SINGAPOREAN UPDATE – Proposed Changes to the Singapore Code on Takeovers and Mergers
- Changes have been proposed to the Singapore Code on Take-overs and Mergers (“Code”).
- The main changes include updating the language of 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 Securities Industry Council (“SIC”) is the body that administers and enforces the Code. In October 2011, it issued a consultation paper, “Consultation Paper on Revision of the Singapore Code on Take-overs and Mergers” (“Consultation Paper”), for public consultation.
The Consultation Paper proposed various changes to the Code. These fell into the following four general areas:
- Expanding and clarifying the SIC’s powers to impose sanctions on offerors and their advisers;
- Rationalising the language of the Code to deal with the takeover of real estate investment trusts and business trusts, both of which have structures unlike that of a company;
- Codifying its practice statements on real estate investment trusts, trust schemes, and merger procedures by incorporating them into the body of the Code; and
- Proposing new rules to deal with developments in mergers and acquisitions over the last few years.
The new rules that have been proposed are the subject of this update.
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 SIC has proposed that the Code expressly stipulate that offerors must disclose if the offeree company shares that they hold have been charged as security, borrowed or lent.
Collective Shareholder Action
It is proposed that where shareholders 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, they may be presumed to be acting in concert. 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 (other than management) 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. In order to determine whether such arrangements would be regarded as a special deal under the Code, the SIC has proposed that they would not be considered as such 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.
It has further proposed stipulating the following factors as being factors relevant to determining whether a person is a joint offeror:
- 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 SIC has proposed lowering 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. It has proposed that Code stipulate that all acquisitions of long options or derivatives (i.e. without offsetting the value of short positions) would normally be regarded as acquisitions of shares for the purposes of determining whether the specified thresholds for making an mandatory general offer have been crossed. In addition, it is also proposed that the Code 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.
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 SIC has proposed streamlining the process by dispensing with the requirement for parties to seek an exemption so long as they comply with these conditions.