SIC proposes changes to takeovers and mergers code to protect competitive process, improve disclosures

The Securities Industry Council (SIC) on Monday (May 5) issued a consultation paper on amendments to Singapore’s Code on Take-overs and Mergers, with the aim of enhancing regulation around such deals.

The proposed changes intend to protect the competitive process of takeover and merger transactions, improve the certainty and timeliness of schemes of arrangement, and enhance disclosures to investors and shareholders.

A key proposal to safeguard the competitive process for potential offerors is prohibiting deal protection measures, except in limited circumstances.

These measures – such as break fees that an offeree agrees to pay an initial offeror if this offeror’s deal should not succeed – could deter higher offers from competing parties, said SIC.

The advisory board also proposed the implementation of rules to ensure that schemes of arrangement meant for takeovers are certain and timely.

For example, an offeror should take the necessary steps to make an offer effective “without delay” once shareholders have approved the scheme. The meeting to approve such a scheme to effect a takeover or merger should also be held within six months of the scheme’s announcement, said SIC.

Facilitating shareholder decision-making

The proposed amendments also aim to prevent a “false market” by holding an offeror to its earlier statement, or requiring clarity on earlier statements.

An offeror which has stated that it will not increase or extend its offer, for instance, should not be permitted to make a subsequent offer within a certain time window. This is because shareholders and investors would have relied on the offeror’s statements to make their investment decisions, said SIC.

Another suggestion is that a potential offeror that has made a holding announcement about a possible offer but has not clarified its intentions for a prolonged period be given a 28-day deadline to announce if it will be making a firm offer.

If an indicative offer price is disclosed prior to a firm offer, the firm offer must not be lower than the indicated price, SIC added.

It also proposed enhancing the information provided to shareholders to enable decision-making on frustrating actions.

A frustrating action is a move made by an offeree board which could result in shareholders being denied an opportunity to consider an offer, such as a competing asset offer for all, or materially all, the assets of the offeree company.

In the case of a competing asset offer, the offeree company should be required to issue a statement quantifying the cash sum expected to be paid to shareholders, said SIC. This would allow the shareholders to compare the economic outcomes of the asset offer versus the takeover offer, it added.

In the event that shareholder approval is needed for a proposed frustrating action, the code should require independent advice to be obtained, said SIC.

“Spirit” of the code

The proposed amendments take into account market developments and evolving international practices since 2019, when the code was last revised, as well as discussions with practitioners active in the field of mergers and acquisitions.

Robson Lee, partner at Kennedys Legal Solutions, said that the spirit behind the proposed changes “is to make sure stakeholders are given equal information, equality of treatment, and to tighten possible loopholes” that offerors may use to circumvent the code.

The changes will also allow Singapore to keep pace with other global financial markets, such as the United Kingdom and Australia, which have improved their codes in the years since the Republic’s last update, he said.

Stefanie Yuen Thio, joint managing partner of TSMP Law Corporation, noted the latest changes are “targeted at certain specific issues” such as imposing timelines and making it less difficult for competing offerors to throw in a bid. This, in turn, offers clarity for the market, she said.

However, she added that it “would be good to rationalise the document for market participants”, as the code contains many provisions and notes.

Andrew Ang, co-head of the mergers and acquisitions (M&A) practice at law firm WongPartnership, said that the specific proposal concerning regulating deal protection measures – likely to generate the most comments, in his view – will require finding “the right balance that works in our market”.

“While the need to prevent measures that could deter higher competing offers is understandable, there is also a need to balance that with providing potential bidders with a certain degree of deal certainty so as not to discourage them altogether,” he said.

“For any M&A transaction, no potential bidder would want to spend time and money pursuing a deal only to find itself being used as a stalking horse,” he added.

The deadline to submit views on the consultation paper is Jun 5.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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