香港资本市场并购讲座

THE HONG KONG TAKEOVERS CODE THE HONG KONG TAKEOVERS CODE

Ashley Alder (Partner)

Jason Sung (Partner)

Victor Ding (Senior Associate)

Victor Ding(Senior Associate)

13 May, 2011

Takeover under the HK Rules?

?Acquisition (or consolidation) of control of

- a public company in Hong Kong or

- a company with a primary listing of equity securities in Hong

Kong

?Will be governed by the Takeovers Code (and the HKSE Listing Rules and SFO)

?Control = 30% or more of voting rights

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The Takeovers Code

?Is the core rule book

?Is administered day to day by the Executive and policed by the Takeovers Panel

?Is underpinned by ten General Principles

I i t t d i d ith th ‘i it’ll th ‘l tt ’?Is interpreted in accordance with the ‘spirit’ as well as the ‘letter’?Special emphasis on responsibility and resources of Financial 2

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Advisers –Introduction, para 1.7. Relevant to 1) Corporate Finance Advice, and 2) Compliance

Voluntary takeover offer

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?Offeror able to impose conditions to its Offer

Off bl i di i i Off

?Offeror able to choose nature of Offer consideration

?The only method of structuring an offer which is conditional on achieving 100% privatisation and delisting of a target

achieving100%privatisation and delisting of a target

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Mandatory takeover offer

?Acquisitions triggering mandatory bid: 30% control threshold / 2% control creeper

“creeper”

?Only condition permissible is acquisition of 50% of Target voting rights ?Offer must be in cash/full cash alternative

Offer must be in cash/full cash alternative

?Concert parties

t d t di f l i f l t ti l -agreement or understanding, formal or informal, to actively co-operate to obtain or consolidate control through the acquisition of

voting rights

-includes a ‘nod or a wink’

-Inadvertent mandatory bids

?Merdeka Resources –case study

?China Oriental –case study

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Privatisations

1.Voluntary Offer

90%“Squeeze out”

-90% “Squeeze out”

-Upside ?Flexibility

-Downside ?Hard target

2.Scheme of Arrangement

Scheme of Arrangement

-Shareholder vote: dual 75% / 10% test

-Upside ?easier target

-Downside ?All or nothing; court process

H d f d il

-Hedge fund greenmail

Privatisations for Red-Chip Companies

1.Voluntary Offer (see Jilin Chemical (November 2005), Shanghai Forte

1V l t Off(Jili Ch i l(N b2005)Sh h i F t (February 2011))

2.Merger by Absorption (see Sinopec Beijing Yanhua (January 2005),

Sinopec Zhenhai Refining (November 2005))

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Types of Takeover Offer

?Pre-conditional offers to address anti-trust approval

C l f Chi H i J i

-Coca-cola bid for China Huiyan Juice

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?Voluntary offer subject to anti-trust pre-condition -CMB’s bid for Wing Lung Bank

?S&P triggering mandatory bid conditional on PRC

regulatory approval

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Recommended Takeover Offer Process -

Order of Events

21 days 60 days 21 days

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Private Public

?Consider the relevance of trading activity on the offer

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Rule 21 –restrictions on dealings

Offeror banned for selling target shares during offer period

?Offeror banned for selling target shares during offer period

?Offeree banned from purchasing target shares during offer period SBL transactions prohibited save for delivery on recall by client/?SBL transactions prohibited save for delivery on recall by client / acceptance of redelivery by client

Rule 22 –dealings disclosures

definition of“associates”–disciplinary action against Templeton Asset

–definition of associates –disciplinary action against Templeton Asset

Management Ltd.

Rule 23 –when a cash offer is required

?Cash purchases of 10%+ in 6 months prior to offer

?Any cash purchases during offer period

?Offer at highest price paid

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-EPT and EFM status; exemption from compliance with

certain dealing and disclosure restrictions ?

Concert party exemption in Rule 26.1?Practice Note 9 (revised on 30 September 2010)

Offeror’s co nsel sho ld pro ide g idelines on Offeror and -

Offeror’s counsel should provide guidelines on Offeror and concert parties dealings in Target -

Offeror must conduct an analysis of its and its concert parties y p trading activity in Target -

Analyse bank holdings and trading activity in Target R l 216D li b t d di ti f d -

Rule 21.6 –Dealings by connected discretionary fund managers and principal traders -Lehman Brothers –case study 9

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?Prior to approach to Target, public announcement required by Offeror if:

Off if

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-rumor/speculation

-undue share price movements or turnover volume

-negotiations extended to more than a restricted group ?Monitor trading, plan for disclosure in event of leak

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?Offeror approaches Target Board (either for discussions or for recommendation of its Offer)

following approach to Target, announcement required by

-following approach to Target announcement required by

Target if there is a leak, etc. or when it receives a firm intention

to make an Offer

-links to HKEX enquiries about unusual trading movements

(13.10 HKEX Listing Rules)

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Type of Announcement required in the event of a leak A

t b b i f (if i t Fi I t ti )

-Announcement may be brief (if prior to Firm Intention):“The Board of Target notes the recent [press speculation] that thi d t i id i ki ff f th C

a third party is considering making an offer for the Company.The Board of Target confirms that it has [received a

li i h f /h ld t lk ith]thi d t hi h preliminary approach from/held talks with] a third party which may or may not lead to an offer for the Company.”

U d t k t thl h t lk t i t (R l 37)?Update market monthly or when talks terminate (Rule 3.7)?How to put a floor under the offer price if acting for Vendor / T t P l T l h

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Target –Peoples Telephone

Due Diligence in Takeover Offers

?Target will have made extensive public disclosures and

be under duty to disclose significant changes under HKEX Listing be under duty to disclose significant changes under HKEX Listing Rules

?Offeror’s ability to review confidential information a matter for

Off’bilit t i fid ti l i f ti tt f negotiation, influenced by a number of factors

-whether Target is actively ‘for sale’

-commercial sensitivity (affected also by identity of Offeror)

need to maintain secrecy

-need to maintain secrecy

-equality of information to other offerors (Rule 6)

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Firm Intention Announcement and Beyond Firm Intention Announcement

?Offeror obliged to make detailed public announcement of Offer terms tifi fi i t ti t k Off t T t B d

once notifies firm intention to make Offer to Target Board ?Announcement to be pre-vetted by Executive (Note: post-vetting regime under Rule 12.1 introduced in June 2010, see PN5)u de u e t oduced Ju e 00,see 5)

?Bank makes dealings/borrowings filings with SFC

-PN13 : Holdings by entities in Hong Kong: 5 pm on first business day after publication of Firm Intention first business day after publication of Firm Intention announcement : Holdings by entities outside Hong Kong: 5 pm on second business day after publication of Firm Intention t announcement : EPTs must provide to the Executive by 5 pm on the day after offer period commences

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?Research ban during offer period (Note 4 to Rule 8.1)

Code Principles/Rules

Code Principles / Rules

G.P4 “ … financial adviser should be satisfied that [bidder] can

and will continue to be able to implement the offer in full”

y

Rule 3.5 “ … only announce firm intention when offeror has

every reason to believe that it can and will continue to be

able to implement offer. Responsibility … rests on

financial adviser

financial adviser”

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Rule 3.5, Note 3SFC

may require evidence of resources to make offer and to acquire

-SFC may require evidence of resources to make offer and to acquire shares triggering a bid, however, PN15 notes that financial adviser is not expected to provide SFC with copies of related documents

unless requested unless requested

-

“Financial Adviser to observe highest standards of care … including due diligence … will not be expected to produce cash itself if it acted reasonably ”reasonably …PN15

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Guidance on funds confirmation Guidance on funds confirmation -Reminds financial advisers that “it is the sole responsibility of

financial advisers to ensure sufficient financial resources are

available ”16available …

Process

?Start preparing form of letter early

?Build in time for internal review

Ti i

Timing

?Before firm announcement (even if there are other pre-conditions)

?New confirmation before any offer increase

Announcement may only be conditional on financing if time for pre ?Announcement may only be conditional on financing if time for pre-

conditional regulatory clearance is too long to maintain committed

financing –SFC discretion

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A t

Amount

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?full acceptance

?convertible securities / options

?short-dated loan notes offered in consideration

?not needed for irrevocable acceptances of shares / long-dated t d d f i bl t f h/l d t d loan note consideration

?squeeze-out in privatisations

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Due Diligence of Offeror’s Financing ?Financial advisers can be lenders ?London Panel concerns in decisions where FA’s were censured

Standing of bidder financial adviser’s relationship with bidder

-Standing of bidder, financial adviser’s relationship with bidder, size of offer

-“Newco”bidder:irrevocable commitment from party that can be Newco bidder: irrevocable commitment from party that can be relied on (e.g. bank)

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Due diligence onus on FA high if bid is being acquisition g g g q

financed: due diligence re

?funds

?facility agreements 19