Lim Jo Yan
Partner and Head of Corporate & Commercial Practice Group
Teoh Huei Wen
Associate
Introduction
On 15 August 2016, the Securities Commission of Malaysia (“SC”) revised the regulatory framework on take-overs and mergers in Malaysia by introducing the Malaysian Code on Take-Overs and Mergers 2016 (“2016 Code”) and a rule book entitled Rules on Take-Overs, Mergers and Compulsory Acquisition (“2016 Rules”). The 2016 Rules are supplemented with notes to provide guidance on the application of the 2016 Rules. With the coming into force of the 2016 Code and 2016 Rules, the Malaysian Code on Take-Overs and Mergers 2010 (“2010 Code”) and its Practice Notes were revoked.
In this article, we seek to provide an overview on the significant changes arising from the 2016 Code and 2016 Rules.
Regulatory Intent
The 2016 Code and 2016 Rules reflects the SC’s desire to move towards a proportionate regulatory regime and to address the gaps previously found in the 2010 Code.
The 2016 Code codified 12 general principles that shall be observed and complied with by all persons engaged in any take-over or merger transaction. The general principles are summarised as follows:
(a) all shareholders of an offeree of the same class shall be treated equally and have equal opportunities to participate in the benefits accruing from a take-over, including the premium payable for control;
(b) the acquirer or the offeror and the board of directors of the offeree shall not oppress or disadvantage the shareholders (particularly minority shareholders);
(c) the acquirer or the offeror shall ensure that he is able to implement the offer in full. The financial adviser of the acquirer or the offeror shall ensure that the acquirer or the offeror is able and will continue to be able to implement the offer in full;
(d) the offeree shall appoint a competent adviser in the interests of its shareholders to provide comments, opinions, information and recommendation on the take-over offer or potential take-over offer;
(e) all parties involved in a take-over or merger transaction shall make full and prompt disclosure of all relevant information;
(f) the shareholders and board of directors of an offeree and the capital market shall be provided with relevant and sufficient information to make an informed decision on the take-over offer and be given reasonable time to consider the take-over offer;
(g) the offeror, the board of directors of the offeror, the board of directors of the offeree and their respective advisers shall prepare documents or advertisements with the same standard of care as a prospectus under the Capital Markets and Services Act 2007 (“CMSA”);
(h) there shall be no selective disclosure of information relating to the actual or proposed take-over or merger transaction, to the shareholders of the offeree, except where such information is provided in confidence by the board of directors of the offeree to a bona fide potential offeror and vice versa;
(i) while the board of directors of an offeror and the board of directors of an offeree, and their respective advisers and associates have a primary duty to act in the best interests of their respective shareholders, any guidelines and rulings issued by the SC may restrict the board and persons involved in any take-over from undertaking certain actions;
(j) a take-over offer shall be made to all shareholders within the same class in an offeree for all the voting shares or voting rights in the offeree;
(k) the board of directors of an offeree shall act in the interests of the shareholders as a whole and shall not deny the shareholders the opportunity to decide on the take-over offer; and
(l) the period in which an offeree is subject to a take-over shall not be longer than what is reasonable.
Clarification on the meaning of ‘Offeree’
An “offeree” means a company whose voting shares or voting rights are subject to a take-over offer.
The 2016 Rules clarifies that the following entities are an “offeree”:
(a) a corporation with a listing on a stock exchange in Malaysia;
(b) an unlisted public company with more than 50 shareholders and net assets of RM15 million or more;
(c) a business trust listed in Malaysia; and
(d) a real estate investment trust listed in Malaysia.
Previously, under the 2010 Code, all unlisted public companies (regardless of size) are subject to the 2010 Code. This means that the mandatory offer obligation will be triggered once the acquirer obtains control in the company.
The 2016 Rules reduces the impact of mandatory offer obligation on unlisted public companies as only sizeable unlisted public companies (ie. unlisted public company with more than 50 shareholders and net assets of at least RM15 million) will be subject to the 2016 Rules. Acquisition of shares in smaller public companies are therefore not subject to the 2016 Rules.
Takeover through a Scheme made easier
Takeover schemes such as privatisations or reverse takeovers can now be initiated by parties who do not own over 50% equity interest in the offeree.
The previous regime under the 2010 Code required an acquirer to obtain a minimum threshold of 50% voting shares or voting rights in a takeover exercise through a scheme of arrangement. This essentially meant that a white knight had to be a major shareholder holding more than 50% shareholding in the offeree. The scheme of arrangement would not succeed if the acquirer is unable to obtain the minimum threshold. It was also more costly and time-consuming for the white knight to rescue the offeree, as it needed more capital to acquire at least 50% shareholding and more time to receive acceptances from the shareholders to achieve 50% shareholding threshold. Under the 2016 Rules, a white knight need not be a major shareholder of the company to implement a scheme.
Persons Acting in Concert
The 2016 Rules provides a presumption that the following persons are presumed to be parties acting in concert:
(a) its management company;
(b) a director of the management company (together with his spouse, close relatives and related trusts);
(c) any person who owns or controls 20% of the voting shares or voting rights of the management company; and
(d) its trustee.
In the case of a business trust, the following persons are presumed to be parties acting in concert:
(a) its trustee-manager including the agent;
(b) a director of the trustee-manager (together with his spouse, close relatives and related trusts);
(c) any person who owns or controls 20% of the voting shares or voting rights of the trustee-manager; and
(d) any person who is related to or an associate of the trustee-manager.
Offer Price
The 2016 Rules now provide that for a mandatory offer arising from an arrangement, agreement or understanding to control, the offer price shall be the higher of:
(a) the highest price paid by the offeror or persons acting in concert, for the voting shares or voting rights of the offeree in the 6 months prior to the triggering of the mandatory offer obligations; or
(b) the volume weighted average traded price of the offeree for the last 20 market days prior to the triggering of the mandatory offer obligation. The SC reserves the right to disregard any unusually high or low traded prices within the relevant period. In relation to (b), where there is no transaction for the voting shares or voting rights of the offeree in the last 6 months, prior to a take-over offer, an offeror has to provide the basis for the offer price. The SC requires the offeror to have prior consultation with them on this matter.
This means that offerors now are prevented from making offer prices which are significantly lower than the market price.
Conclusion
The 2016 Rules and its notes creates more clarity and progressiveness in line with increased shareholder protection. This is a positive develop for take-overs in Malaysia. We also hope to see increased white knight participation now that the threshold for participation is lower.
