Comparison Of Key Public Takeover Rules In Hong Kong, Singapore, The United Kingdom And The USA.

(a) companies within the same corporate group,

(b) companies with their directors (or the directors of their parent company) and pension funds, provident funds, and employee share schemes,

(c) fund managers with any funds that they manage on a discretionary basis,

(d) financial/professional advisers and brokers with its client,

(e) directors of a company which is subject to an offer or where they believe an offer is imminent, (f) partners, (g) an individual with his close relatives, related trusts and companies controlled by him together with companies that they control, and (h) a person lending money in the ordinary course of business, providing finance or financial assistance.

(a) companies within the same corporate group,

(b) companies with their directors and pension funds, fund managers with any funds that they manage on a discretionary basis, and

(c) a company or individual with any person who has provided financial assistance (other than a bank in the ordinary course of business).

(b) When an obligation to make a mandatory offer arises (see section 7 below for details).

(c) When, following an approach, the target is the subject of rumour or speculation or there is undue movement in its share price or share volume.

(d) When, before an approach, the target is the subject of rumour or speculation or there is undue movement in its share price or share volume and there are reasonable grounds for concluding that this has been caused by the offeror’s actions or those acting in concert with it.

(e) When negotiations or discussions are about to be extended beyond a very restricted number of people.

(b) Upon an acquisition of shares which give rise to an obligation to make a mandatory offer (see section 7 below for details).

(c) When, following an approach, the target is the subject of rumour and speculation or there is an untoward movement in its share price and there are reasonable grounds for concluding that this is caused by the offeror’s action.

(d) When negotiations or discussions between the offeror and the offeree company are about to be extended to include more than a very restricted number of people.

(b) When an obligation to make a mandatory offer arises (see section 7 below for details).

(c) When, following an approach, the target is the subject of rumour and speculation or there is an untoward movement in its share price.

(d) When, before an approach, the target is the subject of rumour and speculation or there is an untoward movement in its share price and there are reasonable grounds for concluding that this has been caused by the offeror’s actions.

(e) When negotiations or discussions are about to be extended beyond a very restricted number of people.

Upon any change to the terms of the offer, the offeror is also required to file amended disclosure documents, and if such change is material, extend the period during which the offer is open (which must generally be 20 business days). The target must provide shareholders with a disclosure document stating the target board’s position on the offer (i.e. recommend acceptance or rejection, remain neutral or state that it is unable to take a position).

In a merger context, announcement is generally required upon execution of the merger agreement. Preagreement discussions are generally viewed as nondisclosable on the basis that they may not result in an agreement. Under certain circumstances, disclosure of pre-agreement discussions may be required in response to a leak or in response to a request by the US national securities exchange on which the relevant shares are listed.

There is no requirement to distribute announcements to employees who are not shareholders although the offer document must contain information regarding the target and its employees, and the target’s board circular should also include the views of the board on the offeror’s plans for the target and its employees. There is no requirement to distribute announcements to pension scheme trustees.

There is no requirement to distribute announcements to employees who are not shareholders although the offer document must contain information regarding the target and its employees, and the target’s board circular should also include the views of the board on the offeror’s plans for the target and its employees. There is no requirement to distribute announcements to pension scheme trustees.

The target must pay for the costs of the publication of any opinion received from employee representatives and for the costs reasonably incurred in obtaining advice required for the verification of the information contained therein, and the costs of the publication of any opinion received from trustees of its pension scheme(s).

Various states (though not Delaware) have antitakeover rules that require a specified amount be paid to shareholders in certain hostile circumstances.

There are stringent and detailed requirements for disclosure of dealings in relevant securities during an offer period.

Prompt disclosure of positions and dealings in relevant securities is required by the parties to an offer and their associates. Associates include any person who owns or controls 5% or more of any class of such securities as well as directors.

Part XV of the Securities and Futures Ordinance requires disclosure of dealings taking a shareholder’s interest in a company’s voting rights above or below 5% and each whole percentage point above 5%.

There are stringent and detailed requirements concerning the disclosure of dealings in relevant securities during an offer.

Prompt disclosure of positions and dealings in relevant securities is required by the parties to an offer (and their associates, including directors). Associates include any person who owns or controls 5% or more of any class of such securities as well as directors.

Subdivision 2 of Part VII of the Securities and Futures Act (Cap. 289) requires disclosure of dealings taking a shareholder’s interest in a company’s voting rights above or below 5% and each whole percentage level above 5%.

There are stringent and detailed requirements concerning the disclosure of dealings in relevant securities during an offer.

Prompt disclosure of positions and dealings in relevant securities is required by the parties to an offer (and their concert parties, which would include directors) and any person who is interested (directly or indirectly) in 1% or more of any class of relevant securities of either the target company or any securities exchange offeror.

The Disclosure and Transparency Rules require disclosure of dealings taking a shareholder’s interest in a company’s voting rights above or below 3% and each whole percentage point above 3%.

Such disclosure must include information concerning the offeror and any persons with which it is acting together, all recent dealings, intentions with regard to the target, the sources of financing and other information.

Any material change in such disclosure (including a change in 1% or more of the class) requires that such information be promptly (the next business day) amended.

In addition, the acquisition of 10% or more of a class of securities listed on a US national securities exchange generally requires additional public disclosure and subjects such holder to disgorgement of “short swing profits” (i.e. profits (or avoidance of losses) due to offsetting sales and purchases (or purchases and sales) during any six month period).

When a person (acting alone or in concert) acquires:

(a) 30% or more of the voting rights of a company, or

(b) shares carrying more than 2% of the voting rights when it is already holding not less than 30% but not more than 50%,

they must make a cash offer to all other shareholders at the highest price paid during the offer period and in the 6 months before the start of the offer period.

When a person (acting alone or in concert) acquires:

(a) interests in shares carrying 30% or more of the voting rights in a company, or

(b) shares carrying more than 1% of the voting rights when it is already interested in not less than 30% but not more than 50%,

they must make a cash offer to all other shareholders at the highest price paid in the 6 months preceding the offer announcement

When a person (acting alone or in concert) acquires:

(a) interests in shares carrying 30% or more of the voting rights of a company, or

(b) increases the aggregate percentage interest it has when it is already interested in not less than 30% but not more than 50%,

they must make a cash offer to all other shareholders at the highest price paid in the 12 months before the offer was announced (30% of the voting rights of a company is treated as the level at which effective control is obtained).

However, certain state anti-takeover laws (including in Delaware) prevent a hostile offeror that acquires a specified percentage of shares from acquiring additional shares absent satisfaction of specified conditions (i.e. board approval).

When interests in shares carrying 10% or more of the voting rights have been acquired for cash by an offeror and any person acting in concert with it during the offer period (i.e. before the shares subject to the offer have been acquired, hence not including such shares) and within the previous 6 months, the offer must be in cash or include a cash alternative for all shareholders at a price not less than the highest price paid by the offeror during that period.

When interests in shares carrying 10% or more of the voting rights of a class have been acquired for cash by an offeror in the offer period (i.e. before the shares subject to the offer have been acquired, hence not including such shares) and the previous 6 months, the offer must include a cash alternative for all shareholders of that class at the highest price paid by the offeror in that period.

When interests in shares carrying 10% or more of the voting rights of a class have been acquired for cash by an offeror in the offer period (i.e. before the shares subject to the offer have been acquired, and hence not including such shares) and the previous 12 months, the offer must include a cash alternative for all shareholders of that class at the highest price paid by the offeror in that period.

Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be made available at that price at least.

However, as noted in section 7 above, various state anti-takeover laws may be applicable in certain hostile situations.

Favourable deals for selected shareholders are generally banned, except in certain cases where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the target company.

Arrangements made by an offeror with its concert party whereby the shares in the target are acquired by the concert party on the basis that the offeror will bear all the risks and receive all the benefits, are not prohibited by this Rule.

Arrangements with management may be permitted provided that the arrangements are “fair and reasonable” in the opinion of the financial adviser to the target, and in cases where management holds more than 5% of a target, the arrangements are approved by the target’s independent shareholder.

Favourable deals for selected shareholders are banned, except in certain cases where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the target company.

Where two or more persons form a consortium and each of them can properly be considered to be a joint offeror, Rule 10 is not contravened if one (or more) of them is already a shareholder in the target company and they have agreed between them a special deal.

The Securities Industry Council should be consulted if the management of the offeree company is to remain financially interested in the business after the offer is completed.

Favourable deals for selected shareholders are banned, except in certain cases where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the target company. Where two or more persons form a consortium and each of them can properly be considered to be a joint offeror, Rule 16 is not contravened if one (or more) of them is already a shareholder in the target company and they have agreed between them a special deal. Arrangements with management are not generally prohibited, but disclosure, shareholder approval and a financial adviser opinion that the arrangements are “fair and reasonable”, may be required by Rule 16.

There is a safe harbour available to prevent compensation payable to employees of the target (who also are shareholders of the target) from being considered as having been received in respect of their shares, thus avoiding a potential violation of this rule.

In a merger (which is effected under the various state laws, rather than under the federal tender offer regime), it is possible to offer differential consideration to certain shareholders, though doing so would result in enhanced legal scrutiny of the transaction and the board process by which such differential consideration was approved in any shareholder litigation.

Each document issued or statement made in relation to an offer or possible offer, or during an offer period, must satisfy the highest standards of accuracy. The information given must also be adequately and fairly presented. This applies whether it is issued or made by the company directly, or by an adviser on its behalf, or by any other relevant person.

Those who issue or make any such document or statement must ensure that it remains accurate and up to date throughout the offer period, and must notify shareholders of any material changes as soon as possible.

Rule 18.1:

Parties to an offer or possible offer and their advisers must take care not to issue statements which, while not factually inaccurate, may mislead shareholders and the market or may create uncertainty.

 Rule 12.1:

Except for the documents set out in the Post-Vet List issued by the Takeovers Executive, all documents issued in a takeover must be filed with the Takeovers Executive for comment before release or publication.

This means that anything contained in them which the Securities Industry Council finds misleading or incomplete (in terms of the information shareholders can reasonably expect) will require correction by further circulars or announcements.

Rule 8.5:

Responsibility for the contents of documents rests with the offeror, the offeree company, their directors and advisers. Any correction to an advertisement must be made immediately.

Misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately.

It is the sole responsibility of the issuer of the document (and its directors and advisers) to ensure that the HK Code is fully complied with.

Rule 9.3:

All documents should contain a statement that the directors accept full responsibility for its contents.

Parties who issue HK Code announcements and documents which are found to contain false or misleading information may also face criminal liability under the Securities and Futures Ordinance.

Introduction To The HK Code:

In addition to the responsibilities provided for in the HK Code, any others issuing circulars or advertisements to shareholders in connection with takeovers must observe the highest standards of care and consult with the Takeovers Executive prior to the release thereof.

Responsibility for the contents of documents rests with the offeror, the offeree company, their directors and advisers.

Rule 8.3:

All documents should contain a statement that the directors accept responsibility to ensure that the facts and options are fair and accurate and no material facts have been omitted.

Those issuing takeover circulars must include statements taking responsibility for the contents. This can include non-issuers taking responsibility for certain sections of such circulars where the information relates to such non-issuer.

Information about companies involved in an offer must be made equally available to all shareholders as nearly as possible at the same time and in the same manner.

Rule 6:

Any information given to one offeror or potential offeror, whether named or unnamed, must, on request, be given equally and promptly to another offeror or bona fide potential offeror, even if that other offeror is less welcome.

Information about companies involved in an offer must be made equally available to all shareholders as far as possible at the same time and in the same manner.

Rule 9.2:

Any information given to one offeror or potential offeror, whether publicly identified or not, must, on request, be given equally and promptly to another offeror or bona fide potential offeror. The Securities Industry Council should be consulted if trade and business secrets given to one offeror are not equally given to another offeror.

All shareholders must be given the same information.

Rule 20.2:

Any information given to one offeror or potential offeror, whether publicly identified or not, must, on request, be given equally and promptly to another offeror or bona fide potential offeror even if that other offeror is less welcome.

There is no legal requirement (either federal or state) that prescribes that the target provide competing offerors with equality of information. However, in a situation where the target does not do so, the decisions of the target board will likely be subject to more enhanced legal scrutiny in any shareholder litigation.

Actions during the course of an offer by a target company which might frustrate the offer or cause the shareholders of the target to be denied an opportunity to decide on the merits of an offer are generally prohibited unless shareholders approve them.

Frustrating actions include issuing shares, granting rights to subscribe for shares, selling or acquiring assets of a material amount in the target, entering into contracts (including service contracts) otherwise than in the ordinary course of business, or causing the target or its subsidiary or associated company to buy back or redeem shares or to provide financial assistance for the same.

Actions during the course of an offer by the target company which might frustrate the offer are generally prohibited unless shareholders approve them.

Frustrating actions includes any attempts at introducing any poison pills such as lengthening notice periods for directors under their service contracts or agreeing to sell off material parts of the target group.

Actions during the course of an offer by the target company which might frustrate the offer are generally prohibited unless shareholders approve these plans.

Frustrating actions include any attempts at introducing any poison pills such as lengthening notice periods for directors under their service contracts or agreeing to sell off material parts of the target group.

In a negotiated merger context, the target generally may not fully “lock up” the agreed transaction so as to prevent competing offerors from participating. Any attempts to do so will be subject to enhanced scrutiny as noted above. However, certain deal protection mechanisms, including break fees, noshop provisions, rights to match competing offers and others, are generally acceptable, as they do not preclude the possibility of a competing proposal succeeding.

In all cases where a break fee is proposed, certain safeguards must be observed.

In particular, a break fee must be minimal (normally no more than 1% of the offer value) and the target company board and its financial adviser must confirm to the Takeovers Executive that the break fee is in the best interests of shareholders.

In all cases where a break fee is proposed, certain safeguards must be observed.

In particular, a break fee must be minimal (normally no more than 1% of the value of the offeree company calculated by reference to the offer price) and the offeree company board and its financial adviser must provide certain confirmations in writing to the Securities Industry Council, including the following: that the break fee arrangements are a result of normal commercial negotiations; that there is full disclosure; and that the arrangements are in the best interests of offeree company shareholders.

Break fees are generally prohibited, except if paid to a “white knight” or to the winner of a formal sale process, provided the fee is de minimis and subject to a cap of no more than 1% of the value of the offer and the break fee is payable only upon the relevant offer becoming or being declared wholly unconditional.

Provisions that are not entirely preclusive of a competing proposal are acceptable. Break fees in the range of 3-4% of the target’s equity value are generally acceptable, though higher ones may be problematic.

Schedule I: Where the offer is in cash or includes an element of cash, then the offer document must include a confirmation by a financial adviser or appropriate independent party that resources are available to the offeror sufficient to satisfy full acceptance of the offer.

The offer document must also include a description of how the offer is to be financed and the source of the finance.

Rule 23.8:

Where the offer is for cash or includes an element of cash, the offer document must include an unconditional confirmation by an appropriate third party (e.g. the offeror’s banker or financial adviser) that resources are available to the offeror sufficient to satisfy full acceptance of the offer.

The offer document must contain an estimate of the aggregate fees and expenses expected to be incurred in connection with the offer and, in addition, separate estimates of the fees and expenses expected to be incurred broken down by category of advisers, and (for the offeror) the fees and expenses for the offer financing arrangements.

Rule 24.3(f):

The offer document must contain a detailed description of how the offer is to be financed and the source(s) of the finance.

Rule 26.1(b):

Any documents relating to the financing of the offer must be published on a website during the offer period.

Rule 24.8:

When the offer is for cash or includes an element of cash, the offer document must include confirmation by an appropriate third party (e.g. the offeror’s bank or financial adviser) that resources are available to the offeror sufficient to satisfy full acceptance of the offer. This is a key element of any bid, on which a lot of attention is focussed, and something that overseas investors in particular need to ensure is addressed up front and as quickly as possible.

In a merger, the target is required to make detailed disclosures concerning the fees payable to its financial advisor, as well as detailed disclosures concerning amounts that will be paid or become payable to directors and executive officers as a result of the transaction. Disclosure regarding the offeror’s financing arrangements is also required.

Profit forecasts and asset valuations must be made to specified standards and must be reported on by professional advisers.

In a securities exchange offer, the target and offeror need to be careful that statements they make during an offer period do not amount to a profit forecast as this will need to be reported on. In particular, a quantified statement about the expected financial benefits of a proposed takeover is deemed to be a profit forecast statement for the purpose of Rule 10.

Profit forecasts and asset valuations must be made to specified standards and must be reported on by professional advisers.

In a securities exchange offer, the target and offeror need to be careful that statements they make during an offer period do not amount to a profit forecast as this will need to be reported on. In particular, a quantified statement about the expected financial benefits of a proposed takeover is deemed to be a profit forecast statement for the purpose of Rule 10.

Profit forecasts and asset valuations must be made to specified standards and must be reported on by professional advisers.

The target company and a securities exchange offeror therefore need to be careful that statements they make during an offer period do not amount to a profit forecast as this will need to be reported on.

If the target does not provide the offeror with such forecasts, there is generally no disclosure obligation. Absent special circumstances (e.g. where the target may be a natural resources company with a limited number of large assets), asset valuations would not typically be considered material and would not be disclosable.

(a) approved by target shareholders representing at least 75% of the voting rights present and voting at the shareholders’ meeting, and

(b) votes cast against the scheme do not exceed 10% of the total voting rights attached to all disinterested shares in the target.

If the offeror or persons acting in concert with it held, or contracted to acquire, shares in the target company on the date that the offer is made, these shares will not be counted towards the 90% threshold for calculating whether the offeror can implement the compulsory acquisition procedure.

Historically, unless 90% of the shares were tendered, such second step merger required a shareholder vote (even if the outcome of such vote was predetermined) and the related holding of a meeting and solicitation of votes.

Recently, however, Delaware has revised its corporate law to permit, under certain circumstances, such second step merger to be completed without a vote if the offeror obtains a majority of the shares in the offer.