香港资本市场并购讲座

THE HONG KONG TAKEOVERS CODE THE HONG KONG TAKEOVERS CODEAshley Alder (Partner)Jason Sung (Partner)Victor Ding (Senior Associate)Victor Ding(Senior Associate)13 May, 2011Takeover 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 HongKong•Will be governed by the Takeovers Code (and the HKSE Listing Rules and SFO)•Control = 30% or more of voting rights1The 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 PrinciplesI 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 2yAdvisers –Introduction, para 1.7. Relevant to 1) Corporate Finance Advice, and 2) ComplianceVoluntary takeover offery•Offeror able to impose conditions to its OfferOff 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 targetachieving100%privatisation and delisting of a target3Mandatory 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 alternativeOffer must be in cash/full cash alternative•Concert partiest 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 ofvoting rights-includes a ‘nod or a wink’-Inadvertent mandatory bids•Merdeka Resources –case study•China Oriental –case study4Privatisations1.Voluntary Offer90%“Squeeze out”-90% “Squeeze out”-Upside ⇒Flexibility-Downside ⇒Hard target2.Scheme of ArrangementScheme of Arrangement-Shareholder vote: dual 75% / 10% test-Upside ⇒easier target-Downside ⇒All or nothing; court processH d f d il-Hedge fund greenmailPrivatisations for Red-Chip Companies1.Voluntary Offer (see Jilin Chemical (November 2005), Shanghai Forte1V 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))5ypTypes of Takeover Offer•Pre-conditional offers to address anti-trust approvalC l f Chi H i J i-Coca-cola bid for China Huiyan Juicey j p»Voluntary offer subject to anti-trust pre-condition -CMB’s bid for Wing Lung Bank»S&P triggering mandatory bid conditional on PRCregulatory approval6Recommended Takeover Offer Process -Order of Events21 days 60 days 21 days7Private Public•Consider the relevance of trading activity on the offerg yRule 21 –restrictions on dealingsOfferor 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 clientRule 22 –dealings disclosuresdefinition of“associates”–disciplinary action against Templeton Asset–definition of associates –disciplinary action against Templeton AssetManagement 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 paid8-EPT and EFM status; exemption from compliance withcertain 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 9y•Prior to approach to Target, public announcement required by Offeror if:Off ifp-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 leak10•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 byTarget if there is a leak, etc. or when it receives a firm intentionto make an Offer-links to HKEX enquiries about unusual trading movements(13.10 HKEX Listing Rules)11Type of Announcement required in the event of a leak At 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 Ca third party is considering making an offer for the Company.The Board of Target confirms that it has [received ali 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 h12Target –Peoples TelephoneDue Diligence in Takeover Offers•Target will have made extensive public disclosures andbe 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 forOff’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)13Firm 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 donce 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 commences14•Research ban during offer period (Note 4 to Rule 8.1)Code Principles/RulesCode Principles / RulesG.P4 “ … financial adviser should be satisfied that [bidder] canand will continue to be able to implement the offer in full”yRule 3.5 “ … only announce firm intention when offeror hasevery reason to believe that it can and will continue to beable to implement offer. Responsibility … rests onfinancial adviserfinancial adviser”15Rule 3.5, Note 3SFCmay 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 documentsunless 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-Guidance on funds confirmation Guidance on funds confirmation -Reminds financial advisers that “it is the sole responsibility offinancial advisers to ensure sufficient financial resources areavailable ”16available …Process•Start preparing form of letter early•Build in time for internal reviewTi iTiming•Before firm announcement (even if there are other pre-conditions)•New confirmation before any offer increaseAnnouncement 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 committedfinancing –SFC discretion17A tAmountp•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 privatisations18Due Diligence of Offeror’s Financing •Financial advisers can be lenders •London Panel concerns in decisions where FA’s were censuredStanding 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)-Due diligence onus on FA high if bid is being acquisition g g g qfinanced: due diligence re»funds»facility agreements 19Bidder’s own resourcesC id h i Off l h i-Consider having Offeror place cash into an escrow accountq g-Consider requesting letters of credit to financial adviser capable of unfettered drawdown20Review Offeror’s Debt Financing•When would banks be entitled to refuse drawdown?Wh ld b k b i l d f d d?•“Certain funds” basis ⇒limited conditionality y•FA Counsel to comment before execution21Review Financing CPs / Drawstop events CPsthat can remain at time of announcement•CPs that can remain at time of announcement -Automatic conditions (e.g. offer becoming unconditional)-Conditions which are same as offer conditions (but ensure MAC condition is satisfied on same basis)condition is satisfied on same basis)-Conditions in full control of bidder-No subject condition should be attached to any financing•Drawstop events during offer period-Breaches of technical reps re status of borrower, binding nature f f iliti tof facilities, etc -Breaches of material undertakings in borrower’s control (breach of negative pledge, disposals / acquisitions, etc)S i t f d f lt (i l l f l di ti )22-Serious events of default (insolvency, unlawfulness, repudiation)Further assurance regarding Offeror’s financing capabilities….Letter of UndertakingL f U d kiy y-Borrower not aware of any reason why banks would beentitled to refuse to lend ⇒comfort on Certain FundsDefaultsBorrower undertakes not to trigger Certain Funds Default/ -Borrower undertakes not to trigger Certain Funds Default /ensure all conditions satisfied-Bring down to date of offer document23-Takeovers Code expressly restricts use of subjectiveconditions-restrictions on invocation of conditions»MAC, or other conditions, may not give protection»“material significance to the offeror in the context of theoffer”-financing condition prohibited24Acceptance Condition•Offeror to receive acceptances of Offer in respect of not less than Off i f Off i f l ha specified % of the voting shares•Be careful on setting threshold of acceptancesvery often90%links to squeeze out-very often 90% ⇒links to squeeze-out-Offer cannot succeed unless Offeror ends up with more than50% of voting rights, and acceptances must be rejected if 50% 50%f i i h d b j d if50% is not achieved25g pTarget’s Response•Target appoints an Independent Board Committeef ll i Off i i i l h bli h i d d-following Offer, or initial approach, establish independentBoard Committee-committee to comprise all NEDs with no interest in Offer (other than as Target shareholders)-committee to make recommendation on fairness andreasonableness of Offer-committee to approve appointment of IFA26Offer Document Issues :Standards of Care All documents must, as is the case with a prospectus, be prepared with the highest possible degree of care, responsibility and accuracy (GP5)responsibility and accuracy (GP5)•Information given to be adequately and fairly presented •Directors responsibility statements as to accuracy of information Directors responsibility statements as to accuracy of information contained in Offer documents and announcementsProfit forecasts/estimates•Profit forecasts/estimates -scrupulous care and objectivity-quoting analyst’s forecasts27-existing forecasts: financial adviser to check-reported on by auditors and financial advisersOffer Process—Announcements•Press AnnouncementsPress Announcements-Standards of care apply to any announcements in the press-Press announcements must be consistent with offer documentsp p-Consider the use of press announcements as part of a strategy in obtaining acceptances of the offer28Offer Process—Information DisseminationEquivalency of information/Equality of treatment•Same information to be made available to all shareholdersS i f i b d il bl ll h h ld(GP3)-No new information disclosed or significant new opinionsexpressed otherwise than by disclosure to all shareholders-Meetings with shareholders/analysts. Financial advisers topolice and report to SFC deviations from publicly availableinformation by noon the next trading dayi f i b h di d29Acceptances:Offeror’s threshold is met Acceptances : Offeror s threshold is met•Offer unconditional as to acceptancesOffer“unconditional as to acceptances”•Offeror has further period (21 days) to satisfy (or waive) otherconditions. At this point, Offer is “wholly unconditional”, and may diti At thi i t Off i“h ll diti l”dremain open for a total of 4 months•Control of Target passes to Offeror30pIf below Offeror’s acceptance threshold -If Offer lapses, Offeror (and concert parties) generally offside for •If Offer lapses,Offeror(and concert parties)generally offside for 12 monthsno Offer announcement-no Offer announcement-no acquisition of voting rights in Target which would incurMandatory Offer obligationfundamental Code Rule, but-fundamental Code Rule,but»exception generally for subsequent Recommended Offer»exception generally if new offer follows subsequent thirdparty Offerparty Offer31Consultations•Consultations are a vital part of regulatory frameworkConsultations are a vital part of regulatory framework-Code interpreted according to “spirit”-Relevance of London Panel practicey p-Key phrases“In cases of doubt the Executive should be consulted”“… should consult the Executive”-Concert parties»No obligation/recommendation to consultConsultation frequent in practice»Consultation frequent in practice-PN8 “Reminder about early consultation with the Executive”32。