4 April, 2016
On 25 February 2016, the Securities Industry Council (“SIC”) finalised its amendments to the Singapore Code on Take-overs and Mergers (the “Code”), following a two month consultation process in 2015. The revised Code will take effect on 25 March 2016, and takes into account responses received on the consultation paper.
The amendments to the Code largely focus on the SIC’s rulings that were made in a number of high profile M&A transactions that have taken place since the last revision of the Code in 2012, in particular the ground-breaking contested takeover of Fraser and Neave Limited (the “F&N Transaction”) that was extensively covered by both international and local news in the second half of 2012 and first half of 2013. In the F&N Transaction, WongPartnership LLP acted as lead counsel to the winning offeror, TCC Assets Limited.
This Update looks at the key changes in the amended Code as well as the SIC’s rationale for such changes, which include:
- The adoption of a default auction procedure to be used where there is a competitive situation in the later stages of the offer period;
- Guidance on when potential competing offerors are required to clarify their intentions;
- Guidance on board conduct during an offer, including clarification that offeree boards who consider the feasibility of soliciting a competing offer or running a sale process will not be considered to be frustrating the initial offer;
- An exception allowing for an offeror to set aside no increase or no extension statements when the offeree board announces new information after Day 39;
- A revised period for settlement of acceptances of shares during an offer;
- A requirement that any material changes to information previously published in connection with an offer is promptly disclosed;
- Codifying certain practices in relation to pre-conditional offers; and
- Streamlining and codifying existing practices.
Default auction procedure codified
The revised Code codifies a default auction procedure which the SIC will normally impose in a competing offer situation where two offerors, having launched their initial offers, are still in a stalemate by the 46th day following the posting of the later offer document (“Day 46”) and cannot agree with each other and the offeree company on an alternative procedure.
Key features of auction procedure
SIC clarification of auction procedure
The key features of the finalised auction procedure are:
- A maximum of five rounds of bidding over the five business
- days immediately following Day 46;
- Both offerors can announce a revised offer in the 1st round.Thereafter (2nd to 4th round), an offeror may announce a revised offer only if the other offeror has announced a revised offer during the auction process. In the 5th and final round, both competing offerors are entitled to announce a revised offer;
- Revised offers announced in the 1st to 4th round must be unconditional. If the auction enters the 5th and final round, a competing offeror is permitted to submit a revised offer subject to a condition that such revised offer would be announced only if the other competing offeror also submits a revised offer. The competing offeror may not, however, subject his bid to being announced only if the second competing offeror submits a bid that is higher than the first competing offeror’s offer price in the 4th round;
- No formula bids but flexibility to include new forms of consideration; and
- No minimum increment over latest competing offer.
In coming to the finalised auction procedure, the SIC considered various responses and clarified that:
- The auction procedure is designed to help achieve finality
- of offers and not to obtain the best possible offer for shareholders. Shareholders can then make their own decision on the financial or commercial advantages or disadvantages of such offers.
- Measures to prevent a deadlock in price under the auction procedure would not be necessary for various reasons, including that a true deadlock situation, where shareholders are unable to differentiate between two (2) competing offers, would be exceedingly rare. This differs from the auction procedure in the F&N Transaction, where the SIC indicated that, if a final time limit is imposed, the final revised offer by one party must be an odd-numbered price and the final revised offer by the other party must be an even-numbered price.
- The auction procedure is intended to be a robust and straightforward procedure capable of being universally applied to all competing offers involving all forms of consideration. Consequentially, the SIC has rejected certain proposed refinements to the auction procedure which would involve separate rules to deal with cash-only consideration, such as deadlocks in price and under-bidder
- gaming in the final round of the auction.
- By design, the auction procedure is a transparent process that focuses on the financial terms of the offers. Certain actions which would effectively result in a separate, non- transparent bidding process are therefore prohibited during the auction process, such as dealing in the relevant securities of the offeree company and procuring or amending irrevocable commitments and letters of intent.
Relevant dates regarding timing amended
Potential offeror to clarify intentions by 53rd day
Prospects of receiving competing offer increased
Deadline for clarification in offers by scheme of arrangement or amalgamation
No frustration of initial offer where offeree boards consider soliciting competing offers
The SIC also accepted our submission that the amount of time provided for the posting of the revised offer document, the despatch of the offeree circular and the competing offers to turn unconditional should not depend on when auction procedure ends. As such, the relevant dates were amended to align with the end of the auction procedure.
Clarification of Intentions by Potential Competing Offerors
In order to provide shareholders with timely and sufficient information to decide on an offer by an existing offeror (“Offeror 1”), the revised Code requires that a potential offeror (“Offeror 2”) be required to clarify its intentions by the 53rd day after Offeror 1 despatches its offer document, an extension from the current practice of requiring Offeror 2 to do so by the 50th day after Offeror 1 despatches its offer document.
The SIC is of the opinion that the extension would increase the prospects of offeree company shareholders receiving a competing offer as it provides more time for Offeror 2 to consider and finalise the terms of an offer with the knowledge of Offeror 1’s final offer.
In cases where Offeror 1’s offer is being implemented by way of a scheme of arrangement, a trust scheme or an amalgamation, the revised Code provides that the deadline for Offeror 2 shall be the 7th day prior to the date of the shareholders’ meeting to approve the relevant scheme or amalgamation.
Guidance on Board Conduct during an Offer
The revised Code clarifies that offeree boards may consider the feasibility of soliciting a competing offer or running a sale process and that doing so will not amount to frustration of the initial offer. This clarification codifies the position allowed by the SIC during the F&N Transaction. The SIC has also clarified that it should be consulted in cases of doubt.
Offeree boards may share management projections and forecasts with independent financial adviser for purposes of advice
Amendments currently only permitted in exceptional circumstances
Statements may now be set aside where material new information announced after Day 39
Settlement of acceptances now within seven (7) business days
Under the revised Code, the offeree board is also able to consider the availability of management projections and forecasts which can be shared with the independent financial adviser for the purpose of the latter’s advice on the offer. It is also noted that the SIC has indicated that it is still studying the suggestion by a number of respondents, including WongPartnership LLP, that the UK’s position on profit forecasts be considered for inclusion in the Code. In the UK, the reports required from the auditors and financial advisers in relation to profit forecasts can, in some instances, be replaced by a confirmation from the offeree board that the profit forecast has been properly compiled on the basis of the assumptions stated and that the basis of accounting used is consistent with the offeree’s accounting policies. Further amendments may be proposed by the SIC if appropriate.
No Increase and No Extension Statements
Under the existing Rules 20.2 and 22.7 of the Code, a no increase or no extension statement can only be amended by the offeror under wholly exceptional circumstances or where the right to do so has been specifically reserved. Under Rule 22.8 of the Code, an offeree board may not, without the SIC’s consent, announce any material new information 39 days after the posting of the initial offer document (“Day 39”).
The revised Code will provide for an additional carve out to allow an offeror to set aside a no increase or no extension statement as long as the statement was made after Day 39 in the limited situation where the offeree board announces material new information after Day 39. This is also in line with the position under the UK Takeover Code.
Settlement of Acceptances
At present, Rule 30 of the Code requires an offeror to settle acceptances of shares within 10 calendar days after the offer becomes unconditional, or after the receipt of valid acceptances where such acceptances were tendered after the offer has become unconditional.
The Code will be amended to change this timeframe to a seven (7) business day settlement period. The SIC explained that the impetus behind this change is to provide for a standard settlement period that is unaffected by the occurrence of public holidays.
Prompt disclosure of material changes in information and material new information required
Requirements on pre-conditions to be codified
Offer document may now be posted earlier than 14 days from announcement
Material Changes in Information
Under the existing Rule 8.1 of the Code, information on any material changes to information published previously by or on behalf of the relevant company during the offer period must be included in the next document published. This may lead to a gap between the time of the material change in information and its disclosure as the next document might be published at a much later date.
To ensure that shareholders and investors are updated on a timely basis in line with General Principle 10 of the Code, it is now made clear that prompt disclosure of any material changes in information previously disclosed and any material new information is required. Where such information is material to the offeree company shareholders in the context of deciding whether to accept an offer, the offeree board and the independent financial adviser should take into consideration such information and, where appropriate, make a revised recommendation to the offeree company shareholders.
In some cases, the offeror may subject the making of a voluntary offer to pre-conditions. The Code currently does not prescribe any requirements or standards on the pre-conditions. However, in practice, the SIC has required pre-conditions to meet the same standards as set out in Note 1 on Rule 14.2 on conditional agreements and put and call option agreements. This practice will be codified as a new Note to Rule 15.1 in the revised Code.
Under the existing Rule 22.1 of the Code, an offer document can only be posted between 14 to 21 days following the date of the announcement of a firm intention to make an offer. In the context of pre-conditional offers, as the offeree board would have had notice of the offer and its terms for some time and would have sufficient time to react, the revised Code will provide that, subject to the SIC’s consent, the offeror (with the concurrence of the offeree company) may post the offer document on a date earlier than 14 days after the date of the formal offer announcement.
Codifying and Streamlining Existing Practices
In order to codify and streamline existing practices, the revised Code also incorporates the following amendments:
- A new Note on Rule 22.9 will provide that in a
- competitive situation, all offerors will be bound by the timetable established by the despatch of the latest competing offer document;
- Note 1 on Rule 18 will state that reference will be made to market prices in determining the ratio of offer values; and
- The new Note to Rules 3.1, 3.2 and 3.3 takes into account that a paid advertisement in the most widely circulated English-language national newspaper published daily should satisfy the requirement of a paid press notice. The new Note will also clarify that such reference to national newspaper published daily includes those published every day except Sunday.
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