Malaysia Takeover Guide

Transcription

1 Malaysia Takeover Guide Contact Lee Won Chen Rahmat Lim & Partners

2 Contents Page THE REGULATION OF TAKEOVERS 1 THE REGULATORY MAZE BROAD CONCEPTS 1 MANDATORY OFFERS 4 VOLUNTARY OFFERS 6 PARTIAL OFFER 7 ELIMINATING THE MINORITY AFTER A TAKEOVER 7 THE REGULATORY MAZE - IMPORTANT DETAILS 8 THE LIFECYCLE OF A TAKEOVER 10 DEFENDING A TAKEOVER - WHAT CAN BE DONE? 11 HERE COME THE REGULATORS _1_ takeover guide - malaysia

3 THE REGULATION OF TAKEOVERS Takeovers in Malaysia are primarily regulated under the Capital Markets and Services Act, 2007 (Act 671) (CMSA) and the Malaysian Code on Take-Overs & Mergers 2010 (Code). The Code contains principles and rules governing the conduct of all persons or parties involved in a takeover. The objective of the regulatory regime of the CMSA is to ensure that the acquisition of voting shares or control of companies takes place in an efficient, competitive and informed market. This includes the need to ensure that: shareholders, directors and the market for the shares are aware of the identity of the bidder, have reasonable time in which to consider a takeover offer and are supplied with sufficient information necessary to enable them to assess the merits of any takeover offer; so far as practicable, all shareholders of a target company have equal opportunities to participate in benefits accruing from the takeover offer, including in the premium payable for control; and fair and equal treatment of all shareholders, in particular, minority shareholders, in relation to the takeover offer, merger or compulsory acquisition would be achieved. The Code is enacted pursuant to the CMSA and is to be read together with a set of practice notes and the Guidelines on Contents of Applications Relating to Take-Overs and Mergers issued by the Securities Commission (SC). THE REGULATORY MAZE BROAD CONCEPTS Regulatory map The SC established under the Securities Commission Act, 1993 is the authority charged with the function to regulate takeovers and mergers of entities. Hence, it is the SC which approves offer and other documents issued in connection with the takeover, issues rulings and grants exemptions from compliance with the Code. A bidder will have to investigate the rules and legislation specific to the business of the target company. For example, if the target company is a manufacturing company holding a manufacturing licence issued under the Industrial Co-ordination Act, 1975 then the approval from the Ministry of International Trade & Industry is required. An acquisition of shares in banking and financial institutions and insurance companies require the approval of the Central Bank and, where relevant, of the Minister of Finance under the Financial Services Act, It is also important to note that for certain sectors in Malaysia, there is a cap on the equity which may be held by foreign investors. These include banking and financial institutions, insurance companies and telecommunication companies. When do takeover rules apply? The Code applies when the target entity is: a public company; a company that is incorporated outside Malaysia but listed on the stock exchange of Malaysia; or _1_ takeover guide - malaysia page 1

4 a real estate investment trust that is listed on the stock exchange of Malaysia. What is caught? The regulatory trigger and its key concepts The CMSA requires that: a person who makes a takeover offer, which includes an acquisition via a scheme of arrangement, shall do so in accordance with the provisions of the Code and any ruling made by the SC; a person who has obtained control in a company shall make a takeover offer in accordance with the provisions of the Code and any ruling made by the SC; and a person who has obtained control in a company shall not acquire any additional voting shares in that company or voting rights, except in accordance with the provisions of the Code and any ruling made by the SC. An understanding of the following concepts is useful: Offer Period Control offer period control voting shares voting rights persons acting in concert The offer period commences from the date the bidder makes an announcement of a takeover offer or proposes a possible takeover offer or sends a takeover notice, whichever is earlier, and ends when the takeover offer becomes or is declared unconditional as to acceptances, closes, lapses or is withdrawn. The trigger point for having to extend a mandatory takeover offer is 33% of the voting shares or voting rights, as this is seen as the threshold where an acquirer obtains control. Voting shares Voting shares means an issued share of the body corporate, not being: a share to which, under no circumstances, there is attached a right to vote; or a share to which there is attached a right to vote only where dividends in respect of the share are in arrears, on a proposal for reduction of capital, winding up, affecting the rights attached to the shares or for the disposal of the whole of the property, business and undertaking of the body corporate _1_ takeover guide - malaysia page 2

5 Persons acting in concert Persons acting in concert are persons who, pursuant to an agreement, arrangement or understanding co-operate to: acquire jointly or severally voting shares of a company for the purpose of obtaining control of that company; or act jointly or severally for the purpose of exercising control over a company. The agreement, arrangement or understanding may be formal or informal, written or oral, express or implied and may or may not have legal or equitable force. This is very much a factual test and the Code sets out the criteria the SC will take into account when deciding whether a person is acting in concert. Notwithstanding the foregoing, the CMSA and the Code presumes certain persons to be acting in concert unless the contrary is established. The presumption applies in the case of, inter alia: a corporation and its related and associate corporations and a person who owns or controls 20% or more of the voting shares of such corporation and any parent, child, brother, sister, spouse, relative or related trust of such person; a corporation and any of its directors, parent, child, brother or sister of any of its directors or the spouse of any such director or any such relative or any related trusts; a corporation and any pension fund established by it; a person and any investment company, unit trust or other fund whose investments such person manages on a discretionary basis; a financial adviser and its client which is a corporation, where the financial adviser manages on a discretionary basis, the corporation's funds and has 10% or more of the voting shares in that corporation; a company, the directors of the company, and the shareholders of the company where there is an agreement, arrangement or understanding between the company or directors of the company, and shareholder of the company which restricts the director or the shareholder from offering or accepting a takeover offer for the voting shares or voting rights of the company or increasing or reducing his shareholdings in the company; and a person who is a partner of a partnership. The associate corporation relationship is established if the corporation holds at least 20% of the voting shares. Some important percentage thresholds 5% - substantial shareholding level which requires the holder to disclose its substantial shareholding to the company, the SC and the stock exchange. Any change in interest and cessation of substantial shareholding is also required to be disclosed; over 10% - the holder may block compulsory acquisition; over 25% - the holder may block special resolutions of the company; _1_ takeover guide - malaysia page 3

6 33% - threshold for triggering the mandatory offer; over 50% - a mandatory offer ceases to be conditional; 75% - holder can ensure special resolutions are passed; over 75% - the minimum public float required for companies listed on the stock exchange may not be satisfied; 90% - generally, confers the ability to compulsorily acquire the remaining shares in the target company; 90% - trading of the shares may be suspended by the stock exchange. The shares may also be de-listed by the stock exchange. Consequences of breach Non-compliance with the provisions of the Code or any of the rulings made by the SC may result in, inter alia, any one or more sanctions being imposed: penalty, in proportion to the severity or gravity of the breach on the person in breach, not exceeding RM1,000,000; private or public reprimand; the person being deprived of the facilities of the stock exchange; the person being directed to comply with, observe or give effect to any such provision or ruling; the person being required to take such steps as the SC may direct to remedy the breach or mitigate the effect of such breach. It is also imperative that all documents or information required to be submitted to the SC in relation to, or in connection with, a takeover offer shall not contain any information that is false or misleading or from which there is a material omission. The bidder, persons acting in concert and advisers must also not engage in misleading or deceptive conduct. Non-compliance may result in criminal and civil liability, punishable upon conviction, by a fine not exceeding RM3,000,000 or imprisonment for a term not exceeding 10 years or both. MANDATORY OFFERS Trigger point A bidder triggers the obligation to extend a mandatory offer to acquire all the shares of the target company which he or persons acting in concert with him do not, already own if: the bidder, together with persons acting in concert with him, acquires more than 33% of a company; or the bidder, together with persons acting in concert with him, holds between 33% and 50% of the voting shares or voting rights, and acquires more than 2% of the voting shares or voting rights in any period of 6 months. There are two other instances where a mandatory offer is required to be made: acquisition of upstream company and acquisition of between 20% and up to 33% _1_ takeover guide - malaysia page 4

7 Acquisition of upstream company This applies where a person acquires control in an upstream company which holds or controls more than 33% of the voting shares or voting rights of a downstream company and the upstream company has a significant degree of influence in that downstream entity if, in the SC's view: the acquisition of the upstream entity to which the Code does not apply is a means to acquire control in the downstream entity to which the Code applies; the value in the downstream company constitutes 50% or more of the assets, net assets, net tangible assets, market capitalisation, shareholders funds, sales or earnings to the upstream entity; or one of the main purposes of acquiring control of the upstream entity was to control the downstream entity. Acquisition of between 20% and up to 33% This applies where the person acquires between 20% and up to 33% from a controlling vendor. In such a situation, the SC may require confirmation that the person has not in fact obtained control of the target company. In this regard, the following factors are seen as suggestive of whether control of the target company has been obtained: Consideration any arrangement, understanding or transaction between the acquirer and the vendor or between the acquirer and persons acting in concert with the vendor in relation to the voting shares or voting rights; the ability of the acquirer to exercise or control the exercise of the retained voting shares or voting rights; the consideration for the acquisition of the voting shares or voting rights; put or call options on the retained voting shares or voting rights; or the amount or value of voting shares or voting rights retained by the vendor compared to the capital or fund size of the company. The offer price must be the highest price paid, or agreed to be paid, by the bidder or any person acting in concert with the bidder for any voting shares or voting rights in the last six months prior to the beginning of the offer period. The consideration may be by cash or by securities exchange. In the case of a mandatory offer, there must be a cash alternative. The consideration (if in cash) is to be paid within 10 days of the offer becoming unconditional or, in an unconditional offer, within 10 days of the date of valid acceptances. For securities exchange, the settlement period is 14 days instead of 10 days. Conditional bid The bidder is required to condition the success of its bid to acceptances constituting more than 50% of the voting shares or voting rights of the target company. Duration of Offer The takeover offer must be open for acceptances for a period of at least 21 days _1_ takeover guide - malaysia page 5

8 If the condition (as to acceptance) is fulfilled as at the date of the despatch of the offer document, the closing date of the takeover offer shall not be later than the 60th day from the date of despatch. If the condition (as to acceptance) is fulfilled on or before the 46th day from the despatch of the offer document, the takeover offer shall be open for acceptances for not less than 14 days from the date the takeover becomes or is declared unconditional, but shall not be later than the 60th day from the date of despatch. If the condition (as to acceptance) is fulfilled after the 46th day from the despatch of the offer document, the takeover offer shall be open for acceptances for not less than 14 days from the date the takeover becomes or is declared unconditional, but shall not be later than the 74th day from the date of despatch. Variation to the bid terms The bid terms may be varied, for example, by a revision to the offer price. If the bid terms are revised, then the bidder is required to despatch the revised terms to the shareholders and keep the offer open for acceptances for at least another 14 days from the despatch of the revised terms. The terms, however, may not be revised after 46 days from the despatch of the offer document. The bidder's ability to purchase shares outside the mandatory offer The bidder may buy shares outside the mandatory offer process. Disclosure of all acquisitions of the target company s shares would have to be made to the SC, the stock exchange and by way of press notice before 12 noon of the following day. If the bidder were to acquire shares at a price higher than the offer price, then it would be required to revise the offer price. Securities exchange offer In the case of a securities exchange offer, there are additional disclosures to be made in the offer document. This includes the valuation of the securities, if unlisted, based on a reasonable estimate by an independent valuer. The target company s response The board of directors of the target company is required to circulate its comments on the takeover offer to the shareholders within 10 days from the date of despatch of the offer document. It should contain such comments and information as the shareholders would reasonably require, and would reasonably expect to find, for the purpose of making an informed assessment as to the merits of accepting or rejecting the takeover offer and the extent of the risks involved in doing so. Independent advice circular The board of directors of the target company is also required to appoint an independent adviser and such advice is usually included together as part of a circular accompanying the board of directors' comments. VOLUNTARY OFFERS Voluntary offers must also be made in compliance with the requirements of the CMSA and the Code _1_ takeover guide - malaysia page 6

9 Voluntary offer versus Mandatory offer As the name suggests, a voluntary offer is not one which the bidder is compelled to make by law, and as such there is some flexibility. Whilst a mandatory offer may only be conditional upon the bidder having received acceptances which would result in the bidder and persons acting in concert with the bidder holding more than 50% of the voting shares of the target company, in the case of a voluntary offer, the bidder may specify other conditions in addition to the acceptance condition (which, in the case of a voluntary offer, can be higher than 50% plus 1 with the consent of the SC). There are, however, limitations to this right as the conditions may not be defeating conditions, the fulfilment of which depends on: an opinion, belief or other state of mind of the bidder or any person acting in concert with the bidder; or whether or not a particular event happens, being an event that is within the control of, or is a direct result of an action by, the bidder or any person acting in concert with the bidder. The consideration for a voluntary offer must contain a cash sum where: (i) 10% or more of the voting shares or voting rights have been purchased for cash by the bidder, or persons acting in concert with the bidder, within 6 months prior to the beginning of the offer period; (ii) any voting shares or voting rights have been purchased for cash by the bidder, or persons acting in concert with the bidder during the offer period, or (iii) where the SC deems that it is necessary. PARTIAL OFFER A partial offer can only be made with the prior written consent of the SC. If allowed, the partial offer must comply with the requirements of the CMSA and the Code. Consent would normally be granted where a partial offer would not result in the bidder and persons acting in concert holding more than 33% voting shares or voting rights of the target company. Where the partial offer would result in the bidder and persons acting in concert holding more than 33% of voting shares or voting rights, the additional conditions to be complied with include the requirement to obtain the approval by independent shareholders of the target company holding in aggregate more than 50% of voting shares or voting rights. ELIMINATING THE MINORITY AFTER A TAKEOVER Sections 222 and 224 of the CMSA set out the situations where a bidder may compulsorily acquire the shares of the remaining shareholders who had not accepted the takeover offer. A bidder may compulsorily acquire the shares if the bidder has received 90% acceptances (excluding the shares already held by the bidder or persons acting in concert) within four months after the making of the takeover offer. The right is exercisable by the bidder giving, within two months after the takeover offer has been so accepted, notice in the prescribed form to the shareholders. If the bidder does not receive 90% acceptances, the bidder may apply to the court under Section 224(5) of the CMSA for authority to compulsory acquire the shares of the remaining shareholders. The court may only grant an order upon it being satisfied that: _1_ takeover guide - malaysia page 7

10 the failure of the bidder to obtain such acceptances was due to the inability of the bidder to trace one or more of the persons holding shares after having made reasonable enquiries; the shares acquired under the bid and shares held by the untraceable persons meet the 90% threshold; and the offer price is fair and reasonable. The order will not be made unless the Court considers that it is just and equitable to do so having regard, in particular, to the number of shareholders who have been traced but who have not accepted the takeover offer. THE REGULATORY MAZE - IMPORTANT DETAILS Pre-bid discussions with major shareholders In a friendly bid, it is common for a bidder to enter into discussions and negotiations with the major shareholders of the target company. Such discussions and negotiations must be kept confidential in order to avoid any disturbance in the pricing of the shares where the shares are listed on the stock exchange. Pre-bid discussions with target company Similarly, if the bid is a friendly bid, it is possible to enter into discussions with the target company. Again secrecy has to be maintained. Discussions with the target company would be more relevant if the bidder were to propose a scheme of arrangement pursuant to the Companies Act, 1965 to obtain control of the target company. Due diligence and insider trading In a friendly bid, a bidder may wish to conduct a due diligence investigation on the target company. There are cases for and against the conduct of a due diligence. Those opposing a due diligence would mount arguments along the lines that this would amount to disclosure of confidential information by the target company, that selective or partial disclosure of information to certain shareholders is not permitted under the listing requirements of the stock exchange and that the bidder may be in contravention of insider trading laws if during the course of the due diligence, the bidder is in possession of price sensitive information. With these concerns in mind, any due diligence would typically be in respect of information which has already been publicly disclosed by the target company in compliance with the corporate disclosure requirements and on non-material non-public information. Sale and Purchase Agreements and break fees The Code does not stipulate whether or not such fees are allowed. However, the Companies Act 1965 prohibits a company from giving financial assistance in connection with or for the purpose of financing the acquisition of its own shares. There is no specific exemption for break fees. A bidder may, prior to the triggering of the bid, enter into a sale and purchase agreement with the major/selling shareholders. In such an agreement, the bidder may agree on "break fees" to be paid by the selling shareholder in the event that the selling shareholder defaults in its obligations to complete the sale of shares. Since this is not paid by the target company, it is permissible. However, such clauses are enforceable to the extent _1_ takeover guide - malaysia page 8

11 that the amount is a genuine pre-estimate of damages suffered by the bidder and is not a penalty. Announcements and confidentiality A bidder who intends to or proposes to make a takeover offer must immediately announce by way of press notice that it wishes to make the offer and serve a takeover notice to the board of directors of the target company. The board will announce receipt of the takeover notice within 24 hours and despatch a copy of the takeover notice to the shareholders within 7 days. However, if before approaching the board, there is untoward movement or increase in the volume of share turnover of the target company, the bidder should make an announcement on whether there is a takeover or possible takeover offer. A bidder who announces that he does not intend to make a takeover offer is prohibited from announcing a takeover offer for six months after making such an announcement. Pre-bid purchases A bidder may build a stake prior to the bid. However, the bidder will be required to disclose its substantial shareholding in the company (interest in 5% of the voting shares of the company). The test is "interest in shares" and the bidder is deemed interested, inter alia, in the shares held by its related corporations, or in a company in which the bidder holds not less than 15% of the voting shares. The bidder has to give notice of its substantial shareholding to the company and the SC within 7 days of the bidder becoming a substantial shareholder. The company will immediately announce any receipt of notices of substantial shareholding to the stock exchange. Purchases during the offer period A bidder may continue to purchase shares during the offer period. Prompt disclosures are to be made: in respect of changes in substantial shareholding pursuant to the Companies Act, 1965; and to the target company, the stock exchange and by way of press notice pursuant to the Code. If the acceptance condition (that is, more than 50%) is not fulfilled and the bid fails, the bidder is unable to "return" the shares since they were acquired outside the takeover process. Additional benefits to some shareholders There are prohibitions in the Code against favourable deals. A bidder may not enter into any agreement, arrangement or understanding to deal in or make purchases or sales of voting shares if the benefit of such favourable conditions cannot be extended to all of the target company's shareholders. Competing bids If a competing bid surfaces, the target company must, if requested, provide all information that it has given to the bidder to the competing bidder. A competing bid also results in the timeline of the initial bid being varied _1_ takeover guide - malaysia page 9

12 Final and best offers Statements in the bidder's offer document cannot be misleading or deceptive. Selling down during an offer In the case of a mandatory offer, a bidder and persons acting in concert with the bidder are not allowed to sell their voting shares or voting rights in the target company during the offer period unless the offer document has been despatched and the disposal of the shares or rights is between the bidder and any person acting in concert with the bidder. In the case of a voluntary offer, a bidder and persons acting in concert with the bidder are allowed to sell during the offer period only after the offer document has been despatched and the acceptance condition has been fulfilled. THE LIFECYCLE OF A TAKEOVER Timetable of the key events and documents for a mandatory offer (assumes no revision of offer price and no competing bid) DAY T ACTION Announcement of takeover offer by press notice and to the stock exchange Serve takeover notice on the board of directors of the target company, the stock exchange and the SC T+1 Announcement by board of directors to the stock exchange and by way of press notice (within 24 hours of receipt of the takeover notice) T+4 Last day for bidder to submit draft offer document to the SC for its consent T+7 Last day for board of directors of the target company to post the takeover notice to the target company's shareholders T+ 21 ( D ) Last day to despatch the offer document D+10 Last day to circulate the target company's board of directors comments on the takeover offer and the independent advice circular to the shareholders of the target company D+21 Earliest date to close the offer D+60 Takeover offer closes if the acceptance condition is not fulfilled by 5.00 pm Last day for closing of the takeover offer if the acceptance condition is fulfilled on or before D+46 D+74 Last day for closing of the takeover offer if the acceptance condition is fulfilled after D _1_ takeover guide - malaysia page 10

13 DEFENDING A TAKEOVER - WHAT CAN BE DONE? Directors' duties Directors of the target company owe a duty at common law to act in the best interest of the company and to exercise their powers for a proper purpose. The Companies Act 1965 also provides that directors shall at all times act honestly and with reasonable diligence in the discharge of their duties. Hence, the directors must always have regard to this overriding duty when taking any defensive action. Frustration of offers There are strict rules in the Code as to the matters which the board of directors of the target company cannot do without the approval of the shareholders in a general meeting, before the date of receipt of the takeover notice if the board of directors of the target company has reason to believe that a bona fide takeover offer might be imminent and during the course of a takeover. These are inter alia as follows: issue any authorised but unissued shares of the target company; issue or grant options in respect of any unissued shares of the target company; create or issue or permit the creation or subscription of any shares of the target company; sell, dispose of or acquire or agree to sell, dispose of or acquire assets of the target company of a material amount; or enter into or allow contracts for or on behalf of the target company to be entered into otherwise than in the ordinary course of business of the target company. The above restrictions do not apply if they are carried out: pursuant to a prior bona fide contract, which is not designed to frustrate a takeover or change the activity of the target company; or pursuant to some other obligation or other special circumstances which the SC may approve in writing. Hence, any defensive measure should preferably be pre-bid or long term measures. What can be done depends on the facts of each case and very much on the breakdown of the shareholdings. HERE COME THE REGULATORS The role of the Securities Commission As explained above, the SC is the authority regulating takeovers in Malaysia and administering the CMSA and the Code. All applications for approvals, consents, exemptions or rulings are to be made to the SC. The SC has issued its guidelines on content of offer documentation, format and content on applications to the SC and FAQs _1_ takeover guide - malaysia page 11

14 The role of the Stock Exchange Others The listing requirements of the stock exchange set out the continuing disclosure requirements, public spread requirements and requirements relating to withdrawal of the listing. Currently, Malaysia s Competition Act, 2010 does not regulate merger control, as such, no prior filings, notifications or approvals are required for takeovers and mergers _1_ takeover guide - malaysia page 12