Resource type: Article: know-how
Status: Law stated as at 01-Oct-2012
Jurisdiction: Hong Kong
A Q&A guide to public mergers and acquisitions law in Hong Kong.
The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; as well as any proposals for reform.
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To compare answers across multiple jurisdictions visit the Country Q&A tool. This Q&A is part of the PLC multi-jurisdictional guide to mergers and acquisitions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/acquisitions-mjg.
M&A activity
1. What is the current status of the M&A market in your jurisdiction?
In 2011 there were over 600 M&A transactions in Hong Kong and China, with an aggregate transaction value of around US$125.3 billion, representing an increase of 5.7% as compared to 2010 (MergerMarket). Cross-border M&A also had a strong performance in 2011. Some of the top deals in 2011 in terms of transaction value include the:
- Acquisition of 5.44% stake in China Construction Bank Corporation by Temasek Holdings.
- Acquisition of Northumbrian Water Group by Cheung Kong Infrastructure Holdings.
As regards privatisations and takeovers involving Hong Kong listed companies, in 2011 there were three privatisation transactions initiated by the major shareholders:
- Fubon Bank (Hong Kong).
- China Resources Microelectronics.
- HannStar Board International Holdings.
19 listed companies underwent takeovers and mergers, including (HKEx Fact Book 2011):
- Emperor Entertainment Hotel.
- Shui On Construction and Materials (now known as SOCAM Development).
- Tian An China Investments.
2. What are the main means of obtaining control of a public company?
Takeover offer
One of the means of obtaining control of a public company is to make an offer to all company shareholders to acquire their shares. A takeover offer can be voluntary or mandatory.
A voluntary offer may be made where the bidder considers that the acquisition of the target company would meet its commercial objectives. Subject to certain restrictions, the consideration for the offer can be in cash or securities, or a combination of both.
Scheme of arrangement
A scheme of arrangement is a court-sanctioned process used by companies to reorganise their affairs or corporate structures. In listed companies, schemes of arrangement may be used in relation to privatisation, which usually involve controlling shareholders acquiring shares held by minority shareholders, followed by a de-listing application to the Hong Kong Stock Exchange (SEHK).
Requirements under the Hong Kong Companies Ordinance (CO) apply to Hong Kong incorporated listed companies that wish to undergo reorganisation (by merger or acquisition) or privatisation, by way of a scheme of arrangement. Where a scheme of arrangement is proposed between a company and its shareholders, on application by the company, the court may order a meeting to be summoned of all the shareholders. A scheme will be permitted if it is approved by a majority representing 75% in value of the shareholders who are present and voting in person or by proxy at the general meeting. The Code on Takeover and Mergers (Takeovers Code) of the Securities and Futures Commission of Hong Kong (SFC) also applies to schemes of arrangement involving Hong Kong listed companies. In addition to the other legal requirements, the Takeovers Code has further tightened the approval requirements so that such a scheme cannot be implemented unless both:
- The scheme is approved by at least 75% of the votes attaching to the disinterested shares that are cast either in person or by proxy at a duly convened meeting of the holders of the disinterested shares.
- The number of votes cast against the resolution to approve the scheme at the meeting is not more than 10% of the votes attaching to all disinterested shares.
The availability, application and requirements of schemes of arrangement for listed companies incorporated in other jurisdictions depend on the laws of the relevant jurisdictions.
Hostile bids
3. Are hostile bids allowed? If so, are they common?
Hostile bids are allowed but rare in Hong Kong for the historical reason that most of the listed companies are either family-controlled or otherwise held by a single group of controlling shareholders.
The hostile pre-conditional takeover bid jointly made by ENN Energy Holdings Limited and China Petroleum & Chemical Corporation against China Gas Holdings in December 2011 may be the first unsolicited takeover bid in Hong Kong. The bidders announced on 15 October 2012 that the offer would not be proceeded with as the pre-conditions had not been fulfilled.
Regulation and regulatory bodies
4. How are public takeovers and mergers regulated, and by whom?
Takeovers Code
The Takeovers Code is the primary regulation for takeovers, mergers and schemes of arrangement involving public companies in Hong Kong. The Takeovers Code is concerned with offers for, and takeovers and mergers of, all relevant companies, however effected. These include partial offers, offers by a parent company for shares of its subsidiary and certain other transactions where control (as defined in the Takeovers Code) of a company is to be obtained or consolidated. The Takeovers Code aims at affording fair treatment for shareholders who are affected by takeovers and mergers. Although the Takeovers Code does not have the force of law, the Executive Director of the Corporate Finance Division of the SFC (Executive) can investigate and monitor compliance with the Takeovers Code. The Executive may also refer any matters for ruling to the Committee of the SFC (Panel), which is established under the Securities and Futures Ordinance of the Laws of Hong Kong (SFO). The Executive may institute disciplinary proceedings before the Panel when it considers that there has been a breach of either of the Takeovers Code or of a ruling of the Executive or the Panel.
Listing Rules of the SEHK
If the acquirer is a listed company in Hong Kong, depending on whether it is listed on the Main Board or Growth Enterprise Market (GEM), compliance with the relevant Listing Rules of the SEHK is required. It is likely that the size of the offer will fall within the category of notifiable transactions, invoking announcement, shareholders' approval and reporting requirements.
CO
All Hong Kong incorporated companies and overseas companies registered under Part XI of the CO must comply with all relevant provisions of the CO in all aspects of the transactions.
SFO
Bidders must comply with the disclosure of interests regime under Part XV of the SFO, which imposes filing obligations on persons who acquire 5% or more of interests in shares (voting or non-voting) of a Hong Kong listed company, and where there are subsequent changes to that interest. This regulatory regime is stricter for directors, who are required to report all their interests in shares held in listed companies. There are also prohibitions on insider dealing in listed securities or derivatives of listed companies, as well as other provisions regulating market misconduct.
Laws of incorporation jurisdictions
As a general principle, all companies must comply with the laws of their incorporation jurisdictions, in particular if the takeover is by way of a scheme of arrangement.
Pre-bid
Due diligence
5. What due diligence enquiries does a bidder generally make before making a recommended bid and a hostile bid? What information is in the public domain?
Recommended bid
In recommended bids, it is comparatively easy for a bidder to access information relating to the target company for due diligence purposes. Before approaching the target company, a preliminary due diligence on the target company based on publicly available information should be carried out. After the target company has been approached, the bidder may be given non-public information for due diligence purposes, subject to confidentiality obligations.
The requested due diligence information generally includes:
- Business, assets and financial information.
- Material contractual commitments.
- Employee matters.
- Contingent liabilities.
- Other regulatory and compliance issues.
Any information, including particulars of shareholders, given to one bidder or potential bidder must, on request, be provided equally and promptly to another bidder or bona fide potential bidder, even if that other bidder is less welcome. The passing of information under this rule must not be made subject to any conditions other than those relating to:
- The confidentiality of the information passed.
- Reasonable restrictions forbidding the use of the information to solicit customers or employees.
- The use of the information solely in connection with an offer or potential offer.
Any such conditions imposed should be no more onerous than those imposed on any other bidder or potential bidder.
Hostile bid
In hostile bids, due diligence is often carried out based on publicly available information, as it is likely that a bidder will encounter resistance from the target when it tries to obtain any non-public information. In any event, the guiding principle of Rule 6 of the Takeovers Code must be observed.
Public domain
Information available to be reviewed by a bidder in the public domain includes:
- Announcements, reports and circulars published by the target company under the relevant Listing Rules of the SEHK if the target company is listed in Hong Kong.
- Basic corporate information available for search at the Hong Kong Companies Registry if the target company (or any of its group companies) is incorporated or registered under the CO.
- Information relating to real property owned or leased by the target company in Hong Kong, which is available for search at the Land Registry of Hong Kong.
- Intellectual property rights registered with the Trade Marks Registry of Hong Kong.
- Information relating to litigation in Hong Kong, which can be searched at the Hong Kong courts.
- Bankruptcy and compulsory winding-up searches, which can be carried out at the Official Receiver's Office of Hong Kong.
Secrecy
6. Are there any rules on maintaining secrecy until the bid is made?
Before an announcement is made relating to a takeover, secrecy is of vital importance. All persons privy to confidential information (particularly price-sensitive information) concerning an offer or contemplated offer must treat that information as secret and can only pass it to another person if it is necessary to do so. The recipient of this information must also understand the need for secrecy. Everyone involved must minimise the chances of accidental leakage of information.
Agreements with shareholders
7. Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?
When an offer is contemplated, during an offer and for six months after the close of an offer, neither the bidder nor any person acting in concert with it can enter into arrangements with the shareholders (including key shareholders) to purchase, or purchase or sell securities of the target company, or that involve acceptance of an offer, if they contain favourable conditions that are not extended to all shareholders, except with the consent of the Executive.
The Executive may require the independent financial adviser to the target company to assess the fairness and reasonableness of the arrangements, or require the arrangements be approved by the independent shareholders of the target company.
Details of any such memorandum of understanding executed by or undertaking obtained from the key shareholders must be disclosed.
Stakebuilding
8. If the bidder decides to build a stake in the target (either through a direct shareholding or by using derivatives), before announcing the bid, what disclosure requirements, restrictions or timetables apply? Are there circumstances in which shareholdings, or derivative holdings, of associates could be aggregated for these purposes?
Before making an offer, a potential bidder (or any person acting in concert with it) may consider acquiring an initial stake in the target company in order to obtain a better chance of taking over the company. However, care should be taken before purchases are made to prevent, for instance, the accidental triggering of a mandatory offer obligation (see Question 16). Such purchases may also affect the pricing and form of a subsequent takeover offer. The potential bidder will also be subject to a duty of disclosure of interests under the SFO, as well as prohibitions and restrictions relating to insider dealings under the Takeovers Code and the SFO. If the potential bidder is a listed company in Hong Kong, it should also comply with the relevant announcement, approval and reporting requirements under the Listing Rules of the SEHK.’
Agreements in recommended bids
9. If the board of the target company recommends a bid, is it common to have a formal agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement? To what extent can a target board agree not to solicit or recommend other offers?
There is no prohibition on the target company making a formal agreement with the bidder in recommended bids. There are also no specific provisions in the Takeovers Code relating to the terms of these agreements. The usual terms in these agreements include:
- Standard representations and warranties on the affairs of the target company.
- Break fees.
- Covenants on compliance.
However, the Takeovers Code provisions may apply to arrangements contemplated under the agreement and the Executive should be consulted in cases of doubt.
Break fees
10. Is it common on a recommended bid for the target, or the bidder, to agree to pay a break fee if the bid is not successful? If so, what are the circumstances in which the fee is likely to be payable, and any restrictions on the size of the payment.
A break fee is an arrangement that may be entered into between a bidder (or a potential bidder) and the target company, under which a cash sum is payable by the target company if certain specified events occur that have the effect of preventing the offer from proceeding or causing it to fail.
Where a break fee is proposed, certain safeguards must be observed. In particular, the break fee must be de minimis (normally no more than 1% of the offer value) and the target company board and its financial adviser must confirm to the Executive in writing that each of them believes that the fee is in the best interests of shareholders. Any break fee arrangement must be fully disclosed in the announcement of firm intention to make an offer, and in the offer document. Relevant documents must be put on display.
Committed funding
11. Is committed funding required before announcing an offer?
A bidder should announce an offer only after careful and responsible consideration. The bidder and its financial advisers should be satisfied that the bidder can and will continue to be able to implement the offer in full. Therefore, the bidder must ensure that it will have sufficient resources, including committed funding, before announcing an offer. The board of directors of the target company being approached should also be satisfied that the bidder is and will be in a position to implement the offer in full.
Announcing and making the offer
Making the bid public
12. How (and when) is a bid made public? Is the timetable altered if there is a competing bid?
Circumstances where an announcement of an offer or the possibility of an offer must be made under the Takeovers Code include:
- A firm intention to make an offer is notified to the board of directors of the target company from a serious source, irrespective of the attitude of the board to the offer.
- Immediately on an acquisition of voting rights that gives rise to an obligation to make a mandatory offer (see Question 16).
- The target company is subject to rumours or speculation about a possible offer before an approach is made, or there is undue movement in its share price or trading volume of shares, where reasonable conclusions could be drawn that this is due to the actions of a potential bidder.
- After an approach is made, the target company is the subject of rumours or speculation about a possible offer, or there is undue movement in its share price or trading volume of shares, whether or not there is a firm intention to make an offer.
An indicative timetable of an offer is set out below:
- Announcement. Bidder makes announcement of firm intention to make an offer.
- Day 0. Posting of offer document:
- cash offer: within 21 days from the announcement;
- securities offer: within 35 days of announcement.
- Day 14. Last day for posting of target board circular.
- Day 21/28. First permitted closing day:
- Day 21 if the offer and response documents are dispatched on the same day;
- Day 28 if the response documents are dispatched after the date of dispatch of the offer documents.
- Day 39. Last announcement by target. The target must not announce any new material information after this day, including trading results, profit or dividend forecasts, asset valuations or proposals for dividend payments or for any material acquisition or disposal or major transactions. Otherwise, the Day 46 and Day 60 periods (see below) will normally be extended by the Executive.
- Day 42/49. Withdrawal of acceptances. An acceptor can withdraw his acceptance after 21 days from the first closing date of the offer, if the offer has not by then become unconditional as to acceptances. This entitlement to withdraw is exercisable until the offer becomes or is declared unconditional as to acceptances.
However, on the 60th day, the final time for the withdrawal must be no later than 4.00 pm.
- Day 46. Last day for revision. If in the course of an offer, the bidder revises its terms, all target company shareholders, whether or not they have already accepted the offer, will be entitled to the revised terms.
A revised offer must be kept open for at least 14 days following the date on which the revised offer document is posted.
- Day 60. Final day rule. An offer may not become or be declared unconditional as to acceptances after 7.00 pm on this day, except with the Executive's consent.
If there is a competing bid, the timetable will be adjusted, and the Executive must be consulted.
Offer conditions
13. What conditions are usually attached to a takeover offer (in particular, is there a regulatory requirement that a certain percentage of the target's shares must be offered/bid)? Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these pre-conditions)?
An offer, whether voluntary or mandatory, cannot normally be subject to conditions that depend on the bidder's judgement or the fulfilment of which is in the bidder's hands. Except with the consent of the Executive, all offers (except a partial offer) must be conditional on the bidder (and persons acting in concert with it) receiving acceptances of shares that in aggregate with any existing or future shares held will confer them with over 50% of the voting rights of the company. In a voluntary offer, the level of acceptance of shares may be set higher. Mandatory offers cannot be subject to any other conditions.
A potential bidder may announce that it is considering a possible offer at a time when it does not want to be committed to making that offer. The Executive must be consulted in advance if a pre-conditional offer announcement is made. It must be clear in this announcement whether the pre-conditions are waivable or not.
Bid documents
14. What documents do the target's shareholders receive on a recommended and hostile bid?
The target company's shareholders will receive the following information.
Announcements
Announcements concerning, for example:
- A firm intention to make an offer.
- An acquisition of voting rights.
- A possible offer.
- The number of issued relevant securities.
- The results of the offer.
Announcements published under the Listing Rules of the SEHK are available for viewing on the SEHK and the listed companies' websites. Announcements in relation to unlisted target companies and unlisted bidders must be published in at least one leading English language newspaper and one leading Chinese language newspaper that circulate generally in Hong Kong, and are also viewable on the SFC's website.
Bidder's offer documents
An offer document that includes, among other things:
- The bidder's details.
- The bidder's intentions regarding the target company and its employees.
- Information on shareholdings and dealings in the target company.
- Offer conditions and pricing.
- Arrangements relating to the offer.
Target board circular
The board of the target company sets out its views on the offer in a circular sent to the shareholders. The advice of the independent financial adviser to the board of the target company is also included. In a scheme of arrangement, the bidder and the target company may jointly issue a composite document comprising the offer document and the target company board circular, setting out the terms of the scheme and giving notice to convene a shareholders' meeting to approve the scheme.
Employee consultation
15. Are there any requirements for a target's board to inform or consult its employees about the offer?
There is no general requirement for a target company board to inform or consult its employees about the offer under the Takeovers Code. However, the target board must disclose its views on the bidder's intentions concerning the employees of the target company, which are set out in the offer document.
Mandatory offers
16. Is there a requirement to make a mandatory offer? If so, when does it arise?
There are circumstances where it is compulsory for the acquirer to make a mandatory offer to acquire all of the shares from the shareholders of the target public company under the Takeovers Code. The obligation to make the offer arises where any:
- Person or persons acting in concert, whether by a series of transactions over a period of time or not, acquire 30% or more of the voting rights in the target company.
- Person or persons acting in concert, who hold not less than 30% but not more than 50% of the voting rights of the target company, acquire additional voting rights with the effect of increasing their holdings by more than 2% from the lowest percentage of their holdings in the 12-month period before acquisition.
Consideration
17. What form of consideration is commonly offered on a public takeover?
The consideration of a mandatory offer must be in cash or be accompanied by a cash alternative of not less than the highest price paid for shares carrying voting rights by the bidder, or any person acting in concert with it, during the offer period and the six months before the offer period.
For voluntary offers, the consideration can be in cash or securities (or a combination of both). However, the offer must be in cash or accompanied by a cash alternative of not less than the highest price paid for shares of the same class during the offer period if the bidder (or any person acting in concert with it) has during this period either:
- Acquired for cash shares carrying 10% or more of the voting rights of the target company.
- Acquired for cash any shares in the target company during the offer period.
18. Are there any regulations that provide for a minimum level of consideration?
When a bidder (or any person acting in concert with it) has purchased shares in the target company before an announcement of a firm intention to make an offer is made and the purchase is within a three-month period before the offer period begins, the offer to the shareholders of the same class must not be on less favourable terms.
After an announcement of a firm intention to make an offer is made, if the bidder (or any person acting in concert with it) purchases shares in the target company at above the offer price, the bidder must increase the offer to not less than the highest price (excluding stamp duty and dealing costs) paid for the shares.
A voluntary offer cannot normally be made at a price that is substantially below the target company's shares market price. A voluntary offer is normally considered to be substantially below the target company's shares' market price if it is at more than a 50% discount to the lesser of:
- The closing price of the relevant target company's shares on the day before an announcement of a firm intention to make an offer.
- The five-day average closing price prior to the announcement.
19. Are there additional restrictions or requirements on the consideration that a foreign bidder can offer to shareholders?
There are no general restrictions or requirements in Hong Kong on the consideration to be offered in cases of a foreign bidder.
Post-bid
20. Can a bidder compulsorily purchase the shares of remaining minority shareholders?
In addition to applicable local laws, compulsory acquisition rights can only be exercised if the bidder and persons acting in concert with it acquire a 90% shareholding within four months of posting of the initial offer document.
Where a bidder has stated in the offer document its intention to use powers of compulsory acquisition, the offer cannot remain open for acceptance for more than four months from the posting of the offer document, unless the bidder has by that time become entitled to exercise such powers, in which case it must do so without delay.
21. If a bidder fails to obtain control of the target, are there any restrictions on it launching a new offer or buying shares in the target?
If an offer has not become unconditional, and has been withdrawn or has lapsed, the bidder (and any person who acted or subsequently acts in concert with it) cannot make an offer or possible offer for the same target company within 12 months of the withdrawal and lapse of offer. They are also prohibited from acquiring any voting rights of that target company that would give rise to a mandatory offer obligation.
De-listing
22. What action is required to de-list a company?
To preserve an orderly market, the Listing Rules of the SEHK prohibit listed companies from voluntarily withdrawing their listing without the SEHK's permission. Permission is granted if prior approval for the de-listing has been received from the company's shareholders and holders of securities that is:
- Passed by shareholders holding shares of not less than 75% of the votes attaching to the shares voted.
- Not opposed by more than 10% of the votes attaching to the shares voted.
The bidder (or any persons acting in concert with it), the target company’s directors, chief executive and controlling shareholders (and their respective associates) should abstain from voting on these shareholders’ resolutions.
Target's response
23. What actions can a target's board take to defend a hostile bid (pre- and post-bid)?
Once a target company's board has received a bona fide offer, or the board has reason to believe that a bona fide offer may be imminent, save with the shareholders' approval given at a general meeting, the board can take no action that could result in either:
- The offer being frustrated.
- The shareholders of the target company being denied an opportunity to decide on the merits of an offer.
Therefore, even if the target company board may not welcome the offer or possible offer, it cannot take any action to frustrate the offer. In particular, the target company board will not generally be allowed do the following without the consent of the shareholders:
- Issue any shares.
- Create, issue or grant, or permit the creation, issue or grant of, any convertible securities, options or warrants in relation to shares of the target company.
- Sell, dispose of or acquire assets of a material amount.
- Enter into contracts, including service contracts, otherwise than in the ordinary course of business.
- Cause the target company or any subsidiary or associated company to purchase or redeem any shares in the target company or provide financial assistance for any such purchase.
Tax
24. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in the jurisdiction? Can payment of transfer duties be avoided?
The sale or purchase of shares of companies incorporated or listed in Hong Kong is subject to stamp duty at 0.2% of the higher of either:
- The amount of consideration paid.
- The value of the shares.
This is typically shared equally between buyer and seller.
Other regulatory restrictions
25. Are any other regulatory approvals required, such as merger control and banking? If so, what is the effect of obtaining these approvals on the public offer timetable?
Depending on the jurisdictions where the target company and the bidder company are incorporated, are carrying on their businesses, or are listed on a stock exchange, regulatory approvals may be required under the laws of those jurisdictions and the regulations of the relevant stock exchange.
Certain industry-specific laws and regulations impose regulatory approval requirements on the change of control in companies:
- Securities and futures. SFC approval is required to become a substantial shareholder of a licensed corporation or a registered person under the SFO.
- Banking. Approval of the Hong Kong Monetary Authority is required to become a majority shareholder controller or a minority shareholder controller (both as defined under the Hong Kong Banking Ordinance) of authorised financial institutions incorporated in Hong Kong.
- Insurance. Approval of the Insurance Authority is required for becoming a shareholder controller (as defined under the Hong Kong Insurance Companies Ordinance of an authorised insurer).
- Telecommunications. There is no specific approval requirement under the Hong Kong Telecommunications Ordinance (TO) for a change of control in a licensee carrying on telecommunications business. However, the TO prohibits all licensees from engaging in any conduct with the purpose or effect of preventing or substantially restricting competition in the operation of public telecommunication services. Therefore, it is common to obtain the consent of the Communications Authority before changing the control of a telecommunications network carrier licensee.
- Broadcasting. Approval of the Broadcasting Authority is required for an individual or a corporation who is not an ordinary resident in Hong Kong to control the voting rights of a television licensee. In addition, persons or companies engaged in or associated with certain types of businesses are not allowed to hold a free television licence or exercise control of such a licensee without the approval of the Chief Executive of Hong Kong.
Where any of the regulatory approval or consent requirements are relevant, the transaction structure of the takeover or merger will have to consider these requirements, including obtaining these approvals as a pre-condition to the offer, and time will have to be allowed for obtaining these approvals and consents.
The Legislative Council of Hong Kong has recently passed the Competition Bill that will, if it comes into force, create an anti-competition regime in Hong Kong to generally prohibit mergers that would substantially lessen competition in Hong Kong. These will be one of the crucial considerations to be taken into account when structuring takeover or merger transaction in future.
26. Are there restrictions on the foreign ownership of shares (generally and/or in specific sectors)? If so, what approvals are required for foreign ownership and from whom are they obtained?
There are no general restrictions on the foreign ownership of shares in Hong Kong companies.
Under the guiding principle that information about companies involved in an offer must be made equally available to all shareholders as nearly as possible at the same time and in the same manner, overseas holders of securities in the target company must be provided with the relevant offer information. The offer document must also be posted to overseas securities holders unless it can be demonstrated to the satisfaction of the Executive that this would be unduly burdensome for the bidder.
27. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
There are no general restrictions on repatriation of profits or exchange control rules for foreign companies in Hong Kong.
28. Following the announcement of the offer, are there any restrictions or disclosure requirements imposed on persons (whether or not parties to the bid or their associates) who deal in securities of the parties to the bid?
During the offer period, dealings in relevant securities by a bidder or the target company, and by any associates for their own account, must be publicly disclosed. Similar disclosure requirements also apply where these dealings are carried out for discretionary investment clients and non-discretionary clients. These dealings must be disclosed in writing to all bidders, the target company or their respective financial advisers and the Executive, and will be posted on the SFC's website.
At the same time, private disclosures concerning the dealings should be made to the Takeovers and Mergers Executive of the Securities and Futures Commission.
Persons dealing in these securities should also comply with the disclosure of interests requirements under Part XV of the SFO.
29. Are there any proposals for the reform of takeover regulation in your jurisdiction?
Takeovers Code
Amendments to the Takeovers Code effective in March 2012 have:
- Imposed a duty on financial advisers, placing agents and acquirers of voting rights to verify the independence of the placees in placements.
- Revised the valuation requirement to provide valuations of assets by independent valuers to interested parties.
SFO
Recently proposed amendments to the SFO, when they come into force, will establish a statutory disclosure regime whereby listed corporations will be required to disclose price sensitive information in a timely manner, backed by civil sanctions for non-disclosure of such information. This disclosure regime will take effect on 1 January 2013.
CO
In July 2012, the Hong Kong Legislative Council passed the Companies Bill, which was published in the Government Gazette on 10 August 2012 and is expected to come into force in 2014. This will substantially vary the existing CO. Relevant amendments include the replacement of the existing "headcount" test with a "disinterested shares test" when counting the votes cast on resolutions approving a scheme of arrangement that relates to takeovers and privatisation. This will involve requiring the number of votes cast against the resolutions to not exceed 10% of the votes attached to all disinterested shares. This is aligned with the 10% objection rule under the Takeovers Code (see Question 22).
The regulatory authorities
Securities and Futures Commission (SFC)
Main area of responsibility. The Securities and Futures Commission is an independent statutory body and the principal regulator of Hong Kong's securities and futures markets. Its functions include:
- Setting and enforcing market regulations including investigating breaches of rules and market misconduct and taking appropriate enforcement actions.
- Overseeing regulations governing takeovers and mergers of public companies and the SEHK's regulation of listing matters.
- Helping investors understand market operations, the risks of investing and their rights and responsibilities.
- Administering the Codes on Takeovers and Mergers and Share Repurchases.
The Stock Exchange of Hong Kong Limited (SEHK)
Main area of responsibility. The SEHK, a wholly-owned subsidiary of HKEx, is a recognised exchange company under the SFO. It operates and maintains a stock market in Hong Kong and is the primary regulator of stock exchange participants with respect to trading matters and of companies listed on the Main Board and GEM. It works closely with the SFC to regulate listed issuers and administers listing, trading and clearing rules.
Contributor details
Simon Luk
Winston & Strawn
Qualified. New York, 1979; District of Columbia, 1990; Hong Kong, 2003
Areas of practice. Simon is Chairman of Winston & Strawn's Asian Practice. Practice areas include M&A, corporate governance, private equity and listing.
- Representing Winner Medical (NASDAQ:WWIN) in a going private transaction.
- Representing Powerwave Technologies in the sale and closing of its Chinese factory.
Fiona Tang
Winston & Strawn
Qualified. Hong Kong, 2007
Areas of practice. M&A; corporate governance; private equity; listing.
Recent transactionsAreas of practice. M&A; corporate governance; private equity; listing.
- Representing Winner Medical (NASDAQ:WWIN) in a going private transaction.
- Representing Powerwave Technologies in the sale and closing of its Chinese factory.
