved in an M&A transaction and the Investment Commission’s approval is required, it will usually take about two to three months for the Investment Commission to review an application if the transaction is not involved in any sensitive industry. However, if a Chinese investor is involved and the Investment Commission’s approval is required, it will usually take about three months or even longer for the Investment Commission to review an application. The actual time required will depend on the complexity of the transaction.
If a public company is to cease being listed on the Taiwan Stock Exchange or the Taipei Exchange owing to an M&A transaction, it will have to submit an application to the Taiwan Stock Exchange or Taipei Exchange at least 30 business days prior to the delisting date.
Other considerationsTax issues
What are the basic tax issues involved in business combinations or acquisitions involving public companies?
In a share transfer, the seller is subject to securities transaction tax at 0.3 per cent of the consideration, which should be withheld by the buyer and paid to the tax authority on behalf of the sellers when the buyer pays the consideration. Moreover, if the seller is a local profit-seeking entity or a foreign profit-seeking entity having a fixed place of business or business agent in Taiwan, the gains generated from the share transfer will be subject to alternative minimum tax at 12 per cent, and one-half of the gains will be subject to alternative minimum tax if the seller had held the shares for at least three years. The above rules also apply to mergers and share exchanges.
In an assets transfer, business tax at 5 per cent applies. Moreover, if a company assigns and transfers all or a significant part of its business or assets to another company and obtains at least 80 per cent of the consideration in the form of shares with voting rights, which are distributed to the shareholders, the gains generated from the transfer will be exempt from income tax and any losses therefrom will not be tax deductible.Labour and employee benefits
What is the basic regulatory framework governing labour and employee benefits in a business combination or acquisition involving a public company?
For a transaction structured as a merger or asset transfer, an acquirer is required to notify the employees to be retained at least 30 days prior to the closing, and each employee who receives the retention notice must notify the acquirer of his or her decision to accept or reject the offer of retention within 10 days of receiving the notice. Failure to reply by employees will be deemed as consent. The employees’ seniority at the target company will have to be recognised by the acquirer.
On the other hand, the target company may lay off those employees who reject the offer from an acquirer or are not retained by the acquirer by paying them pension or severance pay and serving them prior notice.
For a transaction structured as a tender offer or share exchange, notice is not required to be provided to the employees as there will not be a change of employer.Restructuring, bankruptcy or receivership
What are the special considerations for business combinations or acquisitions involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
If a company is in bankruptcy, all the assets owned upon the declaration of bankruptcy or acquired before the conclusion of the bankruptcy proceedings, as well as all the claims exercisable in the future, will constitute the bankruptcy estate. A bankruptcy trustee will be appointed by the court to manage the bankruptcy estate and must obtain the consent of the supervisor, who is elected at a creditors’ meeting, before conducting certain activities (eg, transfer of real property and valuable securities).
If a company is to undergo reorganisation, a reorganiser and a reorganisation supervisor will be appointed by the court. The reorganiser is responsible for managing the company’s operation and must obtain the consent of the reorganisation supervisor before conducting certain activities (eg, disposal of the company’s assets). It is unlikely that any material transaction will occur during reorganisation. However, if it is worth continuing the operations of the company, a new investor may agree to inject capital into the company, and such new investment will be included in the reorganisation plan to be approved by the creditors and shareholders.Anti-corruption and sanctions
What are the anti-corruption, anti-bribery and economic sanctions considerations in connection with business combinations with, or acquisitions of, a public company?
If any of the company’s directors, supervisors or managers are in breach of his or her fiduciary duties or embezzles the company’s assets for his or her own or third-party’s interests, thereby causing the company to suffer losses reaching NT$5 million, he or she may be subject to criminal punishment of three to 10 years’ imprisonment and a fine ranging from NT$10 million to NT$200 million. Moreover, if the amount of unjust gains reaches NT$100 million, the minimum criminal punishment will be seven years’ imprisonment and a fine ranging from NT$25 million to NT$500 million.
Even if a company’s losses do not reach NT$5 million, the director, supervisor or manager in breach of fiduciary duties may still be subject to criminal liabilities.
Any person who offers, promises or provides a bribe or other improper benefits to a government official for his or her breach of official duties may also be subject to criminal liabilities.
Update and trendsKey developments
What are the current trends in public mergers and acquisitions in your jurisdiction? What can we expect in the near future? Are there current proposals to change the regulatory or statutory framework governing M&A or the financial sector in a way that could affect business combinations with, or acquisitions of, a public company?
The amendments to the Enterprise Mergers and Acquisitions Act took effect on 15 December 2022. The main amendments are to protect shareholders’ interests, expand the scope of asymmetry transactions and provide tax incentives, including:
- interested directors have to disclose their interests and the reasons for agreeing or disagreeing with any item on the agenda of a board meeting and a shareholders’ meeting;
- dissenting shareholders voting against an item on the agenda may exercise their appraisal right;
- the board’s approval will suffice if the number of new shares to be issued as consideration will be less than 20 per cent of an acquirer’s total issued voting shares, or the value of the shares, cash or other property as the consideration does not exceed 20 per cent of the net asset value of an acquirer;
- intangible assets may be amortised based on their acquisition costs over a certain number of years; and
- individual shareholders of innovation companies may pay the income tax on the dividends three years from the third year of receiving the shares as consideration in M&A transactions.
What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?
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