SINGAPOREAN UPDATE: Changes to the Singapore Code on Take-Overs and Mergers
- The Singapore Code on Take-overs and Mergers was amended with effect from 9 April 2012.
- The main changes include updating the Code to incorporate current practices on the takeover of real estate investment trusts and business trusts, setting out when collective shareholder action amounts to acting in concert, and dealing with joint offers and the acquisition of derivatives.
The Monetary Authority of Singapore (“MAS”) has amended the Singapore Code on Take-overs and Mergers (“Code”). The revised Code has taken effect as from 9 April 2012. The changes were first the subject of a consultation by the Securities Industry Council (“SIC”) in October 2011. We had reported on the consultation in an earlier update. Following the consultation, the SIC amended some of its proposed changes. The details of the finalised changes are set out in this update.
The changes to the Code include the following:
- An option or derivative transaction has been made subject to Rule 14 on mandatory offers. Persons who would cross the mandatory offer thresholds had such transactions involved the transfer of shares must consult the SIC beforehand.
- Dealings in long options and derivatives over offeree company shares during the offer period by associates who hold 5% or more in the offeree company must be disclosed.
- An offeror and its concert parties must disclose the number and percentage of their shareholdings which have been charged as security, borrowed, or lent.
- The shareholding threshold for a shareholder to disclose dealings in the offeree company shares during the offer period has been lowered from 10% to 5%.
- Shareholders of a company that is buying back its shares are provided with a class exemption from the requirement to make a mandatory offer as a result of the share buy-back subject to conditions.
- The factors which the SIC would consider in determining whether to permit an offeree company shareholder to invest in the bid company to the exclusion of all other offeree company shareholders have been set out.
- The circumstances where shareholders voting together on a board control-seeking resolution might be regarded as parties acting in concert have been set out.
Other changes made clarify certain powers of the SIC to take action in respect of breaches of the Code, as well as the application of the Code to real estate investment trusts and business trusts.
Lending, Borrowing, and Charging of Shares
In October 2008, the takeover of a Singapore listed company ran into problems when it transpired that the offeror had lent his shares to a third party that subsequently became insolvent and consequently failed to return equivalent shares to the offeror. The share lending was not disclosed by the offeror during the takeover bid. The takeover offer was subsequently aborted as the offeror was no longer able to fulfil its takeover obligations.
To prevent a recurrence of such a situation, the Code now expressly stipulates that offerors and their concert parties must disclose if the offeree company shares that they hold have been charged as security, borrowed, or lent. In addition, the following clarifications have been included (pursuant to feedback after the consultation):
- When making disclosure, the offeror should specify both the number and the percentage of the shares in the offeree company held by the relevant person which have been charged as a security interest, borrowed, or lent.
- If the offeror has borrowed shares which he has on-lent or sold, these should not be included when disclosing the number of shares held by him.
- In determining the number of acceptances received during a general offer, shares borrowed by the offeror may not normally be counted towards fulfilling the acceptance condition. In addition, where the mandatory bid obligation was triggered as a result of share borrowing, the borrower should consult the SIC on how the borrowed shares should be treated for the purpose of the acceptance condition.
Collective Shareholder Action
The Code has been amended to provide greater clarity as to when the action of shareholders voting together on particular resolutions at one general meeting might be regarded as acting in concert. It now expressly makes clear that shareholders may be presumed to be acting in concert where they have an agreement or understanding to requisition or threaten to requisition resolutions at a general meeting that have the purpose of seeking control of the board. Once the presumption arises, subsequent acquisitions of interests in shares by any member of the group could give rise to an obligation to make a general offer.
In some takeover offers, it is proposed that certain offeree company shareholders are to retain an interest in the offeree company following the offer through the exchange of their offeree company shares for shares in the bid vehicle. Where it was previously silent, the Code now makes clear that such arrangements would not be regarded as a special deal under the Code if the offeror and the offeree company shareholder had come together to form a consortium on such terms and in such circumstances that each of them can be considered to be a joint offeror.
In order to determine whether a person is a joint offeror, the SIC will look to the following factors:
- The proportion of equity share capital of the bid vehicle the person will own after completion of the acquisition;
- Whether the person will be able to exert a significant influence over the future management and direction of the bid vehicle;
- The contribution the person is making to the consortium;
- Whether the person will be able to influence significantly the conduct of the bid; and
- Whether there are arrangements in place to enable the person to exit from his investment in the bid vehicle within a short time or at a time when other equity investors cannot.
Definition of “Associate”
Currently, one of the categories of persons listed as associate is a holder of 10% or more of the equity share capital of the offeror or offeree company. The Code has been amended to lower the threshold to 5%.
Options and Derivatives
While as a matter of practice the SIC requires persons who acquire long options or derivatives which might cause them to cross the mandatory offer thresholds to consult it before entering into such transactions, the Code itself does not currently address the question. Following the amendment, it now specifies that a person who acquires or writes an option or derivative which causes him to have a long economic exposure would normally be regarded as having acquired shares for the purposes of determining whether the specified thresholds for making a mandatory general offer have been crossed. He will have a long economic exposure if he would benefit economically if the price of the security goes up and will suffer economically if the price of the security goes down.
In addition, the acquisition or writing of an option or derivative will include situations where the option or derivative is acquired as part of a derivatives reference basket or index. The rule will not apply if, at the time of dealing, relevant securities to which the derivative is referenced represent less than 1% of the class in issue and less than 20% of the referenced securities by value. This is, however, only a guideline and is not determinative of whether the rule is excluded.
The Code will also require disclosure of dealings in long options and derivatives during the offer period by persons holding 5% or more in the offeree company’s issued share capital. “Dealings in relation to derivatives” is defined widely to include taking, granting, acquisition, disposal, exercising (by either party), lapsing, closing out, conversion, or variation.
When a company buys back its shares, any resulting increase in the percentage of voting rights held by a shareholder and persons acting in concert with him is treated as an acquisition for the purpose of triggering the obligation to make a mandatory general offer. Currently, however, parties may apply for an exemption from the SIC provided they can demonstrate that the share buy-back meets certain specified conditions. As the grant of such exemptions have been routine and straightforward, the Code will now dispense with the requirement for parties to seek an exemption so long as they comply with these conditions.