Kok Chee Kheong highlights the significant changes under the new Take-Over Code.
INTRODUCTION
The long awaited new take-over code, the Malaysian Code on Take-Overs and Mergers 2010 ("2010 Code"), came into force on 15 December 2010, replacing the Malaysian Code on Take-Overs and Mergers 1998 ("1998 Code").
The Practice Notes on the 2010 Code and the Guidelines on Contents of Applications relating to Take-Overs and Mergers were issued by the Securities Commission of Malaysia ("SC") at the same time pursuant to Section 377 of the Capital Markets and Services Act 2007 ("CMSA") to replace the practice notes for the 1998 Code and the Guidelines on Offer Documentation and the Format and Contents of Applications respectively.
This article discusses the salient changes introduced under the 2010 Code.
EXTENDED APPLICATION
The 1998 Code applied only to a company which is incorporated under the Companies Act 1965.
The 2010 Code extends the definition of a "
company" in Section 216(1) of the CMSA to include a real estate investment trust and a foreign incorporated company, where such trust or foreign company is listed on a stock exchange in Malaysia.
In the case of a real estate investment trust, all references in the 2010 Code to the board of directors of the offeree shall refer to the board of directors of the trustee.
MANDATORY OFFER
Both the 1998 Code and the 2010 Code impose an obligation on an acquirer who acquires control of a company to make a mandatory offer to acquire the remaining shares or voting rights in a company.
The 2010 Code makes it clear that this obligation arises irrespective of how the control or acquisition is effected, including by way of a scheme of arrangement, compromise, amalgamation or selective capital reduction.
UNUSUAL MARKET ACTIVITY
To prevent the creation of a false market in an offeree's shares, the 2010 Code requires a potential offeror to announce whether there is a take-over or possible take-over offer where there is untoward movement or increase in the traded volume of shares of an offeree.
If a potential offeror announces that he does not intend to make a take-over offer or that there is no possible take-over offer by him, the potential offeror and all persons acting in concert with him will be prohibited from acquiring voting shares or voting rights in the offeree that will give rise to an obligation to make a mandatory offer under the 2010 Code for a period of 6 months from the date of his announcement.
During the 6-months period, the potential offeror and all persons acting in concert with him will also be prohibited from procuring an irrevocable commitment to acquire shares of the offeree which will in aggregate carry more than 33% of the voting shares or voting rights of the offeree.
The efficacy of these new provisions remains to be seen.
HIGHER THRESHOLD FOR VOLUNTARY OFFERS
Both the 1998 Code and the 2010 Code require a voluntary offer to be conditional upon the offeror receiving acceptances that would result in him holding in aggregate more than 50% of the voting shares or voting rights of the offeree.
The 2010 Code expressly allows the SC to permit a voluntary offer to be conditional upon a higher level of acceptances if the offeror is able to satisfy the SC that he is acting in good faith in imposing such higher level of acceptances.
This new provision may enable an offeror to make a voluntary offer which is conditional upon the offeror receiving acceptances of 90% of the voting shares or voting rights which are the subject of the offer. If the 90% acceptance level is achieved, the offeror will be entitled to invoke the compulsory acquisition provisions in Section 222 of the CMSA to acquire the voting shares or voting rights of the offerees who have not accepted the offer, thereby resulting in the offeror and the persons acting in concert with him holding all the voting shares or voting rights in the offeree.
Although the SC had on several occasions allowed a voluntary offer under the 1998 Code to be made conditional upon a minimum acceptance level that exceeded 50%, the 2010 Code has removed any doubt that it is possible to adopt this approach.
REPRESENTATION ON OFFEREE BOARD
The 2010 Code permits the offeror and persons acting in concert with him to appoint directors to the board of directors of the offeree if 2 conditions are fulfilled. Firstly, the offeror and persons acting in concert with him must hold more than 50% of the voting shares or voting rights in the offeree before the offer document is dispatched and secondly, the offeror must have obtained the consent of the SC for such appointment.
The 1998 Code did not permit the offeror and persons acting in concert with him to appoint directors to the offeree's board before the despatch of the offer document. Although the SC had in certain instances waived this prohibition under the 1998 Code, the clarification of the legal position under the 2010 Code is welcomed.
PERSONS ACTING IN CONCERT
The 2010 Code also introduces 2 new categories of "
persons acting in concert", namely –
(1) a company and its directors and shareholders where an agreement, arrangement or understanding exists between the company or its directors and its shareholders which restricts the director or shareholder from offering or accepting a take-over offer for the voting shares or voting rights of the company; and
(2) a person who is a partner of a partnership, that is, where 2 or more persons have a business arrangement and common interest in several companies between them.
SETTLEMENT OF CONSIDERATION
The 2010 Code reduces the settlement period for acceptances received pursuant to a take-over offer from 21 days to 10 days for offers that involve only a cash consideration and to 14 days where the consideration comprises securities or a combination of cash and securities.
VOTING RIGHTS
The 2010 Code prohibits an offeror and persons acting in concert with him from exercising the voting rights attached to the shares received through acceptances of the take-over offer before the consideration is settled in full.
On the other hand, the 1998 Code prohibits an acquirer in a mandatory offer from exercising the voting rights attached to the voting shares acquired by him before the offer document is dispatched to the offeree's shareholders.
PARTIAL OFFERS
In a partial offer, both the 2010 Code and the 1998 Code provide that –
(1) the offeror shall accept all acceptances from all offeree shareholders who wish to accept the take-over offer up to the percentage of voting shares or voting rights proposed to be acquired by the offeror; and
(2) where the offeror receives acceptances totalling more than the percentage of voting shares or voting rights offered to be acquired under the offer, the offeror shall accept the voting shares or voting rights in the same proportion from each offeree shareholder to enable the offeror to obtain that percentage of voting shares or voting rights which he has offered acquire.
The 1998 Code further required an offeror to offer to acquire the same percentage of voting shares from the offeree shareholders. This provision is inconsistent with the afore-mentioned provisions and has been omitted from 2010 Code.
INDEPENDENT ADVISER
The requirement under the 1998 Code for the SC's approval for the appointment of an independent adviser for the offeree is dispensed with under the 2010 Code.
TAKE-OVER VIA ASSETS AND LIABILITIES ROUTE
In recent years, the purchase of the assets and liabilities of a company has become a common method of effecting an indirect take-over of a listed company as the disposal of assets and liabilities only requires the approval of a simple majority of members of the vendor in general meeting.
The 2010 Code does not regulate this method of taking over a company. On 28 January 2011, Bursa Malaysia Securities Berhad amended the Main Market Listing Requirements and the ACE Market Listing Requirements to regulate the "
major disposal" of assets by a listed company. These amendments are discussed in "
Plugging the "asset disposal" Loophole" in this issue of LEGAL INSIGHTS.