18 July, 2015
On 6 July 2015, the Securities Industry Council (the “Council”) issued a Consultation Paper on Revision of the Singapore Code on Take-Overs and Mergers (“Consultation Paper”). The Singapore Code on Take-Overs and Mergers (the “Code”) was last revised in 2012 and since then, a number of high profile M&A transactions have taken place in the local market. The proposals suggested in the Consultation Paper took into account these market developments, as well as evolving international practices that have taken place since the last review.
This update looks at the key proposals in the Consultation Paper, 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;
- Clarification on the setting aside of no increase and no extension statements;
- A requirement that any material changes to information previously published in connection with an offer is promptly disclosed;
- Changing the deadline for settlement to a 7-business day period;
- Clarification of certain positions in relation to pre-conditional offers; and Streamlining and codifying existing practices.
The deadline for feedback on the Consultation Paper is 6 August 2015. We would be pleased to assist with any feedback that our clients would like to give the Council in relation to the Consultation Paper.
Codification of auction procedure in UK
On 15 January 2013, in response to the competing offers for Fraser and Neave Limited (“F&N”), the Council announced an auction procedure (“F&N Auction Procedure”) to resolve the competitive situation. The F&N Auction Procedure was largely adopted from the auction procedure adopted by the Panel on Takeovers and Mergers in the UK (the “UK Panel”) for the competitive situation relating to Cove Energy plc in 2012. The UK Panel issued a consultation paper last year proposing to, inter alia, codify the auction procedure and the auction procedure was included in the UK Takeover Code on 1 January 2015.
The Council proposes to codify an auction procedure on largely the same terms as that recently codified by the UK Panel. The codified auction procedure will be adopted unless alternative procedures are agreed between parties to the offer.
The key features of the auction procedure are:
- A maximum of 5 rounds of bidding taking place over the 5
- business days immediately following Day 46, which is the final day on which an offeror can revise its offer (the final day on which an offer can be declared unconditional as to acceptances is Day 60);
- 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 would be entitled to announce a revised offer;
- Revised offers announced in the 1st to 4th rounds must be unconditional. If the auction enters the 5th and final round of the auction, a competing offeror is permitted to submit a revised offer subject to the condition that such revised offer would be announced only if the other competing offeror also submits a revised offer;
- Flexibility to include new forms of consideration, so as to allow unfettered competition between the competing offerors to the benefit of offeree company shareholders;
- No formula bids; and
- No minimum increment over latest competing offer.
There are some differences between the F&N Auction Procedure and the codified auction procedure proposed by Council. Under the codified auction procedure, there is a maximum of 5 rounds of bidding to provide certainty on the final date of the auction and new forms of consideration can be introduced during the auction. Another difference is that in the codified auction procedure there is a possibility of stalemate, unlike in the F&N Auction Procedure, where Council required the revised offer from one party to be an odd-numbered price and the other party an even-numbered price if it imposed a final time limit for announcement of revised offers.
Clarification of Intentions by Potential Competing Offerors
In the past, when Offeror 1 announced a firm intention to make an offer and potential competing Offeror 2 emerged, the Council had required that Offeror 2 clarify its intentions (“put up or shut up” or “PUSU”) by either announcing a firm intention to make an offer or making a no intention to bid statement by Day 50 (the 50th day from the date that Offeror 1 despatches its offer document).
The Council proposes following the UK Panel and extending the PUSU deadline from Day 50 to Day 53, as this would be more beneficial to offeree company shareholders. It is the Council’s view that providing more time for Offeror 2 to consider and finalise the terms of an offer with the knowledge of Offeror 1’s revised offer may increase the prospects of offeree company shareholders receiving a competing offer.
In cases where Offeror 1’s offer is being implemented by way of a scheme of arrangement, a trust scheme or an amalgamation, it is proposed that the PUSU deadline for Offeror 2 be no later than the 7th day prior to the date of the shareholders’ meeting to approve the relevant scheme or amalgamation.
The Council also seeks feedback on whether to include an additional condition in the Code that a potential competing offeror must not have acquired an interest in any shares in the offeree company after making a no intention to bid statement, if he wishes to make an offer within a 6-month period with the agreement of the offeree board.
Guidance on Board Conduct During an Offer
During the competing offers for F&N, questions were raised on the ability of the target company to seek a better offer and the Council had clarified then that the Code does not prohibit the board of a target company from seeking competing offers. The Council notes that under the present Code, it is possible that offeree boards might misconstrue Rule 5 of the Code (Frustration of Offers by an Offeree Board) as prohibiting the soliciting of a competing offer, as the Rule prohibits any action that could effectively result in any bona fide offer being frustrated or the shareholders being denied an opportunity to decide on its merits, without shareholder approval. Accordingly, the Council proposes to clarify in the Code 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.
The Council also proposes that amendments be made to highlight that an offeree board may consider the availability of management projections and forecasts which can be shared with the independent financial advisor (“IFA”) for the purpose of the latter’s advice on the offer. Under the current Code, there is nothing to stop the offeree board from sharing such forecasts with the IFA but this is not common, due in part to the high standard of care placed on the offeree directors in preparing such forecasts and the requirements for such forecasts to be reported on under Rule 25 of the Code.
No Increase and No Extension Statements
Currently under Rules 20.2 and 22.7 of the Code, when an offeror issues a no increase or no extension statement he can only amend the terms of the offer 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 Council’s consent, announce any material new information 39 days after the posting of the initial offer document. However, the Council will normally give its consent to a later announcement. The Council proposes that, in cases where an offeree board announces material new information after Day 39, an offeror should be able to set aside a no increase or no extension statement, as long as the statement was made after Day 39. This is also in line with the position under the UK Takeover Code.
To ensure that shareholders and investors are apprised of material information on a timely basis, it is proposed that the Code is amended to require prompt disclosure of:
- Any material changes to information previously published in connection with the offer.
- Any material new information which would have been required to be disclosed in any previous document or announcement published during an offer period, had it been known at the time.
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 Council proposes to change this timeframe to a 7-business day payment period, so as to avoid practical difficulties for an offeror when part of the 10 calendar day settlement period coincides with public holidays.
In some cases, the offeror may subject the making of a voluntary offer to pre-conditions. The Code currently does not prescribe any requirements on the pre-conditions. In practice, the Council has required pre-conditions to meet the same standards set out in Note 1 on Rule 14.2 on conditional agreements and put and call option agreements. The Council proposes to codify this practice by introducing a new Note to Rule 15.1.
In addition, Rule 22.1 of the Code currently provides that 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 case of pre-conditional offers, the Council proposes to introduce a new Note on Rule 22.1 to allow the offeree company to seek approval for the posting of the offer document at an earlier date.
Codifying and Streamlining Existing Practices
The Council makes the following proposals to codify and streamline existing practices:
- The introduction of a new Note on Rule 22.9 that, in acompetitive situation, all offerors will be bound by the timetable established by the despatch of the latest competing offer document.
- Amendments to Note 1 on Rule 18 to state that reference will be made to market prices in determining the ratio of offer values.
- The introduction of a new note to Rules 3.1, 3.2 and 3.3 to clarify that a paid press notice refers to a paid advertisement in two leading English-language national newspapers published daily and circulating generally.
For further information, please contact: