Takeovers Comparative Laws PDF

SYMBIOSIS LAW SCHOOL,PUNE
PROJECT ON
COMPARATIVE ANALYSIS OF CORPORATE TAKEOVER LAWS AND THEIR

APPLICATIONS
For ITC Ltd.
-0-
Electronic copy available at: http://ssrn.com/abstract=1999163

DISCLAIMER
This research work is based on the project outline provided to the

research team of Symbiosis Law School by ITC Limited to understand
the takeover regulations and procedures in the United States of
America, United Kingdom, France, Germany, Australia, Hong Kong,
Malaysia and Singapore.
While every sincere effort has been made by t he researchers to ensure
that the information contained herein is correct and authentic and is
based on best academic pursuit, yet the researchers should not be held
responsible or liable for any omission or commission or error in
representation or understanding of a particular fact or expression and
as such the researchers claim immunity from the project sponsors for
such error omission and commission.
The research work herein is carried out by a team of experienced and
qualified professionals and academicians and Symbiosis Law School
accepts or assumes no responsibility, nor has any liability, to any
person in respect of this work.
This work should be used only as general guide since it does not contain
definitive legal advice and should not be regarded as a comprehensive
statement of the law and practice relating to the area of Takeovers.
This work is not a substitute for and should not be relied on in the
absence of specific professional advice in relation to particular
circumstances. Any further queries may be referred to the Symbiosis
Law School for seeking further clarification or removal of doubts in
relation to any particular view or opinion expressed herein.
This work in whole or extracts thereof may be kept confidential and
should not be copied or reproduced without the written permission of
Director, Symbiosis Law School.
Symbiosis Law School would not be held responsible for any misuse of
the information or advice contained herein.
For more information on the issues covered on the subject, plea se get in
touch with Director Symbiosis Law School.
For Symbiosis Law School
February 2011 Dr. Shashikala Gurpur

Principal Project Coordinator
-1-
Electronic copy available at: http://ssrn.com/abstract=1999163

TEAM
Dr. Shashikala Gurpur, Director, SLS, Pune Team Leader
Dr. Vinay Paranjape Consultant
Dr. Bindu S. Ronald Convener
Members:
Mr. Nikhil Fulambarkar
Ms. Jina Baruah
Ms. Chaitra Beerannavar
-2-
ABBREVIATIONS
AIR All India Reporter
All ER All England Reports
AMF Autorité des marchés financiers (France)
AMLA Anti Money Laundering Act
ASIC Australian Securities and Investment Commission
ASX Australian Stock Exchange
BaFin Bunciesanstalt Fuir Finanzdienstleistungsaufsicht
BCR Bombay Cases Reporter
BNM Bank Negara Malaysia
BSE Bombay Stock Exchange
CIC Capital Issue Commission
CESR Committee on European Security Legislators
CMSA Capital Markets and Services Act, 2007
CLERP Corporate Law Economic Reform Program Act
CCS Competition Commission of Singapore
DB Division Bench
DBR Disclosure Based Regulatory
EEA European Economic Area
EU European Union
ECM Exchange Control Notices of Malaysia
FED Federal Reserve System
FIA Futures Industry Act, 1993
FIC Foreign Investment Committee
FTC Federal Trade Commission
FCC Federal Communications Commission
FDIC Federal Deposit Insurance Corporation
FC Federal Court
FSA Federal Financial Supervisory Authority (Germany)
HSR Hart-Scott –Rodino Antitrust Improvement Act
ILJ Indian Law Journal
ICC Inter State Commerce Commission
ILO International Labour Organisation
IDA Industrial Disputes Act
IPO Initial Public Offer
JILI Journal of Indian Law Institute
LSE London Stock Exchange
MSC Multimedia Super Corridor
MAS Monetary Authority of Singapore
MITI Ministry of International Trade and Industry
MOU Memorandum of Understanding
NAV Net Asset Value
NDP National Development Policy
NOC Note on Cases
NSE National Stock Exchange
OHQ Operation Head Quarters
PC Privy Council
PO Presiding Officer
PTF Property Trust Fund
REIT Real Estate Investment Trust
-3-
RD Research and Development
RPC Real property Companies
SC Supreme Court of India
SC Security Commission (Malaysia)
SCA Societe en Commandite Paraction (France)
SEC Stock exchange commission
SCA Securities Commission Act, 1993 (Malaysia)
SEBI Securities and Exchange Board (India)
SFA Securities and Futures Act
SFC Securities & Futures Commission (Hong Kong)
SFO Securities & Futures Ordinance
SGX The Singapore Exchange Securities trading limited
SIC Securities Industry Council
SICDA Securities Industry (Control Depositories) Act, 1991
STB Surface Transportation Board
UK United Kingdom
UKLA United Kingdom Listing Authority
USA United States of America
VW-Gest ez Volkswagwn laws
WpUG German Securities Acquisition and Takeover Act
-4-
CONTENTS
Disclaimer
Team Members
Abbreviations
CHAPTER Page No.
I. INTRODUCTION 08-11
1. Overview
2. Definition of Takeover
3. Takeovers distinguished from Mergers
4. Advantages of Takeovers
5. Theories Relating to Takeovers
6. Risk Involved in takeovers
7. Scope of Present Study
II. UNITED STATES OF AMERICA 12- 38

1. Historical Perspective
2. Relevant Statutes
3. Nature of Statutes
4. Takeover Procedures
5. Regulation of Tender Offers
6. Rights Duties and Liabilities of Directors
7. Regulatory Authorities
8. Trans – National Acquisitions
9. Sectoral Regulatory Requirements
10. State Control on Takeovers
11. Supremacy of Federal Regulations
12. Takeover Defences
13. Landmark Cases
14. Future of Takeovers in US
III. EUROPEAN UNION 39- 78

2. Regulation of Takeovers in EU
3. Abstract of Important Provision under EU
4. Protection against Takeover
UNITED KINGDOM
2. Trigger Points
3. Considerations
4. Takeover Regulations in UK
5. Provisions & Rules in Takeover Code
6. Role and Duties of Directors
7. Takeover Dispute Resolution Mechanism
8. Conclusion
9. Prominent Cases on Takeover
-5-
FRANCE
2. Regulatory Authority
3. Trigger Points
4. Regulation of French Takeovers
5. Conclusion
6. Prominent Cases on Takeovers
GERMANY
2. German Securities Acquisition & Takeover Act
3. Trigger Points
4. Consideration
5. Acting and attribution of voting rights
6. Procedure of Takeovers
8. Independence of the Board
9. Conclusions
10. Prominent Cases on Takeovers
IV. AUSTRALIA 79- 100

2. Legal and Regulatory Framework
3. Takeover Panel
4. Alternative to Takeover Bids
5. Consideration
6. Trigger Points
8. Directors Duties
9. Other Consequential Laws Applicable
10. Dispute Resolution
V. HONG KONG 101- 118

1. Historical background
2. Structure of the Market
3. Takeover Regulatory Framework and Takeover Procedure
4. General Principles and Key Concepts
5. Pre offer Stage
6. Announcing and making the Offer
7. Consideration
8. Conditions
9. Post Offer Stage
10. The Offer Timetable
11. Mandatory and Voluntary Offers
12. Dispute Settlement mechanism and Administration of the Code
13. Other Consequential Laws Applicable
-6-
VI. SINGAPORE 119- 144
2. Trigger Points
3. Takeover Procedures
4. Considerations
5. Duties of Directors & Controlling Share Holders
6. Announcement of Offer
7. Post Takeover Liabilities
8. Dispute Resolution
9. Other Consequential Laws
10. Challenges and Emerging Issues
VII. MALAYSIA 145- 170

2. Trans – National Takeovers
3. Takeover Regulation & Procedures
4. Trigger Points
5. Right of Stakeholders
6. Leverage onto the Courts
7. Other Consequential laws
8. Consideration
9. Non – Regulatory Consents & approvals
10. Taxation Issue
11. Public or Listed Company Considerations
12. Conclusions
VIII. CONCLUSIONS 171-177

IX. REFERENCES
1. Primary Source
2. Secondary Sources
Appendix A Comparative Summary of Observations

Appendix B Indicative Due diligence Review Questionnaire
-7-
C H A P T E R - I:
INTRODUCTION
1. OVERVIEW
In simple terms ‘takeover’ occurs when one company acquires the securities,
shares, stocks or assets of another company. Thus two companies are involved: the
“Acquirer Company” i.e. the Company acquiring the shares, securities or assets, and the
“Target Company” whose shares, securities or assets are being acquired.
‘Takeover’ takes place when an acquiring individual or company acquires the

majority of shares of any Target Company either through a tender offer or through direct
purchase of shares of ‘Target Company’1.
2. DEFINITION OF ‘TAKEOVER’ & ITS DISTINCTION WITH AQUISITION
Although the concept of takeovers is easily comprehendible, it does not have a

precise definition. It is perhaps, for this reason, that regulations in most of the countries
have not defined it. Takeover actions have been taken to be synonymous with acquisitions,
though there are varied opinions on what constitutes change in control of the target
company. The acquisitions or takeovers manifest itself through control over Board of
Directors of the Target Company.
The distinctive point may be the enforcement of the provisions viz. the SEBI
Takeover Regulations of India, which are attracted in any corporate deal in case of
‘Takeovers’. The real distinctive point to define takeovers is the requirement of public
offer when the acquisition of shares, exceed the prescribed threshold limit of 10%
mandated under the SEBI Takeover Regulations. The regulatory provisions lead us to
understanding the distinction between takeover and acquisition. While takeovers result in
change in control of the Company, acquisition leads to change in management of the
Company. When there is a change in control, the shareholders must be afforded an
opportunity to exit from the Company if they do not want to continue with the new
acquirers.
3. ‘TAKEOVERS’ DISTINGUISHED FROM ‘MERGERS’
The Takeovers are also required to be distinguished from mergers. The merger of a
company refers to corporate transaction wherein two or more companies unify together
either to form a ‘new company’ or unify with one of the companies without a new
company being formed. In such transaction, at least one of the involved companies loses
its existence. Mergers and amalgamations are forms of unifying two or more Companies,
the shareholder of each Company would become the shareholder of the Company which is
undertaking such activity.
1
Takeover Regulations in USA & Europe: An Institutional Approach; William Magnuson. p.3.
(buttersworth.2005)
-8-
On the other hand, takeover or acquisition involves purchase or transfer of defined
interests or equity-capital of one Company by the other which enables the acquirer
company to exercise control over the affairs of the Target Company, thus acquired. In
other words, takeovers connotes directly acquiring the control of Target Company or firm
by the acquiring or purchasing the shares or stock of the target Company at a specific or
negotiated price2 through a tender offer or by direct transfer of shares of the target
Company or firm at a given price.
The action of acquisition or takeover of one Company by the other requires meeting
of certain procedural and legal requirements as contemplated under the relevant Statutes.
The various forms of Takeovers may be “Negotiated Takeovers”, “Bail-Out Takeovers”, or
“Open Market Takeovers”.
A Takeover may also be “Friendly” or “Hostile”. Sometimes, negotiation may be

initiated as friendly but may later develop and culminate into hostile takeover or vice versa.
4. ADVANTAGES OF TAKEOVERS
Any takeover provides to all stakeholders the following benefits:

 Better allocation of resources
 Synergy Gain
 Better management discipline
 Accurate market valuation
 Profit maximization as well as wealth maximization
The advantages which encourage Companies to enter into takeover deals are:
Diversification of Business
 Diversifying the areas of business may be one of the contributing

factor for acquiring other Companies by an existing Business entity.
 Such diversification may lead to enhancing the presence of an
acquiring Company into broader market domain. Companies may acquire other
companies to optimize company specific human capital resources, that makes their
employees more valuable and productive and to increase the profitability of the
acquiring Company.
 Sometimes, the Acquirer Company may optimize their capital
resources by utilizing the existing business expertise of the target company and
foray into new areas of business in the event of any decline in the existing business
of the acquiring Company.
Tax Considerations:
 Garnering advantages in taxes and revenues may be the factors

necessitating Corporate Takeover activities.
2
Takeover, Restructuring & Corporate Governance: J. Fred, Juan A Sui, Brian A, Johnson. p.6
-9-
 Squaring-off the net operating losses and tax credits, step-up the
revenues through assets and the substitution of capital gains for ordinary income are
among the tax-benefits motivating takeovers and acquisitions3.
5. THEORIES RELATING TO TAKEOVERS:
The following theories, stipulate the necessity of takeover activities: -
The Market Power Theory: This theory holds that gains from takeovers & mergers result
in the concentration of resources leading to collusion and monopoly effects, increasing
profits for all stakeholders.
Jensen’s Free Cash Flow Hypothesis: This theory holds that Corporate Takeovers occur
because of the conflict between managers and shareholders over the payout of free cash
flows. The hypothesis points that cash flows in excess of investment needs to be and should
be paid out to shareholders, reducing the power of management and subjecting the
managers to the scrutiny of the public market.
Theory of Value Increase in Takeover: This theory implies that in takeovers the gains
comes at the expense of other shareholders in the firm or Company. Expropriated
stakeholders under the redistribution hypothesis may include bond-holders, Government
and employees.
The Information Theory: This theory attempts to explain why target shares seem to be
permanently revalued in tender offer whether it is successful or not. The Tender offer
conveys information to the market that the target shares are undervalued and alternatively
the target offers send information to Target management that inspires them to implement a
more efficient strategy of their own.
The Undervaluation Theory: This theory states that takeovers occur when the market
value of target company stock for some reason does not reflect its true potential value or its
value in the hands of an alternative management. Companies can acquire assets for
expansion more cheaply by buying stocks of existing companies or building the assets
when the target stocks price is below the replacement cost of its assets.
The Theory of Strategic Alignment to Changing environment: This theory suggests that
Takeovers and Acquisitions takes place in response to environmental changes. External
acquisition of needed capabilities allows firms/companies to adapt more quickly and with
less risk than developing capabilities internally.
The Differential Efficiency Theory: This theory suggests that more efficient firms will
acquire less efficient firm and realize gains by improving the latter’s efficiency.
The Operating Synergy Theory: This theory postulates that there are economies of scale
or scope and that acquisition or takeovers help achieve level of activities at which these
economies can be obtained. It includes the concept of complementary capabilities. For
example, one company might be strong in research and development but weak in marketing
while another Company has a strong marketing department without R & D capability.
- 10 -
Acquiring them would result in opening synergy, which would thereby balance the
economies.
6. RISKS INVOLVED IN TAKEOVERS:
Risk exists in all business forms and for any type of takeover - whether ‘friendly’ or
‘hostile’. It is however in ‘hostile takeover’ that risk subsequently increases and this risk
increases in respect to the ‘target’ company.
Firstly, the target companies’ board of directors, responsible for business and management
of the company has to struggle against takeovers because the directors are likely to lose
their jobs if the offer is successful.
Secondly, majority shareholders of the target companies may sell their shares at a premium
over the market price which in turn will force the minority shareholder to sell their shares
at a lower price.
Thirdly, the acquirer may also construct a coercive tender offer with a front-end offer than
a back-end offer putting pressure on the shareholder to tender.
Lastly, all takeovers need not always spell success. There is always a risk of downward
decline depending upon a number of factors including Market prices as will be dealt by in
details in the subsequent chapters.
7. SCOPE OF PRESENT STUDY
The present study is an effort to examine the substantive and procedural laws
relating to takeovers in U.S., European Union (with special reference to UK, France and
Germany), Hong Kong, Australia, Singapore and Malaysia. The study demonstrates how
historical events, regulatory & legislative structures and judicial & administrative
mechanisms have impacted takeover deals in the above jurisdictions.
- 11 -
CHAPTER -II
UNITED STATES OF AMERICA
1. HISTORICAL PERSPECTIVE
The history of Corporate Mergers and Acquisitions in United States of America

dates back to 1931 when the merger and acquisition of Standard Oil Company of New
York and Vacuum Oil Company took place.
However corporate takeover laws and regulations got a major thrust from the State
Acts and Judicial decisions. It was the State of Delaware where judiciary established
Takeover Regulation thus leading to the development of similar laws in other States. The
modern era of tender-offer began in 1968 when the Congress enacted the Williams Act,
1968 as an amendment to the Securities Exchange Act of 1934. The decision of Delaware
Court in the Unocal / Revlon case finally paved way for modification of the American
Federal and State Laws as they have emerged today.
The legislations which govern the takeover activities in the U.S. are: –
(i) The State4 Laws and
(ii) The Federal Regulations.
2. RELEVANT STATUTES:
The statutes relevant to Corporate Takeovers in the US are: -

 Williams Act, 1968: This Act requires Company negotiating takeover to meet the
prescribed requirements of transparency and disclosures in the interests of
shareholders and investors. This was an amendment to the Securities Act of 1934.
 Sherman Act, 1890: This Act prohibits the restraint of trade or attempt to
monopolistic trade.
 Clayton Act, 1914: This Act prohibits acquisition resulting into lessening
competition or tendering to create a monopoly
 Hart-Scott-Rodino Antitrust Improvements Act, 1976: This Act brought
improvement on Clayton Act, 1914 which tightens antitrust laws.
 Security Exchange Act, 1934: This Act deals with insider trading under Rule
10(b)-5 under the said Act, imposing upon directors and the insiders an obligation
to disclose material non-public information in connection with the purchase and
sale of Company’s shares or to refrain from trading.
 State Laws & Regulations
4
There are 50 States in USA which are Delaware; Pennsylvania; New Jersey; Georgia; Connecticut;
Massachusetts; Maryland; South Carolina; New Hampshire; Virginia; New York; North Carolina; Rhode
Island; Vermont; Kentucky; Tennessee; Ohio; Louisiana; Indiana; Mississippi; Illinois; Alabama; Maine;
Missouri; Arkansas; Michigan; Florida; Texas; Lowa; Wisconsin; California; Minnesota; Oregon;
Kansas; West Virginia; Nevada; Nebraska; Colorado; North Dakota; South Dakota; Montana;
Washington; Idaho; Wyoming; Utah; Oklahoma; New Mexico; Arizona; Alaska; Hawaii
- 12 -
The Williams Act, 1968
Prior to the enactment of the Williams Act, cash tender offers were unregulated. If a
potential acquirer sought corporate control through a proxy contest or a stock-for-stock
exchange, shareholders would not be provided with material information since there was
no regulatory framework to protect the interests of the shareholders5.
The Williams Act was an offshoot of amendments to the ‘Securities Exchange Act of
1934’. The basic purpose of the said Act was to make relevant facts known to the
acquiring shareholders so that they could have a fair opportunity to make their decision for
takeover6. Under the Act, the Companies negotiating merger were required to disclose the
interests of their shareholders, about identity of acquirer, sources of funds, and the plans
and programmes that the acquirer wish to implement post-merger for the benefits of the
acquiring company and its shareholders making disclosures about shareholdings at stock
exchanges.
The Williams Act of 1968 requires:
 Mandatory disclosure of information relating to cash or tender offers. When an
individual, group, or corporation seeks to acquire control of another corporation, it
may make a tender offer proposing to buy shares or stock from the stockholders for
cash or some type of corporate security of the acquiring company. Since late
1960’s, cash tender offers for corporate takeovers were favoured over the
traditional alternative. This created difficulties for managers and stockholders who
were forced to make crucial decisions with very little preparation. A proxy
campaign wasan attempt to obtain the votes of enough shareholders to gain control
of the corporation's board of directors.
 The Williams Act required the bidders to compulsorily include all details of their
tender offer in their filing to the SEC and the target company. Their file was
required to include the terms, cash source, and their plans for the company after
takeover, etc. There was also time constraint that stipulated the minimum period of
time the offer may be open for and the number of days after the offering was given
in which shareholders have the right to change their minds.
The William Act provides Takeover Regulation for two areas:

(1) It requires the offeror to disclose information about the offer; and
(2) It establishes procedural requirement governing tender offer.
 The Act requires any person who makes a cash tender offer (which is usually 15 to
20 percent in excess of the current market price) for a corporation. The corporation
is required to be registered under federal law, it must disclose to the federal
Securities and Exchange Commission (SEC) the source of the funds used in the
offer, the purpose for which the offer is made, the plans the purchaser might have if
successful, and any contracts or understandings concerning the target corporation.
 Filing and public disclosures with the SEC are also required of anyone who
acquires more than 5 percent of the outstanding shares of any class of a corporation
subject to Federal registration requirements. Copies of these disclosure statements
must also be sent to each national securities exchange where the securities are
traded, thus making the information available to shareholders and investors.
5
Overview of William Act. John G Finley. (1995) p.1
6
Senate Report No. 550, 90th Congress, 1st Sess., 1967 at p.3
- 13 -
 The law also imposes certain restrictions on cash tender offers, and also, prohibition
against the use of false, misleading, or incomplete statements in connection with a
tender offer. The Williams Act gives the SEC the authority to institute enforcement
lawsuits.
In recent years, as complicated forms of derivatives bearing upon, but not actually
constituting, corporate stock have become common, interpretation of the Williams Act has
become tricky.
Sherman Act 1890
The Sherman Act was passed in 1890 and was named after its author, Senator John
Sherman. The Sherman Act followed Ohio's Valentine Anti-Trust Act (1898). This Anti-
trust7 law was passed in response to the heightened Merger and Takeover activities around
the turn of the century.
 The purpose of the Act was to oppose the combination of entities that could
potentially harm competition, such as monopolies or cartels. At the time of its
passage, the trust was synonymous with monopolistic practice, because the trust
was a popular way for monopolists to hold their businesses, and a way for cartel
participants to create enforceable agreements.
 A trust was an arrangement by which stockholders in several companies transferred
their shares to a single set of trustees. In exchange, the stockholders received a
certificate entitling them to a specified share of the consolidated earnings of the
jointly managed companies. The trusts came to dominate a number of major
industries, destroying competition.
 For example, on January 2, 1882, the Standard Oil Trust was formed. Attorney
Samuel Dodd of Standard Oil first had the idea of a trust. A board of trustees was
set up, and all the Standard properties were placed in its hands. Every stockholder
received 20 trust certificates for each share of Standard Oil stock. All the profits of
the component companies were sent to the nine trustees, who determined the
dividends. The nine trustees elected the directors and officers of all the component
companies. This allowed the Standard Oil to function as a monopoly since the nine
trustees ran all the component companies.
The law attempts to prevent the artificial raising of prices by restriction of trade or
supply. In other words, innocent monopoly, or monopoly achieved solely by merit, is
perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious
dealings to create a monopoly, are not. Put it in another way, it has sometimes been said
that the purpose of the Sherman Act is not to protect competitors, but rather to protect
competition. The Sherman Act authorized the federal government to institute proceedings
against trusts in order to dissolve them, but Supreme Court rulings prevented federal
authorities from using the Act for some years.
The Sherman Act is divided into three sections. Section 1: delineates and prohibits
specific means of anticompetitive conduct, while Section 2: deals with end results that are
anticompetitive in nature. Section 1 & 2 supplement each other in an effort to prevent
businesses from violating the spirit of the Act, while technically remaining within the letter
7
Around the world, what U.S. lawmakers and attorneys call "Antitrust" is more commonly known as
"Competition Law."
- 14 -
of the law. Section 3: simply extends the provisions of Section 1 to U.S. territories and the
District of Columbia. It contained two important features:
(a) for prohibiting the merger that would tend to create a monopoly or undue market
control and
(b) putting a check on anticompetitive behavior.
Clayton Act 1914
The basic stress of laws in USA is for unrestrained interaction of competitive forces
which usually results in the best allocation of economic resources, lowering of price and
production of high quality of goods. The Clayton Antitrust Act (1914) was enacted to
supplement the Sherman Antitrust Act, and the Federal Trade Commission (FTC) was set
up in 1914. This Act was established by the Federal Trade Commission (FTC) for
regulating the corporate affairs of business firms. The Clayton Act made both substantive
and procedural modifications to federal antitrust law. Substantively, the act seeks to
capture anticompetitive practices in their incipiency by prohibiting particular types of
conduct, not deemed in the best interest of a competitive market. The Act thoroughly
discusses the following four principles of economic trade and business:
 Price discrimination between different purchasers, if such a discrimination
substantially lessens competition or tends to create a monopoly in any line of
commerce8;
 Sales, on the condition that (a) the buyer or lessee not deal with the competitors
of the seller or lessor ("exclusive dealings") or (b) the buyer also purchase
another different product ("tying") but only when these acts substantially lessen
competition9;
 Mergers and acquisitions where the effect may substantially lessen competition
or where the voting securities and assets threshold is met10;
 Restraining any person from being a director of two or more competing
corporations, if those corporations violate the anti-trust criteria by merging11.
Further, Section 5 gives FTC, the power to prevent firms engaging in harmful
business practices. Hence, companies started to make asset acquisition to avoid the
restrictive tendencies of the Act against acquiring shares of stock. Antitrust action sharply
declined in the 1920’s. The Act prohibited exclusive sales contracts, local price cutting to
freeze out competitors, rebates, and interlocking directorates in corporations capitalized at
$1 million or more in the same field of business, and inter-corporate stock holdings. Labor
unions and agricultural cooperatives were excluded from the forbidden combinations in the
restraint of trade.
Thereafter, an amendment in 1950 gave to FTC, the power to block asset purchases
as well as Stock purchases. The Amendment also added an “Incipiency Doctrine”,
whereby the FTC could block merger and Takeovers, if it perceived tendency towards
8
Section 2
9
Section 3
10
Section 7
11
Section 8
- 15 -
increase of concentration, viz. the share of the sale of a large firm, if appearing to be
increasing to an adverse effect then they can block such sale etc.
Thus the Clayton Antitrust Act was the basis for a great many important and much-
publicized suits against large corporations. Later amendments to the act strengthened its
provisions against unfair price cutting (1936) and inter-corporate stock holdings (1950). Its
applicability is still active today in a growing interconnected market and merging of the
industries.
The Hart-Scott-Rodino Antitrust Improvements Act, 1976
The Hart Scott Rodinho Act of 1976 aimed to foster healthy competition in
corporate takeovers. Its objective was to strengthen the power of ‘Department of Justice’
(DOJ) and ‘Federal Trade Commission (FTC) by requiring approval before any merger or
acquisition could take place.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended was

adopted
 To provide the Federal government with the opportunity to review the
potential effects on competition of certain mergers, acquisitions or other
consolidations that meet the Act's size and other tests (briefly described
below) before such transactions are completed. Once all parties to a
transaction submit completed filings and pay the filing fee (generally
$45,000 per transaction imposed upon the acquiring person). There is a 30
day waiting period before the transaction may be completed.
When the Federal Trade Commission (FTC) was created in 1914, its purpose was to
prevent unfair methods of competition in commerce as part of the battle to “bust the trusts”.
Over the years, Congress passed additional laws giving the agency greater authority to
police anticompetitive practices. In 1938, Congress passed a broad prohibition against
“unfair and deceptive acts or practices.” Since then, the Commission also has been directed
to administer a wide variety of other consumer protection laws, including the
Telemarketing Sales Rule, the Pay-Per-Call Rule and the Equal Credit Opportunity Act. In
1975, Congress gave the FTC the authority to adopt industry-wide trade regulation rules.
Before this Act, Anti-trust actions were usually taken only after the completion of
corporate transactions.
Security Exchange Act, 1934
The Security Exchange Act, 1934 is similar to Indian Insider Trading Regulations
notified by SEBI in 1992 and deals with insider trading. The Rule 10(b)-5 of said Act,
imposes upon directors and the insiders, an obligation to disclose material non-public
information in connection with the purchase and sale of Company’s shares or to refrain
from trading.
State Laws on Anti Trust & Takeovers
In addition to the Federal regulations, the State Takeover and Antitrust Act play a
major role in Corporate Takeovers in the U.S. These Statutes tends to be less even handed
- 16 -
in their application, giving protection to in-State Corporations from potential out-of-state
acquirers. For example, Alaska Statute in Section 45.47.10- 45.57.120, Massachusetts Law
Chapter 110 C, Tenessee Code Section 48- 103, etc has undergone thorough generations of
development.
State regulation of tender offers began with a Virginia statute passed in 196812. The basis
for the Virginia legislation was the fear that established local concerns might be taken over
by outside interests who in turn would shut-down plants and leave local residents jobless13.
A substantial number of States followed the pattern set by Virginia, enacting so-called
"first generation" takeover laws.
 The 1st Generation Takeover Statute attempted to regulate the tender offer
by giving a State Administrator, the power to review an offer’s merit or the
adequacy of its disclosure.
 The 2nd Generation Anti-Takeovers laws focused on disclosure oriented
protection for target Corporations. One of the most distinguishing features
was the “Control Share Acquisition” Statute under which a majority of
disinterested shares had to approve a bid to acquire Corporation.
 The 3rd Generation Takeover Statutes go further by expanding protection for
in-State Target Companies.
3. NATURE OF STATUTES
Multiplicity of Jurisdictions.
Any discussion of the potential liability of officers and directors of an business

entity in the United States must first recognize the multiplicity of jurisdictions whose law
may apply to address the various issues.
Generally, the internal affairs of a business entity are governed by the law of its
jurisdiction of formation. This proposition is commonly known as the internal affairs
doctrine. Accordingly, Delaware law will govern issues pertaining to the internal affairs of
a corporation formed under Delaware law and New York law will govern the affairs of a
corporation formed under New York law, and so on. The internal affairs of a corporation or
limited liability company include issues of governance, capitalization, dividends and the
fiduciary duties of its Directors or Managers.
The Takeover issues that are discussed herein may not always fall within the
internal affairs doctrine, because the issue is not limited to the internal workings of the
entity. For example, what law governs a claim that the transfer of corporate property to its
corporate parent for less than fair value should be avoided as a fraudulent transfer for eg.
where the corporation is formed in Delaware. Its main office is in New York, the
transferred property is located in California and the Company taking over is located in
Texas. The point of the question is that in the United States, choice of applicable law can
be a complicated matter and there are fifty-two separate jurisdictions (each of the states,
Federal law and the District of Columbia).
12
L. Loss, Fundamentals of Securities Regulation 601 (1983).
13
E. Aranow & H. Einhorn, Tender Offers for Corporate Control 153 (1973)
- 17 -
Generally, the corporate law of Delaware is replicated in most of the State
jurisdictions, because Delaware remains a popular jurisdiction for incorporation, and on
Federal law. Federal law is of importance because many of the issues raised are not
litigated and resolved in the state courts.
Practice Consideration: Counsel must always be aware of the state of incorporation or

formation of the relevant business entity. The law of the state of incorporation (or
formation in the case of a limited liability company or limited partnership) will govern
many important questions relating to the potential liability of its officers and directors.
Generally, in States 2 types of Statutes were introduced: -

 FREEZE STATUTES: The State of New York prohibits a Merger within 5 years of
an acquisition which gives control to an offeror only when that transaction is
approved by the target company’s directors before the acquisition itself.
 DISGORGEMENT STATUTE; e.g. in the State of Pennsylvania requires any

person owning more than 20 % of Corporation’s shares to disgorge any profit
realized within 18 month period.
Most of such Statutes were enacted to protect specific local industries. For example,
Indiana enacted its first anti-takeover statute to protect one company, “Arvin Industries”.
The Company prominently existed in Columbus, Indiana, employing about 2000 workers
with supporting infrastructure. This industry persuaded the State Legislator to draft the
Takeover Bill to protect it.14
4. TAKEOVER PROCEDURE
Methods of Acquiring Shares:- Two methods can be followed by the acquirer who seeks
to purchase 100% of the outstanding common shares of the Public Limited Company
incorporated in the U.S.:
 The acquirer can utilize the merger statutes available in every U.S. jurisdiction to
acquire 100% of the outstanding common shares of the target through a single step
merger that receives the approval of the requisite percentage of the target common
shareholders.
 The acquirer may make a tender offer directly to target common shareholders to
purchase their shares and then follow the tender offer with a second step merger to
eliminate minority shareholder.
The applicable regulatory framework is quite different for a single-step merger

transaction as compared to tender offers. For an acquisition by single step merger, it is
generally the State Laws that will apply where in case of tender offers the federal Act will
apply primarily with the State Laws playing a fiduciary relation15. Whether the Acquirer
is proceeding by the way of single-step merger or tender offer, other than connection with
unsolicited (hostile) tender offers, it is universal for the acquirer and the target Company to
enter into an agreement providing for acquisition.
14
How Indian Shield a Firm & Changed Takeover Business. Wall Street Journal; July 1, 1987, column 6
15
United States; Takeover Guide; Richard Hall. Cravath, Swaine & Moore LLP. p.3
- 18 -
The Agreement: The Agreement sets forth the terms upon which the Acquisition will be
completed, the structure of the transaction, the conditions to the acquirer’s obligation to
complete acquisition, the commitment of the Board of directors, Representation and
warranties, Covenants restricting operation of Business, Consummations of acquisition.
The Agreement may also include any other provision agreed between the acquirer and the
target Company to solicit competing proposals and the payment by the target Company to
the acquirer of the termination-fee in the event of non-completion of acquisition.
Preliminary Negotiations: Majority of acquisition transaction in United State commence

with preliminary discussions and negotiations of terms and conditions between the
Acquiring Company and the target company. The Companies are not under any obligation
to follow any particular ‘legal compliances’ in the round of negotiations.
Preliminary purchases of Shares by an Acquirer: An acquirer may purchase a limited

quantity of shares of the target company (below 5% or value of less than USD 60 million)
at a market price before initiating preliminary discussion or commencing a tender offer.
The purchase in advance of target common shares will not impose any floor price or
minimum price with respect to a subsequent acquisition. However two restrictions in
respect to the amount of shares to be purchased by an acquirer are levied by U.S. Securities
Exchange Commission Act and the Hart Scott Rodino Act.
Under Section 13(d) of the Securities Exchange Act 1934 an acquirer that purchases
more than 5% of the outstanding common shares of a target company must file with the
United States Securities and Exchange Commission a disclosure statement as per Schedule
13D within 10 calendar days of exceeding the 5 % level. This Disclosure provides for
information about the acquirer, including plan/proposal for further acquisitions of shares of
the target Company or any other extraordinary transaction involving the target company.
Under the Hart Scott- Rodino Antitrust Improvement Act, unless an exemption is
available, an acquirer may not purchase more than $ 60 million in value of common shares
of a target company without filing with the United State Antitrust Authorities and wait for
the expiration of a period of 30 day after such filing.
5. REGULATION OF TENDER OFFERS IN TAKEOVERS
In the U.S. the takeover activities are regulated by the Federal Trade Commission
(FTC) which initially was constituted to supplement the Sherman Antitrust Act. When the
Federal Trade Commission was established in 1914, its purpose was to prevent unfair
methods of competition. However, over the years, additional laws have been supplemented
bestowing FTC with greater authority to check and control anti-competitive practices. The
FTC’s work is performed by the Bureaus of Competition, Consumer Protection and
Economics etc. That work is aided by the Office of General Counsel and seven regional
offices.
The Hart Scott Rodino Antitrust Improvements Act, 1976 (the "Act") was adopted
to provide the Federal government with the opportunity to review the potential effects on
competition of certain mergers, acquisitions or other consolidations that meet the size of
Acquisition and other tests (briefly described below) before such transactions are
completed. Once all parties to a transaction submit completed filings and pay the filing fee
- 19 -
(generally $45,000 per transaction imposed upon the acquiring person), there is a 30 day
waiting period before the transaction may be completed.
Legal Compliance: Any acquirer seeking to make a takeover transaction or tender offers
must comply with the requirements of U.S. Securities and Exchange Commission’s
(“SEC”). The SEC is the authority for supervision, control, enforcement and also
monitoring potential violations of the federal securities laws.
The highlights of the procedure are: -

 The Performa of the Disclosure Statement is provided under “Schedule” to
SEC.
 This Schedule, after filing, should be given to the target company on the date of
commencement of tender offer.
 There must also be a public announcement of the intention of tender offer.
 No fixed period is prescribed for the commencement of tender offer as long as
the filing with SEC and Public announcement is complied.
 The acquirer is not required to distribute the schedule so filed to the holder of
the common shares.
Consideration: There is no restriction on the acquirer receiving advance binding

commitment from major shareholders of the target company to support the tender offer,
even if these commitments are irrevocable.
 The use of share consideration attracts the provision of the US Securities law in
respect to ‘public offering for the sale of Securities’ the provision states that if the
acquirer wishes to offer its shares as consideration, in addition to the other
disclosure documents described earlier, the acquirer will need to file and clear
through the SEC under the Securities Act.
If the acquirer is not a public company, relevant registration statement under

securities Act will contain disclosure comparable to an initial public offering document.
If the acquirer is already a public company in US, the disclosure document under
Securities Act will be more abbreviated. In such event the key disclosure will be: Firstly, a
description of the acquirer’s reasons for doing the transactions and secondly, Performa
financial statement for the acquirer after giving effects to the transaction.
6. RIGHTS, DUTIES AND LIABILITIES OF THE BOARD OF

DIRECTORS
The duties of the board of directors can be divided into 2 categories:

- Mandatory Duties.
- General Fiduciary Duties
Mandatory Duties: The federal securities imposes specific disclosure obligation with
respect to tender offers. The boards of directors of the target company must within a period
- 20 -
of 10 days of commencement of takeovers issue a formal recommendation statement in
response to the tender offer (takeover). This disclosure contains:
 The recommendation of the board of directors, together with a summary of the

reasons;
 A summary of the interest of the directors and senior management in the Takeover
offer.
 Disclosure of whether the board of directors is engaged in negotiations with the
bidders.
The board of directors of the target company is required to promptly amend its
recommendation statement if there is any material change in the information.
General fiduciary Duties: The obligations of the board of directors of a target company in
responding to the tender offers are governed by the prevailing laws established by the State
of incorporation of the Target Company. In general, these will require the board of
directors to act with due diligence to secure and safeguard the best interests of the target
company and its shareholders. In State of Delaware, the fiduciary duties of target directors
include an obligation, if the company is being sold, to use reasonable efforts to maximize
the value currently available to shareholder; the directors will require negotiating with
competing potential bidders, subject to payment of a “termination fee” under certain
circumstances. The fiduciary duties also include obligation to give unbiased
recommendation to the shareholders with respect to the acceptance of tender offer or voting
in favour of single step merger.
Minority Shareholders: There are no compulsory acquisition procedures as such, for

squeezing out minority shareholders. If the acquirer elects to proceed by way of tender
offer, there are however a variety of structure available to assist the acquirer to squeeze out
minority shareholder who do not accept tender offer.
The first route, if the acquirer completes acquisition and at that time holds 90% of
the target common shares or whatever the percentage prescribed by State law, the acquirer
can implement a short form merger, without the approval of any other shareholder of the
target company. So long as the acquirer company implements such merger within one year
of the date of termination of Acquisition and offers a consideration at least equal to the
highest consideration offered during the tender offer and fully disclose in the Schedule of
its intension of such short term merger. There is however no disclosure norms imposed by
the federal regulation in respect of short term mergers.
The second route, to eliminate minority shareholders following the completion of

Takeover offers is available only if such an offer is made in pursuant to an agreement with
the target company board of directors. A proxy statement is necessary to be prepared and
filed with the SEC. In addition holder of common shares who do not vote in favour of this
route will be entitled to appraisal rights.
However, a combination of both routes gives a better result.
Going Private Rule: The US SEC also imposes disclosure obligations for those
companies which being public company, intend to transform into private companies after
the completion of the takeover process. This is known as the ‘going private rule’ and is
provided under Rule 13e-3 of SEC. Rule 13e-3 generally is applicable to any US public
- 21 -
company that will result in a public company transforming into a private company. A
number of exceptions are provided under it. However the most important exceptions are
that Rule 13e-3 does not apply to a transaction in which the affiliate is offering its own
common stock as consideration and not cash. It also does not apply to a transaction
undertaken by an entity that has become an affiliate by virtue of completion of tender offer,
So long as the transaction meets the three requirements described above. Where Rule 13e-
3 becomes applicable, the principal disclosure requirement includes:
 A statement by the affiliate and the target company as to whether the transaction is
fair to unaffiliated security holders. The statement must include a detailed
description of the reason for such view and is usually supported by an opinion from
an independent financial advisor.
 A summary of all reports and opinions received. This includes the preliminary
reports and advice received by the acquirer as well as the target company from its
own financial advisors.
Antitrust Compliances: - Under the Hart- Scott- Rodino Antitrust Improvement Act
1976 (HSR Act), an acquirer is required to make a filing with the US Antitrust Authorities
prior to completion of acquisition. The notification under this Act is required if the
transaction exceeds $60 millions. After filing is made, the acquirer is required to wait for
the expiration of a period of 30 days in case of transaction other than cash tender offers or
15 days for cash tender offers before the completion of takeovers offers. In addition to this
Act the provision of the State Antitrust Act will also apply if such need emerges in the light
of the effects that such takeovers might have on the local business.
7. THE REGULATORY AUTHORITIES:
There are two main authorities involved in Takeovers in the US – (1) The Securities
Exchange Commission and (2) The Antitrust Agency.
Securities Exchange Commission: The SEC has the regulatory power over the rules
applicable to tender offers. The SEC is required to look and review all tender offers.
However, an acquirer need not require SEC approval for the tender offer or any of its terms
or amendments, although almost all acquirers seek to respond constructively to SEC
comments on the Schedule.
The Antitrust Agency: These agencies have the power to reduce the waiting period by
granting “early termination”. During the waiting period, the antitrust authorities may issue
a “second request” for additional information concerning the transaction, which will result
in the waiting period being extended. The extended waiting period expires after 30 days (in
case of cash takeover, 10 days) from the date of receipt by the antitrust authorities of the
requested additional information. The antitrust authorities may even obtain a court order
enjoining the consummation of the transaction if it deems fit.
8. TRANS-NATIONAL ACQUISITIONS
EXON-FLORIO ACT: The United States of America does not have a statutory process
to review takeovers with respect to Foreign Investment and Acquisition. However the
Exon-Florio Act gives the right to the President to investigate and if deemed fit, to exercise
- 22 -
power to prohibit or unwind transactions involving investments by non-United States
entities that threaten to impair the national security interests.
It should be noted that the US tender regime technically applies to any company
whether or not incorporated in United States. SEC in order to avoid any conflict has
adopted a series of exemptions to facilitate the co-ordination of the US tender offer rules
and home jurisdiction rule:
 Under the Tier I exemption, if less than 10% of the target common shares are held
in the United States the acquirer and the target Company will receive exemptions
from virtually all applicable US Tender Offer Rules.
 Under tier II exemptions, if between 10% and 40% of the target common shares are
held in United States, the acquirer and the target company will receive limited
exemption. In addition, if the home jurisdiction rules so permit, the offeror can
make one offer for the US holders of the target common shares, which will be
subject to the US Tender offer rules, and another offer for the non-US holders of the
target common shares to which the US tender offers rules will not apply
If the home jurisdiction laws so permit, the offeror may completely exclude all US
shareholders from the tender offer.
The Foreign Company may choose between a subsidiary/direct ownership, control

and Operation, nevertheless, the advantage of incorporation tend to favour the choice of a
subsidiary.
Other Regulations for foreign acquisition: In general, United State is favourable

towards foreign investment and except for few restrictions of activities, foreign investors
are free to acquire and invest in multitude of business and industries16 the following are the
field which restricts foreign investment:
 Coastal shipping;
 Air Transportation
 Radio and television; Communication satellite Corporation;
 Nuclear energy; Geothermal Energy and other Energy
 Government subsidies for construction and operation of vessels used in Foreign
Trade and for Fishing; transport of government goods and personnel.
 Banking and all sectors relating to Bank transactions
 Certain Sectors of defenses: Under Section 721 of the Defense Production Act,
the President may suspend /prohibit any proposed /pending acquisition,
mergers/takeovers by/ with foreign persons so that such control will not threaten
or impair national security.
16
Acquisition, Mergers, Sales, Buyouts & Takeovers - Carles A Scharf, Edward E Shea & George C Beck.
p.344
- 23 -
9. SECTORAL REGULATORY REQUIREMENTS FOR TAKEOVERS:
The takeovers relating to specific business sectors controlled by regulatory

mechanisms viz. Railroad, Commercial Banking and Telecommunication are also required
to fulfill other Sectoral requirements. Such specific requirements are discussed as follows:
Railroad: The Interstate Commerce Commission, established in 1887, had long regulated
the railroad industry. Under the ICC Termination Act of 1995, it was replaced by the
Surface Transportation Board. The STB has the final authority on antitrust matters, but it
must file notice with the Justice Department, which may file objections at STB hearings.
Among the issues that STB is required to consider are:
 The effect on adequacy of transportation

 The effect on competition among rail carriers
 The interest of rail carrier employees affected by the proposed transaction.
Commercial Banks: The Board of Governor of the Federal Reserve System (FED) has
brought powers over economic matter as well as antitrust. With regard to bank acquisition,
3 agencies may be involved. Comptroller of the Currency has jurisdiction when National
Banks are involved. The FED makes decision for State Banks that are member of the
Federal Reserve System. The Federal Deposit Insurance Corporation (FDIC) reviews
merger and acquisition for State Chartered Banks that are not member of FED, but are
insured by FTIC. In conducting its review, each agency takes into account a review
provided by the Department of Justice. Bank acquisition/mergers have long been subjected
to section 7 of the Clayton Act 1914. Any acquisition/merger approved by one of the 3
regulatory agencies has to be challenged within 30 days by the Attorney General.
The Act of 1966 provided that anti competitive effects could be outweighed by a
finding that the transaction served the “convenience and needs” of the community to be
served. This defence is however not available to Acquisition by Bank of non-banking
Business. The review by one of the 3 agencies substitutes for filing under Hart-Scott-
Rodino1976.
Telecommunication: The Federal Communications Commission (FCC) has primary

responsibility for the radio and television industries. Acquisition and mergers in this area
are subject to approval by the FCC, which defers to the Department of Justice and the FTC
on antitrust aspects. The Federal Communication Act 1996 provides for partial
deregulation of the Telecommunication and related industries, with rather complicated
provisions affecting the role of former operating companies of the BELL system with their
relatively strong monopoly positions in their regional markets.
10. STATE CONTROL ON TAKE-OVERS
State regulation of tender offers began with a Virginia statute passed in 196817. The
basis for the Virginia legislation was the fear that established local concerns might be taken
over by outside interests who in turn would shut-down plants and leave local residents
17
L. Loss, Fundamentals of Securities Regulation 601 (1983).
- 24 -
jobless18. A substantial number of states followed the pattern set by Virginia, enacting so-
called "first generation" takeover laws.
The role of the States in regulating hostile takeovers suffered a serious setback in
1982 when the Supreme Court's decision in Edgar v. MITE Corp. struck down the Illinois
Business Take-Over Act, a first generation statute, as an unconstitutional burden on
interstate commerce. Hostile acquisitions, most often undertaken by means of a tender offer
for the target corporation's voting stock, have since been governed almost exclusively by
the provisions of the 1968 Williams Act19, and the SEC rules and regulations promulgated
there under. Although many states, following MITE case, enacted laws designed to avoid
the constitutional defects of the Illinois statute, many of those laws were struck down by
federal courts which readily extended the MITE rationale. These courts in general held that
the laws unduly interfered with inter-state commerce and upset the equilibrium between
bidder and target management which is at the essence of the Williams Act.
Therefore the perception emerged that most of the state anti-takeover statutes were
unconstitutional and it became routine for bidders to file "pre-emptive" lawsuits in federal
court after they commenced their offers and for courts routinely to enjoin State officials
from enforcing their statutes. The federal district court in Delaware went a step further, and
stopped hearing those complaints altogether. The Supreme Court's decision in CTS
Corp. v. Dynamics Corp. of America breathed new life into state takeover statutes by
upholding the Indiana Control Share Acquisitions Statute against the customary Commerce
Clause and Supremacy Clause claims. In the process, the Court shifted the emphasis from
uniform federal regulation to traditional State Corporation Law, and provided an analytical
basis to support a substantial measure of State Regulation of takeovers. It is still too early
to tell what effect the CTS decision will have on the level of hostile takeover activity. It
has, however, had a profound effect both on state legislatures, many of which scrambled to
enact Indiana-type statutes following CTS, and on some companies, which have relocated
to take advantage of them. But neither Delaware nor California has yet acted, so the
practical importance of CTS may yet prove to be limited. Moreover, some commentators
have questioned whether statutes like Indiana’s actually deter takeovers, or whether under
some circumstances they could facilitate them.
Much has been written about MITE case and the so-called "second generation" of
state takeover laws which were adopted in reaction to it20.
The cases of MITE and CTS led to evaluate and discuss the constitutional limits to
state legislation on Takeovers, and particularly, the practical effects of CTS judgments on
hostile takeover activity.
The Legitimacy of State Regulation: CTS Corp. v. Dynamics Corp. of America
In response to MITE, a number of States enacted laws designed to provide the

maximum available protection to domestic corporations and their shareholders while
attempting to avoid the constitutional pitfalls of the Illinois statute. In the years
following MITE decision, these statutes were regularly challenged by hostile bidders and
18
E. Aranow & H. Einhorn, Tender Offers for Corporate Control 153 (1973)
19
15 U.S.C. 78n(d)
20
L. Loss, supra, at 99-101 (Supp. 1986)
- 25 -
were usually struck down as unconstitutional under MITE. See, e.g., Fleet Aerospace
Corp. v. Holderman21; Gelco Corp. v. Coniston Partners22; Terry v. Yamashita23; APL Ltd.
Partnership v. Van Dusen Air, Inc.24; Icahn v. Blunt25. Although only three Justices
in MITE had subscribed to the view that the Williams Act prevents states from adopting
anti-takeover regulations, leap was taken by the Supreme Court in MITE and by every
court to consider the question in the subsequent cases of Dynamics Corporation of
America v. CTS Corp.26, CTS Corp. v. Dynamics Corp. of America27. Accordingly, the
Seventh Circuit Court struck down the Indiana Control Share Acquisitions Chapter of the
Indiana Business Corporation Law as a violation of both the Commerce Clause and the
Supremacy Clause.
Indeed, the potentially coercive aspects of tender offers have been recognized by
the Securities and Exchange Commission and by a number of scholarly commentators.
Instead of assuming that State interference with the market for corporate control is invalid,
the CTS Court upheld the law by looking to the state corporation laws.
Second Generation Anti-Takeover Statutes
The various second generation statutes fall into six general categories: control share
acquisition laws28, fair price laws, heightened appraisal rights laws29, five-year moratorium
laws, expanded constituency laws, and heightened disclosure laws. A number of states
have enacted anti-takeover statutes of more than one type. Bidders may thus frequently be
confronted with several state law hurdles in a single offer.
(i) Control Share Acquisition Laws:
Twelve states30 have enacted control share acquisition laws; the Indiana statute is
typical. The Indiana statute applies to companies incorporated in Indiana which have 100
or more shareholders. In addition, the companies must have their principal place of
business, principal office, or substantial assets within Indiana; and either more than 10% of
their shareholders resident in Indiana; more than 10% of their shares owned by Indiana
residents, or ten thousand shareholders resident in Indiana.
An entity acquires "control shares" whenever it acquires shares, but for the
operation of the act, would bring its voting power in the corporation to or above 20%,
21
796 F.2d 135 (6th Cir. 1986), see also, 107 S. Ct. 1623 (1987)
22
652 F. Supp. 829 (D. Minn.1986)
23
643 F.Supp. 161 (D. Hawaii 1986)
24
622 F. Supp. 1216 (D. Minn. 1985)
25
612 F. Supp. 1400 (W.D. Mo. 1985)
26
794 F.2d 250, 262 (7th Cir. 1986)
27
107 S. Ct. 1637 (1987)
28
Control Share Acquisition Laws (CSA): Arizona; Florida; Indiana; Louisiana; Massachusetts; Minnesota;
Missouri; North Carolina; Ohio; Oregon; Wisconsin
29
Heightened Appraisal Rights Laws (HAR): Maine, Pennsylvania, Utah
30
Arizona; Hawaii; Indiana Code Ann.; Louisiana; Massachusetts Stat.; Minnesota Stat.,; Montana Stat.;
North Carolina Sess. Laws; Ohio Rev. Code Ann.; Oregon S.B. 641,; Wisconsin Stat.; The Hawaii statute
was invalidated in Terry v. Yamashita, 643 F.Supp. 161 (D. Hawaii 1986).
- 26 -
33.33% or 50%. An entity that acquires control shares only acquires voting rights for those
shares if granted at a shareholder meeting by a majority of all votes cast by each voting
group, and by a majority of all votes cast by each voting group excluding the "interested
shares".
In order to acquire voting rights, an acquirer must submit an "acquiring person

statement" to the corporation. If the acquirer requests that the board of directors call a
special meeting to consider the voting rights to be given for his shares, the meeting must be
held within 50 days, provided that the acquirer agrees to pay the expenses of the meeting. If
no such request is made, the acquirer's voting rights are considered at the next special or
annual shareholders' meeting.
If the acquirer fails to file an “acquiring person statement”, or if the other

shareholders do not grant the control shares voting rights, the corporation may redeem the
acquirer's shares. The price paid for the shares must not be less than the highest price paid
per share by the acquiring person in the control share acquisition. If the acquirer's shares
are granted full voting rights and the acquirer accumulates more than 50% of the voting
power, the other shareholders have dissenters' rights.
The Ohio control share acquisition statute differs from the Indiana Act in that
shareholders must approve the control share acquisition itself, not just the grant of voting
rights associated with the control share acquisition31.
The new North Carolina, Massachusetts, Florida and Arizona control share
acquisition statutes are similar to the Indiana act with one important difference: they apply
to foreign corporations which have close contacts with the state. The North Carolina law,
for example, applies to foreign corporations that have more than 40% of their domestic
fixed assets in North Carolina, more than 40% of their domestic employees in North
Carolina, 500 or more shareholders, their principal place of business or principal office
within North Carolina, and either 10% of their shareholders resident in North Carolina or
more than 10% of their shares owned by North Carolina residents. In an interesting effort
to avoid the constitutional problems raised by a state's regulating foreign corporations, the
North Carolina law contains what might be regarded as a constitutional “savings clause” -
the law does not apply to a foreign corporation otherwise covered if the North Carolina law
is expressly inconsistent with the laws of the company's state of incorporation.
Massachusetts has a similar provision that applies only if the state of incorporation has
adopted its own control share acquisition statute.
Wisconsin has adopted a variation of the Indiana statute that substantially dilutes,
but does not eliminate, the acquirer's voting rights. For shares held in excess of a 20%
interest, only 10% of the voting power can be exercised until shareholders approve full
voting rights at a meeting to be held 30 to 50 days after the directors receive information
from the bidder regarding his plans for the company. In other words, until favourable
voting rights, .each share above the 20% threshold gets one-tenth of a vote
.
31
In June 1986, the Sixth Circuit affirmed a district court ruling invalidating the Ohio statute. Fleet
Aerospace Corp.v. Holderman, 796 F.2d 135 (6th Cir. 1986). The Supreme Court vacated the said
judgment and remanded the case for reconsideration in light of the CTS decision. State of Ohio v. Fleet
Aerospace Corp., 107 S.Ct. 1623 (1987)
- 27 -
(ii) Fair Price Laws32
Thirteen states33 have enacted fair price statutes. Maryland was the first state to
adopt a fair price statute. The statute requires that any business combination involving a
resident corporation and a holder of ten percent or more of its stock must be recommended
by the board of directors and approved by 80% of the outstanding shares and 2/3rd of all
shares not held by the interested shareholder, unless the compensation received by minority
shareholders in the business combination satisfies the statute's fair price provision. The
supermajority provisions do not apply if the board of directors approved the transaction
before the bidder acquired the 10% stake. In very general terms, the fair price is one that
equals or exceeds the highest price paid during the previous two years for the corporation's
stock including the price paid in the first step of the transaction..
Maryland's definition of "business combination" includes:

 Mergers, consolidations, or share exchanges;
 The sale, lease, or transfer of 10% or more of the target's assets;
 The issuance or transfer by the target of equity securities that have an aggregate
market value of at least five percent of the total market value of the outstanding
shares;
 A liquidation or dissolution of the target in which the bidder receives anything other
than cash; and
 Re-classifications, recapitalizations, or other transactions which have the effect of
increasing the proportionate ownership of the interested shareholder.
The definition of business combination does not include stock transfers to the
interested shareholder from other shareholders. In order for there to be a business
combination, the interested stockholder may not become the beneficial owner of any
additional shares after the transaction that results in the interested stockholder acquiring his
10% interest.
The North Carolina Act is similar to the Maryland law except that the potential
acquirer must obtain 20% of the target's stock in order to trigger the requirements of the
statute, and 95% shareholder approval is required unless the fair price provision is satisfied.
More importantly, the North Carolina law applies to foreign corporations with substantial
activities in North Carolina unless expressly inconsistent with the law of the state of
incorporation.
32
Fair Price Laws (FP): Connecticut, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Michigan,
Mississippi, North Carolina, Virginia, Washington, Wisconsin
33
Conn. Gen. Stat. Ann. § 33-374a to 374c (West Supp. 1987); Fla. Stat. § 607.108 (HB 358, 1987); Ga.
Code Ann. §§ 14-2-232 to 234 (Supp. 1986); Ill. Ann. Stat., ch. 32, § 7.85 (Supp. 1987); Ky. Rev. Stat.
Ann. § 271A.396 (Michie Replacement 1986); La. Rev. Stat. Ann. §§ 12:132 to 134 (West Supp. 1987);
Md. Corps. & Ass'ns Code Ann. §§ 3-601 to 603 (1985 & Supp. 1986); Mich. Comp. Laws Ann. §§
450.1776 to 1784 (West Supp. 1987); Miss. Code Ann. §§ 79-25-1 to 7 (Supp. 1986); 1987 N.C. Sess.
Laws SB 687, HB 631; Va. Code Ann. § 13.1-726 to 728 (Michie Replacement 1985); Rev. Code of
Wash. Ann. § 23A.08.425 (Supp. 1987); Wis. Stat. Ann. § 180.725 (West Supp. 1986). Louisiana
Legislature repealed Louisiana's fair price law (Act No. 820, SB 779).
- 28 -
(iii) Heightened Appraisal Rights Laws
Three states have adopted heightened appraisal rights statutes, which are frequently
referred to as "control-share cash-out" laws. The Pennsylvania statute, as an example,
requires a person acquiring 30% or more of the stock of a company incorporated in
Pennsylvania to notify the remaining shareholders. For an undefined "reasonable period" of
time thereafter, any remaining shareholder may demand cash payment for his shares
corresponding to fair value plus an "increment representing a proportion of any value
payable for acquisition of control of the corporation".
The Maine law is similar, except that the cash-out trigger is 25% and Maine
specifies the time periods for notification and disclosure which Pennsylvania leaves open.
In the Utah law heightened appraisal rights are not granted in cases in which the transaction
receives the prior approval of a majority of the continuing directors.
(iv) Five-Year Moratorium Laws
Nine states34 currently have five-year moratorium laws. The provisions of the New
York statute are typical. It applies to New York corporations which maintain their principal
executive offices in New York and have holders of at least 10% of their stock residing in
New York.
Any person who acquires 20% or more of the voting stock becomes an "interested
shareholder." An interested shareholder is prohibited from engaging in a business
combination with the company for five years unless the company's board approves (i) the
particular business combination or (ii) the stock purchase that put the interested shareholder
over the 20% threshold. Board approval must be obtained before the acquirer becomes an
interested shareholder. New York defines "business combination" in substantially the same
way as Maryland does for purposes of its fair price statute except that New York includes
as a business combination any proposal for liquidation or dissolution of the target made by
the interested shareholder or any of his affiliates or associates. The definition does not
include stock transfers to the interested shareholder from other shareholders.
After five years have elapsed, the interested shareholder may engage in a business
combination only if (a) a majority of the disinterested shareholders approve or (b) the
consideration paid by the interested shareholder satisfies fair price criteria.
A New York company may choose not to be covered by the statute with the
approval of a majority of the disinterested shareholders. The opt-out, however, does not
become effective until 18 months after the successful vote.
The Arizona, Kentucky, New Jersey, Washington, Wisconsin and Indiana laws are
similar, except that a person becomes an interested shareholder when he acquires 10% or
more (as opposed to 20%) of a resident corporation's voting power. The Wisconsin statute
has a three (instead of five) year moratorium on business combinations. The Washington
law regulates corporations that are not incorporated in Washington but which have close
contacts with the state.
34
Five Year Moratorium (FYM): Arizona, Kentucky, Minnesota, Missouri, New Jersey, New York,
Washington, Wisconsin
- 29 -
(v) Expanded Constituency Laws
A number of states35 permit directors to consider the interests of constituents other

than the corporation's shareholders. The Illinois statute is representative and provides that
in discharging the duties of their respective positions, the board of directors, committees of
the board, individual directors and individual officers may, in considering the best interests
of the corporation, consider the effects of any action upon employees, suppliers and
customers of the corporation, communities in which offices or other establishments of the
corporation are located and all other pertinent factors.
Although most of these laws are permissive and are not, strictly speaking, anti-
takeover devices, they reflect the concern with hostile takeovers expressed in CTS, and
could be used to justify defensive tactics to resist hostile takeovers.
However, the new Arizona statute adopts a different approach. It includes a

requirement that in discharging the duties of the position of director, a director, in
considering the best interests of the corporation, shall consider the long-term as well as the
short-term interests of the corporation and its shareholders including the possibility that
these interests may be best served by the continued independence of the corporation.
(vi) Heightened Disclosure Statutes
At least nine states36 have heightened disclosure statutes which, in many cases, are
revisions of pre-MITE disclosure statutes. Some of these statutes apply only with respect to
corporations with substantial contacts with the state; others apply, like the Blue Sky a law,
which applies if an offer is made to a certain number of residents of the state. These laws
are sometimes referred to as "third generation" takeover laws, reflecting the legislatures'
effort to minimize constitutional objections to "second generation" statutes.
The Minnesota statute is a good example. It applies only when at least twenty
percent of the target's shareholders are Minnesota residents and the target has 'substantial
assets' in the state37.
Under the statute, an offer becomes effective when the offeror files with the
Commissioner a registration statement disclosing the information prescribed in section
80B.03(2)&(6). The Commissioner may suspend the tender offer in Minnesota within three
days if the registration materials fail to apprise local investors fairly of the information
required by 80B.03(2)&(6). The suspension may be lifted once the offeror discloses the
information specified in section 80B-03(2) & (6). A hearing on the suspension must be
convened within ten days and a decision rendered within three days. The Minnesota Act
does not contain a provision like the one in the Illinois Act [in MITE] which requires the
Commissioner to convene a hearing at the request of the target corporation. In sum, there is
no delay under the Minnesota Act as there was under the Illinois Act because the
35
Expanded Constituency (EC): Arizona, Illinois, Maine, Minnesota, Ohio
36
Heightened Disclosure (HD): Idaho, Hawaii , Minnesota, Nebraska, New York, Oklahoma, Tennessee,
Utah, Wisconsin
37
Cardiff Acquisitions, Inc.v. Hatch, 751 F.2d 906, 911 (8th Cir. 1984).
- 30 -
Commissioner must complete the process within “nineteen calendar days”, which is prior
to the expiration of the twenty business-day minimum offering period specified by federal
law. Any suspension of the offer applies only to Minnesota residents, although it is possible
that the inability of a bidder to purchase shares from Minnesota residents could result in the
failure of the minimum condition of the offer.
(vi) Potential Constitutional Challenges to Second Generation Statutes
Constitutional challenges to these second generation laws — whether enacted

before or after CTS — can be expected to focus on whether they are more like laws
governing corporate functions which have traditionally been left to the states, or instead
like the Illinois38 statute, which allows a local official to enjoin a nationwide offer for
shares of a company that is not even incorporated in Illinois. Such challenges are: -
Control Share Acquisition Statutes:
Given the Supreme Court's strong endorsement of the Indiana approach, it will be
difficult to mount a sweeping attack on these statutes. Nevertheless, there are two areas in
which the statutes may still be vulnerable. First, several recently-enacted statutes (Arizona,
North Carolina and Massachusetts, for instance) apply to foreign corporations. In some
cases, the statutes were drafted with particular companies in mind: e.g. Burlington
Industries in North Carolina. Although Burlington is North Carolina's largest Company and
has other significant contacts with the state, is not a creature of that state. Thus, the premise
of both MITE and CTS — the state that creates a corporation is the only state entitled to
regulate it — does not justify North Carolina's regulation of Burlington. To the contrary, as
a Delaware corporation, Burlington is subject, to corporate law matters, to the Delaware
General Corporation Law.
But Arizona, North Carolina and Massachusetts undoubtedly have a great interest
— greater, perhaps, than Delaware - in protecting the employees, shareholders and
customers of their important corporate constituents, even if not incorporated in those states.
Justice Powell recognized in MITE the importance of corporations to their local
communities, especially in states where a single corporation may be very important to the
state's economy and fiscal health.
Notwithstanding the appealing arguments that can be made to support the state's
interest in the well-being of resident foreign corporations, a substantial argument can also
be made that the Arizona, North Carolina and Massachusetts statutes (along with others
that apply to foreign corporations) are unconstitutional, even after CTS, since they purport
to regulate a property interest that is created by another state. No one would seriously
question that Delaware real estate law should govern the transfer of a parcel of land located
in Wilmington, even if the owner resides in North Carolina and has not seen the property
for years. Any other rule could result in uncertainty and frequent litigation, especially in the
case of a company with substantial operations in more than one state.
A related problem, which has not yet been tested, is whether incorporation without
any other contacts provides a sufficient constitutional nexus to permit a state to adopt a
control share acquisition law. CTS, as well as parts of MITE, refer to the traditional role of
- 31 -
states in regulating the attributes (such as voting rights) of the corporations they create. No
principle of corporation law and practice is more firmly established than a State's authority
to regulate domestic corporations, including the authority to define the voting rights of
shareholders. Yet CTS also recognized that the Indiana statute does not apply to all Indiana
corporations, but only to those with substantial local contacts. Moreover, unlike the Illinois
statute invalidated in MITE, the Indiana Act applies only to corporations that have a
substantial number of shareholders in Indiana. Thus, every application of the Indiana Act
will affect a substantial number of Indiana residents, whom Indiana indisputably has an
interest in protecting." It does not appear that the requirement of local contacts was
essential to the Court's holding in CTS, but it might nevertheless provide some basis for
attacking a Delaware version of the Indiana statute.
A second potential challenge to the control share statutes can be levelled against the
Ohio model statute, which requires shareholder approval not of voting rights after the share
purchase is made, but of the purchase itself. As a result, it could be argued that the Ohio
statute does not govern the internal functioning of domestic corporations, but rather
directly regulates the interstate securities market, since an out-of-state investor cannot even
purchase control shares in an Ohio company without shareholder approval. This feature
distinguishes the Ohio model from CTS, in which the Court observed that "the [Indiana]
Act does not impose an absolute 50-day delay on tender offers, nor does it preclude an
offeror from purchasing shares as soon as federal law permits." 107 S.Ct. at 1647. The
Ohio statute does have that effect. It is unclear whether this is a sufficient basis on which to
invalidate the Ohio statute, especially since the practical effect of the Indiana statute is the
same: although permitted to do so, no bidder will purchase shares until the shareholders
have approved voting rights, so in effect the vote of the shareholders under the Indiana law
is a referendum on the purchase itself.
Five-Year Moratorium Laws (New York):
Like the Indiana control share acquisitions statute, five-year moratorium statutes
such as section 912 of the New York Business Corporation Law do not directly regulate the
purchase of shares. Instead, they require board approval before certain major corporate
transactions can be undertaken by certain major stockholders. The practical effect of the
New York statute is to force potential bidders to negotiate with a company's board of
directors before commencing the hostile offer. This could be considered part of the state's
traditional function of regulating the internal affairs of its corporations. It is not very
different in form from charter provisions (like staggered boards) that can delay major
transactions following the purchase of a controlling block of stock. For a bidder unable to
negotiate a deal with the board, a solution could be to wage a proxy fight before buying the
20% stake, in the hope that the new board would approve the purchase.39.
But the New York statute plainly increases the costs of tender offers, because, for
instance, it makes it difficult for the bidder to arrange financing that will later be repaid
using the proceeds of a sale of the acquired company's assets. As a result, the statute could,
as a practical matter, eliminate bidders who need to borrow large sums in order to launch
an attack. In their place would be cash-rich companies, possibly the same foreign buyers
who have helped fuel the recent bull market on Wall Street. The resulting decrease in
competition could result in lower prices overall in corporate control transactions for New
- 32 -
York companies. These considerations did not, of course, greatly trouble the Supreme
Court in CTS, which upheld the Indiana law despite its deterrent impact on tender offers.
But, as discussed above with respect to the control share statutes, a law (viz. Washington’s)
that applies to foreign corporations may be subject to attack even after CTS.
11. SUPREMACY OF FEDERAL REGULATION:
In Edgar v. MITE Corp.40, the Supreme Court invalidated the Illinois Business
Take-Over Act, 1979, as unconstitutional under the Commerce Clause, because it imposed
burdens on interstate commerce that were excessive as compared to the state interests
asserted in support of the statute.
The statute required any tender offer for a target company to be registered with the
Illinois Secretary of State. A target company was defined as an issuer 10% of whose
securities subject to the offer were held by Illinois shareholders, or in which any two of the
following conditions were met:
 The corporation's principal executive office was in Illinois,

 The corporation was incorporated in Illinois, or
 10% of the stated capital and paid-in surplus was represented in Illinois.
A tender offer automatically became registered 20 days after the filing of a registration
statement with the Secretary of State unless the Secretary called for a hearing. The
Secretary could call a hearing to adjudicate the substantive fairness of the offer if he
believed it was necessary to protect the target's shareholders. In addition, the Act required
that a hearing be held if requested by a majority of the targets outside directors or by
Illinois shareholders owning at least 10% of the class of securities subject to the offer. The
statute directed the Secretary, at the hearing, to deny registration of the offer if he found
that it failed to provide full and fair disclosure to the offerees of all material information
concerning the take-over offer, or that the take-over offer was inequitable or could work or
tend to work a fraud or deceit upon the offerees.
A bare majority of the Court held that the Illinois Act was unconstitutional as a
violation of the Commerce Clause. The Court applied the balancing approach
of Pike v. Bruce Church Inc41: a state statute must be upheld if it "regulates to effectuate a
legitimate local public interest and its effects on interstate commerce are only incidental,
unless the burden imposed on such commerce is clearly excessive in relation to the putative
local benefits".
The Court realized the substantial impact of the Illinois scheme on interstate commerce
and observed that shareholders are deprived of the opportunity to sell their shares at a
premium thus hindering reallocation of resources which could improve competition. The
Court also opined that the Illinois Act substantially enhanced the shareholders' position.
The statute purported to protect shareholders interests by requiring certain disclosures
concerning the offer by ensuring that shareholders had adequate time to decide whether to
tender and provide for withdrawal and peroration rights. Because the federal Williams
Act provides the same protections, the Court saw no reason for Illinois to impose its own
40
457 U.S. 624 (1982)
41
397 U.S.137 (1970) at p.142
- 33 -
statute. Further the Court also observed that the Williams Act adequately protected the
interests of other stakeholders i.e. employees, management personnel.
In the light of the Court's later decision in CTS, the majority opinion in MITE is
especially interesting in two respects- the extent to which it relied upon assumptions
regarding the behaviour of the market and its rejection of the internal affairs doctrine as a
basis for upholding the statute.
12. TAKEOVER DEFENCES
The hostile takeovers affected both the firm and the shareholders and prices. The
experiences of takeovers have led into emergence of theories against takeovers which have
been taken up as “defences” by both the target companies as well as the bidders. Today
these defences have become an important part of the takeover process.
The following are the popular takeover defences:
 Greenmail: The term greenmail connotes the targeted firm repurchasing a large
block of stock from specified shareholder at a premium. The purpose of the premium
buy backs was presumably to end hostile takeover threat by large block holder or
“greenmailer”. This defense has brought negative publicity to both the payer and the
receiver. Proponents of anti-greenmail charter/legislation argue that greenmailers
cause damage to shareholder’s interest. It is believed that the large block investors
are acting as “raiders” expropriate corporate assets to the detriment of other
shareholders. An alternative view however is that green mailers actually help bring
about management changes, or have superior skills at evaluating potential
takeovers.42
 Pac Man Defense: The term is generally used as a defence tactic by target firm in the
light of the looming hostile takeover. This defence is rarely used. In this both firms
i.e. The acquirer and the target firms both employ a large amount of debt to buy each
other’s stocks, the resulting entity is always at a risk to be crippled by the combined
debt load. A risk also exist under state laws, should both firms buy substantial stakes
in each other, each will be ruled as subsidiary of the other and unable to vote against
the corporate parent. The most famous example is the takeover bid of Bendix
Corporation and Martin Marietta of America.43
 White Knight: These defenses involve choosing of another company by the target
company with which it prefers to be combined. An alternative company may be
preferred by the target company because it sees greater compatibility. As against the
hostile bidder who may engage in massive employee dismissals or management inter-
change etc. which may be detrimental to the interest of the target company. In United
States this defence is most common.
 White Squire: This defence is a modified form of the white knight. The only
difference between the two is that the white squire does not acquire control of the
target. The target sells a block of its stock to a third party it considers to be friendly.
42
Takeover, restructuring and Corporate governance. J Fred Weston et al.p 567
- 34 -
Such transactions are often accompanied by an agreement that limits the amount of
the additional targets stock that the white squire can purchase for a specified time
period, restricting the sale of target stock thereby giving the right of refusal to the
target company. In return of such condition the white squired company often receives
a seat on the target board, receives dividend, discounts and shares etc.
 Poison Pills: Poison pills represent the creation of securities which carry special
rights exercisable by a threshold limit. Such trigger maybe limited to an accumulation
of a specified percentage of target shares example 20%, 35% or an announcement of
tender offer. This defensive measure is adopted by the board of directors without the
shareholders approval. This measure was upheld by the Delaware Supreme Court in
the UNOCAL case against a bid by Mesa Petroleum. In November 19th 1985 the
Delaware Supreme Court in Moran v. Household International again upheld the
adoption of the poison pill. The court justified such defence on the basis of
protection to the corporation and its stockholders.
 Golden Parachutes: These are Defences embedded in employee’s contract that

compensate managers for the loss of their jobs under takeover management. This
provision usually provides a lump sum payment for a specified period at full or
partial rates of normal compensation. This concept is based on the doctrine of implicit
contract for managerial compensation. A related argument is that the increased risk of
losing one’s job through a takeover may result in managers focusing unduly on the
short term or even taking unduly high risk.
13. LANDMARK CASES
American Takeover Rules and Regulations were strongly influenced by judicial

precedents primarily the Delaware Supreme Court and its judgments given in the early
1980’s. Even today these judgments have a strong foothold concerning the issues
regarding takeovers. The following are the most important cases in the history of American
takeovers.
 Unocol Corporations v. Mesa Partners II (1985).

 Revlon Inc. v. Mac Andrews & Forbes holding Inc. (1986).
 Time Incorporated v. Paramount Communication Inc. (1990).
1. Unocol Corporation v . Mesa Partners II (1985)44
Facts: Plaintiff made discriminatory tender offer, excluding defendant, a competing hostile
tender, from participating in an exchange of secured notes for shares of common stock
which would have given the defendants a share of 51% of the common shares of the
plaintiff’s company. Defendant moved for a preliminary injunction against the plaintiff
from completing its self tender offer, unless condition of excluding the defendant from the
offer was removed.
Issue: The issues raised were: The offer violated section 13(e) and 14(e) of the security
exchange act 1934.
44
493 A.2d 946 (Del. 1985)
- 35 -
Provision: Securities Act under the above mentioned section prohibits discriminatory
tender offers. That is offer to less than all persons who hold the class of securities which
are the subject of the offer.
Judgment: The Court held that defendants were unable to provide evidence that the offer
was discriminatory and takeover defences are not illegal within law. Hence, the said
injunction was denied.
2. Revlon Inc. v. Mac Andrews & Forbes holding Inc. (1986)45
Facts: Plaintiff shareholders brought an action against defendant directors due to

irregularities of a corporate auction during takeover proceedings. The plaintiffs moved for
an injunction to bar a third party corporation from engaging in deals with defendants in the
form of auction by the sale of assets or any other dealings. The trial Court granted the
injunction on the grounds that defendants have reached the duty of care by entering into
such transactions, thus ending an active auction for the company.
The defendant claimed that they did not breach the business judgment rule. The
judgment rule presumed that a business decision of director will always be in a good faith
and in the best interest of the shareholder and the company.
Issue: The issue raised was: Whether the directors had violated the fiduciary duty and
adopted defensive takeover measures.
Provision: Delaware Code title 8 section 141(a). This section provides that directors owe
fiduciary duty of care and loyalty to the corporation and its shareholders. These principles
apply with equal force to mergers and takeovers.
Judgment: The Supreme Court affirmed that trial courts grant of preliminary injunction
and held that defendant directors did not act in the shareholder’s best interest by ending a
corporate auction.
3. Time Incorporated v. Paramount Communication Inc. (1990)46
Facts: The acquiring company issued a tender offer for the shares of the target company.
The target company advised to shareholders not to tender their stocks and then file the
motion for a preliminary injunction against the acquiring company. The target company
sought to enjoin the acquiring company from taking any action in favour of the acquiring
company tender offer for the target company stock and from making or disseminating false
or misleading statements with respect to the expiration date of the acquiring companies
tender offer.
Issue: The issue that was raised was: Securities exchange act Rule 14(d)- 3(b), was
violated and misleading statements of the tender offers were published.
45
506 A2d 173(Del.1986)
46
571 A.2d 1140 (Del. 1989).
- 36 -
Provision: Rule 14(d)-3(b) requires that any material changed to the information disclosed
in connection with tender offer be filed with the securities and exchange provision.
Judgment: The Court denied the preliminary injunction motion as it failed to establish
grounds required under the said rule and held that Target Company could not show
likelihood of existing evidences on its claim of a security law violation.
14. THE FUTURE OF TAKEOVER IN US: ISSUES AND CONCERNS
With the total volume of mergers and acquisitions/takeover across the world
crossing the trillion mark of US $ per year, cross border deals represent roughly 1/3rd of the
deals in US markets. Approximately, 40% of the deals done in United States are cross
border transactions.
The cultural differences between the countries can create both difficulties and
opportunities. It can create difficulty when it comes to Tax exemption and Disclosure
norms where such norms may differ in each country.
There could be certain document which could be regarded as ‘confidential’ in one

country but the exact reverse in the other country. Trade secrets could be leaked; important
financial information may be available which is not generally for the public viewing. So
caution and thorough due diligence is advised in cross border acquisition.
As far as post merger acquisition/takeover regulations are concerned the state and
the federal rules are clear and inconsistency does not exist which make the whole process
of takeover for a foreign acquirer more convenient and easy.
The success rate of takeover fluctuates with the market conditions and business
environment. So the changes in federal regulation and law may be changed to adapt the
current climate.
The main issue of concern is the delay in takeover process which may cause the
potential bidder to lose interest and hence cause the prices of the target shares to fluctuate.
The delay also reduces the takeover’s expected value and original offeror bears greater
uncertainty over the whole takeover Transactions.
The delay may further give the Target Company to exercise all other defences
available e.g. the white Knight etc. which can be detrimental to the shareholder interest,
since the Target Company may only go for its own profit maximization.
Another issue of concern is the complexity of regulations and procedural

formalities, particularly, the Competition / Antitrust laws and Foreign Exchange laws.
Such mixtures of laws are required to be examined in the context of the size and legal
status of the acquiring and the variation of laws existing in some different country.
For example, In the U.K., acquisition of a set threshold of the voting shares (thirty
percent) requires the buyer to launch a mandatory tender offer on all the outstanding shares
at the highest price paid for those shares. No such laws or regulations of this sort are
provided under U.S. law at the federal level, even if some states provide for “best-price
rules” whose effects are similar to the U.K. mandatory bid rule.
- 37 -
Similarly, the British “City Code” imposes a ban on directors’ actions that might
frustrate a hostile bid without shareholder approval, which contrasts starkly with the
relative freedom that U.S. directors have to resist a hostile acquisition.
- 38 -
CHAPTER - III
EUROPEAN UNION
(U.K., France, Germany)
The initiation towards the EU Takeover directives began 30 years after the UK's
entry into the European Community in 1973. That period was marked by a great expansion
in the substantive contents on the subject, as mechanisms were sought to enhance the
protection of investors and to regulate insolvent companies.
Prof. Pennington who was an eminent expert of company law was appointed by the
Commission to write a report on takeovers in Europe. In 1974, he presented a report on
takeover offers to the commission. In 1977, the commission issued guidelines modifying
certain recommendations made by Prof. Paddington in his report, which were incorporated
in the recommendations on securities transaction.
The Commission introduced first formal draft of the proposed directive and
published it in January 1989, which was reintroduced in 1996 as the second draft. The
controversial provisions of the proposal were (1) mandatory public takeover bid and (2) the
restrictions of the Defences available to the board of directors of the target company.
Following 2 years, a second draft was amended and proposed, which was also
rejected in July 2001. Following failure of second draft, the Commission appointed a
group of company law experts termed as “high level group of experts” chaired by Prof.
Jaay Winter to report and to render advice on the proposals. These recommendations were
published in 2002. Later being interpreted by the Commission, the final draft directive was
published in October 2002.
Prof. Winter’s report proposed (a) shareholder’s decision making (b)

proportionality between risk bearing capital and control. After intensive bargaining and
deadlock in European parliament these two principles were compromised and were made
optional under Article 12. The EU Directive was finally adopted on April 21, 2004 and to
be implemented by member states by 20 May 2006.
2. REGULATION OF TAKEOVERS IN THE E.U.
FUNDAMENTAL PRINCIPLES OF THE EUROPEAN DIRECTIVE.
Objective of directive: The principles set out in the directive are based on two main
objectives.
(a) Harmonization: making takeover safeguards equivalent through out the community.
(b) Protection of shareholders: protecting the interests of the holders of the securities of
companies governed by the law of the member states.
- 39 -
With these objectives the directive sets out minimum guidelines regulating the
conduct of takeover bids for all listed companies through out the community.
3. ABSTRACT OF IMPORTANT PROVISIONS RELATING TO

TAKEOVERS IN EU
Article 1 deals with the scope of the directive which states that, the directive is
only applicable to takeover bids for the securities47.
Article 2 defines various terms, Takeover bid ‘means a public offer (other than by
the offeree company itself and whether it is mandatory or voluntary) made to the holders of
the securities of a company to acquire all or some of such securities which follow, or has
as its objective ,the acquisition of control.
Further, ‘securities’ is defined as ‘those securities carrying voting rights in all

circumstances at general meeting”. This means that securities are with limited voting
rights. Preference shares are excluded. So, the scope of the companies and merger
transition covered by the directive is narrow. However, member states can choose to
regulate a wider range of companies and merger transactions if they wish to. The directive
does not apply to central banks.
General Principles
The general principles set out in Article 3 are at the core of the objectives of the directive
as they require,
 Equal treatment of all shareholders and protection of the remaining shareholders
where a person has acquired control.
 Offeree shareholders must have sufficient time and information to decide on the
bid, and the offeree is bound to give sufficient information on the effect of the bid
on employment and conditions of the employment.
 The offeree board must act in the interest of the company as a whole and must not
deny the shareholders the opportunity to decide on the bid.
 A false market must not be created in the shares of the offeree.
 An offeror must announce the bid only if he can fulfill a cash consideration in full
and meet other considerations, and
 An offeror must not hinder the business of the offeree for an unreasonable length of
time.
Thus Article 3 requires member states to ensure minimum standards in place and
member states may provide for more stringent provisions than in the directive.
47
It is applicable only to take overbids by those companies which are listed on a trading market in the U.K.
i.e. London stock exchange, these being public companies with securities wholly or partly traded on the
market
- 40 -
Supervisory Authority;
 Article 4 deals with matters concerning the supervisory authority and the applicable
law. It reacquires member states to designate a regulator. This could be a private
body recognized by national law and ought to be seen to be independent and
impartial to all the parties to the bid.48
 Article 4(2) deals with jurisdictional issues. When a target company trades in a
member state, other than where it has its registered office. The competent regulator
is the member state where the offeree is registered if trading on the market in that
member state. If the offeree is not trading in that member state where it is
registered, then the competent supervisor is that of the member state where the
securities of the offeree are traded.
 Separate to the issue of the relevant authority is the question of which takeover
rules apply. If there is a single supervisory authority, the takeover rules will apply
to the bid. If responsibility for supervision is shared, the article sets out which
takeover rules will apply.
 Matters relating to the consideration offered in a bid (particularly the price) and to
the procedure of the bid (in particular information on the offer’s decision to make
an offer, the contents of the offer document and the disclosure to make an offer) are
to be dealt in accordance with the takeover rules of the host supervisory authority.
 Matters relating to information for employees of the Offeree Company and matters
relating to company law49 are to be dealt in accordance with the takeover rules of
the home supervisor authority.
 Article 4(5) of the directive gives member states the power to designate to judicial
or other authorities the responsibility for dealing with disputes and for deciding on
irregularities committed in the course of bids with the particular favoritisms to
U.K., the directive does not affect the power which courts may have in member
states to decline to hear legal proceedings and to decide whether or not such
proceedings affect the outcome of a bid and the Directive does not affect the power
of the member states to determine the legal position concerning the liability of
supervisory authorities or concerning litigation between the parties to a bid.
Mandatory Bid:
Article 5 of the directive sets out the mandatory bid rule which protects the interests
of the shareholders especially the minority.
 Article 5 requires mandatory bid to be made when an offeror, as the result of an
acquisition of shares by that person or persons acting in concert with him holds
48
In U.K. the government settled for the panel to continue to supervise the takeovers
49
in particular the percentage of voting rights that confers control and any derogation from the obligation
to launch a bid as well as the conditions under which the board of the offeree company may undertake
any action that might result in the frustration of the offer
- 41 -
securities which directly or indirectly gives him a specified percentage of voting
rights in that company giving him control of that company. But the term ‘control’
is not defined.
 The percentage of voting rights that confers control is to be determined by the
takeover rules of the member states where the offeree company has its registered
office.
 Mandatory bid must be made at an equitable price. The equitable price is defined as
the highest price paid by the offeror or its concert parties for the same securities
during a period of between 5 and 12 months prior to the bid50.
 The offeror may offer consideration either in the form of securities or cash or a
combination of both. But at least as an alternative he must offer cash
considerations unless it offers liquid securities admitted to trading on a regulated
market in a member state.
 If in case the offeror or his concert parties has acquired for cash securities carrying
5% or more of the voting rights in the 12 months before the bid was made public
and ending on the expiry of the acceptance period then he must offer a cash
consideration, at least as an alternative. But the mandatory bid provision does not
apply if the offeror obtains control as part of general, voluntary offer.
Information on the bid;
 Article 6(1) reacquires that the decision make a bid has to be made public without
any delay and employees or representatives of the company must be informed about
the bid by the board of that company.
 Article 6(2) & (3) makes it clear that, the offeror has to draw up and make public an
offeror document containing information which enables the shareholders to reach a
decision over the bid and in case if the document is subject to approval before being
made public, once the document is approved it should be communicated to the
shareholders and to the employees. The document must contain sufficient
information to enable the shareholders to make an informed decision on the bid.
 Article 7 requires member states to provide time limit for the acceptance of a bid
which is to be not less than two weeks or more than ten weeks from the date of
publication of the offer document. However, time can be extended subject to a
condition that the offeror gives at least two weeks prior notice of its intention to
close the bid.
 Article 8 requires member states to ensure that the rules are in force that require the
bid to be made public. Partner member states are required to ensure that the rules
are in force which provide for the disclosure of all information or documents which
are to be readily available to the holders of the securities at least in their member
states where the securities of the offeror company are to be admitted to trading and
regulated market and the representatives of the employees of the offeror company
and the offeree.
50
Member states are required to fix the equitable price within these parameters.
- 42 -
Director’s duties under the Directive
To remedy the plight of shareholders, takeover regulation imposes the information
disclosure duty on directors where a company is faced with a takeover bid. Shareholders
looking for opportunities within the company to increase their shareholding or to purchase
shares in other companies would need information on share structure and control prevailing
at the time. Whereas aligning management interests with those of shareholders remains
generally under facilitated at law. The directive facilitates this indirectly by requiring
directors to provide relevant and timely information to all stakeholders.51
In this Art.8 of the Directive provides for a general disclosure obligation .further
Art.10 of the Directive provides for a specific obligation provision which requires listed
companies to publish detailed information on a number of matters such as capital structure
,class of share and rights attached, any share transfer restrictions and any employee share
scheme .this information needs to be published in the company’s annual report and this
obligation also requires that the board present an explanatory report to the annual general
meeting of shareholders about the matters published in the annual report.
Further Art.9 (5) of the Directive makes it clear that, the director of the offeree
company give their employees sufficient information on the effects of the bid employment
and conditions of employment. And also directors owe duties to the investors. The law
requires the need for directors to run the affairs of the company, for the interest of the
investor including the creditors. This includes at least two weeks prior notice of its
intention to close the bid.
In order to ensure market transparency and integrity for the securities of the offeree
company, Art.8 requires member states to ensure that the rules are in force which
reacquires a bid to be made public. Further member states are reacquired to ensure that the
rules are in force, which provide for the disclosure of all information or documents which
are to be readily available to the holders of the securities at least in their member states
where the securities of the offeree company are to be admitted to trading on a regulated
market and to the representatives of the employees of the offer company and the offeror
4.PROTECTION AGAINST TAKEOVERS
Defensive Mechanism :
 Article 9 and 11 of the Directive prohibits defensive measures that are often taken
by directors of target companies to resist unsolicited takeover attempts without the
approval of shareholders. In requiring shareholder approval, the takeover directive
retains a key principle from a prior proposal – i.e. shareholders as company owners
should ultimately decide the outcome of the takeover bid – by making defensive
measures more difficult to pursue, these provisions aim at eliminating management
entrenchment that frequently occurs at the expense of the shareholders.
Strict neutrality rule:: Pursuant to Article 9, the ‘strict neutrality rule’- once a takeover
bid is made, the target company’s board of directors must obtain “prior authorization of the
general meeting of shareholders” before implementing any defensive measures that may
frustrate the takeover bid. Seeking alternative bids from companies, however, is allowed
until shareholders approval. General shareholder approval is also required in situations
where decisions outside the normal course of company’s business are made prior to the bid
but are not implemented until the takeover bid is made.
51
Jonathan Mukwiri, Implementing the takeover directive in the U.K. 115( 2008)
- 43 -
Breakthrough rule: Article 11 creates “breakthrough rights” for the bidder, designed to
neutralize pre bid defences to a takeover bid. This provision bans certain legal restrictions
on the transfer of securities and voting rights in the target company’s article of Association.
Pursuant to the Provisions, the bidder is granted so called “breakthrough rights to do away
with obstacles to the transfer of securities.”
Article 11 stipulates that once the bid has been made public, any restriction on the
transfer of securities in the Article of Association in any contractual agreement will be
unenforceable against the bidder during the period of acceptance of the bid. This provision
affords a successful bidder the ‘right to call a general meeting at a short notice’ with a view
to amending the article of association and replacing the members of the board.
Consequently, any restrictions on shareholder’s voting rights will cease to have effect when
the general meeting of the target company’s shareholders decides in any defensive
measures.
Reciprocity: pursuant to Article 12, the member states can decide that Article 9 and 11 will
not be applicable to the companies with registered offices in their territories. Thus Article
12, in particular, allows each member state to retain their existing rules in the takeovers.
Article 12 states that ‘member states’ may reserve the rights to not to require companies
which have their registered offices within their territories to apply “strict neutrality” rule
(of Article 9) and “breakthrough rule” (of Article 11). Thus member states are free to allow
the boards thwart takeover bids by taking defensive measures designed solely to frustrate
takeover attempts without consulting their shareholders. Member states that invoke Article
12 must give companies with registered office in their territories an option to opt back into
these provisions. Thus companies can apply the strict neutrality and breakthrough rules
even if the member state where their office is located does not apply these provisions.
Implementation of breakthrough rule52
Voluntary application of the breakthrough rule is made conditional upon the
approval of those benefiting from disproportionate or special rights or of a large
proportion of shareholders in certain member states. This makes the application of the
rule on a voluntary basis more difficult.
 The breakthrough rule does not neutralize all pre-bid defenses company applying it
may constitute to use other defenses to thwart hostile takeovers. Companies
having acquisition plans may therefore choose to apply it so as to continue to be
protected against takeovers once they become targets. furthermore ,the fact that
the breakthrough rule has a limited coverage nay induce companies to switch to
other available pre-bid defenses not covered by it.
If a company decides to apply the breakthrough rule on a voluntary basis, such
decision can immediately be reversed as soon as the bidder becomes a target.
The reversibility of the company’s decision may even create confusion on the
market
. Implementation of board neutrality rule 53
52
Commission staff working document , Report on the implementation of the directive on takeover bids
8(2006)
53
Supra 13, 6(2006)
- 44 -
 In thirteen among the fourteen member states where the directive has already been
transposed, board neutrality is not a new concept .all member states had the same or
similar board neutrality obligation in place before transposition.
 In France reciprocity exception has been introduced, which now has increased the
management’s power to take frustrating measures without the approval of
shareholders on the proposed measure during the bid period.
 In majority of member states like France, shareholders need to regularly (every 18
months) give prior authorization to the management to apply takeover defenses in a
reciprocity situation; they will lose the possibility to immediate check on the
validity of the proposed defensive measure during the bid period. Reciprocity
therefore may increase the likelihood of potential abuse by management to the
detriment of shareholder’s interests in these member states.
This is the first in-depth guide to the European Takeover Directive and its
implementation in various E.U. member states. The directive encourages a certain
harmonization of the takeover legislation in the twenty- five member states, but it will not
result in a uniform set of takeover rules throughout the E.U. The framework of minimum
standards will be implemented differently in each member state and attorneys representing
bidders for E.U. target companies will be faced with a complex and confusing mosaic of
different provisions that will, in each case, demand a company-by-company analysis.
This work describes the history and the political and economic objectives of the
directive, and offers detailed commentary on the text, with each article discussed and
explained. Expert insight is provided on national takeover legislation as amended by the
directive in a number of key jurisdictions, the optional arrangements provided for in the
directive, and the very different provisions that may apply in the various member states.
Particular attention is given to new provisions resulting from the directive, with analysis
from attorneys in each member state covered.
Includes a discussion of the rights of employees under the directive, a timetable for
implementation, the sanctions for not implementing on schedule, and analysis of whether
the directive is compatible with the WTO obligations of the E.U. Special attention is given
to the directive’s impact on U.S. companies bidding on companies established in the EU
.
Insider trading in takeover procedure
Insider trading is the trading of company shares by using confidential in

information that could affect the share price. Insider information is not public and gives
unfounded advantage to its possessor who can in securities trading realize economic
benefits.
In the takeover procedure, a member of target company management or

supervisory board ,who sells the company’s shares fast, by using his position of the inside
information concerning the bid before its announcement acts as an insider.
The directive 2002/06/EC 0F 28/01/2003 on insider dealing and market manipulation,
describes “inside “information , any information that has not been made public, relating
directly or indirectly to one or more issuers of financial instruments and in the case of
publication this information it would make strong influence on instrument’s price.
Accordingly, the directive “market manipulation” shall mean dissemination of information
through the media, including the internet, which gives false or misleading signals to
financial instruments where persons knowingly disseminate false information, unfair use of
insider information by insiders relates to acquiring benefits from the security value
- 45 -
increased after purchasing. The directive forbids acquiring economic benefits and
advantages to persons that possess inside information as an insider. This prohibition relates
to using that information by acquiring or disposing of, or by trying to acquire or dispose if,
for his own account of for the account of a third party, either directly
SQUEEZE-OUT
The right to squeeze out minority shareholders allows a bidder who has acquired a
very large part of the share capital to acquire the outstanding shares. Forcing minorities out
of the company liberates the bidder from cots and risks which the continued existence of
minorities could trigger. This is an efficient tool for bidders to finalize a takeover, thus
making takeover bids more attractive. Takeover-related squeeze-out has been introduced in
the member states and thus it will help to facilitate such transactions within the EU.
SELL OUT
The sell-out right provides minority shareholders with a counterpart to the squeeze-
out right. It allows them to force the majority shareholders to buy their shares at a fair
price. Such a rule protects the minorities from abuse by the majority shareholders of his
dominant position, where such protection is not available below the sell-out threshold in
national law. Furthermore, the obligation to fairly compensate minorities may offer them a
better price for their shares than the one set by a potentially illiquid market.
The takeover related sell-out rue has been introduced in large number of countries
for the first time through the transposition of the directive, consequently it strengthens
minority protection in the EU.
GOLDEN SHARES AND THE EC TREATY
Article 11(7) of the EC treaty proposes two situations. Firstly, with regard to
“securities in the offeree company which confer special rights on the member states…”
secondly, with respect to “special rights provided for in national law…”.the first concept
refers to golden shares as originally adopted in the UK, where the article of association of
privatized companies used to provide for the issuance of special shares to the state. The
second concept refers to the practice of privatizations in countries like France, where the
law foresees that special rights (similar to those deriving from golden shares) may be
attributed to the state with respect to privatized companies. In both cases, a problem rises
of compatibility of member state’s special rights with the EC treaty. To the extent that a
member state is entitled, for instance, to authorize either transfer of control in the relevant
company or mergers of the same with another company, the fundamental freedoms of the
Treaty may be restricted as a result.54
This has been recognized by the European court of Justice in a series of cases
concerning golden shares and privatization laws of several member states. The court
focused on Article 56 of the EC treaty stating that “all restrictions on the movement of
capital between member states and between member states and third counties shall be
prohibited.
In December 1999, the European commission had brought action against France for
violating the freedoms under EC Treaty by their golden shares regime. In Commission v.
French Republic55, France holds a golden share in the Societe Natioanale EIF-Aquitaine,
54
Guido Ferraeini, one share – one vote: A European rule?, working paper of institute for law and
finance,20(2006)
55
C-367/98
- 46 -
the leading French petroleum company. This share gives the following rights:
shareholdings or voting rights of more than 10%, 20%, or 33% must first be approved by
the Minister of Economic affairs and a transfer of shares representing the majority of the
capital can be opposed by the state. The European court of Justice held that France had
violated the Treaty and free movement of capital may be restricted only by national rules
that fulfil the two fold criterion of being founded on overriding requirements of the general
interest and being proportionate to the objective pursued. The French Golden share regime
was considered to be clearly beyond what is necessary to attain the objective indicated. The
requirement of general prior authorization and the right of opposition ex post facto do not
indicate the specific, objective circumstances under which authorization is given or
refused. This is contrary to fundamental principle of the free movement of capital56.
The Directive fails to meet its objective of harmonizing takeover regulation in

Europe, because, it leaves it open to Member States to set their own threshold that triggers
a mandatory bid. The Directive’s failure to prescribe a uniform threshold of shareholding
triggering the mandatory bid, in turn fails to harmonize the mandatory rule. Further, by
allowing Member States to opt in and out of the core provisions, Articles 9 and 11, the
Directive fails to achieve a ‘harmonizing of the regime of takeover defences. This political
compromise has resulted in creating takeover barriers in many Member States defeating the
very objective of the directive.
56
Prof.Klaus J. Hopt takeover regulation in Europe: the battle for the 13th directive on takeovers ,Australian
journal of corporate law(2002)13
- 47 -
UNITED KINGDOM (UK)
During 1930 boards routinely dismissed outsider’s attempts to praise away the
control. The position changed with the Companies Act, 1948. This measure with the
development of Stock Exchange Rules required companies to disclose a wider range of
information to the regulating authorities. There was a rapid growth of hostile takeovers in
late 1950’s which resulted into pressure from shareholders group for regulatory
interventions to protect their interests. This led to issuing in 1959 of the Notes on
amalgamation of British businesses a code of conduct drawn up with the encouragement of
Bank of England for pursuing good business practices in the conduct of takeovers and
mergers. In 1968, City Code on takeovers and mergers was drawn up and administered by
self regulatory body known as city panel on takeovers and mergers. Since then City Code
of 1968 has evolved as a substantial body of principles and regulations to the conduct of
takeovers. The code is founded on the principle of equal protection of shareholders. The
U.K. implemented the EU directive in several steps:-
 In 2005 the department of trade and industry published a consultative document
including detailed proposals for the implementation of directive.
 Based on this enactment parliament passed in 2006 companies Act as the
implementory framework.
 This statute left the detailed rules to the city code
 The city code thus gave the panel right to promulgate these rules to the panel.
 The panel still continues to give rulings on the interpretation, application and effect
of the code.
The directive applies only to offers relating to companies whose shares are traded
on a regulated market. The code applies to both companies whose shares are traded in a
regulated market (primarily fully listed companies) and companies whose shares are not
traded as a regulated market.
2. CIRCUMSTANCES 57
 There is no concept of statutory merger in the UK .It is broadly speaking, not
possible for a UK company to be merged into another company that becomes
the surviving entity. Therefore, any acquisition of a UK public company takes
place through the acquisition of shares in the target company by the bidder.
 A takeover can be carried out either by the bidder making an offer to acquire the
shares held by the target company’s shareholders, or by the target company
initiating a statutory court process called a ‘scheme of arrangement’. Both
structures are governed by the City Code, the rules of which are modified
appropriately where a scheme of arrangement is being used.
 In the case of an offer, the target shareholders are asked to accept the offer
being made to them by the bidder. Typically the offer period starts once the
57
Craig Cleaver ,Slaughter and May, United Kingdom- Takeovers Guide 3(2009)
www.ibanet.org/Document/Default.aspx?DocumentUid=4AB94473... Visited on 25-11-2010
- 48 -
announcement of a firm intention to make an offer is made and the bidder must
send the offer document to the target shareholders setting out the terms of the
offer within 28 days. The offer must then be open for acceptance for at least 21
days. If the offer is revised, then a revised offer document needs to be sent to
the target shareholders and the revised offer needs to be kept open for at least 14
days.
 A scheme of arrangement generally only used in recommended offers where
there is no reasonable likelihood of a competing bid and follows a different
timetable. Typically taking 3-4 months to implement. A scheme of arrangement
is a formal arrangement between a company and its shareholders and needs to
be approved both by the shareholders 58and by the high court. The arrangement
is binding on the target company and on all the shareholders involved.
 The fact that a scheme of arrangement is binding on all the relevant
shareholders provides certainty and can offer particular attractions when a
bidder is confident of gaining the support of target company shareholders
holding 75% of the shares but believes that the 90% level needed for the
compulsory acquisition.
3. TRIGGER POINTS
 Acquisition of interests in shares which carry 30% or more of the voting rights of the
company: An interest in shares arises through ownership of shares by way of right to
exercise or direct exercise of the voting rights attaching to the shares or option to
acquire the shares or call for their delivery or being under an obligation to take delivery
of them by virtue of any agreement to purchase, whose value is determined by
reference to the price of the shares and which results, or may result in, his having a long
position in them.
 A person has an interest in shares carrying between 30% and 50% of the voting rights
of a company and acquires an interest in other shares which increase the percentage of
voting rights in which he is interested.
 The code sets 30% as the threshold requirement limit which can be held by a single
shareholder, a group of shareholders, offeror or persons acting in concert.
4. CONSIDERATION
Generally there are no restrictions on the nature of consideration for voluntary

offers in UK. The types of consideration may include combinations of cash, loan notes,
shares, warrants or convertible /exchangeable bonds. However, there are some additional
rules for compulsory bids.
In case of compulsory bids, by virtue of section 6,
 when the bidder and its concert parties acquire any interest in shares ‘for
cash’ during the preceding 12 months, or which carries 10% or more of the
voting rights or where the bidder and its concert parties acquire any interest
in shares ‘for cash’ during the offer period (at the highest price paid during
the offer period), the bidder must provide cash or a cash alternative to target
58
The requisite majority is 75% of the votes cast and a simple majority in number of the shareholders voting
- 49 -
shareholders. In case if the panel considers it necessary the cash option may
also be exercised59.
 In case, the bidder and its concert parties have acquired share interests in the
target company during three months prior to or during the offer period in
exchange for securities and such shares carry 10% or more of the target
company voting rights, the bidders must provide securities or a securities
alternative to target shareholders.
5. TAKEOVERS REGULATIONS IN UK
Takeovers in the United Kingdom are regulated by different sets of provisions. These
provisions include:
 City Code on Takeovers and Mergers,
 Monopolies & Restrictive Trade Practices Act, 1948
 Prevention of Fraud (Investment) Act, 1956
 Fair Trading Act, 1973
 Financial Services Act, 1986
 Stock Exchange Rules and
 Statutory Prohibition Rules against insider trading
The “City Code” emphasizes six general principles and 38 rules. Its underlying objectives
can be summed up in three underlying principles.
 All the shareholders of the same class in a target company must be treated equally
and must have adequate information so that they can reach a properly informed
decision.
 A false market must not be created in the securities of the bidder or the target
company and,
 The management of the target company must not take any action which would
frustrate an offer without the consent of its shareholders.
The 38 rules form the very bulk of the City Code. These are nothing but the general
principles and provisions governing specific aspects of takeovers.
Further the U.K. listing authority [‘UKLA’] Rules may also be relevant whenever
one of the parties to takeovers is listed, or is seeking a listing on the main market of the
London Stock Exchange. If the bidder is listed, the UKLA rules will require it to obtain
consent from its own shareholders, if the takeover is comparatively a large acquisition. In
addition, if the bidder is offering its own listed securities as consideration, the UKLA rules
will prescribe the contents of the prospectus or equivalent document.
59
For e.g.; where there have been cash purchases from the directors.
- 50 -
6. PROVISIONS AND RULES IN CITY TAKEOVER CODE
The Mandatory Rule:
The majority of the rules in the code are designed to protect all shareholders; rule 9
of the Code is specifically designed to protect minority shareholders by way of mandatory
bid requirement, as contained in Art.5 of the Directive. Under the Code, two main
circumstances will trigger a mandatory bid requirement. These are,
Where:
 Any person acquires, whether by a series of transactions over a period of time or

not, an interest in shares in which (taken together with shares in which persons
acting in concert with him are interested) carry 30% or more of the voting rights of
company, or
 Any person, together with persons acting in concert with him is interested in shares
which in the aggregate carry not less than 30% of the voting rights of a company,
but does not hold shares carrying more than 50% of such voting rights and such
person, or any person acting in concert with him, acquires an interest in any other
shares which increases the percentage of shares carrying voting rights in which he
is interested.
U.K. did not adopt the breakthrough rule. On the one hand, where no restrictions are
provided under the U.K. company law on the way companies can structure their share
capital and control there are on the other hand, few listed companies in U.K. with
differential voting structure or restrictions on the transfer of shares or voting rights, mainly
as a result of market forces.
In addition, a breakthrough regime might not have the desired effect of promoting
more open takeover markets as companies would simply move to other jurisdictions or try
to circumvent the breakthrough mechanisms as required under the directive, listed
companies are however entitled to opt into the breakthrough rule.
Non-frustration rule
Section A of the Takeover Code states that the code is designed principally to
ensure that shareholders are treated fairly and are not denied an opportunity to decide on
the merits of a takeover and that shareholder of the same class are afforded equal treatment
by an offeror. The non-frustration rule is established to serve the former purpose to set
management aside when the hostile bids are imminent so that shareholders have the final
say on the merits of the bids.
General principles of the takeover code provide that,

 The board of an offeree company must act in the interest of the company as a whole
and must not deny the holders of securities the opportunity to decide on the merits
of the bid.
 General principle 2 states that the holder of the securities of an offeree company
must have sufficient time and information to enable them to reach a properly
informed decision on the bid, where it advices the holders of securities, the board
of the offeree company must give its views on the effects of implementation of the
- 51 -
bid on employment, conditions of employment and the locations of the company’s
places of business.
These principles are further elaborated in Rules 3, 21, and 37.3 of the Takeover Code.
 Rule 3.1 the target board is required to obtain competent independent advice on
offers and the substance of that advance must be made known to the shareholders,
Second, the target board should refrain from making recommendations to the
shareholders as to whether to accept any offer, regardless of its fairness, although
the target board may communicate to the shareholders that the offer is a fair one.
 Rules 21 and 37.3 set down a non-exhaustive list of common situations in which
shareholders approval is required ,such as acquisition, disposal of a target
company’s assets of a ‘material amount’, share issues ,and entering into contracts in
any context other than in the ordinary course of business.
Thus these provisions do not prohibit corporate actions which carry frustrating
effects, but rather require that the decision to undertake such actions be placed firmly in the
hands of shareholders during the general meeting.
Regulatory Authority
Takeover activity within the United Kingdom is primarily overseen by the City
Panel on Takeovers and Mergers. The Panel on Takeovers and Mergers (the “Panel”) is an
independent body, established in 1968, whose main functions are to issue and administer
the City Code on Takeovers and Mergers (the “Code”) and to supervise and regulate
takeovers and other matters to which the Code applies in accordance with the rules set out
in the Code. It has been designated as the supervisory authority to carry out certain
regulatory functions in relation to takeovers pursuant to the Directive on Takeover Bids
(the “Directive”). Its statutory functions are set out in and under Chapter 1 of Part 28 of
the Companies Act, 2006.
The Panel regulates takeover bids and other merger transactions for companies
which have their registered offices in the United Kingdom, the Channel Islands or the Isle
of Man60 or if any of their securities are admitted to trading on a regulated market in the
United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man. Its
remit also extends to unlisted public companies and certain private companies which are
resident in the United Kingdom, the Channel Islands or the Isle of Man.
In certain circumstances the Panel also shares responsibility for the regulation of an
offer with the takeover regulator in another Member State of the European Economic Area
(“Member State”). For example, where the offeree company is registered in the United
Kingdom and has its securities admitted to trading only on a regulated market in a Member
State other than the United Kingdom.
60
United Kingdom, includes the Constituent Countries (England, Northern Ireland, Scotland and Wales),
the British Crown Dependencies (The Channel Islands and the Isle of Man).
- 52 -
7. ROLE & DUTIES OF DIRECTORS
Under Company law:
The most efficient way of ensuring Director’s to promote the interests of the
company is to have their interests harmonized with the interests if the Company as a whole.
One way of aligning management interests with those of shareholders is by holding
directors accountable to shareholders for a breach of their duty. Unfortunately, until a
Company is in liquidation or a successful takeover bid ensues, it is almost impossible for
shareholders to maintain an action for breach of duty against directors.
Towards shareholder:
Generally, if the director’ acts anything in contrary to the interests of the Company,
viz. financial loss to the company, shareholders cannot sue; the company alone.61.
However a shareholder can only sue if s/he can establish a personal claim, say a loss
directly affecting their share value or interests.
Thus, generally company law does not explicitly provide remedies to shareholders
where the affairs of the company are managed in a manner that causes loss in the form of
share value or premiums decline.
The law’s response to such problem has always been to give an exit strategy62 to a
shareholder. To strengthen such exit strategy, the law now heavily regulates takeover
activities, which gives a fair-exist strategy to the aggrieved shareholders so that takeover
will only serve the purpose if a regulated strategy exists.
While takeovers might serve an industrial restructuring purpose, they serve no

function in discipline management; whether or not threat of takeovers align management
interests of those of shareholders, the more these interests are not aligned the easier
takeovers are likely to succeed, giving a low cost exist strategy to minority shareholder in
the end, when share value is declining due to the incompetence or otherwise of directors
dealings, minority shareholders have little legal redress but to sell their shares and invest
elsewhere.
Towards Offeree / Offeror:
Article 8 of the Directive contains general disclosure obligations which are

implemented by Section 943 of the Companies Act 2006, which requires the panel on
mergers and takeovers to make appropriate rules as per rules 24 and 25 of the code. The
extent of the obligation in the Code is similar to that required by the directive.
First, this acquires that a bid is made public in such a way as to ensure market
transparency and integrity for the securities affected by the bid, in particular in order to
prevent the publication or dissemination of false or misleading information.
61
Foss v. Harbottle(1843) 2 Hare 461.
62
A mechanism of selling shares at a fair price.
- 53 -
Secondly, it will require that all relevant information be disclosed in such a manner
as to ensure both readily and promptly available to the holders of securities, employees, as
to representatives of the employees. Art. 10 of the directive contains a specific disclosure
obligation, this is implemented by Sec. 992 of the Companies Act 2006.
The disclosure obligation not only falls on directors but also on shareholders. By
virtue of section 793 of the Companies Act 2006, the company can require any shareholder
or suspected shareholder, to disclose the interest, if any, of its beneficial ownership of the
company’s shares. Directors may actively engage in issuing section 793 notices to
suspected empire builders and take actions that would not be caught by Article 9 of the
directive.
That section runs alongside with the Rule 21 of the Code which is an indication that
the rules against defensive tactics are effective enough to allow directors not to be caught
by surprise by a bidder who comes as a result of systematic empire building although the
mandatory rule would provide empire building.
Thus the regulatory framework for takeover in the U.K. has now been redefined
from so called self-regulations to statutory regulations. In this regard for the first time the
operation of the panel and code has been put on statutory footing by the implementation of
the directive in U.K.
Compensation for Director’s loss of office
Article 21(K).information to be contained in director’s annual report includes any

agreement between the company its directors or employees providing for compensation for
loss of office or employment (whether through resignation, purported redundancy or
otherwise) that occurs because of bid
The service agreement between an executive or managing director and his company
is a very important instrument which will delineate the employees’ powers, rights and
duties vis- a- vis the company. It will usually contain provisions concerning termination of
office and compensation for loss f office. Often, the service contract will contemplate the
possibility of a takeover of the company and provide that, in such event; the employee may
resign or be dismissed and in either case will be entitled to remuneration. This type of
clause guards against an unsatisfactory relationship between the employee and his new
masters. In this regard, the service contract is potentially very valuable in the hands of the
employee and there is a serious possibility that this sort of agreement between a company
and its executive directors could discourage takeovers and constitute a threat to
shareholders.63
Stamp duty64
Where a scheme of arrangement is implemented not by ay of transferring shares in
the target company but, instead, by cancelling shares in the target company and utilizing
the resulting reverse in issuing new shares to the offeror. There is a resulting advantage in
the fact that no stamp duty is payable.
De- listing65
63
Jennifer Hill.” Compensation for Director’s loss of office: Taoupo totara Timber Co.V.Rowe” 8 Sydeny
L.Rev.178: 1977 1979
64
Currently payable at the rate of 0.5%
65
Supra 21 , 11(2009)
- 54 -
De-listing of the target from the LSE/ULKA should be
Straightforward following an offer, provided that the bidder has stated its intention to de-
list in the offer document .the document must sate that a notice period of not less than 20
business days will automatically start to run on either ;
 The bidder acquiring or agreeing to acquire shares carrying at least 75% of the
voting rights in the target, or
 Compulsory acquisition notices being sent to minority shareholders.
The announcement that the offer is unconditional must then remind people that the
notice period has commenced and state the anticipated date of cancellation of
listing.
Delisting following the implementation of scheme of arrangement is effectively
automatic. The LES/ULKA must be notified in advance of the date that the scheme
is to become effective.
8. TAKEOVER DISPUTE RESOLUTION MECHANISM IN UK
The Executive
The day-to-day work of takeover supervision and regulation is carried out by the
Executive. In carrying out these functions, the Executive operates independently of the
Panel. This includes, either on its own initiative or at the instigation of third parties, the
conduct of investigations, the monitoring of relevant dealings in connection with the Code
and the giving of rulings on the interpretation, application or effect of the Code66. The
Executive is available both for consultation and also giving of rulings on the
interpretation, application or effect of the Code before, during and, where appropriate, after
takeovers or other relevant transactions.
Hearing Committee
The principal function of the Hearings Committee is to review rulings of the

Executive. The Hearings Committee also hears disciplinary proceedings instituted by the
Executive when the Executive considers that there has been a breach of the Code or of a
ruling of the Executive or the Panel. The Hearings Committee may also meet to consider a
matter referred to it for review by the Executive or in other circumstances where the
Executive or the Hearings Committee consider it appropriate to do so. The Hearings
Committee can be convened at short notice, where appropriate.
The Hearings Committee comprises the Chairman of the Panel, up to three Deputy
Chairmen, up to eight other members appointed by the Panel and the individuals appointed
to the Panel by the Nominating Bodies.
No person who is or has been a member of the Code Committee may

simultaneously or subsequently be a member of the Hearings Committee.
The procedures of the Hearings Committee are summarised in section 7 of the

Introduction to the Code. Its full procedures are set out in its Rules of Procedure.
66
www.thetakeoverpanel.org.uk
- 55 -
Any party to a hearing before the Hearings Committee (or any person denied
permission to be a party to the hearing before the Hearings Committee) may appeal to the
Takeover Appeal Board against any ruling of the Hearings Committee or the chairman of
the hearing (including in respect of procedural directions).
The Takeover Appellate Board
The Takeover Appellate Board (the "Board") is an independent body which hears
appeals against rulings of the Hearings Committee of the Takeover Panel (the "Hearings
Committee"). The Chairman and Deputy Chairman are appointed by the Master of the
Rolls and will usually have held high judicial office. The other members of the Board are
appointed by the Chairman or Deputy Chairman and will usually have relevant knowledge
and experience of takeovers and the Takeover Code. No person who is or has been a
member of the Code Committee of the Takeover Panel may simultaneously or
subsequently be a member of the Board.
Any party to a hearing before the Hearings Committee (or any person denied
permission to be a party to the hearing before the Hearings Committee) may appeal to the
Board against any ruling of the Hearings Committee or the chairman of the hearing
(including in respect of procedural directions).
The procedures of the Board are summarised in section 8 of the Introduction to the
Takeover Code.
9. CONCLUSION
The Code is designed to ensure that shareholders are treated fairly and are not
denied an opportunity to decide on the merits of a takeover and that shareholders of the
same class are afforded equivalent treatment by an offeror.
The Code also provides an orderly framework within which takeovers are
conducted. In addition, it is designed to promote, in conjunction with other regulatory
regimes, the integrity of the financial markets.
The Code is not concerned with the financial or commercial advantages or

disadvantages of a takeover. These are matters for the company and its shareholders. Wider
questions of public interest, such as competition policy, are the responsibility of
government and other bodies, such as the Competition Commission, the Office of Fair
Trading and the European Commission.
10. PROMINENT CASES ON TAKEOVER
1. R Vs. The Panel on Takeovers and Mergers (Ex parte Mohamed Al Fayed)
Facts: The Panel on takeovers and mergers and the Al Fayed brothers were in the collision.
The takeover panel wanted to investigate certain conduct of the Al fayed brothers before
they acquired the company which owned among other stores, “the Harrods”. The panel was
on the investigation of breach of a general principle contained in the city code on takeovers
and mergers and it decided to continue with its disciplinary proceedings in order to find
whether Al fayed brothers were in breach principle 12. M/s Al Fayed brothers objected for
- 56 -
it contending that there is a civil action between Lonrho and them in which Lonrho makes
no bones about alleging that the Al Fayed brothers prior to the takeover of Harrods
behaved fraudulently and made false representations.
Issue: Whether The Panel on takeovers and mergers be restrained from investigating until
the civil case between the Applicant and Lonrho is decided.
Judgment: The Queen’s division bench refused granting the restraint on actions of
takeover panel as it was of the opinion that “each case will depend upon its facts if it
appears to allow the proceedings to go forward will muddy the waters of justice, then it
will be appropriate to adjourn them or to take some other course to ensure that those waters
were not mudded” and further it was of the opinion that the Takeover Panel could properly
be conducted without any injustice to the future proceedings.
2. Resident European Fund and others Vs. Coats Holdings Plc.
Facts: An application for an interim injunction was sought pending the trial of a petition
under s.459 of the Companies Act 1985. The petitioners were four offshore funds holding
42% of the 4.9 % cumulative preference shares of each 1 pound each in Coats Plc which
was the first Respondent Company. The injunction was sought to restrain the company
from causing or procuring the de-listing of its preference shares save where what was
consistent with the undertaking, which was given by the second respondent, Coats holdings
Plc, in connection with its takeover offer for all of the ordinary shares in the company. The
undertaking was to ensure that the company’s preference shares continued to be listed on
the official list until such time as they were repurchased or otherwise refinanced. The
undertaking was contained in a formal written agreement between the Company, Holdings
and members of the Consortium members of the Consortium undertook to ensure that so
far as each of them was able, Holdings would comply with its obligations under the
undertaking. The agreement in which the undertaking was contained was the subject of a
public announcement in which the undertaking was mentioned. It was also made to the
company’s ordinary shareholders and in an accompanying letter of recommendation from
the company’s chairman on behalf of the company’s (then) board of directors, other than
one of the directors. Further, following the takeover of the company its ordinary shares
were de-listed and also it wished to cancel the listing of its preference shares at the same
time. Holdings announced an offer to acquire all of the preference shares at 81p per share.
The offer was conditional upon valid acceptances being received by that time in respect of
not less than 75% in normal value of the preference shares or such lesser percentage as
holdings might decide. Thus the petitioners contended that they retained their preference
shares and acquired further shares in reliance upon the undertaking and company’s action
in proceeding to de-list the preference shares which was in breach of the undertaking.
Therefore they sought to restrain the company from its further proceedings of de-listing by
applying for the injunction against the company.
Issue: Whether the company’s application for de-listing of the preference shares
constitutes a breach by the company’s directors of their fiduciary duties and being
prejudice to the petitioners’ interests as members of the company?
Judgment: The Chancery division court refused to grant interim relief as it was of the
opinion that the undertaking‘s reference to repurchase and refinancing to the company by
Holdings was not clear by whom and at any rate in case of repurchase and at what price.
- 57 -
Further, it is inherent in the undertaking that the preference shareholders should receive full
value for their shareholdings before de-listing is to be permitted. It is not that the shares
should always remain listed; rather it is that they should remain listed until the holders get
full value for them. Thus it would not amount to breach of fiduciary duties on part of the
directors of the company.
- 58 -
FRANCE
The takeovers in France are largely dependent on the practices and procedure
mandated under European Directives. In 2001 the Committee of European Securities
Regulators (CESR) was formed which gave additional responsibilities to regulatory
agencies, which are now charged with recommending technical rules to the European
Commission to ensure harmonised implementation of EU directives.
The French Parliament implemented the Takeover Directive of E.U. during March
2006, which introduced significant changes to the existing rules on takeover bids. In
France, the Act of 31 March 2006 on Takeover Bids i.e. “loisur les offers publiques
d’acqusition” implements the takeover directive.
2. THE REGULATORY AUTHORITY
Public takeovers in France are regulated by a single Market Authority, i.e. the
Autorité des marchés financiers (AMF). AMF has been entrusted with the task of stock
market regulation, with clear-cut principles governing Investors’ Protection, information
and transparency. In addition, it has been charged with the important role as the French
regulator for governing international takeover transactions. AMF is also responsible for
issuing and enforcing the ‘general regulations’, which contains both the rules on the
conduct of takeovers and associated disclosure obligations.
General regulations apply, when the target company’s registered office is located in
France and whose securities are admitted to trading in French regulated market.
The AMF also acts as a competent authority relating to an offer for a target
Company that is not listed in the country of its registered office; where registered office is
located in a European Union (E.U.); or European Economic Area (EEA); or EU member
state (other than France) and whose first place of listing in the EU / EEA was France; or
whose registered office is located in an EU/EEA member state (other than France); and
whose securities were simultaneously admitted to trading on several regulated markets
(including the France regulated market), provided that the target company chose the AMF
as the Competent Authority.
In these cases, the AMF will apply the provisions of French Law and General
Regulation. By way of exception, the conditions under which the board of the target
company may take frustrating action, the rules relating to the mandatory offers and the
circumstances under which the target company may be subject to squeeze out procedure
would remain to be governed by the laws of the member state in which it has its registered
office.
The AMF may be the competent authority relating to an offer for a target company
whose registered office is not located in an EU/EEA member state but whose securities are
admitted to trading on the French regulated market but not on its domestic market.
- 59 -
To ensure better transparency in the Takeover bids, AMF ensures that the market
receives complete, high-calibre information. Since September 2006, to prevent the market
from being disrupted by rumours of takeover bids, the AMF held the power to seek
explanation from any entity that it has reason to think is preparing a tender offer, to
publicly state its intentions and, where applicable, file a draft bid;
 If the entity in question states that it does plan to file a bid, the AMF sets out a
timetable for informing the public and filing the bid.
 If the entity in question does not comply with the arrangements put in place by the
AMF or says it does not want to make a bid, then that entity may not, unless
circumstances change, file a draft bid for the securities of the target company for six
months.
The General Regulation distinguishes between ‘normal’ public offers and

‘simplified’ public offers. The purpose of a normal public offer is to take control of a target
company, whereas the simplified procedure is used to acquire or increase an interest in a
company without seeking to acquire control (for example, where a bidder already has a
controlling interest in the target).
A number of rules, including the offer time-table and settlement mechanisms, differ
depending on whether the simplified or normal offer procedure is followed. For example, a
simplified offer may be made through market purchases, while a normal offer is centralized
by the Stock Exchange (Euronext67 Paris), allowing shareholders to withdraw their
acceptances at any time up to the closing date of acceptance period. The decisions of the
AMF on public takeovers can be challenged before the Paris court of appeal (Cour d’
appel).
The French domestic merger control regime is enforced by the French Finance
Ministry (the Ministry) through the “Direction Generale de la Concurrence, de la
Consommation et de la Repression des Fraudes” (DGCCRF) and by the “Counseil de la
Concurrence” (the Competition Council).
3. TRIGGER POINTS
 Acquisition of more than 33.33% of the voting capital or of voting rights; and
 Acquisition of at least 2% more of the voting capital or voting rights within less
than one year by persons holding between 33% and 50% of the voting capital or
voting rights.
Under the French domestic regime, a notification to the Ministry is mandatory

when the following merger threshold limits are met:
67
Pan-European exchange created from the merger of the equity and derivatives exchanges of Amsterdam,
Brussels, Lisbon, London and Paris. Euronext Paris, the French arm of the holding company Euronext
NV, operates the Paris markets and performs the following functions in Stock Exchange of Paris (a)
operating the electronic trading systems, i.e. recording transactions between exchange members through a
clearing house that guarantees payment and delivery, (b) managing memberships and the listing and
delisting of securities, (c) disseminating market information and trade data, (d) promoting the market to
issuers and investors.
- 60 -
 The worldwide turnover of all of the undertakings involved is greater than €150m.
 The turnover achieved by at least two of the undertakings in France is greater than
€50m.
The notification may be made at any time after the parties have entered into a form
of agreement or signed a Letter of Intent regarding the acquisition of a controlling interest
or announced a public takeover. If the parties to a transaction that meets the thresholds, fail
to notify it to the Ministry, penalty, in terms of fine at the rate of 5 per cent of their pre-tax
turnover in France for the last financial year may be imposed against such defaulting party.
4. REGULATION OF FRENCH TAKEOVERS
The French Finance Ministry investigates any Takeover bid process in two phases.
Phase I:
 The Ministry has five weeks to review the transaction. This period may be extended
by an additional period of three weeks if the notified party proposes undertakings
more than two weeks after the transaction was notified.
 After a Phase-I review, the Ministry may approve the transaction (with or without
undertakings) or express reservations about it.
 In the latter case, the Ministry will refer the case to the competition council for a
Phase-II review.
Phase II:
 The Competition Council would have three months to carry out an in-depth
examination of the proposed transaction and report to the Ministry. The report is not
binding on the Ministry, which has a further four weeks to approve, veto or modify
the transaction.
 The total time period for the Ministry to reach a decision in the event of a Phase II
review is therefore approximately five months.
 In principle, a transaction cannot be completed until it has been approved by the
Ministry. However, a bidder is allowed to proceed with a public takeover offer
before obtaining the Ministry’ approval, provided it does not exercise the voting
rights attached to the shares acquired pending clearance.
Investments in French financial services industry are subject to specific regulation.

For example, any proposed takeover of a French bank has to be notified to the Governor of
the Banque de France at least eight business days before it is filed with the AMF or
announced.
In addition, French banking board approval must be obtained before the opening of
the acceptance period of an offer to acquire a French bank, broker or any other financial
institution. The French banking board is entitled to delay its decision until antitrust
approval has been obtained from the Ministry or the European Commission (the
Commission). Similarly, the acquisition of an interest in a French insurance company is
also subject to the approval of the French insurance board.
If an agreement contains ‘preferential’ terms for the sale or acquisition of shares

(such as pre-emption rights or put and call options), and relates to at least 0.5 per cent of
- 61 -
the share capital or the voting rights of a listed company, it must be disclosed to the
company and the AMF within five trading days of it being entered into.
The AMF publishes the principal terms of such agreements. Failure to disclose such
an agreement will result in its terms being ineffective if an offer is launched for the
company to which it relates.
The most effective defence is for a company to be incorporated in the form of a

societe en commandite par action (SCA). An SCA is a form of limited partnership, with
limited partners who hold transferable share as in a ‘normal’ Societe Anonyme (SA) and
general partners whose shares are not transferable and who benefit from veto rights on
significant corporate decisions (including the appointment or renewal of directors and
amendments to the by-laws). In practice, a takeover of an SCA gives the bidder virtually
no management control of the target.
Other defence mechanisms include provisions relating to the number of voting

rights that may be exercised by a single shareholder. However, if a bidder holds more than
two thirds of the target company’s share capital or voting rights following a takeover offer,
any such limits suspended at the first shareholders’ meeting of the target company
following the takeover offer.
By-laws of certain listed French companies provide for double voting rights for
shares registered in the name of the same shareholder for a certain period of time (usually
two years). On the transfer of such shares the double voting rights cease, meaning that a
successful bidder will acquire shares with simple voting rights, while the relative weight of
shareholders not having tendered their shares to the offer will increase.
Once an offer is filed with the AMF, special rules apply to restrict the
management’s ability to implement defensive measures.
Management’s ability to implement defensive measures during an offer period is

limited. No decisions may be taken contrary to the interests of the company or the
principles of equal treatment of and information to, the terms of any agreement that could
affect the outcome of the offer must be disclosed to the AMF and made public.
Unless reciprocity applies, management is further prohibited from taking any

frustrating action during an offer period without specific shareholder approval during the
offer period. In addition, authorizations granted by the shareholders to directors to take
frustrating action (such as the issue of shareholder warrants) and decisions taken by the
board of directors that may frustrate the offer and that have not been fully implemented
(such as authorizations to issue new shares given to the board of directors by the
shareholders’ meeting before the filing of the offer), are suspended during the offer period
unless specifically renewed during such period.
Listed companies in France have to file certain information with the companies and
commercial register, including constitutional documents, minutes of shareholders’
meetings, and names of directors, annual accounts and management reports. This
information is freely provided to the shareholders. In addition, listed companies must
publish certain information as part of their listing and ongoing disclosure obligations.
- 62 -
 Prospectus or registration documents prepared regarding securities offerings.
 Quarterly and half-yearly financial statements.
 Information on arrangements that is likely to affect the outcome of a takeover offer
in their annual management reports. This information includes material contracts
with change of control provisions and golden parachute provisions in director and
employee employment arrangements.
 Ongoing information relating to an event or material development in their business
that is likely to affect their share price, for example, major litigation, disposals or
acquisitions.
 Details of specific information exchanged between the bidder and target do not
need to be disclosed to the market. However, the AMF considers that the market
should be informed of the existence of a data room. In addition, target shareholders
must be treated equally and are entitled to sufficient information to allow them to
make an informed assessment of the bid.
Under French law, the target company’s works council or group works council
must be consulted on any proposed takeover offer. The bidder must send a copy of the
offer document to the target company’s works council within three days of publication. In
the absence of a works council or group works council, direct contact must be made with
the target group’s employees.
The obligation to convene a meeting of the relevant works council falls primarily
on the management of the target company and arises on the day of the filing of the offer
document with the AMF. At this meeting, the works council may decide to convene a
further meeting with the bidder and will give its opinion on the nature (hostile or
recommended) of the offer. If the bidder fails to attend a meeting organised by the works
council, the voting rights attached to the target shares it owns or acquires are suspended
until it does so. If a merger agreement is entered into in connection with the bid, there is an
argument that the works council must also be consulted before the target company signs the
agreement.
If the opinion of the target company’s works council differs from that of the target
company’s board of directors, it must be included in the target company’s offer document.
Consistent with the requirements of the Directive the bidder’s works council must also be
consulted on any proposed takeover following filing with the AMF.
A bidder has to furnish details in its offer document of its intentions regarding the
continuation of the target’s business and employment policy that it intends to pursue during
the 12 months following the offer. It also has to indicate any likely changes to the size and
structure of the target’s workforce during the same period.
Announcement Obligations:
A bidder may choose not to disclose its interest in acquiring the target for as long as
it can maintain confidentiality, but at the same time AMF may require a person who it
reasonably believes to be preparing takeover offer to make its intentions known to the
AMF, which will then disclose the information.
- 63 -
Further even the target company will not be required to make an announcement if it
receives a bid approach. However again the AMF may require the target company to make
an announcement if the bid is solicited and there are significant movements in the price or
trading volumes of its securities which will be discussed confidentially with the AMF.
Certain disclosure obligations are trigged under French law by the following
thresholds being reached, whether during the offer period or otherwise, 5%, 10%, 15%,
20%, 25%, one –third, 50%, 2/3rd, 90% and 95%. shares held by any shareholder or third
parties on its behalf or by entities it controls and other parties acting in concert with it and
shares it is able to acquire at its own discretion are taken into account for calculating the
thresholds. The thresholds apply to the number of shares or voting rights of a listed public
company with its registered office in France.
When target reaches the relevant thresholds, the relevant shareholders must notify
the AMF within five trading days and the information is then made public by the AMF.
In addition to these statutory thresholds, the byelaws of the target may provide for
additional disclosure obligations upon thresholds from 0.l5% being reached these are made
to the target Company but not to the public.
If a shareholder fails to comply with the disclosure obligations, all shares held in
excess of the relevant threshold lose their voting rights for a period of two years from the
date on which the notification is finally made. Further their voting rights may be suspended
by the French commercial court on an application by the target company, and even they
can be made liable for fine also.
Supplemental Disclosures;
If the bidder, target or any of their respective directors, concert parties, financial
advisers or investors hold 5% or more of the share capital or voting rights of the target
Company having acquired more than 0.5% since the start of the offer period, such action
must be notified to the AMF at the end of each trading day. This disclosure is to be
published on a daily basis.
Any person who increases the number of shares or voting rights it holds in the
target during an offer period at least 2% of the total number of shares or voting rights or
who acquires a number of shares representing more than 5%, 10%, 15%, 20%, 25% 30% of
the share capital or voting rights of the target is required to immediately disclose its
intentions with respect to the offer.
In addition to the obligation described above, a person who at any time acquires
shares directly or indirectly. Representing more than 10 or 20% of the share capital or
voting rights of a French listed company must declare his intentions with regard to such
interest for the next 12 months.
Offer Structure:
Generally, a bidder must offer to acquire 100% of the outstanding share capital of
the target. The offer must also be made for any equity-linked securities issued by the target,
- 64 -
such as convertible bonds. Further this draft of the offer document must be filed with the
AMF for review by one or more presenting banksi acting on behalf of the bidder.
Offer price:
The bidder is free to determine the offer price. If in case the bidder holds the
majority of the target company’s capital and voting rights, the price should not be lower
than the targets weighted average share price over the 60 trading days preceding
publication of the filing of the offer without the AMF’s approval.
French takeover regulations have also recently been amended to require mandatory
offers to be launched at a price at least equivalent to the highest price paid by the bidder
and its concert parties during the 12 months prior to the launch of an offer.
Consideration:
The bidder has to offer cash option where the shares offered are not listed on an EU
or EEA regulated market or if listed, the bidder, alone or in concert, has acquired more than
5% of the target company’s share capital or voting rights in cash over the 12 months period
preceding the filing of the offer. Further amendments to the French Takeover Regulations,
2006 have introduced a requirement for the target company to publish fairness opinion,
prepared by an independent expert, in certain situations.
Further in order to provide an equal treatment to all shareholders, French law

requires that a bidder cannot pay one shareholder in cash and everyone else in shares, or
encourage certain shareholders to accept the offer by giving them monetary or other
incentives.
Duties of the Bidder towards shareholders
 The bidder has to prepare an offer document containing the information on the
bidder’s legal, financial and accounting situation
 The general regulation requires the bidder’s offer document to provide information
regarding the identity of the bidder and details of the terms of the offer - right from
offer price to nature of consideration and also the information should include the
bidder’s intention for the following 12 months regarding target’s business and with
regard to employment; details of any agreement of the bidder, the opinion of the
bidder’s board of directors and a responsibility statement from the bidder and the
bidder’s presenting bank.
Duties of the target towards the shareholder
 The target is required to publish a document in response to the offer as well as a

separate additional information document with factual information to prospectus
directive disclosure standards.
 The target’s response document should include the number of treasury shares held
by the target as well as the number of shares that it may acquire at its discretion, the
details of any agreement, any independent expert’s opinion, the opinion of the
- 65 -
target company’s board of directors, the opinion of the target company’s works
council on the offer and also the intention of the board members to tender their
shares to the offer.
Duties of the directors

 The Board must consider the merits of the offer and provide shareholder with its
opinion of the consequences of the offer for the company, its shareholders and
employees.
 The Board must obtain a formal fairness opinion from an independent expert in
certain situations
 The Board must ensure that any action or decisions and statements made during the
offer period are not contrary to the interest of the company and also the principles
of equal treatment.
 The Board must act in the interest of the company
 Unless reciprocity applies, the board is prohibited from taking any frustrating action
during an offer period without specific shareholder approval.
Minority “Squeeze-out”
A shareholder holding at least 95% of the capital and voting rights of a listed
company initiate a compulsory acquisition or squeeze-out procedure in order to acquire the
shares of the remaining minority shareholders. The 95% threshold is calculated on a fully
diluted basis and the squeeze-out procedure may be made for equity-linked securities.
A bidder may also launch a follow-on squeeze-out procedure within three months
of the end of a takeover offer if the minority shareholders do not hold more than 5% of the
share capital or voting rights of the target company at the end of the offer.
The consideration paid to the minority shareholders in a squeeze-out must generally

be in cash. however if the initial offer included a share element ,the bidder may offer
securities in the squeeze-out as well, provided that a cash consideration is provided as an
alternative.
Mandatory offers
It is mandatory to file a takeover offer, when,

 A person alone or in concert acquires more than one-thirds of the share capital or
the voting rights of a company.
 He already holds one-thirds and 50% of the company’s share capital or voting
rights increasing its shareholding by more than 2% within a rolling 12 month
period.
 When a control of a company is acquired which in turn holds more than one-third
of the shares in a listed company of this shareholding represents a substantial part of
its assets.
- 66 -
 If a target company acquires more than one-thirds of the share capital or voting
rights in a listed company, then the bidder has to undertake to launch an irrevocable
and fair offer for the shares and equity-related securities of that listed company.68
Exceptions: AMF can grant exceptions for the period of six months from the above
mandatory rule in the following situations, when
 a shareholder exceeds the relevant thresholds by no more than 3%.
 A shareholder already holds the majority of the target company’s voting rights
before the triggering event.
 A threshold limit is crossed by a shareholder in concert with one or more
shareholder who previously held more than 50% of the share capital or voting rights
and continues to hold more shares or voting rights than that shareholder. And
further when such shareholders maintain a larger holding and upon the information
of this concert party, they do not exceed one of the thresholds requiring a
mandatory bid.
Further the special mandatory offer rules apply where a shareholder acquires a
block of shares in cash, which together with its existing holdings, gives it more than 50%
of the share capital or voting rights of a listed company. The new majority shareholder is
required to file a standing market offer for the remaining shares in the target.
5. CONCLUSION
The French government implemented the EU takeover directive in 2006, delegating

broad powers to the AMF. The French takeover code includes board neutrality subject to
reciprocity. Furthermore, the new law entitles French companies to issue warrants for the
preferred subscription of shares in the target and enhances the possibility for these
companies to resist to takeover attempts. It has opted out of the European breakthrough
rule, giving the option to the companies to opt in. Thus France adopted a limited
breakthrough rule.
6. PROMINENT CASE ON TAKEOVER
Commission v. French Republic
Facts: Article 11(7) of the EC treaty proposes two situations; firstly, with regard to
“securities in the offeree company which confer special rights on the member states…”
secondly, with respect to “special rights provided for in national law…”. The first concept
refers to golden shares as originally adopted in the U.K., where the article of association of
privatized companies used to provide for the issuance of special shares to the state. The
second concept refers to the practice of privatization in countries like France, where the
law foresees that special rights (similar to those deriving from golden shares) may be
attributed to the state with respect to privatized companies. In both the cases, a problem
rises of compatibility of member state’s special rights with the EC treaty. To the extent
that a member state is entitled, for instance, to authorize either transfer of control in the
relevant company or mergers of the same with another company, the fundamental freedoms
of the Treaty may be restricted.
68
This provision was introduced in 2005.
- 67 -
This has been recognized by the European court of Justice in a series of cases
concerning golden shares and privatization laws of several member states. The court
focused on Article 56 of the EC treaty stating that “all restrictions on the movement of
capital between member states and between member states and third countries” shall be
prohibited.
In December 1999, the European commission had brought action against France for
violating the freedoms under EC Treaty by their golden shares regime. In Commission v.
French Republic69, France holds a golden share in the Societe Natioanale EIF-Aquitaine,
the leading French Petroleum Company. These shares give the following rights:
shareholdings or voting rights of more than 10%, 20%, or 33% which must first be
approved by the Minister of Economic Affairs and a Transfer of shares representing the
majority of the capital can be opposed by the State.
Issue: Whether France’s golden share scheme, which specially designed in way bypassing
the regular paths of decision-making within the target company, was in violation of Art.56
of EC.
Judgment: The European Court of Justice held that France had violated the Treaty and free
movement of capital may be restricted only by national rules that fulfil the two fold criteria
of “being founded on overriding requirements of the general interest” and “being
proportionate to the objective pursued”. The French Golden share regime was considered
to be clearly beyond what is necessary to attain the objective indicated. The requirement of
general prior authorization and the right of opposition ex post facto do not indicate the
specific, objective circumstances under which authorization is given or refused. This is
contrary to fundamental principle of the free movement of capital.
69
Case No. 367/98
- 68 -
GERMANY
Till the last two decades, Germany lacked compulsory regulations or functional
voluntary regulations on Takeovers. The 1995 German Takeover code, as an instrument of
self regulation, never met with sufficient acceptance in the domestic companies listed on
the German Stock Exchange.
After the hostile takeover of Mannesmann AG, a traditional German manufacturer

eventually was taken-over by the mobile phone operator by the Vodafone plc. a foreign
(British) bidder, in 1999/2000, the legislature was called upon to create a dependable legal
framework for regulating takeovers.
In July 2001 two preliminary drafts, an initial discussion draft from June 2000 and
the April 2001 ministerial draft, were presented for the Act regulating public offers for the
acquisition of securities and takeovers (the WpUG) which, after some additional
parliamentary revisions, came into force on 1 January 2002 along with four complementing
ordinances.
Consecutively, in September 2001 the European commission established a group of

international experts whose work on new directive proposal on takeover bids was intend to
support further commission efforts. The report delivered by this group in January 2002 and
took effect in May 2004 after substantial parliamentary amendment with July 2006
takeover directive Implementation Act the German legislature confirmed the WpUG to the
provisions of the takeover directive.
After the implementation of WpUG, the deals of takeover of Wella AG by Procter

& Gamble and the takeover of ProSiebenSat.1Media AG by the US investor Haim Saban
took place which, having failed at the first attempt, subsequently succeeded when backed
by six private equity firms.
Despite the sizeable number of takeovers which had already been implemented, in
2003 the BaFin70 still had to clarify a number of issues resulting from imprecise wording in
the WpÜG, and to confirm the interpretation of certain regulations. These issues related,
among other things, to the admissibility of a blocked security deposit account, the
differential treatment of preference shares and ordinary shares and the admissibility of
conditions for takeover offers and mandatory offers.
Issues relating to the attribution of voting rights and acting in concert, on the other
hand, were yet to be fully clarified.
2. GERMAN SECURITIES ACQUISITION AND TAKEOVER ACT
(Wertpapiererwerbs- und Übernahmegesetz or "WpÜG")
The takeover directive applies only to public offers aimed at or following the
acquisition of control. WpUG also applies to voluntary offers for the acquisition of shares
70
Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin)
- 69 -
in a target company not having as their objective the acquisition of a controlling position.
This system still applies. However due to the limited scope of the takeover directive most
of the amendments to WpUG relate only to takeover and/or mandatory bids.
General Principles:
The general principles governing German takeover code are specifically set out
under sec. 3 of WpUG which requires that,
 All the holders of the stock of the same class must be treated equally in any
public offer and they must be provided with sufficient time and information
so as to enable them to take informed decision.
 The managing and supervisory board of the target company must act in
interest of the company.
 The bidder should not harm the business of the target company for more
than a reasonable period of time.
 The bidder must not create market distortion during the offer period.
Regulatory Authority:
The Federal Financial Supervisory Authority (Bundesanstalt für

Finanzdienstleistungsaufsicht or BaFin) has been given the rights of supervision under the
Act which aims at countering the mischief which might impair the orderly implementation
of the procedure or which could bring significant disadvantages to the security market
(Section 4)
Powers of the Federal Agency:
The federal Agency has been conferred with the investigation powers under the
Act. For this purpose it may require any person to provide information, furnish documents
and hand over copies, and may summon and question persons on the provided grounds
under the Act.
Constitution of the Board
The Federal Authority exercises its Powers through the Advisory Board constituted
under the WpUG. The following members (section 5) constitute the Board
 Four representatives of the issuer.
 Two representatives each of institutional and private investors
 The representatives of securities services enterprises.
 Two representatives of employees
 Two representatives of academia.
The members of the advisory board are experts in capital markets, company law,
accounting standards and employment law and they are appointed by the federal ministry
of finance for five years. This Board takes part in the supervisory process and also advises
the Federal Agency on the same.
- 70 -
An objection committee is also constituted to decide on the objections against the
orders of the Federal Agency, which consist of following members: -
 The President of the Federal Agency or a State official appointed by him who shall
be qualified to hold judicial post.
 Two state officials appointed by the President.
 Three honorary Associate Members appointed by the President.(section 6)
By the virtue of section 48, the orders of the Federal Agency are subject to appeal.
The Appeal is be decided solely by the Superior Regional Court which has jurisdiction over
the seat of the Federal Agency.
3. TRIGGER POINT:
Indirect or direct acquisition of control is defined as 30% of the voting rights of the
target company. This obligation is triggered if the threshold is overstepped by shareholders
involved in a concert party arrangement even if such an arrangement is not linked to the
acquisition of shares in the target Company.
4. CONSIDERATION
A cash consideration must be offered at least as an alternative where the bidder (or
persons acting in concert with it) over a period beginning six months before the publication
of the offeror’s intention to launch a bid and ending when the offer closes for acceptance
has purchased for cash 5 percent or more of the shares or voting rights in the target
company.
5. ACTING IN CONCERT AND ATTRIBUTION OF VOTING RIGHTS
The definition of ‘persons acting in concert’ includes persons acting in concert with
the target company. Further In determining whether control over a target company is
attained, subsidiaries will now be attributed voting rights held by their parent company and
voting rights held by other subsidiaries of the parent company.
6. PROCEDURE OF TAKEOVERS
Prior Notification And Public Announcement
The offeror has to announce publicly its intention to make a public offer and must
notify the Management Board of the target company immediately after the offeror has
reached such decision.
If the offeror is a Corporation, its decision to launch an offer is deemed to be made,

at the latest, when all appropriate governing bodies have approved the making of the offer.
Prior to the public announcement, the offeror must notify to the Federal Agency (FSA) and
all German Stock Exchanges on which the target stock is traded of its intention to launch
an offer document with Federal Agency.
If the public offer requires the approval of the offeror’s shareholders, the offeror
must nevertheless notify the FSA and announce publicly its decision to launch an offer as
- 71 -
soon as its decision has been made. However, shareholder approval of the offer can then be
a permissible condition to the effectiveness of the offer. The FSA may also grant
permission to an offeror to delay the public announcement of the offer until the offeror has
obtained the requisite authorization from its shareholders, provided that the intent to launch
an offer remains confidential.
This publication and notification shall take place within a week after the publication
of the offer document without any undue delay (section 23)
Exemption
On an application by the Bidder, the Federal Agency may exempt them from the
obligation to notify and publish an offer on the following grounds: -
 Through inheritance or deceased person’s estate provided the deceased person and
the bidder are not related.
 Through the gift provided the donor and bidder are not related.
 In connection with financial rescue of the target.
 For the purpose of securing receivables.
 As a result of reduction of the total number of voting rights in the target company.
Prohibition of the offer
By virtue of section 15 of the Act, the federal agency can prohibit the offer under the
following conditions when,
 The offer document does not contain the required information or the information
contained is in contravention of law;
 Bidder does not transmit an offer document to the federal agency and when he fails
to publish the offer document71.
Public invitation to make offers:
By virtue section 17, a Bidder is not permitted to make a public invitation to the
holders of securities which is aimed at the acquisition of securities of the target company.
Target response:
The Management Board and the Supervisory Board of the target company must
issue a statement regarding the offer without undue delay after receipt of the offer
documentation. (Section 28)
Duty of the Board towards Shareholders
The board should provide a statement on the likely consequences of a successful

offer for the target company, the goals being pursued by the bidder with the offer and the
71
as required by section 14
- 72 -
intention of the members of the board to accept the offer to the extent that they are holders
of the securities of the target company. It should include an assessment
Duty towards the Employees
The Board should provide a statement to the employees and give their
representation on the conditions of the employment and the locations of the target
company.
Offer Document:
The bidder must draw up and publish an offer document which must contain the following.
 Name, official address of the bidder and the target.
 Securities, type of consideration, compensation and beginning and end of the
acceptance period.
 Financial position and intention of the bidder with regard to future business.
 Name and address of those who would assume responsibility for the offer
document.
Preparation and Publication of offer:
The offeror must file the proposed offer with the FSA within four weeks following
the date on which the offeror announced its intent to launch an offer. After the filing FSA,
may request changes or prohibit the offer within ten days. Once the FSA approves the offer
(or if it has not prohibited within ten days of receipt), the offeror must publish the offer
without undue delay.
The offer must be posted on the Internet and be published in National German
newspaper. Alternatively; the offeror may publish a notice containing the address where
the full offer documentation can be obtained. Copies of the offer documentation must also
be provided to the management board of the target company without undue delay after
publication.
Liability for the statement in offer document
Section 12 of the Act states that, all persons assuming responsibility for the offer
documentation are jointly and severally liable for the accuracy of the information provided
therein. Along with this even the financial institutions certifying the availability of
sufficient financing and funding may be held liable to the tendering shareholders if the
offeror fails to make the payment under the offer.
Duration of the offer and acceptance period
For a minimum of four weeks, a public offer must remain open for acceptance by
target shareholders and may not be open for more than ten weeks. However, in case if the
offer is a Takeover Offer and the minimum condition of the offer has been satisfied during
the initial acceptance period, a two week grace period is granted to those shareholders who
have not tendered their shares during the acceptance period. The grace period starts after
- 73 -
expiration of the initial acceptance period when the offeror publishes the number of shares
now held by or attributable to the offeror.
In case if the target company convenes a shareholder meeting in connection with

the offer after publication of the offer documentation there is a mandated acceptance period
of ten weeks.
If a third party launches a competing offer, the initial acceptance period is extended
by operation of law to the date on which the acceptance period for the competing offer
expires the acceptance period is extended by an additional two weeks if the offeror
changes the terms of the offer during the last two weeks of the acceptance period,.
Mandatory offer rule:
Under German takeover law, a bid obligation will be triggered if shareholders

holding at least 30 per cent of the company’s voting rights are involved in concert party
arrangements even if these are not linked to the acquisition of shares in the target company.
Squeeze-out (section 39)
In case, the mandatory bid or a takeover bid is aimed at the acquisition of control,
when a bidder holds at least 95% of the target company’s voting capital and voting rights,
it will also be able to acquire the remaining voting shares at a fair price. The bidder may
acquire the remaining non-voting preference shares if he holds at least 95% of the
company’s share capital.
Within three months after the end of the time allowed for the acceptance of the bid
an application for squeeze out has to be made. Unlike the existing general corporate law
squeeze out regime no shareholders’ resolution will be needed to carry out a takeover-
related squeeze out (S.39.1)
The squeeze out will be effected by means of a Court decision72, which will be
binding on all remaining shareholders of the target company (S.39.3)
Sell out:
Following a takeover offer or mandatory offer aimed at the acquisition of control,

the bidder would be entitled to apply for a takeover squeeze out by virtue of section 39.1.
However, the remaining minority shareholders have the right to accept the bid within three
months following the end of the regular period for acceptance of the bid.
Position on article 9 and 10 of the directive.
Germany has opted out of article 9 (prohibition on frustrating action) and article 11
(breakthrough rule) of the Takeover Directive. However, German listed companies may
voluntarily opt in for both articles. They must amend their Articles of Association to do so
when they have a majority of 75% of the share capital represented.
72
by virtue of section 39b, the regional court has the jurisdiction to decide upon the squeeze out
applications
- 74 -
If a company opts-in for both provisions then the managing board of the company
has to inform the German Supervisory Authority (BaFin) and the Supervisory Authority in
any other European Economic Area (EEA) member state in which the company’s securities
are admitted to trading on a regulated market.
German takeover law provides for different sets of rules for preventive actions
restricting the success of a public offers.
General rule:
Existing rules on frustrating action remain in place if a potential target company

does not opt in to the European restrictions on frustrating action, the relevant provisions of
German takeover law that were already in place before implementation of the Takeover
Directive will apply.
In this case, after a decision to launch a (takeover or mandatory) bid has been
published and until the outcome of the bid is made public, the managing board and the
supervisory board of the target may not take any action that could prevent the success of
the bid with the exceptions of:
 Actions that a prudent and conscientious manager of a company not subject to a
public offer would have taken;
 The search for an alternative
 Actions approved by the supervisory board of the target
 Actions subject to shareholder’s consent that the shareholder‘s meeting of the target
has authorized the managing board to frustrate a bid and that have been approved
by the supervisory board of the target. Any such shareholder’s authority will expire
at the date set out in the shareholder’s resolution but at least 18 months after the
date of the resolution.
If the articles of association of a target company provide that the above rules on
prohibition of frustrating action do not apply, the company automatically opts in to the
following (more restrictive) rules, meant to implement article 9 of the Takeover Directive.
After a decision to launch a (takeover or mandatory) bid has been published and
until the outcome of the bid is made public, the managing board and the supervisory board
of the target company may not take any action that could prevent the success of the bid
with the exception of:
 Actions approved by the shareholders’ meeting after the decision to launch an offer
have been published;
 Actions falling within the normal business operations of the company;
 actions not forming part of the normal business operations of the company,
provided that such actions are intended to implement decisions taken before the
- 75 -
publication of the decision to launch an offer and have partly been implemented;
and
Non Frustration rule. (Section 33)
The takeover Act requires that the management board of the target company should
refrain from taking any measures that may frustrate the success of the takeover offer.
The management board may also adopt specific defensive measures if such
measures have been approved by the supervisory board and are the subject of s prior
approval granted by the shareholders requiring approval of 75% of the votes cast, not more
than 18 months prior to the takeover offer.
Breakthrough Rule :(Section 33b)
This provision is meant to implement article 11 of the Takeover Directive and provides
that:
 during the period for acceptance of a (takeover or mandatory) bid, restrictions on
the transfer of securities provided for in the articles of association of the target or
that have been agreed between the target and target shareholders or between target
shareholders after 21 April 2004 will not apply to the bidder;
 during the period for acceptance of a (takeover or mandatory) bid, restrictions on
voting rights provided for in contractual agreements concluded after 21 April 2004
will not have effect and multiple-vote securities will carry only one vote each at a
general meeting of shareholders that decides on any defensive measures; and
 where, following a bid, the offeror holds at least 75 per cent of the voting rights in
the target company, restrictions on voting rights provided for in contractual
agreements and extraordinary rights concerning the appointment or removal of
board members will not apply and multiple-vote securities will carry only one vote
each at the first general meeting of shareholders called by the offeror to amend the
articles of association or remove or appoint board members.
Adequate Cash compensation must be provided when the rights of the shareholder
are withdrawn on the basis of breakthrough rule, provided that those rights were
established before publication of the bidder’s decision to launch a bid and, are known to the
company.
Reciprocity: (section 33c)
A German target company that has voluntarily opted in to the European prohibition
on frustrating action and/or the European breakthrough rule has the right to display these
rules if the offeror (or anyone who controls the offeror) – whether EEA resident or not – is
not subject to ‘equivalent provisions’.
Reciprocal actions, however, require the authorization of the shareholders’ meeting.

The relevant shareholders’ consent requires a simple majority of the votes cast and will
expire 18 months after the date of the resolution.
- 76 -
A German target company that has opted in to the European prohibition on
frustrating action invokes reciprocal action, it will nevertheless again become subject to the
general German restrictions on frustrating action
8. INDEPENDENCE OF THE BOARD
The complex governance structure in Germany makes the implementation of

Articles 9, 11 and 12 more difficult. In English law, the board of directors is but one entity,
which combines both managerial and supervisory functions in the affairs of the company.
In German law, the functions of management and supervision are kept separate from each
other, in that there are two separate organs: the management board (Vorstand) and the
supervisory board (Aufsichtsrat). The supervisory board is appointed by the General
Assembly of Shareholders (Hauptversammlung)73.
However, where codetermination applies, certain of the directors are not appointed
by the General Assembly of Shareholders, but by representatives of the employees. In turn,
the management board is appointed by the supervisory board74 and may be revoked only by
the supervisory board. Both members of the management and supervisory boards must be
natural persons, and not companies or corporations75. Whilst the former manages the
business of the company, the latter supervises the activities of the former76.
In managing the undertakings of the company, the management board does so

independently of the wishes of the general meeting, and the company’s statutes cannot
restrict the independence of the board. As in the UK, directors owe responsibility to the
company as an entity and not to the shareholders personally. Unlike English company law,
which requires only the board to have regard to the interests of employees, German law
provides a more secure protection for employees.
In German law, employees of the company are represented on the supervisory

board. Employees themselves appoint their own representatives on the supervisory board.
At least one-third of the membership of the supervisory board makes up the representative
of the employees. Trade Unions play an active role in collective bargaining on behalf of the
employees, and representatives of trade unions are often represented on the supervisory
boards of companies.
The involvement of employees in the supervisory aspects of the company does not
extend to questions of management policy but is concerned with welfare matters (e.g.
agreeing the social plan for closure of coal pits following a rationalization scheme). To this
extent, protecting the interests of employees in a takeover situation is unlikely to be a
problem for German companies who are accustomed to having Employee representatives
on company boards. In the UK, the position remains unchanged, but, with the Code now
forming part of company law, a duty is owed to employees in a takeover situation – albeit
being limited to obliging the board to give information to employees.
73
Under § 101 Aktiengesetz 1965
74
Under § 84 Aktiengesetz 1965
75
§ 100 Aktiengesetz 1965
76
§ 111 Aktiengesetz 1965
- 77 -
9. CONCLUSION
The German takeover Act covers public tender offers, takeover offers (offers to
acquire 30% or more of a public firm’s voting stock) and mandatory offers for remaining
shares once the offeror’s stake reaches the 30% control threshold. The act incorporated
most of the takeover commission’s recommendations. It imposes minimum bid
requirements provision compelling a mandatory takeover bid once an acquirer’s voting
stake reach a 30% threshold squeeze out rule that allows a majority owning 95% or more of
a corporation to buy out the remaining minority shareholders.
10. PROMINENT CASE
European commission Vs. Federal Republic of Germany77
Facts: The VW-Gestez (“Volkswagwn Law”) a statute was designed with the following
features: -
 Limiting voting rights to 20%, regardless of whether a shareholder holds an excess
of that amount;
 Blocking minority of 20% resulting from the increase of the required majority for
adopting resolutions to 80% ;
 Restricting the right of representation for the exercise of voting rights to a
maximum of 20% for any single shareholder;
 Granting nomination rights to the supervisory board for the benefit of the state of
lower Saxony and the federal Republic of Germany as long as they are Volkswagen
AG shareholders, regardless of the actual amount of their capital shares.
The last feature, giving the supervisory board nomination rights most closely
resemble the golden share arrangements since it bypasses the standard mechanism of board
appointment emanating from shareholder’s equity portions. In the light of this character, it
was challenged as being violative of Art.56 of EC. But the state of Germany contended
that the German Parliament had explicitly designed those voting limitations in order to
protect a target entity against hostile takeover procedures.
Issue: Whether measures that factually benefit public authorities, even if, applied in a non-
discriminatory manner, impede direct investments within the meaning of Art.56 EC.
Judgment: The European court of justice held The VW-Gestez (“Volkswagwn Law”) as
being violative of Art.56 of the EC on the following grounds.
 The distinctive features of the VW-Gestez have exclusively benefited the state of
lower Saxony as the former majority shareholder.
 When it entered into force, the VW-Gesetez served the intention of protecting the
dominant regime of the Federal republic of Germany as well as of the state of Lower
 Saxony against major investors.
 The German Government had previously passed legislation with the specific purpose
of abandoning voting limitation rights as a part of the legislation process.
77
14 Colum.J.Eur.L.359 2007-08
- 78 -
CHAPTER – IV
AUSTRALIA
The legislative history of Australian Takeover laws and regulations originates from the
companies statutes. It was the enactment of company legislation based on the Companies
Act 1862 (England), which paved the way for regulators to regulate corporations. The State
wise Companies statutes are -
 Companies Statute 1864 (Vic)
 Companies Act 1874 (NSW)
 Companies Act 1863 (Qld)
 Companies Act 1864 (SA)
 Companies Act 1869 (Tas)
Mining Companies Act 1871 (Vic): introduced the no liability company as an option for
mining ventures. Formalised the practice of forfeiture of partly paid shares upon failure to
pay calls for mining companies, the substance of which is still operative today under the
Corporations Act 2001 (Cth)
Companies Act 1896 (Vic): distinguished between public companies and proprietary
companies and required, in respect of public companies, compulsory audit and annual
presentation of accounts
Uniform Companies Acts 1961-1962: Each state over the period between 1961-1962
enacted uniform legislation in an effort to remove difficulties caused by differing
legislation between states.
Eggleston Reports (1969-1972):

 Eggleston Commission established in 1967 into corporate and securities law
reform, led by Richard Eggleston. Proposed protections for small investors in
company takeovers to be included in the unified companies Acts and called for the
establishment of a national securities commission. Consists of seven interim
reports.
Victorian Corporate Affairs Office
 Set up by the proclamation of the Companies (Interstate Corporate Affairs
Commission) Act 1974 (No.8565) (Vic)
 NSW Corporate Affairs Commission
 National Companies and Securities Commission Act 1979 (Cth)
 Later repealed by Corporations Legislation Amendment Act 1991 (Cth)
- 79 -
Companies (Acquisition of Shares) Act 1980 (Cth)
 Companies Act 1981 (Cth) (Cooperative Scheme)
 The Companies Act 1981 should be read with the relevant State/s Companies
(Application of Laws) Act.
 Committee of Inquiry into the Australian Financial System, Parliament of Australia
Australian financial system: final report of the Committee of Inquiry (1981)
(Campbell Committee, September 1981)
 Inquiry and report into the structure, operation, regulation and control of the
Australian Financial Systems Inquiry.
 Established the Accounting Standards Review Board.
 Amended the Companies Act 1981 and Companies (Acquisition of Shares) Act
1980.
 Standing Committee on Constitutional and Legal Affairs, Parliament of Australia,
The role of Parliament in relation to the national companies scheme (1987)
 Inquiry into the role of Parliament in relation to the Ministerial Council for
Companies and Securities and the National Companies and Securities Commission.
Recommended Parliament enacts comprehensive legislation covering the field
currently regulated by the co-operative scheme.
 Committee established to report on a package of 16 Bills known as the
Corporations Legislation package including the Corporations Bill 1988. Report on
the adequacy of the legislation to improve regulation of companies, facilitate
performance of the securities and futures markets, ensure investor protection and
report on the fundraising provisions.
 Senate Standing Committee on Legal and Constitutional Affairs, Parliament of
Australia, Company Directors’ Duties (1989)- (Cooney Committee)
 Superseded the National Companies and Securities Commission Act 1980 (Cth).
Repealed by the Corporations (Repeals, Consequentials and Transitionals) Act 2001
(Cth).
 Uniform legislation scheme that came into operation in 1991. Repealed by the
Corporations Act 2001 (Cth).
 State legislation applying the laws of Corporations Act 1989 (Cth) in their
jurisdiction and conferring powers on ASIC.
 Corporations (Victoria) Act 1990 (Vic)
 Corporations (New South Wales) Act 1990 (NSW)
 Corporations (Western Australia) Act 1990 (WA)
 Corporations (South Australia) Act 1990 (SA)
 Corporations (Queensland) Act 1990 (Qld)
- 80 -
Corporate Law Reform Act 1994 (Cth)
 Amendments of indemnification of directors and enhanced disclosure.
 First Corporate Law Simplification Act 1995 (Cth)
 Changes include simplified drafting, share buy-backs, proprietary companies,
simplified company registers.
 Company Law Review Act 1998 (Cth)
 Changes include simplified drafting, companies limited both by shares and
guarantee no longer registrable, par value shares abolished and reduction of capital
liberalized.
 Managed Investments Act 1998 (Cth)
 Collective investment schemes.
Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth)
 ASC became Australian Securities and Investments Commission with added
regulatory powers over insurance and other financial offerings to the public.
Corporate Law Economic Reform Program Act 1999 (Cth)
 Changes include statutory derivative action, relaxed regulation of acquisitions of
shares for the purpose of takeover of control, enhanced role of Corporations and
Securities Panel as a substitute to courts for settlement of takeover disputes and
restated functions of the AASB.
Corporations Law Amendment (Employee Entitlements) Act 2000 (Cth)
 Protects entitlements of employees from agreements and transactions entered into
with the purpose of defeating recovery of such entitlements.
Final report of the Financial System Inquiry - (the Wallis Report) Re Wakim1; Cross-
vesting arrangements that purport to confer jurisdiction with respect to Corporations Law
of a state to federal courts unconstitutional1. Casts doubt on constitutional validity of states
conferring power on Commonwealth officers.
Australian Securities and Investments Commission Act 2001 (Cth)
 An Act to provide for the Australian Securities and Investments Commission, a
Corporations and Markets Advisory Committee and certain other bodies, and for
other purposes.
 Superseded the Corporations Act 1989 (Cth) to become the legislation governing
corporations today. Enacted following a reference of power by the states.
 State legislation referring corporations power to the Commonwealth
Financial Services Reform Act 2001 (Cth)
 Increased regulatory reach of ASIC in licensing providers of financial services.
Corporations Legislation Amendment Act 2003 (Cth)
- 81 -
 Changed system of annual reporting to ASIC, required directors to pass an annual
resolution about their company’s solvency and repealed provision requiring special
action by public companies in respect of directors who attain 72 years of age.
 Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 (Cth)
 Introduced provisions to assist recovery of assets to companies in liquidation where
payments or transfers to directors were unreasonable.
 Financial Services Reform Amendment Act 2003 (Cth)
 Addressed concerns in the operation of the Financial Services Reform Act 2001
(Cth).
Corporate Law Economic Reform Program (Audit Reform and Corporate
Disclosure) Act 2004 (Cth)
 Improved auditing standards in various ways.
 Corporations Amendment Act (No 1) 2005 (Cth)
 Clarified personal liability of directors of corporate trustees after the decision in
Hanel v O’Neill.
 Corporations Amendment (Insolvency) Act 2007 (Cth)
 Enhanced protection for employee entitlements during voluntary administration
introduced pooling process in the winding up of related companies and improved
regulation of insolvency practitioners.
2. LEGAL AND REGULATORY FRAMEWORK
The Chapter 6 of the Corporations Act 2001 of Australia substantiates the takeovers
Activities in Australia. ASIC is Australia’s corporate, markets and financial services
regulator. ASIC contribute to Australia’s economic reputation and wellbeing by ensuring
that Australia’s financial markets are fair and transparent, supported by confident and
informed investors and consumers. ASIC is an independent Commonwealth Government
body. It is set up under and administered by the Australian Securities and Investments
Commission Act (ASIC Act), and carry out most of work under the Corporations Act1.
The Australian Securities and Investments Commission Act 2001 requires ASIC to:
 Maintain, facilitate and improve the performance of the financial system and
entities in it
 Promote confident and informed participation by investors and consumers in the
financial system
 Administer the law effectively and with minimal procedural requirements
 Enforce and give effect to the law
 Receive, process and store, efficiently and quickly, information that is given to us
 Maintain information about companies and other bodies available to the public as
soon as practicable.
- 82 -
3. TAKEOVER PANEL
The Takeovers Panel is the primary forum for resolving disputes about a takeover
bid until the bid period has ended. The Panel is a peer review body, with part time
members appointed from the active members of Australia's takeovers and business
communities1.
The Panel was established under section 171 of the Australian Securities and
Investments Commission Act (the ASIC Act). It is given various powers under Part 6.10 of
the Corporations Act (the Act). The Panel has a full time Executive based in Melbourne to
assist members of the Panel and the takeovers community, to draft policy, and provide
continuity to the Panel in its decisions. The Panel has wide powers.
Its primary power is:

 Declare circumstances in relation to a takeover, or the control of an Australian
company, in unacceptable circumstances.
 Make orders to protect the rights of persons (especially target company
shareholders) during a takeover bid and to ensure that a takeover bid proceeds
(as far as possible) in a way that it would have proceeded if the unacceptable
circumstances had not occurred
 The Panel also has various review powers.
The policy principles that the Panel aims to advance are those set out in Sec. 602 of
the Act. They essentially include the four "Eggleston Principles" and an additional
principle that the acquisition of control of listed companies or listed managed investment
schemes, take place in an efficient, competitive and informed market.
The Panel is required to give an Annual Report to the Minister, for him or her to
lay before each House of Parliament, under Sec. 183 of the ASIC Act. The Australian
Panel is similar, and yet very different to those in various other jurisdictions which have
takeovers panels. The most commonly known jurisdiction in the UK has the London Panel
on Takeovers and Mergers. The Panel is funded by a specific appropriation from the
Parliament in the appropriation for the Treasury.
Executive
An important role for the Executive is to liaise with market practitioners, discussing
current and prospective takeovers matters and policy issues in order to provide a real time
perspective on the Panel’s Guidance Notes and decisions as they may apply to current or
prospective takeovers.
However, the Panel's Executive are not delegates of the Panel and, therefore, do not
perform any of its discretionary or adjudicative roles. In other words, the Panel Executive
does not make decisions in Panel proceedings regarding the merits of an application or
circumstances – those decisions are made by sitting Panel members. Advice which the
Panel Executive may give as to its assessment of any real or hypothetical circumstances
discussed with market participants, or parties, is not binding on the Panel or on any sitting
Panel. The Panel Executive routinely prefaces any discussions with market practitioners
with such a disclaimer.
- 83 -
Panel Members
Panel members are appointed by the Governor General, on the nomination of the
Minister, under s172 of the ASIC Act. There is a minimum of five members. The members
are currently all part time members. They are nominated by the Minister on the basis of
their knowledge or experience in one or more of the following fields:
 Business;
 Administration of companies;
 Financial markets;
 Law;
 Economics;
 Accounting.
The state Ministers may give the Federal Minister submissions on nominations to
the Panel. The Panel is intended to have an appropriate mix of professions, business
expertise, geographical and gender representation. The Governor-General may also appoint
one member to be the President of the Panel under s173 of the ASIC Act (the "substantive
President"). Various provisions in the Act and the ASIC Act make references to the
President and his or her functions. When members of the Panel sit to consider proceedings
(a "sitting Panel"), the substantive President may be the President of that Panel, or he or she
may appoint another member to be the "sitting President" of that Panel.
Application of Australian Takeover Legislations
Australian takeovers legislation applies to takeovers of companies or other bodies

corporate which are registered in Australia and:
• are listed on the Australian Securities Exchange (ASX) or
• have at least 50 shareholders.
It also applies to takeovers of listed managed investment schemes (unit trusts etc).
4. ALTERNATIVES TO TAKEOVER BIDS
Takeovers are usually achieved through the mechanism of a takeover bid. However,
there are a number of alternative mechanisms available for achieving a similar outcome to
a takeover bid. The viability of using other mechanisms should always be considered
before proceeding down the route of a takeover bid. These alternatives include:
• Schemes of arrangement
• Selective reductions of capital
• Share buy-backs
• Asset transfers
• Reverse takeovers and
• Shareholder approved acquisitions.
- 84 -
The 20% rule
The control threshold has been set at 20% for many years and the takeovers prohibition
applies to any acquisition of relevant interests in voting shares above that level. There is a
lower threshold of 5% for public notification of substantial holdings in listed companies.
Section 606 prohibits the acquisition of a relevant interest in the voting shares of a
company where the voting power of any person increases:
• from 20% or below to more than 20% or
• from above 20% until 90%, unless the relevant interest is acquired in a limited
number of permitted ways.
Exceptions to the 20% rule
Section 611 sets out the criteria for exemption to the prohibition, and suggests the ways
in which relevant interests in voting shares exceeding 20% may be acquired. The key
exceptions are:
• off market bids
• market bids
• shareholder approvals in general meeting
• 3% creeping acquisitions
• pro rata rights issues
• downstream acquisitions and
• schemes of arrangement, liquidator’s arrangements or share buy backs.
Some key concepts: voting power, relevant interests and associates
There are a number of key concepts that are used in the takeovers legislation that need
to be understood:
• Voting power is measured by calculating the total number of votes attached to
shares in which a person or an associate of that person has a relevant interest and
comparing that to the total number of votes attached to all voting shares in the
company.
• A person has voting power in all voting shares in which a relevant interest is held.
A person holds a relevant interest in the shares if they:
– are the holder of the shares or
– have power to control the voting rights attached to the shares or
– have power to control the disposal of the shares.
Having some measure of control over the rights attached to voting shares is enough
to create a relevant interest. It does not matter whether the power or control is express,
implied, formal or informal or exercisable jointly or alone. The concept of associates is
broad, so that votes controlled by persons associated with the primary person are included
in the primary person’s voting power. People who act in concert in relation to voting power
matters will also be treated as associates.
- 85 -
Off market bids
This is the most commonly used takeover method. Essentially the bidder prepares a
bidder’s statement which is sent to shareholders by mail. If the bidder’s statement does not
set out all the terms of the offer, an offer document that sets out the other terms of the offer
is sent to the shareholder. The target prepares a target’s statement which is also mailed to
shareholders and includes the target directors’ recommendations. The offers are accepted
by shareholders completing and returning acceptance forms prior to the expiry date.
5. CONSIDERATION
Bidders have wide flexibility in the consideration they can offer in off market bids.
Combined cash/share consideration may be offered, together with straight cash and/or
straight share alternatives (or another type of security).
Bidder’s statement
Each takeover offer must be accompanied by a bidder’s statement and an

acceptance form. The bidder’s statement is intended to give target shareholders sufficient
information to allow them to assess the bid and decide whether or not to accept the offer.
It will include:
• Details of the bidder and his intentions regarding the target’s business, assets and
employees
• Details of how the bidder is funding the cash component of the purchase
consideration (if any)
• Details of any collateral benefits given during the four month period before the date
of the bid
• Details of any purchases of the bid class of securities by the bidder or its associates
during the 4 month period before the date of the bid and
• Any other information known to the bidder that is material to a target shareholder
deciding whether to accept the offer.
Where the bidder is offering shares or other securities as consideration under the
offer, the bidder’s statement must contain the same level of disclosure as a prospectus, so
that target shareholders are given enough information to properly assess the bid and make
their decision. However, if the shares (or other securities) offered as consideration have
been continuously quoted by the ASX during the previous 12 months, reduced disclosure
rules apply, as the bidder will have been subject to the continuous disclosure regime of the
ASX during that period.
Target’s statement
The target’s statement is the formal response of the board of the target company. It
is intended to give shareholders enough information to decide whether or not to accept the
bid.
- 86 -
In particular, it must contain:
• All the information that target shareholders and their professional advisers would
reasonably require to make an informed assessment whether to accept the offer
• A recommendation with accompanying reasons, by each director as to whether or
not the bid should be accepted and
• If the bidder is a director (or a corporation that shares a common director with the
target) or already has 30% voting power in the target, a report by an independent
expert on whether the bid is fair and reasonable.
The first requirement is similar to the standard of disclosure required for a
prospectus. However, the target’s statement must contain information only to the extent to
which it is reasonable for investors and their professional advisers to expect to find the
information in the statement and only if the information is known to any of the directors of
the target.
Further, in deciding what information to include in the target’s statement, the

following factors should be considered:
• The nature of the bid class securities (and, if the bid class are interests in a managed
investment scheme, the nature of the scheme)
• The matters which holders of the bid class securities can be reasonably expected to
know
• The fact that certain matters may reasonably be expected to be known to their
professional advisers; and
• The time available to prepare the statement.
Offer price
A bidder may set its takeover consideration at whatever level considered likely to
achieve its commercial objectives; however, the consideration must be not less than the
highest price at which any bid class securities were acquired by the bidder or an associate
in the target company’s shares during the preceding 4 months. Where the bidder is offering
shares (scrip) as part of its consideration, the scrip consideration must be determined at the
time the offer is made.
Conditions
Off market takeovers may be conditional; however some types of conditions are not
permitted. These include maximum acceptance conditions (causing inequality of
acceptance opportunities), conditions that discriminate between individual holders,
conditions requiring payments to officers of the target company, and conditions which rely
on the bidder’s subjective opinion.
Conditions known as “defeating conditions” are allowed. A defeating condition

allows the bidder to rescind the contract or prevent a binding contract from being formed.
Common defeating conditions include:
- 87 -
• Minimum acceptance conditions, which are often set at 90%, allowing offers to be
withdrawn unless the bidder is able to proceed to compulsory acquisition and
outright control. A minimum acceptance condition may be fixed at 50% or less if
the bidder is satisfied with less than complete control.
• Foreign Investment Review Board approval, where the bidder is a foreign person.
• Australian Competition and Consumer Commission approval, where there are
merger (anti-trust) concerns.
• Conditions relating to certain events not occurring during the bid period, such as the
target increasing, reducing or changing its share capital, or disposing of all or a
substantial part of its business or assets or an insolvency event.
Bidders must specify in the offer a date between 7 and 14 days before the end of the
offer period to notify target shareholders and ASX of the status of its defeating conditions.
The notice must also state the bidder’s voting power in the target. The bidder can elect to
free its offers from any or all of the defeating conditions at any time during the offer period
up to the final seven days of the offer period.
Offer period
Off market takeovers must remain open for a minimum of one month and may not
exceed 12 months in duration. Offers are automatically extended by another 14 days if
during the final seven days of the offer period:
• The offer consideration is improved or
• The bidder reaches 50% voting power.
Variations of offers
Off market bids can be expressly varied by the bidder in several specified ways,
such as by increasing the cash consideration offered, increasing the share consideration,
offering an additional alternative form of consideration, or changing the dividend
entitlements of shares offered. Each of these ways is in effect an improvement in the offer
price. The bidder may not reduce its offer price.
If the bidder increases the offer consideration during the final seven days of the
offer period, the bid is automatically extended by a further 14 days. If the bidder acquires
shares separately from its off market takeover offers (for example, on market) at a higher
price than the cash consideration offered under the offer, the takeover consideration is
automatically increased to the higher value. Where a target shareholder has already
accepted the offer, the shareholder is entitled to make an election to take cash (at the higher
value) instead of the consideration originally accepted.
When an off market bid is varied, either expressly or automatically, target

shareholders who have already accepted the bid are entitled to receive the increased
consideration. If the offers are varied by introducing a new form of consideration, target
shareholders who have already accepted are entitled to make an election as to which form
of consideration they wish to take.
- 88 -
Other activities during the bid except where the bidder sells under a competing
takeover bid, the bidder may not dispose of any shares in the bid class during the bid
period. Where the target is a listed company, substantial holding notices must be given to
ASX by 9.30am on the next day, rather than within two business days, as is the usual
requirement. Where the target is an unlisted company, the bidder must notify the target
when its voting power in the target rises beyond 25%, 50%, 75% and 90%.
Close of the bid
If at the end of the offer period the bidder (and its associates) have relevant interests
in at least 90% of the securities (by number) in the bid class, the remaining holders of bid
class securities (and other securities convertible into bid class securities) have a right to be
bought out and must be notified of that right.
If the target is listed on ASX:
• AS X may review the adequacy of the target’s spread of shareholdings (if

compulsory acquisition does not occur)
• The Listing Rules relating to continuous disclosure will apply and
• Additional disclosures and approvals may be required to comply with the Listing
Rules concerning changes of activities by listed entities.
Indicative Timetable
Action- Timing
 Give bidder’s statement to target and ASX- On same day as bidder’s statement is
lodged with ASIC or within 21 days afterwards.
 Bidder to send bidder’s statement and offers to-target shareholders To be done:
• Within a 3 day period; and
• Within 14 /28 days after bidders statement is sent to target.
 Target to give target’s statement to bidder -To be done no later than 15 days after
target is notified that offers have been sent.
 Target must send a copy of target’s statement to shareholders -To be done:
• No earlier than day on which target sends target’s statement to bidder; and
• No later than 15 days after target is notified all offers have been sent.
 Target to give target’s statement to ASIC and ASX -On the same day as target’s
statement is sent to bidder.
 Bidder to give notice as to status of defeating conditions - To be done not more than
14 days or less than 7 days before the end of the offer period.
 Close of offer period -Offers must remain open for at least 1 month.
 Compulsory acquisition -Bidder may give compulsory acquisition notices to non-
accepting shareholders within 1 month after end of offer if the bidder and its
associates:
- 89 -
• Have relevant interests in at least 90% (by number) of the securities in the
bid class; and
• Have acquired at least 75% (by number) of the securities the bidder offered
to acquire under the bid.
Market bids
A market bid is carried out by the bidder purchasing the target’s securities on
market for cash only. A market bid must be an unconditional cash offer for all of the
quoted securities of entities listed on ASX. The major steps involved are as follows:
 The bidder arranges for a participating organisation of ASX (a stock broking
organisation) to make an announcement that it will stand in the market and
purchase all shares offered at the offer price for a minimum period of one month.
The market bid commences 14 days after the bid announcement is made.
 The bidder must give a copy of its bidder’s statement to the target, ASX and ASIC
on the same day as the bid is announced. It must send the bidder’s statement to the
target shareholders within 14 days of announcing the bid. The bidder’s statement
requirements are essentially the same as for an off market bid. Similarly the
target’s statement requirements are same..
 To accept a market bid each shareholder must contact a stockbroker and arrange for
the sale of his or her shares on the stock market. The sale will proceed in the
ordinary course of trading on the market and is subject to the normal three day trade
settlement process. The cash consideration is paid to each seller by their
stockbroker in the usual way for a market trade.
 Compulsory acquisition- Bidder may give compulsory acquisition notices to non
accepting shareholders within 1 month after end of offer if the bidder and its
associates:
• Have relevant interests in at least 90% (by number) of the securities in the bid
class; and
• Have acquired at least 75% (by number) of the securities the bidder offered to
acquire under the bid.
Key Differences Between Off Market And Market Bids
Market bids:
• can only be made for securities quoted on the ASX
• are cash bids only
• must be unconditional
• must be for all securities of the bid class and cannot be a partial bid (that is, a
specified proportion of the holding of each offeree)
• do not require any increase in consideration offered to persons who accept before
the increase and
• do not permit an increase or extension of the offer period in the last five days of the
bid period.
- 90 -
Dealing with non accepting shareholders
The takeover legislation contains a procedure for the majority holder to compulsorily
acquire minority holders following the bid, which seeks to balance the rights of the
majority to gain the benefits of the full acquisition of the target against the rights of the
minorities. The majority holder may compulsorily acquire the balance of the bid class after
a bid if:
• The bidder and its associates have relevant interests in at least 90% (by number) of
the securities in the bid class and
• The bidder and its associates have acquired at least 75% (by number) of the
securities that the bidder offered to acquire under the bid (whether the acquisitions
happened under the bid or otherwise).
ASIC (Australian Securities and Investment Commission)1 has given class order relief:
• To allow a bidder to compulsorily acquire non-transferrable employee securities
and
• In relation to the 75% compulsory acquisition test where the bidder has offered to
acquire convertible securities under the bid (for this purpose, convertible securities
that are converted before the end of the offer period are excluded from the number
of convertible securities that the bidder offered to acquire under the bid). The bidder
must exercise this right within one month after the bid closes and the terms offered
must be the same as under the bid.
If the bidder and its associates have relevant interests in at least 90% (by number) in
the bid class it must offer to buy out the remaining holders of securities in the bid class
(and the holders of securities that are convertible into securities in the bid class). The
bidder must inform the holders of securities in the bid class of their right to be bought out,
propose terms to buy them out and, in the case of convertible securities, provide a report on
the fairness of the terms from an ASIC nominated independent expert. In addition to the
post-takeover bid compulsory acquisition power, there are three other kinds of rights of
compulsory acquisition, irrespective of whether there has been a takeover offer:
• A holder of the beneficial interest in 90% of the securities (by number) in a class
may compulsorily acquire the balance of that class. This power must be used within
six months of becoming a 90% holder
• A holder of the beneficial interest in at least 90% (by value) of all securities that are
shares or convertible into shares, where the holder has voting power of at least 90%,
may acquire the remainder of the securities in the class. This power must also be
used within six months of becoming a 90% holder and
• A holder of the beneficial interest in all the securities in a class (the main class)
must make offers to buy out holders of securities in each other class that convert
into the main class within one month of becoming a 100% holder.
Minority holders have the right to object to compulsory acquisition by giving an

objection notice to the 90% holder. If the holders of at least 10% of the securities covered
by the compulsory acquisition notice object the 90% holder (in order to proceed further)
apply to court for approval of the compulsory acquisition. If the 90% holder establishes
- 91 -
that the proposed terms of compulsory acquisition give a fair value for the securities, the
court must approve the compulsory acquisition on those terms. If the court is satisfied that
the minority have not acted improperly, vexatiously or otherwise unreasonably, their court
costs will be paid by the 90% holder.
Other permitted acquisitions
The following are some of the other ways (apart from off market bids and market
bids) in which relevant interests in voting shares exceeding 20% may be acquired.
Shareholder approvals in general meeting Shareholders can give their approval in general
meeting to a person acquiring a relevant interest that would otherwise contravene the 20%
rule.
The notice of meeting must be accompanied by all information known to the

purchaser and the target material to the decision on how to vote on the matter. An ordinary
resolution approving the acquisition is required. The seller, the purchaser, and their
respective associates are precluded from voting.
Usually, a report by an independent expert will be commissioned to provide

shareholders with impartial and expert information on the proposal. In effect shareholders
can agree to a transfer in control without receiving a takeover bid for their own shares. The
acquisition can be effected by a transfer of existing shares or an issue of new shares.
3% creeping acquisitions
A shareholder can increase its holding in the target company by up to 3% every six
months without making a takeover bid. This allows a patient shareholder gradually to
increase its holding without launching a bid for the remaining shares.
Once a shareholder has had a voting interest of at least 19% for an entire six month
period it may acquire shares that increase its voting power by a further 3% in each
succeeding six month period. Depending on the circumstances, a major shareholder may be
satisfied with gradually increasing its shareholding in the target using the 3% creep.
However, care must be taken in applying the 3% creep, as the calculation can be
affected by other factors, such as movements in issued capital and the holdings of
associates. It is ASIC policy that the 3% creep exception is not cumulative with the other
permitted acquisitions.
Pro rata rights issues
Where, by accepting an offer of shares that is made pro rata to all shareholders, a
person acquires or increases its relevant interest, it will not contravene the 20% rule.
However, ASIC will closely scrutinise a rights issue if the surrounding objective
circumstances suggest that it was designed to give control to a holder without that holder
making a takeover bid. In these circumstances, ASIC may refer the rights issue to the
Takeovers Panel for a declaration of unacceptable circumstances.
- 92 -
Downstream acquisitions
If there would be a contravention as a consequence of an acquisition of relevant

interests in voting shares in an upstream listed entity, there is no obligation to make a
takeover bid for the balance of the downstream entity. That is, if Company A makes a
successful takeover bid for Company B and Company B holds 25% of Company C,
Company A is not required to bid for all the shares in Company C.
Schemes of arrangement, liquidator’s arrangements or buy backs
A court approved scheme of arrangement may be used to acquire control in

preference to a takeover bid in certain circumstances. For example, if the outcome of a
takeover bid is dependent on the success of multiple interdependent bids to holders of
different classes of securities, a scheme may be the best practical means to achieve the
required result. For this reason, schemes of arrangement are used in complex, large-scale
mergers that would otherwise be difficult or impossible to achieve with sufficient certainty
through a takeover bid.
In practice, schemes are only used where the parties agree to merge. Shareholder
meetings are convened by court order to consider the scheme. A detailed explanatory
memorandum is required to accompany the notice of meeting. After shareholders approve
the scheme the court will then consider granting orders to implement the scheme. Schemes
of arrangement may not be used to avoid the takeover regime. As part of the approval
process, ASIC reviews scheme documents and gives a no objection statement to court. The
court will not approve a scheme unless it is satisfied that it has not been proposed to avoid
the takeover provisions.
Under section 507: a liquidator may dispose of the whole or part of the business or
property of a company for shares without triggering the takeover provisions. The liquidator
must obtain general or specific approval of the shareholders by special resolution. A share
buy-back does not contravene the 20% rule. The buy-back procedures in the Corporations
Act 2001 must be followed.
6. TRIGGER POINTS
5% Substantial holder level –
Holder is required to give notice to company and ASX. Subsequent net changes in
voting power of 1% or more must also be notified. 10% Holder able to prevent compulsory
acquisition proceeding due to inability of other person to reach 90% voting power. 15%
Requirement for notice under Foreign Acquisition and Takeovers Act (if bidder is foreign
person) or 40% for two or more foreign holders.
20% substantial holder level-
Takeover threshold level for off market bid/market bid.
25% holder level –
Holder able to prevent special resolution being passed.
- 93 -
30% holder level-
Independent expert’s report required with target statement if bidder’s voting power is at
this level or if bidder and target are connected by common directors.
50% holder level-
Majority control of target. Majority holder able to ensure passing of ordinary resolution.
75% holder level-
Holder able to ensure passing of special resolution.
90% holder level-
Trigger point at which compulsory acquisition of remaining shares in target can take place,
subject to meeting conditions.
100% holder level-
Bidder able to gain benefits of outright control including being able to fully consolidate
target’s accounts.
Defences available to takeovers in Australia are fairly limited and can be divided
into 2 categories: pre-takeover announcement actions and post takeover announcement
actions.
Pre takeover announcement defences contains:
 Defensive placement – companies may place shares with persons whom directors
believe will support existing management.
 Use of employee incentive scheme – a broadly based employee share scheme may
encourage employee support of existing management in a takeover.
 Cross shareholdings between associated companies – cross shareholdings can create

a defensive web which may make it difficult for an outside bidder to penetrate.
 Use of selective buy-back provisions to eliminate critical shareholding groups.
 Corporate restructuring and dealing with assets – including buying, selling, joint
venturing and spinning off assets into separate listed entities or mixing unattractive
assets with attractive assets.
- 94 -
 Adopting partial takeover approval provisions in constitution to make a partial bid
less attractive by adding a further hurdle.
Post takeover announcement defences consist:
 Public rejection of the takeover bid price and/or the bidder to persuade
shareholders against accepting.
 Seek out rival bidders.
 Use profit forecasts etc, to demonstrate inadequacy of bid.
 Challenge bidder’s statement adequacy before Takeovers Panel.
 Undertake a major transaction, such as making a takeover for another party.
Care must be taken to ensure that any defence does not amount to frustrating action
which could be the subject of a declaration of unacceptable circumstances by the
Takeovers Panel.
Stock exchange controls on defensive tactics The ASX Listing Rules contain
several important limitations on defensive actions by listed companies:
 Listing Rule 7.9 prohibits share placements for three months after a takeover bid is
announced or proposed without shareholder approval. Some limited exceptions
apply, such as for an issue announced before the takeover bid. Fast action may be
needed if a takeover is considered imminent.
 For related parties, Listing Rule 10.1 restricts the acquisition or disposal of assets
without shareholder approval if their value is equal to or more than 5% of the sum
of paid up capital, reserves and accumulated profits.
 The “15% rule” in Listing Rule 7.1 imposes a 15% limit on issues of equity
securities in any 12 month period. While there is an exception for an issue of
securities under an off market bid, this rule may restrict placements for defensive or
funding purposes.
 Listing Rule 11.1 requires significant changes to the nature or scale of a company’s
activities to receive shareholder approval and satisfy ASX’s information
requirements. Major business asset changes may be restricted by this rule.
 Listing Rule 6.9 requires voting rights to be one vote for one share.
 Subject to limited exceptions, this limits defensive strategies using restrictive or

favourable voting rights.
 Listing Rule 10.18 prohibits any officer of a listed company or its subsidiaries from
being entitled to termination benefits (or any increase in them) in the event of a
change of control of the company.
- 95 -
8. DIRECTORS’ DUTIES
The defensive actions available to directors of target companies should be

considered in relation to the fiduciary duties of directors under the common law and the
Corporations Act 2001. These fiduciary duties may limit the range of defensive actions
available to the target company directors.
The fiduciary duties include both positive and negative responsibilities and include
duties to act:
 In good faith in the best interests of the company

 For a proper purpose
 With care and diligence
 So as not to improperly use their position
 So as not to fetter discretions
 To give adequate consideration, and
 To avoid conflicts of interest.
9. OTHER CONSEQUENTIAL LAWS APPLICABLE
Trade Practices Act 1974, part IV, Div. 2(D) mentions about the Restrictive Trade
Practices, relating to acquisition1.
Sec 50 specifically lays down, Prohibition of acquisitions that would result in a

substantial lessening of competition.
According to Sec 50, a corporation must not directly or indirectly acquire shares in
the capital of a body corporate; or acquire any assets of a person;
 If the acquisition would have the effect, or be likely to have the effect, of
substantially lessening competition in a market.
The corporation will not be prevented from making the acquisition

 If the corporation is granted a clearance or an authorisation for the
acquisition under Division 3 of Part VII.
It is possible to obtain clearance (formal or informal) or authorisation for proposed

mergers, but there is no mandatory notification process. Clearance will be granted only if
the ACCC does not believe the mergers will Substantially Lessen Competition.
Authorisation, on the other hand, may be granted by the Australian Competition

Tribunal even where the merger will Substantially Lessen Competition if it can be
demonstrated that the merger would lead to such a benefit to the public that it should be
allowed to occur (s 95AZH). Section 50A deals with mergers occurring outside Australia.
- 96 -
Authorisation and Notification
Authorisation is available for all forms of conduct prohibited by Part IV of the

TPA, save for misuse of market power. Authorisation is granted either where public benefit
can be demonstrated to outweigh any anti-competitive detriment or where the public
benefit is such that the conduct should be permitted. Different tests apply to different
conduct, in practice they seem to apply in the same way. Notification is available for small
business collective bargaining and for exclusive dealing
.
10. DISPUTE RESOLUTION
The Takeover Panel plays a major role in dispute resolution. The provisions of the
CLERP Act, effective 13 March 2000, give the Panel an expanded role from that which it
had had prior to CLERP. Section 659AA of the Act describes the post-CLERP Panel as the
primary dispute resolution forum for takeover bids during the lifetime of those bids.
Primary Dispute Resolution Forum
Under Sec. 659B of the Act, private parties to a takeover no longer have the right to
commence civil litigation, or seek injunctive relief from the courts in relation to a takeover,
while the takeover is current. The disputes which were previously resolved in the civil
jurisdiction of the courts will be resolved by the Panel.
Unacceptable Circumstances
The Panel has an expanded jurisdiction over cases of unacceptable circumstances.

A wider range of persons may apply to the Panel for a declaration of unacceptable
circumstances under Sec. 657A of the Act than prior to CLERP.
Review of some ASIC and Panel Decisions
The Panel has the power to review certain decisions of the Australian Securities and
Investments Commission (ASIC) to grant exemptions or modifications during the life of a
takeover. This function had previously been carried out by the Administrative Appeals
Tribunal. The ASIC decisions which the Panel may review its decisions to exempt or
modify Chapter 6 of the Act under s655A of the Act, and decisions under s673 of the Act,
to modify the substantial shareholding provisions (if those decisions are made in relation to
a takeover target). These powers are set out in Sec. 656A of the Act.
Under Sec. 657EA of the Act, the Panel also has a function in reviewing its own,
first instance, decisions. However, a Panel reviewing the first instance decision of another
Panel would be comprised of a fresh group of members. There can be only one review of
an original Panel decision, there isn't a rolling sequence of Panel reviews of reviews. The
Panel has an additional review function if a matter is referred from the court, under s657EB
of the Act.
Panel Proceedings
When a matter is referred to the Panel, the Panel must consider whether it will
commence proceedings in relation to the matter. If it does, the substantive President of the
- 97 -
Panel appoints three members to be the "sitting Panel'. If the substantive President is on
any particular sitting Panel then he or she will be the sitting President. The substantive
President and the selected Panel members must ensure that the selected Panel members do
not have any material conflicts or biases.
The Panel is expressly required under its legislation (Regulation 13) to ensure that its
proceedings are:
 as fair and reasonable; and
 conducted with as little formality; and
 conducted in as timely a manner;
As per the requirements of the Panel's legislation, and a proper consideration of the
matters before the Panel, permit. The Panel has published Rules (made under s195 of the
ASIC Act) which govern Panel proceedings. Proceedings are primarily determined on
written submissions.
However, the sitting Panel may convene a conference. The Panel has significant
powers at a conference, including the powers to take evidence on oath, subpoena witnesses,
examine witnesses or subpoena documents. Under Regulation 16, the rules of evidence do
not apply to Panel proceedings. However, under Sec. 195(4) of the ASIC Act, the rules of
procedural fairness do apply, to the extent that they are not inconsistent with the Panel's
legislation.
Protection of Panel Members
When exercising their statutory functions and powers in relation to Panel

proceedings, Panel members have the same immunity and protection from suit in civil
actions as that enjoyed by judges under the principles of judicial immunity (Sec. 197(1) of
the ASIC Act). Panel members also have protection from improper advances or other forms
of conduct which could constitute contempt if done in court proceedings.
Forms of interference such as threats, intimidation or attacks on the professional

competence or partiality of a Panel member may constitute an offence under Sec. 200 of
the ASIC Act. Under this section, a person is prohibited from obstructing or hindering the
Panel or a member and from disrupting Panel proceedings.
Contravention of this prohibition carries a penalty of $5000 and/or 1 year of

imprisonment. Such conduct is also likely to be a crime under Federal and State laws. For
example, the Commonwealth Crimes Act 1914 makes it an offence for a person to
knowingly and intentionally obstruct, resist, hinder, use violence against, threaten or
intimidate public officers. Contravention of this prohibition carries a penalty of 2 years
imprisonment. The Panel regards any improper attempt to influence a Panel member as a
very serious matter, and it will normally disclose any such attempts to the parties, to ensure
confidence in the Panel & apos;s process. The Panel will also consider referring a
suspected breach of the Crimes Act 1914 to the Federal Police.
- 98 -
Panel legislation
Two primary pieces of legislation empower and regulate the operations of the
Panel. They are, Part 6.10 of the Corporations Act, and Part 10 of the ASIC Act. Part 6.10
of the Act sets out the primary powers of the Panel in reviewing decisions and in making
declarations and orders. Part 10 of the ASIC Act contains most of the machinery provisions
for the Panel, including its establishment and the processes of conducting its proceedings.
The Australian Securities and Investments Commission Regulations are secondary
legislation which develop the provisions of Part 10 of the Australian Securities and
Investments Commission Act and give further specific powers to the Panel.
Panel Documents
The Panel intends to issue several types of documents. Currently they include:
1. Statements of Decisions and Reasons
The Panel is required to publish relatively few documents under the Act, these
include the ASIC Actual terms of any declaration of unacceptable circumstances under
Sec. 657A(5). However, the Panel will actually make many decisions, and will have
considered reasons for them all. The Panel considers that the market and investors will be
best served if the Panel publishes as many of its decisions and policies as possible, and the
reasons for its decisions. It considers that this website is the most suitable place for those
publications.
The Panel intends to publish on this website:

(a) the text of any declarations of unacceptable circumstances;
(b) the text of any decisions not to make such declarations;
(c) the text of any orders made under s657D or s657E of the Act;
(d) the text of any decisions that the Panel makes in reviewing decisions by ASIC,
under the Panel's powers under s656A, in reviewing decisions by the Panel, under
the Panel's powers under s657EA, or in reviewing a reference from a Court, under
the Panel's powers under s657EB of the Act;
(e) the reasons for those decisions.
2. Policies and Procedures
The Panel has a number of discretions in exercising its powers and in conducting its
hearings. The Panel intends to set out the factors which will influence how it exercises its
discretions, and any general views on such issues as what might constitute unacceptable
circumstances under s657A of the Act. The Panel considers that this sort of information
will assist market participants and investors. It will provide greater certainty, assist people
planning acquisitions, and make the Panel's operations more transparent and predictable.
The Panel will also publish as policies, the procedures that it intends to go through in
conducting various of its functions. For example, the Panel will publish documents on how
it intends to go about making rules pursuant to s658C of the Act and rules pursuant to s195
of the ASIC Act.
- 99 -
3. Media Releases
The Panel intends to publish three types of media releases.
The first will be releases concerning administrative and Executive matters, such as
new staff and new Panel members.
The second will be notifying the public of policy and procedural matters, and
stating things of record, such as the making of a declaration of unacceptable circumstances.
Most of these will refer back to this website.
The third type of media release will be to alert, at the earliest possible time, the
market, investors and participants, to any issue which the Panel considers is urgent enough
not to wait for the normal policy consultation and development process, or to the normal
times for the completion of proceedings. The Panel's timeliness in alerting the market and
participants to material issues is a significant factor. For example, the Panel may be advised
by practitioners in the takeovers industry of an issue of uncertainty as to the interpretation
of a particular provision in the Act.
The market will likely want an early indication of the Panel's initial and tentative
views, and a discussion of the issues that the Panel might consider if an issue was brought
before it for a decision on unacceptable circumstances. In such a case, the Panel might
review the issues very quickly initially, and bring the matter to the market's, and investors'
attention early, to put them on notice that there was a new issue which they should address
in their investment thinking. At the same time, the Panel would also normally advise the
market of the procedure and timetable that the Panel envisaged it would take in providing a
definitive view on the issue.
4. Rules
The Panel is empowered, under s658C of the Act, to make rules to clarify or
supplement the operations of the provisions of Chapter 6 of the Act. The Panel is also
empowered under s195 of the ASIC Act, to determine the rules under which Panel
proceedings will be conducted. The Panel intends to publish both these types of rules on
this website. The Panel also intends, prior to making rules, to publish requests for public
submissions on its rules on this website.
5. Confidentiality
The Panel is required to keep confidential various information under s127 of the
ASIC Act, and it has provisions under s190 of the ASIC Act which allow it to restrict
publication of certain information given to the Panel. In order to promote the maximum
candour of persons appearing before it, and in submissions to it, the Panel intends to keep
confidential any information which would be commercially sensitive for the persons who
provided it to the Panel. The sorts of information might include financial projections of
parties, or trade secrets or processes, which they were under no legal or continuous
disclosure obligations to disclose.
- 100 -
CHAPTER – V
HONGKONG
HISTORICAL BACKGROUND
The Securities and Futures Commission (SFC) is an independent non-governmental

statutory body outside the civil service, responsible for regulating the securities and futures
markets in Hong Kong and is charged with regulating the securities and futures markets in
Hong Kong. The SFC is responsible fostering orderly securities and futures markets, to
protect investors and to help promote Hong Kong as an international financial centre and a
key financial market in China. Even though it is consider being a branch of the
government, it is run independently under the authorization of the laws relating to
Securities and Futures. The SFC was created in 1989 in response to the stock market crash
of October 1987. In 1997 following the Asian financial crisis the regulatory framework was
further improved. A comprehensive Securities and Futures Ordinance (SFO) was
implemented in 2003, which expanded the SFC's regulatory functions and powers. Andrew
Sheng served as chief executive officer of the SFC from 1998 until 2006, when he was
replaced by Martin Wheatley. Wheatley announced his resignation from the position in
December 2010.
Until the mid-1970s, stock and commodities markets in Hong Kong were largely
unregulated. After the stock market crash of 1973-1974, the Government intervened and
the core legislation governing the securities and futures industry was enacted.
The legislation was administered by two part-time Commissions - one for securities and the
other for commodities trading - and their executive arm, the Commissioner for Securities
and Commodities Trading, who headed the Office of the Commissioner for Securities and
Commodities Trading, which was established as part of the Government. This structure
remained largely unchanged for over a decade, during which time there was rapid change
in the securities and futures markets, both internationally and in Hong Kong.
Inevitably, the existing regulatory structure fell behind. In 1987, the deficiencies in the
structure were made all too apparent by the October crash, which resulted in the closure of
both the Hong Kong stock and stock index futures markets for four days. In the aftermath
of the crash, a six-member committee, the Securities Review Committee, chaired by Ian
Hay Davison, was created to examine Hong Kong's regulatory structure and regime and
how they could be improved, to minimise the chances of a repeat of the disruption and
chaos of October 1987.
In May 1988, the Committee released its report, which concluded that the Office of the
Commissioner for Securities and Commodities Trading had insufficient resources properly
to regulate the rapidly growing and changing Hong Kong market.
The Committee found that too much effort had been spent on ineffective routine vetting,
instead of active surveillance and monitoring of markets and intermediaries. The two
- 101 -
commissions were not regulating effectively because they lacked strong direction and had
become passive and reactive, instead of being active and proactive.
The Committee recommended that the then existing structure should be replaced with a
single statutory body outside the civil service, headed and staffed by full-time professional
regulators and funded primarily by the market. In their view, such a body should have
broad investigative and disciplinary powers to enable it to perform its regulatory functions
effectively.
Thus, in May 1989, following the enactment of the Securities and Futures Commission
Ordinance, the SFC was born
CIRCUMSTANCES
STRUCTURE OF THE MARKET
The ownership of most Hong Kong public companies is highly concentrated and quite
often controlled by families or small groups of shareholders. These family groups are able
to appoint and remove the Board of Directors without the support of other shareholders.
Therefore, most companies are not vulnerable to a hostile takeover bid and hostile
takeovers are rare in Hong Kong, though not unknown. The most common way of gaining
control over a Hong Kong public company is by buying a controlling stake in the company
from its controlling shareholder(s). Once this is done, the purchaser is obliged to make a
mandatory general offer. Depending on the response of the minority shareholders, this may
or may not result in the privatisation of the company. If the objective is to privatise the
public company, this can be achieved by making a general offer followed by a compulsory
acquisition process where the dissenting or nonresponsive shareholders are bought out.
Recommended privatisation offers can also be structured as a scheme of arrangement under
the Companies Ordinance. When the scheme is duly approved, it will be binding on all
members of the relevant class of shares and on the company. In many cases, this may offer
a more effective way of buying out minority shareholders than a straightforward voluntary
offer.
TAKEOVER REGULATORY FRAMEWORK AND TAKEOVER PROCEDURE
Public takeovers are primarily governed by The Code on Takeovers and Mergers and Share
Repurchases (the Code), which is modelled on the UK's City Code. The current version of
the Code was issued in 2005 by the Securities and Futures Commission (SFC). The SFC
administers the Code through The Executive Director of the Corporate Finance Division
(the Executive). The Code applies to takeovers and mergers affecting public companies in
Hong Kong and companies with a primary listing of their equity securities in Hong Kong,
including voluntary offers, partial offers (an offer for less than 100% of the voting rights of
the target) and mandatory offers. The SFC will apply an economic or commercial test to
determine whether an unlisted company is a public company in Hong Kong. However to
take advantage of the securities markets in Hong Kong it is significant to comply with the
Code in matters relating to takeovers and mergers, any such non compliance, by way of
sanction, that the facilities of such markets are withheld. Companies listed in Hong Kong
are expressly required to comply with the Code under the Hong Kong Stock Exchange's
Listing Rules. In addition to the Code, compliance may also be required with various
existing statutes and other regulations:
- 102 -
 Stock Exchange’s Listing Rules (Listing Rules) – a bidder listed on the Main
Board or the GEM Board of the Hong Kong Stock Exchange are subject to the
Stock Exchange's Listing Rules and the compliance measures that need to be
taken would depend on the size of the offer;
 Companies Ordinance – companies incorporated in Hong Kong and to a lesser
extent, overseas incorporated companies with offices in Hong Kong are
regulated by the Companies Ordinance. It sets out the general law with regard to
the conduct of the affairs of Hong Kong companies and contains certain
controls over corporations incorporated outside Hong Kong, primarily relating
to the offer for sale of their shares and debentures in Hong Kong;
 Securities and Futures Ordinance (SFO) – requires, among other things, the
disclosure of interests of persons in 5% or more of the voting shares of
companies listed on the Hong Kong Stock Exchange and the interests of
directors; and prohibits insider dealing in listed securities and derivatives of
listed corporations.
 Regulatory provisions designed to control ownership in certain industries – for
example, banking, insurance, securities and commodities trading,
telecommunications and television;
 Laws of overseas jurisdictions of incorporation – many companies listed on the
Stock Exchange are incorporated outside Hong Kong, particularly in the
Chinese Mainland, Bermuda and the Cayman Islands. Therefore, the laws of
those other jurisdictions may need to be considered, for example, where a
takeover is to be effected by way of a scheme of arrangement or where the
holdings of minority shareholders are to be compulsorily purchased.
The purpose of the Code: The Code provides an orderly framework within which
takeovers and mergers are to be conducted. It is intended to:
 afford fair treatment to shareholders by requiring equality of treatment of
shareholders;
 mandate disclosure of timely and adequate information in order to enable
shareholders to make an informed decision as to the merits of an offer;
 ensure that there is a fair and informed market in the shares of companies
affected by takeovers, mergers and share repurchases.
GENERAL PRINCIPLES AND KEY CONCEPTS
General Principles
The Code sets out ten general principles of conduct, which may be summarised as follows:
 all shareholders are to be treated similarly;
 if control of a company changes, a general offer is normally required;
 during the course of an offer, equal dissemination of information to all shareholders
is required;
- 103 -
 an offeror should announce an offer only after careful and responsible
consideration;
 shareholders should be given sufficient information, advice and time to reach an
informed decision on an offer;
 all persons should make full and prompt disclosure to avoid the creation of a false
market;
 rights of control should be exercised in good faith and the oppression of minority or
non-controlling shareholders is unacceptable;
 directors should act in accordance with their fiduciary duties;
 no frustration action, that is. after a bona fide offer has been communicated to the
board of the offeree company, or after the board of the offeree company has reason
to believe that a bona fide offer might be imminent, the offeree board may not take
action to effectively frustrate the offer or deny the shareholders an opportunity to
decide on its merits; and
 all parties concerned with transactions subject to the Code must cooperate with the
SFC.
KEY CONCEPTS
Control – a holding, or aggregate holdings, of 30% or more of the voting rights of a

company, irrespective of whether that holding or holdings gives de facto control.
Voting rights – means all the voting rights currently exercisable at a general meeting
of a company whether or not attributable to the share capital of the company.
Rights over shares – includes any rights acquired by a person under an agreement to
purchase, or an option to acquire, shares, options, warrants, convertible securities or
voting rights (or control of any of them), or any irrevocable commitment to accept an
offer.
Privatisation –means an offer (other than a partial offer), however effected, for a
company by a shareholder which has control of that company, or by any person or
persons acting in concert with such shareholder.
Cash purchases – Cash purchases include contracts or arrangements where the

consideration consists of a debt instrument capable of being paid off in less than three
years.
Acting in concert – Persons acting in concert comprise persons who, pursuant to an

agreement or understanding (whether formal or informal), actively co-operate to
obtain or consolidate “control” of a company through the acquisition by any of them
of voting rights of the company. The Code further provides 9 classes of "deemed"
concert parties.
Associate – The term associate will cover all persons acting in concert with an
offeror. It is also intended to apply to a wider range of persons (who may not be
acting in concert) and will cover all persons who directly or indirectly own or deal in
- 104 -
the relevant securities of an offeror or the offeree company in an offer and who have
(in addition to their normal interests as shareholders) an interest or potential interest,
whether commercial, financial or personal, in the outcome of the offer.
Associated company – A company shall be deemed to be an associated company of

another company if one of them owns or controls 20% or more of the voting rights of
the other or if both are associated companies of the same company.
PRE-OFFER STAGE
Parties shall be aware that there are continuing obligations that must be observed even
before an approach is made to indicate the possibility of a takeover offer. For instance,
obligations arise regarding secrecy, announcement and share dealings.
Secrecy
Absolute secrecy must be maintained until an announcement is made. Financial and legal
advisers should warn their clients of the importance of secrecy. Information may only be
passed to another person if it is necessary to do so and if the other person indicated the
needs of secrecy.
Due diligence
It is important to remember the obligations of the Code that information relating to the
target given by the offeree to an offeror should be furnished equally and promptly upon
request to any other offeror or bona fide potential offeror, who should specify the questions
to which it requires answers. If another offeror (maybe less welcome) seeks to obtain
information, the offeree will not be permitted to withhold information from the second
offeror merely because it prefers the first. The Code requires that if the approach to the
offeree is made not by the potential offeror but, by a broker, for instance, then the identity
of the potential offeror or its ultimate controlling shareholder must be disclosed to the
board of the offeree.
Insider dealing
Under the Code, generally no dealings of any kind in target securities may be transacted by
any person, not being the bidder, who has confidential price sensitive information
concerning a contemplated offer between the time when there is reason to suppose that an
approach is contemplated and the announcement of the approach or of the termination of
the discussion. In addition, no dealings may take place in bidder securities except where the
offer is not price sensitive in relation to those securities. A potential bidder may consider
taking an initial stake in the target to improve the chances of success. In principle, there are
no restrictions on stake building prior to an offer being announced, although dealing in
shares will be subject to the Code and the SFO. In addition, if a potential bidder is a listed
company on the Hong Kong Stock Exchange, it may require disclosure or even
shareholder's approval under the Listing Rules.
- 105 -
Letter of Intent
It is normal to sign a letter of intent between the offeror and offeree in a friendly takeover.
Unless announced publicly, such letters of intent relating to an offer should be disclosed to
the Executive. If such letters of intent contain the substantive terms of an agreement, then it
is likely that an announcement will be required. It is also not uncommon for an offeror to
seek irrevocable undertakings to accept the offer from substantial shareholders of the
target, especially because most Hong Kong companies tend to be controlled by a small
number of shareholders. Generally, the SFC must be consulted where it is intended to seek
irrevocable undertakings. The announcement of an intention to make a firm offer must
specify in what circumstances an irrevocable undertaking will cease to be binding.
Irrevocable undertaking must normally be available for public inspection following the
issue of the offer documents.
Break fee
Break fees are becoming more common. If the target agrees to pay a break fee if the bid is
not successful, its board and financial adviser must confirm to the SFC that they believe
this is in the best interests of the company. It should be de minims (normally no more than
1% of the offer value).
Disclosure Obligations
The SFO requires the public disclosure of substantial interests in the relevant share capital
of listed companies and discloseable dealings by directors and chief executives in shares or
debentures of listed and associated companies. All the PRC companies whose H shares are
listed in Hong Kong have more than one class of voting shares. Therefore, the disclosure
obligation may arise in relation to each class of shares. A person is regarded to be
interested in shares if he enters into a contract for their purchase, or is entitled to exercise
any right conferred by the holding of the shares, or is entitled to control the exercise of any
such right. The threshold at which disclosure must be made is 5% of the relevant class of
shares. Thereafter, further disclosure must be made every time the shareholder's interest
passes through a whole percentage point, or if the interest falls below 5%. The disclosure
must be made within three business days after the day on which the duty to notify the
relevant interest arose. Under the Code, dealing during an offer period by parties involved
in a takeover for themselves or for discretionary clients must by publicly disclosed by
10:00 am on the business day following the transaction. Dealings by person connected with
a takeover on behalf of non-discretionary clients must be disclosed privately to the SFC.
Requirement for a cash offer
Where an offeror, or any person acting in concert, has acquired for cash shares carrying
10% or more of voting rights in the offeree company during the offer period and within six
months prior to its commencement, or acquires shares for cash during the offer period, the
offer must be made in cash, or be accompanied by a cash alternative, at not less than the
highest price paid in respect of such shares during that period. If target shares are acquired
in exchange for securities in the 12 months prior to the commencement of the offer period,
this may be treated as an acquisition for cash and require a cash offer.
- 106 -
ANNOUNCING AND MAKING THE OFFER
Responsibility for making announcement
The Code sets out requirements regarding circumstances in which various parties must
make an announcement. These rules are generally the same for all the offers, regardless of
whether they are hostile or agreed, and could be summarised as follows.
By offeror or potential offeror: Before the approach is made to the offeree board, the
responsibility for making an announcement normally rests with the offeror or potential
offeror. The Code provides a number of circumstances when a offeror must make an
appropriate announcement, including:
 if the target is subject to rumour or speculation about a possible offer and there
are reasonable grounds for concluding that it is the potential offeror's action
which have led to the situation.
 if there is undue movement in the target's share price or a significant increase in
the volume of share turnover and there are reasonable grounds for concluding
that it is the potential offeror's action which have led to the situation;
 when negotiations are about to be extended to include more than a very
restricted number of people (outside those who need to know in the companies
concerned or their immediate advisers);
 where its acquisition of shares triggers an obligation to make a mandatory offer;
Even after an approach is made to the offeree board, the actions of the offeror
may place him under the obligation to make an announcement, so he should at
all times monitor the price and trading volume of the offeree's shares for undue
movement.
By Offeree: The primary responsibility for making an announcement normally transfers to

the offeree's board after an approach has been made to it. The board of offerees must make
an announcement as follows:
 when a firm intention to make an offer is notified to it from a serious source,
irrespective of the board's attitude to the approach;
 following an approach, whether or not there is a firm intention to make an offer,
the target is the subject of rumour or speculation about a possible offer or there
is undue movement in its share price or in the volume of its share turnover;
 when negotiations or discussions between the offeror and the offeree are about
to be extended to include more than a very restricted number of people;
 when the board is aware that there are negotiations or discussions between a
potential offeror and holders of shares carrying 30% or more of the voting rights
- 107 -
of the company, or the board is seeking potential offerors and either rumour or
speculation about a possible offer arises or there is undue movement in the
share price or turnover volume, or the number of potential purchasers or
offerors approached is about to be increased to include more than a very
restricted number of people.
By potential vendor
A potential vendor who holds shares carrying 30% or more of the voting rights of a
company and is in discussions with a potential offeror must make an announcement when:
 the company is subject to rumour or speculation of a possible offer; or

 there is undue movement in its share price or in the volume of share turnover;
and
 there are reasonable grounds for concluding that it is the potential vendor's
actions which have led to the situation. Until a firm intention to make an offer
has been notified, a brief holding announcement by a potential offeror or the
offeree that talks are talking place or an offer may be in contemplation will
suffice. The position must be updated monthly.
 Announcement of a firm intention to make an offer
The Code sets out information that must be included in the announcement of a firm
intention to make an offer. All the documents associated with such an announcement, must
be prepared to prospectus standard and use unambiguous language. It must contain the
following information, as a minimum:
 the term of the offer;
 the identity of the offeror and where it is a company, its ultimate controlling
shareholder and the ultimate parent company;
 details of the voting rights and rights over shares in the offeree company which the
offeror owns or controls, details of any irrevocable commitment received by the
offeror and convertible securities, warrants and options held by offeror;
 details of any outstanding derivatives relating to offeree's securities held by the
offeror or any person acting in concert with it;
 all conditions to which the offer is subject;
 details of any arrangement in relation to shares of the offeror or the offeree which
might be material to the offer;
 details of any agreements or arrangements to which the offeror is a party that relate
to the circumstances in which it may or may not invoke or seek to invoke a pre-
condition or a condition to its offer and the consequences of its doing so, including
details of any break fees payable as a result. The announcement shall also include
confirmation by the offeror's financial adviser or by another appropriate third party
that sufficient resources are available to the offeror to satisfy full acceptance of the
offer.
- 108 -
All the announcements, circulars and advertisements to shareholders relating to takeovers
must be cleared by the Executive prior to release. Depending on the situation of the offer,
the SFC may require additional information (typically about the background to the offer
and the parties) beyond the requirement specified in the Code.
Restrictions on dealings during the offer
During an offer period, the offeror and persons acting in concert with the offeror must not
sell any securities in the offeree company except with the prior consent of the Executive
and following 24 hours public notice that such sales might be made. Except with the
consent of the Executive, where the consideration under an offer includes securities of the
offeror or a person acting in concert with it, neither the offeror nor any person acting in
concert with it may deal in any such securities or conduct any on-market repurchase of
such securities during the offer period.
No frustrating action
Under the Code, once a bona fide offer has been communicated to the offeree's board, or
the board has reason to believe that a bona fide offer may be imminent, no action may be
taken by the board in relation to the affairs of the company which could effectively
frustrate or deny the merits of the offer, without the approval of the shareholders in general
meeting.
The Listing Rules require that each company should have a minimum number of directors
independent of the principal shareholder and certain actions may only be taken if approved
by an appropriate majority of independent shareholders. These provisions are intended to
give independent shareholders some limited protection from controlling shareholders,
however, may further limit the actions that can be taken by a board in a takeover offer.
CONSIDERATION
Mandatory offers
A mandatory offer must be in cash or be accompanied by a cash alternative at not less than
the highest price paid for by the offeror (or any person acting in concert with it) for shares
carrying voting rights during the offer period and within the six months prior to its
commencement.
Voluntary offers
The consideration for a voluntary offer can be in cash or securities, or a combination of

both. However, if the offeror or any person acting in concert with it:
 has acquired for cash shares carrying 10% or more of the voting rights of the
company during the offer period and the six months prior to its commencement; or
 acquires any target shares during the offer period for cash the offer must be in cash
or be accompanied by a cash alternative at not less than the highest price paid for
- 109 -
shares of the same class during the relevant period by the offeror (or any person
acting in concert with it).
The Executive may require that a cash alternative is provided in other circumstances to
give effect to the principle that all shareholders are to be treated even-handedly and all
shareholders of the same class are to be treated similarly.
CONDITIONS
Acceptance condition
Except with the consent of the Executive, all offers (other than partial offers) shall be
conditional upon the offeror having received acceptances in respect of shares which, when
aggregated with the shares already acquired or agreed to be acquired before or during the
offer, will result in the offeror and persons acting in concert with him/her holding more
than 50% of the voting rights of the company.
Conditions of a mandatory offer
A mandatory offer shall not be made subject to any other conditions other than the
acceptance condition above-mentioned, whether as to minimum or maximum levels of
acceptances required to be received or otherwise.
Conditions of a voluntary offer
A voluntary offer may be made conditional on an acceptance level of shares carrying a

higher percentage of voting rights than the above-mentioned acceptance condition.
POST-OFFER STAGE
Purchase the shares of outstanding minority shareholders
An offeror may compulsorily acquire the shares held by non-accepting shareholders where
it has:
 within four months of the date of the offer,

 acquired by virtue of the offer(or, in the case of shares listed on the Stoke
Exchange, by virtue of the offer or otherwise),
 90% or more in value of the shares to which the offer relates (being all the shares of
the target other than those held by the offeror or member of its group).
The terms of the offer must be the same in relation to all shares to which the offer relates.
Where the offeror has acquired shares representing 90% in value of all shares of the
relevant class, minority shareholders may require the offeror to acquire the balance.
However, this procedure is only relevant where the company law of the place of
incorporation of the company provide for such a compulsory acquisition procedure.
- 110 -
Scheme of arrangement
For companies incorporated in Hong Kong, a scheme of arrangement under the Companies
Ordinance offers a more effective way of buying in minority shareholders than a
straightforward voluntary offer. The court may, on the application in a summary way of the
company, order a meeting of the members of the company or class of members to be
summoned in such manner as the court directs. Such a scheme must be approved by a
majority of the shareholders who are present and vote at a general meeting and who
represent 75% in value of the shares voted. In addition, the Code requires that except with
the consent of the Executive, where any person seeks to use a scheme of arrangement or
capital reorganisation to acquire or privatise a company, the scheme or capital
reorganisation may only be implemented if:
 the scheme is approved by 75% of the votes attached to disinterested shares who
voted at a meeting of the shareholders; and
 the number of votes cast against the resolution is not more than 10% of the votes
attaching to all disinterested shares.
When the scheme is duly approved, it will bind all members of the relevant class of shares
and the company. For companies incorporated outside Hong Kong, there are similar
procedures provided for in the company legislation of some of the jurisdictions in which
they are incorporated.
De-listing of a company
Under the Listing rules, a company may not voluntarily withdraw its listing on the Hong
Kong Stock Exchange without the permission of the Exchange. Permission should be given
if:
 the company has obtained the prior approval of its shareholders and holders of
any other class of listed securities (if applicable);
 the directors, chief executive and any shareholder holding 30% or more of the
listed shares and their associates do not vote; and
 the resolution is passed by a majority, in number, of shareholders who vote and
represent three-quarters in value of the shares voted.
Neither the offeror nor any concert party may vote on the resolution. The Code also
additionally requires that the number of votes cast against the resolution to de-list is not
more than 10% of the votes attaching to all shares, excluding those held by the offeror and
its concert parties. The offeror should be entitled to exercise, and does exercise, its right of
compulsory acquisitions.
Restrictions on further offers
When a bid fails, within 12 months from the date on which of the offer is withdrawn or
lapses, except with the consent of the Executive, neither the offeror nor any of its concert
acted (or acting) parties may:
- 111 -
 announce an offer or possible offer for the target;
 acquire any voting rights in the target if the bidder or persons acting in concert with
it would thereby become obliged to make a mandatory offer.
These restrictions also apply for a period of 6 months where a person does not announce a
firm intention within a reasonable time, after having made an announcement which raises
or confirms the possibility that an offer might be made. Where a person announces that it
does not intend to make an offer, the restrictions will also normally apply for 6 months
unless, either:
 there is a material change of circumstances, or

 there has occurred an event which the person specified in its announcement as an
event which would enable it to be set aside.
Furthermore, except with the consent of the Executive, an offeror or any person acting in
concert with it holding more than 50% of the voting rights in the offeree company may not,
within 6 months after the end of the offer period of any previous offer made by it, which
became or was declared wholly unconditional, make a second offer to, or acquire any share
from, any shareholders of the offeree company at a higher price than that made available
under the previous offer.
THE OFFER TIMETABLE
TIMING ACTION
Day -21/-35: Making the announcement of the terms of the offer
Day 0 Posting offer document
Within 21 days from the date making the announcement or within 35 days in the case of a
securities exchange offer.
Day 21/28 First closing date
The offer must be open for acceptance for at least 21 days following the date of posting if
the offer and response documents are dispatched on the same day, or 28 days if the
response documents are dispatched after the date of dispatch of the offer documents.
Day 39 Last announcement by target
Offeree should not announce any new material information (including trading results, profit
or dividend forecasts, asset valuations or proposals for dividend payments or for any
material
acquisition or disposal or major transactions) after the 39th day. If announcement of such
matters is made after the 39th day , the "Day-46" and "Day-60" period referred to below
will normally be extended by the Executive.
- 112 -
Day 42/49 Withdrawal of acceptances
An accepter shall be entitled to 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 shall be exercisable until such time as the offer becomes or is declared
unconditional as to acceptances. However, on the 60th day the final time for the withdrawal
must not be later than 4.00 p.m.
Day 46 Last day for revision
A revised offer must be kept open for at least 14 days following the date on which the
revised offer document is posted (i.e. if the last unconditional day is Day 60, the last day
for revision will be the 46th day from the original posting date of the offer document).
Day 60 Unconditional as to acceptances
Unless the offer is unconditional as to acceptances, the offer may not be kept open after the
expiry of 60 days from the date on which it is posted
Day 81 Wholly unconditional
All conditions of the offer must be fulfilled, or the offer must lapse.
MANDATORY AND VOLUNTARY OFFERS
Mandatory offer obligation: The requirement of a mandatory offer is based on the

general principle that if the control of a company changes or is acquired or consolidated, a
general offer to all other shareholders is normally required. The mandatory offer must be
made to each class of equity share capital (whether carrying voting rights or not) and any
class of voting non equity share capital of the company. Offers for different classes of
equity share capital must be comparable and the Executive must be consulted in advance.
TRIGGER POINT
An obligation to make a mandatory offer arises when any person or group of persons acting
in concert, whether by a series of transactions over a period of time or not, acquires 30% or
more of the voting rights in a company to which the Code applies.
An obligation to make a mandatory offer also arises when any person or group of persons
acting in concert holding not less than 30%, but not more than 50%, of the voting rights of
the company acquires additional voting rights which has the effect of increasing its holding
by more than 2% from its lowest percentage holding in the previous 12 months. A
mandatory offer may also be required where a person or group of persons acting in concert
acquires statutory control of a company and thereby acquires, indirectly, 30% or more of
the voting rights in a second company to which the Code applies.
- 113 -
Dispensation from a mandatory offer obligation
There are certain circumstances where the Executive may consider granting a waiver for
a mandatory offer obligation, including:
 Vote of independent shareholders on the issue of new securities (“Whitewash”)

 Where the issue of new securities as consideration for an acquisition, or a cash
subscription, or the taking of a scrip dividend, or the issue of shares to
underwriters, the Executive will normally waive the obligation to make a
mandatory offer if the shareholders who are not involved in, or interested in, the
transaction voted at a shareholders' meeting to approve the transaction.
 Enforcement of security for a loan, receivers etc. Where a shareholding in a
company is charged to a bank or lending institution on an arm’s length basis and
in the ordinary course of its business as security for a loan and, as a result of
enforcement, the lender would otherwise incur an obligation to make a general
offer under the Code, the Executive will normally waive the requirement,
provided that the security was not given at a time when the lender had reason to
believe that enforcement was likely.
Rescue operations
Where a company is in such a serious financial position, that the only way to save it is by
an urgent rescue operation which involves the issue of share without approval by the
independent shareholders, or by acquisition of existing securities by the rescuer, the
Executive will normally grant a waiver for the obligation.
Inadvertent mistake
If, due to an inadvertent mistake, a person incurs an obligation to make a mandatory offer,
the Executive will not normally require an offer if sufficient voting rights are disposed of
within a limited period to persons unconnected with him.
Balancing block: where 50% will not accept:

Where a group of persons acting in concert already holds 30% or more of the voting rights
and subsequently a person, or group of persons within such group, acquires 30% or more of
the voting rights, the waiver may be granted if:
 a single person holding 50% or more of the voting rights states that he/she will not
accept the offer that the purchaser would otherwise be obliged to make; or
 the holders of not less than 50% of the voting rights provide the Executive with a
written confirmation that they will not accept the offer.
Placing and top-up transaction
Where a shareholder holding not more than 50% of the voting rights in a company places
part of his/her holdings to one or more independent persons and then, as soon as
practicable, subscribes for new shares up to the number of shares placed at a price
substantially equivalent to the placing price after expenses, a waiver will normally be
- 114 -
granted. The Executive will normally require the financial adviser, placement agent or
acquirer of the voting rights to verify and/or confirm that the purchaser is independent of,
and does not act in concert with, the vendor.
DISPUTE SETTLEMENT MECHANISM AND ADMINISTRATION OF THE

CODE
There are three parties sharing the administration of the Code: the Executive, the Takeovers
and Mergers Panel ("Panel") and the Takeover Appeals Committee (Appeal Committee).
The Executive
 Is responsible for handling the day-to-day administration of the Code;
 regulating takeovers and mergers as part of their general regulatory duties;
 undertaking investigations, monitors dealings related to takeovers, and gives rulings
on all matters before and during takeovers.
The Panel
 Hears disciplinary matters referred by the Executive;
 reviews rulings by the Executive at the request of any dissatisfied parties;
 considers novel, important or difficult issues referred to it by the Executive.
Composition includes:
A Chairman and one or more Deputy Chairman not associated with the SFC and up to 26
members drawn from the financial and investment community, at least one of them should
be a non-executive director of the SFC.
The Appeals Committee
Review disciplinary decisions of the Panel for the sole reason of determining whether the
sanction imposed by the Panel is unfair or excessive based upon the Panel's findings of
fact.
Composition includes:
A Chairman and a Deputy Chairman, who are the incumbent Chairman and Deputy
Chairman of the Securities and Futures Appeal Panel ("SFAP"). The other members of the
Appeal Committee are drawn from members of the Panel or SFAP who had legal training
and experience.
The role of related committees and their functions:
Takeovers and Mergers Panel
The Takeovers and Mergers Panel hears disciplinary matters in the first instance and
reviews rulings by the Executive at the request of any party dissatisfied with such a ruling.
Considers novel, important or difficult cases referred to it by the Executive. Reviews, upon
request by the SFC, the provisions of the Codes on Takeovers and Mergers and Share
Repurchases and the Rules of Procedure for hearings under the Codes and recommends
- 115 -
appropriate amendments to the Codes and Rules to the SFC. Members' term of
appointment is from 1 April 2010 to 31 March 2012 unless otherwise stated.
Takeovers Appeal Committee

The Takeover Appeal Committee reviews disciplinary rulings of the Takeovers and
Mergers Panel at the request of an aggrieved party for the sole purpose of determining
whether any sanction imposed by the Panel is unfair or excessive. The Chairman of the
Takeovers Appeal Committee is selected from the Disciplinary Chair Committee on a case-
by-case basis. Members' term of appointment is from 1 April 2010 to 31 March 2012
unless otherwise stated.
Nominations Committee
The Nominations Committee nominates members of the Takeovers and Mergers Panel, the
Takeovers Appeal Committee and the Disciplinary Chair Committee.
Disciplinary Chair Committee
Members are nominated by the Nominations Committee on the basis that they are duly
experienced and legally qualified persons. Their role is to act as Chairman of the Panel in
disciplinary proceedings under the Codes or of the Takeovers Appeal Committee on a case-
by-case basis. Members' term of appointment is from 1 April 2010 to 31 March 2012.
Products Advisory Committee
The Committee may be consulted by the Commission on a wide range of matters relating
to the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance
Schemes and Unlisted Structured Investment Products, the SFC Code on MPF Products
and the Code on Pooled Retirement Funds, overall market environment, industry practices
and novel product features. Members' term of appointment is from the Committee's
establishment on 10 August 2010 to 31 March 2012.
Securities Compensation Fund Committee
Administers the Unified Exchange Compensation Fund and regulates its procedures in
accordance with Part X of the repealed Securities Ordinance which, under section 74 of
Schedule 10 to the Securities and Futures Ordinance, continues to apply to and in relation
to any claim for compensation from the Fund made before 1 April 2003. Members' term of
appointment is from 1 April 2010 to 31 March 2012 unless otherwise stated.
Investor Compensation Fund Committee
Administers the Investor Compensation Fund and regulates its procedures in accordance
with Part XII of the Securities and Futures Ordinance. Members' term of appointment is
from 1 April 2010 to 31 March 2012.
- 116 -
Investor Education Advisory Committee
Provides ideas and support to the Commission in setting its investor education targets.
Members' term of appointment is from 1 April 2010 to 31 March 2012.
Share Registrars' Disciplinary Committee
Hears and determines disciplinary matters relating to share registrars in the first instance.
Members' term of appointment is from 1 April 2009 to 31 March 2011.
Share Registrars' Disciplinary Appeals Committee
Hears and determines appeals from the Share Registrars' Disciplinary Committee.
Members of the Share Registrars' Disciplinary Appeals Committee for the hearing of each
appeal case brought before it consists of members of the Share Registrars' Disciplinary
Committee who did not preside or participate in the disciplinary hearing of that case.
Public Shareholders Group
The group advises on issues relating to shareholders' rights and interests. Members' term of
appointment is from 1 April 2009 to 31 March 2011.
SFC (HKEC Listing) Committee
Exercises powers and functions equivalent to those of the Main Board and GEM Listing
Committees of the Stock Exchange when actual or potential conflicts arise between the
interests of HKEx and those of the proper performance of the Stock Exchange's listing
functions. In such cases, the relevant Stock Exchange functions may be exercised by the
SFC.
SFC (HKEC Listing) Appeals Committee (HKEC- Hong Kong Exchanges and clearing
ltd.)
Exercises powers and functions equivalent to those of the Stock Exchange's Listing
Appeals Committee when actual or potential conflicts arise between the interests of HKEx
and those of the proper performance of the Stock Exchange's listing functions. In such
cases, the relevant powers and functions may be exercised by the SFC.
SFC Dual Filing Advisory Group
It advises on treatment of cases and policy issues under the dual filing regime. Members'
term of appointment is from 1 April 2010 to 31 March 2012.
Committee on Real Estate Investment Trusts
It advises the Commission on general policy matters or regulatory issues that are related to
the Code on Real Estate Investment Trusts (REITs), the overall market development of
REITs, the property or securities market or investment management in Hong Kong or
elsewhere, professional practices or guidelines that are involved in the operation of REITs,
and fund investment or management in general. Members' term of appointment is from 1
April 2009 to 31 March 2011.
- 117 -
OTHER CONSEQUENTIAL LAWS APPLICABLE
Competition Bill (the Bill) was introduced into the Hong Kong Legislative Council and
gazetted on 2 July 2010, beginning the process that should lead to Hong Kong’s first cross-
sector competition law regime. The significant powers has been assigned to the new
regulators including search and seizure powers, and the potential for fines of up to 10 per
cent of worldwide turnover for each year of contravention. The competition regime will be
enforced by a new Competition Commission and Competition Tribunal. If enacted, the Bill
will prohibit abuses of substantial market power and anti-competitive agreements,
concerted practices and decisions. The consequences of infringing these rules include both
private actions and substantial fines (including by way of an infringement notice scheme).
Statutory bodies are currently exempt from the conduct rules, with scope for specified
bodies or activities to be made subject to the competition rules through further regulation.
Consistent with previous proposals there is no provision for a broad cross-sector merger
control regime.
- 118 -
CHAPTER – VI
SINGAPORE
Takeovers and mergers in Singapore are subject to non-statutory rules in the

Singapore Code on Takeovers and Mergers (Take-over Code), which is administered by
the Securities Industry Council (SIC). SIC was formed in 1973, with legal backing of the
Securities Industry Act, and grandfathered under Section 138 of the Securities and Futures
Act (SFA).
SIC's main function now is to administer and enforce the Take-over Code. It has
powers under the law to investigate any dealing in securities that is connected with a take-
over or merger transaction. SIC also reviews take-over rules and practices periodically, and
recommends changes for promulgation by MAS. In addition, SIC issues guidance notes on
the application of specific principles or rules. SIC members are appointed by the Minister
in charge of the SFA. Most SIC members are from the private sector, including industry
representatives, financial sector professionals and legal experts.
The Singapore legal system is based on the common law system, where case
precedents and statutory provisions exist side by side. Singapore obtained its independence
in 1965 and the Companies Act was passed in 1967. The Companies Act of 1967 was
based on the Malaysian model, which in turn was based on the Australian model at that
time, which was itself derived from the then Companies Act of the United Kingdom. Over
the years, the Companies Act, Chapter 50 of Singapore (the “Companies Act”), has
evolved uniquely from its predecessors.
The takeover and corporate fund-raising provisions of the Companies Act have
been transposed to the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”),
which came into effect fully on 1 October 2002.
2. TRIGGER POINTS
Take-over offers may generally take three forms under the Take-over Code. They
may be
 Either mandatory offers which are triggered by the offeror’s shareholdings
in the target company, or voluntary offers which are not.
 They could also be partial offers, in which the offeror does not seek to
obtain 100 per cent of the shares in the target company. An offeror can seek
irrevocable undertakings from the shareholders of the target company to
accept its offer. Such undertakings must be publicly disclosed.
 Where a company has more than one class of equity share capital, the Take-
over Code provides that a comparable offer must be made for each class,
and the SIC must be consulted in advance in such cases.
- 119 -
 The Take-over Code also provides that where a target company has
convertible securities in issue, the offeror shall also make an appropriate
offer to the holders of those convertible issues.
Mandatory Offers
Generally, there are no restrictions on an offeror building a significant stake in a

target company as long as a mandatory offer is not triggered. The circumstances wherein
mandatory offers are triggered are set out in the Take-over Code.
Rule 14 of the Takeover Code provides that a mandatory offer is triggered when an
offeror acquires, whether by a series of transactions over a period of time or not, shares
which taken together with shares held or acquired by persons acting in concert with it
amounts to 30 per cent or more of shares carrying voting rights of the target company.
A mandatory offer is also triggered when an offeror and persons acting in concert
with it hold between 30 per cent and 50 per cent of the target company’s shares carrying
voting rights, and acquire in aggregate more than one per cent of the target company’s
shares carrying voting rights in any rolling six-month period. In a mandatory offer, the
offer price cannot be lower than the highest price paid by the offeror or any of the parties
acting in concert with it for any shares carrying voting rights during the offer period and
within the six months leading up to the beginning of the offer period.
The consideration paid in the mandatory offer should be in cash or be accompanied

by a cash alternative. A mandatory offer is conditional upon the offeror obtaining
acceptances which will result in the offeror and persons acting in concert with it holding
shares carrying more than 50 per cent of the voting rights of the target company. Generally,
no other conditions are permitted to be imposed in a mandatory offer.
An exception to this rule applies to a mandatory offer where the parties are seeking
clearance with the CCS under the Competition Act. In such a situation, the SIC will allow
an additional condition relating to the CCS process to be imposed.
Chain Principle
Where an offeror acquires more than 50 per cent of the voting shares of a target
company and the target company holds 30 per cent or more of the voting shares of a public
company in Singapore, and as a result the offeror acquires or consolidates control of the
Singapore public company because the target company itself had effective control of the
Singapore public company, the offeror may be required to make a mandatory takeover
offer for the Singapore public company.
The Take-over Code states that the SIC will not normally require an offer to be
made in these circumstances unless the Singapore public company constitutes or
contributes significantly to the target company in respect of assets, market capitalisation
(where both companies are listed), sales or earnings . The SIC should be consulted in all
cases which may come within the scope of Note 6 to Rule 14.1 to establish whether, in the
circumstances, any obligation arises to make a mandatory offer.
- 120 -
Whitewash (financial assistance)
In certain situations, for example, one which involves a “back-door listing”, the SIC
may on application grant a waiver to an offeror from making a mandatory take-over offer.
Such a waiver is typically subject to the condition that a majority of the independent
shareholders present at a general meeting of the target company approve, on a poll, a
separate resolution (typically referred to as a “whitewash” resolution) waiving their rights
to receive a take-over offer.
The offeror and persons acting in concert with it must abstain from voting on the
whitewash resolution. The Take-over Code contains a Whitewash Guidance Note at
Appendix 1 and sets out in general the procedure to be followed if the SIC is to be asked to
waive the obligation to make a general offer under Rule 14 of the Take-over Code which
would otherwise arise where, as a result of the issue of new securities as consideration for
an acquisition or a cash injection or in fulfilment of obligations under an agreement to
underwrite the issue of new securities or upon the exercise of conversion of convertibles, a
person or group of persons acting in concert acquire shares which give rise to the
obligation to make a general offer.
Voluntary Offers
A voluntary offer occurs where the offeror makes an offer for all the shares of the
target company and this offer does not trigger the mandatory offer rules in Rule 14 of the
Takeover Code. Voluntary offers are provided for in Rule 15 of the Takeover Code. The
offeror can make a voluntary offer at any time unless it becomes obliged to make a
mandatory offer.
A voluntary offer must always be conditional on the offeror and its concert parties
acquiring more than 50 per cent of the target company. In addition, the offeror can stipulate
other objective conditions such as a particular level of acceptances, shareholders’ approval
and certain regulatory approvals, where these are applicable, without reference to the SIC.
The SIC should be consulted where other conditions save for those specified above are
attached. In the case of voluntary offers conditional on high-level acceptances, the SIC will
allow such offers where the offeror states clearly in the offer document the level of
acceptances upon which the offer is conditional and the offeror satisfies the SIC that it is
acting in good faith in imposing such a high level of acceptance.
Generally speaking, the conditions which may be attached to a voluntary offer must
not be of a kind whose fulfilment is dependent on subjective interpretation or discretion of
the offeror. As an exception to this rule, the SIC allows an offeror to subject a voluntary
(but not mandatory) offer to a condition that the CCS issues a favourable decision allowing
the voluntary offer to proceed on terms acceptable to the offeror.
Note 4 to Rule 15.1 of the Takeover Code provides that the SIC will consider
allowing the offeror to revise the initial acceptance level to a lower level (but above the 50
per cent as required by Rule 15.1) during the course of the voluntary offer, provided the
revised offer remains open for another 14 days following the revision.
- 121 -
In addition, shareholders who have accepted the initial offer should be permitted to
withdraw their acceptance within eight days of notification of the revision. The revised
acceptance level will take into account withdrawals and new acceptances as at the close of
the offer.
In a voluntary offer, the offer price cannot be lower than the highest price paid by
the offeror or any of its concert parties for any shares carrying voting rights in the target
company during the offer period and within the three months leading up to the beginning of
the offer period.
The offer may be in cash or securities or a combination thereof. The Take-over

Code provides that where the offeror and any of its concert parties have bought for and
cash during the offer period, and within six months prior to its commencement, shares of
the target company carrying ten per cent or more of the voting rights of that class, then an
offer must be in cash or accompanied by a cash alternative at not less than the highest price
paid by the offeror or any concert parties during the offer period and within six months
prior to its commencement.
A cash offer may also be required where in the view of the SIC there are
circumstances which render such a course necessary. In addition, when the offeror and any
of its concert parties purchase target company shares carrying 10 % or more of voting
rights in exchange for securities during the offer period and in the three months prior to the
commencement of the offer period, such securities will normally be required to be offered
to all other holders of shares of that class in a takeover offer.
The SIC is given the discretion to require securities to be offered even in cases
where the amount purchased is less than ten per cent or the purchase took place more than
three months prior to the commencement of the offer period, where the vendors are
directors or otherwise closely connected with the offeror or the target company. The SIC
should be consulted when ten per cent or more of the voting rights of the target company
has been acquired during the offer period and six months prior to the commencement
period for a mixture of securities and cash.
Partial Offers
Partial offers are voluntary offers for less than 100 per cent of the outstanding
shares in a target company. The provisions relating to partial offers are found in Rule 16 of
the Takeover Code. All partial offers must be approved by the SIC and Rule 16 sets out
situations where the offeror makes an offer for less than 30 per cent, for between 30 per
cent and 50 per cent, and for between 50 per cent and 100 per cent of the target company’s
shares carrying voting rights.
The Takeover Code provides that the SIC will normally grant consent for a partial
offer which could not result in the offeror and persons acting in concert with it holding
shares carrying 30 per cent or more of the voting rights of the target company. There is no
requirement for a target company to seek competent independent advice for partial offers
that result in an offeror holding less than 30 per cent.
The SIC will not grant consent in the case of a partial offer which could result in the
offeror and its concert parties holding shares carrying not less than 30 per cent but not more
- 122 -
than 50 per cent of the voting rights of the target company. In the case of a partial offer
which could result in the offeror and its concert parties holding shares carrying more than
50 per cent but less than 100 per cent of the voting rights of the target company, consent
will not normally be granted by the SIC unless the conditions set out in Rule 16.4 of the
Take-over Code are satisfied.
These conditions include the requirement that the partial offer is not a mandatory
offer under Rule 14 of the Takeover Code and that the partial offer must be approved by
shareholders of the target company. Furthermore, the offeror and parties acting in concert
with it must not acquire shares in the target company six months prior to the announcement
and in the period between applying for approval from the SIC and making the partial offer
and during the offer period and during the 6 month period after the close of the partial
offer. The Take-over Code also provides that the SIC will not normally consent to a partial
offer which could result in the offeror and its concert parties holding more than 50 per cent
of the voting rights of the target company, unless the partial offer is conditional, not only
on the specified number or percentage of acceptances being received, but also on approval
by the target company’s shareholders, where the offeror together with parties acting in
concert with it hold 50 per cent or less in the target company prior to the announcement of
the partial offer.
Where the offeror and its concert parties hold more than 50 per cent of the voting
rights of the target company, approval of the target company’s shareholders would be
required if the partial offer could result in the offeror and its concert parties holding more
than 90 per cent of the target company, or the target company breaching the minimum free
float requirement under the SGX Listing Rules.
The offeror, parties acting in concert with it and their associates are not allowed to
vote on the partial offer. Generally, the provisions in the Take-over Code applicable to a
voluntary offer will also apply to partial offers and the documents required for a partial
offer will also be required in relation to a voluntary offer. Consideration for a partial offer
may be in the form of cash or securities, or a combination of both.
Similar to the situation of a voluntary offer, if the offeror and its concert parties had
purchased for cash, shares carrying ten per cent or more of the voting rights of the target
company during the offer period and within six months prior to the commencement of a
partial offer, the partial offer shall be in cash or accompanied by a cash alternative at not
less than the highest price paid for shares in the target company by the offeror and its
concert parties during the offer period and within six months prior to the commencement of
the partial offer.
Likewise, when the purchase was made in exchange for securities, such securities
will normally be required to be offerod to all other holders of shares of that class.
- 123 -
BIDS
Failed Bids
A take-over offer is unsuccessful if the offer does not become unconditional in all
respects. In such a case, the Take-over Code provides that except with the consent of the
SIC, where an offer other than a partial offer does not become unconditional in all respects,
the offeror and its concert parties may not, within 12 months from the date on which such
offer is withdrawn or lapses, either make an offer for the target company or acquire shares
in the target company if the offeror or its concert parties would thereby become obliged to
make a mandatory offer for the target.
Except with the consent of the SIC, where the offeror and its concert parties hold
more than 50 per cent of the target company following an offer other than a partial offer,
the offeror cannot make a second offer for the target company or acquire shares from any
shareholder of the target company at a price higher than the offer price within six months
of the close of the first offer. In the case of partial offers, any person who intends to make a
partial offer for the same target company within 12 months from the date of the close of a
previous partial offer (whether successful or not) must seek the SIC’s prior consent.
The SIC will not normally grant its consent unless the subsequent partial offer is,
as would be normally required, recommended by the board of the target company and
proposed to be made by a person not acting in concert with the previous offeror.
Competitive Bids
If a competing bid is announced while an existing offer is open for acceptance, the
first offeror’s offer period may be extended past the 60-day period from the posting of its
offer document, with the permission of the SIC.
BREAK FEES
One recent change to the Take-over Code was the introduction of rules governing
break fee arrangements. An offeror or potential offeror may negotiate break fees with the
target company if certain specified events occur which have the effect of preventing the
offer from proceeding or causing it to fail for instance, where the board of the target
company recommends a higher competing offer.
A break fee is in the form of a cash sum payable by the target company. In all cases
where a break fee is proposed, certain safeguards must be observed. In particular, a break
fee must be minimal, and normally must not exceed one per cent of the value of the target
company calculated by reference to the offer price. The revised Take-over Code provides
guidelines for calculating the one per cent limit. Moreover, the board of the target company
and its financial adviser must provide, in writing, to the SIC:
 A confirmation that the break fee arrangements were agreed as a result of normal
commercial negotiations;
- 124 -
 An explanation of the basis, appropriateness and circumstances in which the break
fee becomes payable;
 Any relevant information concerning possible competing offerors, for example, the
status of any discussions, the possible terms, any pre-conditions to the making of an
offer, and the timing of any such offer;
 A confirmation that all other agreements or understandings in relation to the break
fee arrangements have been disclosed; and
 A confirmation that they each believe the fee to be in the best interests of the
shareholders of the target company.
Any break fee arrangement must be fully disclosed in the offer announcement and offer
document.
The rule on break fees also applies to:
 Any other favorable arrangements with an offeror or potential offeror which have a
similar or comparable financial or economic effect, even if such arrangements do
not actually involve any cash payment. Such arrangements include, but are not
limited to, penalties, put or call options, or other provisions having similar effects,
regardless of whether such arrangements are considered to be in the ordinary course
of business; and
 The payment of an inducement fee in the context of a “whitewash” transaction. In
this context, the one per cent test will normally be calculated with reference to the
value of the target company immediately prior to the announcement of the proposed
“whitewash” transaction. The SIC must be consulted at the earliest opportunity in
all cases where a break fee or any similar arrangement is proposed.
Offer Timetable
The Take-over Code sets out a timetable for take-overs to protect the management
of the target company from being indefinitely distracted by dealing with a bid and to limit
market uncertainty about the fate of the target company.
The offer document should normally be posted not earlier than 14 days but not later
than 21 days from the date of the offer announcement. The target company then has 14
days after the posting of the offer document to post an offeroe document to its
shareholders. An offer must initially be open for at least 28 days after the date on which the
offer document is posted.
The offer may, with the consent of the SIC, be extended for up to 60 days following
the day on which the offer document was posted. An extension beyond 60 days will
normally only be granted by the SIC if there is a competing bid. The following table sets
out an indicative take-over timetable:
 No. Time Action

 T Offeror announces intention to make offer for target company
- 125 -
 Around T + 1 as soon as possible after(1) Target company releases holding
announcement
 Around T + 2 as soon as possible after (2) Target company appoints
independent financial adviser on offer
 T+ 21 or earlier (but not earlier than 14 days and not later than 21 days after (1))
Offeror posts offer document to shareholders of target company and lodges the
same with the SGX and the SIC
 T + 35 or earlier (not later than 14 days after (4)) Target company posts offeroe
document to its shareholders, containing advice of the independent financial
adviser and recommendation of the target company’s directors on the offer and
lodges the same with the SGX and the SIC
 T + 49 (not earlier than 28 days after (4)) Offer closes, unless extended (7) T +
81 (60 days from (4)) Latest closing date of offer
Documentation
All documents, announcements and advertisements addressed to shareholders

issued during the course of an offer must satisfy the highest standards of accuracy and the
information given must be adequately and fairly presented.
All documents issued to shareholders and advertisements published in connection

with an offer must state that the directors of the offeror or, as the case may be, the target
company have taken all reasonable care to ensure that the facts stated and the opinions
expressed in those documents are fair and accurate, and that where appropriate, no material
facts have been omitted.
The documents must also state that the directors jointly and severally accept
responsibility that all reasonable care was taken to ensure that the facts stated and the
opinions expressed in the documents are fair and accurate and, where appropriate, no
material facts have been omitted. The principal documents that would be encountered in
the take-over process are:
 The take-over announcement;
 The offer document;
 The offer document or circular containing a fairness opinion from the independent
financial adviser; and
 The recommendations of independent directors of the target company whether or
not to accept the take-over offer. The Take-over Code sets out the information that
has to be included in an offer document, including
 The offeror’s intentions relating to the target company and its employees;
 Disclosure of interests in securities held by the offeror;
 Its directors or concert parties;
 Financial information about the offeror; and
 Conditions of the offer and any special arrangements.
Information about irrevocable undertakings must be set out in the offer document
and any document evidencing an irrevocable undertaking to accept the offer should be
made available for inspection. As a general principle, the Take-over Code requires that the
- 126 -
shareholders in the target company must be put in possession of all the facts necessary for
the formation of an informed judgment as to the merits or demerits of an offer.
The obligation of the offeror in these respects towards the shareholders of the target
company is no less than the offeror’s obligation towards its own shareholders. The Take-
over Code also sets out the information that must be contained in an offer document.
The offer document has to contain the advice of the independent financial adviser
of a target company (except in the case of a partial offer for less than 30 per cent of the
target company) and the recommendation of the target company’s directors on the offer. In
the case where all the directors of the target company board are not independent in relation
to the offer, the responsibility for making a recommendation to shareholders will reside
primarily with the independent financial adviser.
The offer document must also include:

 Information on the shareholdings of the target company in the offeror;
 The shareholdings in the target company and in the offeror in which the
directors of the target company are interested;
 The shareholdings in the target company controlled by its independent financial
adviser; and
 Whether the target company’s directors intend to accept or reject the offer, in
respect of their own beneficial shareholdings.
Information as to certain arrangements affecting directors must also be provided in
the offered document, for instance, details of any agreement or arrangement made between
any director of the target company and any other person in connection with or conditional
upon the outcome of the offer.
3. TAKEOVER PROCEDURES
The Companies Act provides general corporate legislation including provisions

relating to the incorporation, management, administration and winding-up of companies.
Two basic types of companies are provided for under the Companies Act, namely, the
private company and the public company.
A company is a private company where its memorandum or articles of association

contains a restriction on the right to transfer shares and a limitation on the number of
members to not more than 50.
A public company is a company that is not a private company. Public companies

include companies limited by guarantee and companies limited by shares which are
incorporated as public companies and which may or may not be listed on a stock exchange.
Many public companies incorporated in Singapore are listed on the Singapore Exchange
Securities Trading Limited (the “SGX”), and all companies listed on the SGX are
necessarily public companies. The SGX is currently the only securities exchange in
Singapore.
The Singapore legal and regulatory framework allows a number of ways to effect
corporate acquisitions and mergers, and the choice as to which route to take largely
depends on the kind of company involved. Where a public listed company is being
- 127 -
acquired or taken over, such activity is regulated. “Public take-over offers” generally
involve the acquisition of shares in a listed public company by an acquiring entity so that
the target company becomes a subsidiary of the acquiring entity. In the acquisition of
shares in private companies, these transactions are generally unregulated.
The other method of acquisition apart from the acquisition of shares for an entity
aspiring for acquiring the business of another is to execute the deal by the acquisition of
assets and liabilities rather than shares.
Part VIII of the SFA contains legislative provisions relating to take-over offers.
Section 138 of the SFA provides for the establishment of an advisory body known as the
Securities Industry Council (the “SIC”). The SIC is the regulator which oversees the Take-
over Code and is part of, the Monetary Authority of Singapore (the “MAS”). The
Monetary Authority of Singapore (MAS) helps shape Singapore's vibrant financial
industry.
As Singapore's central bank, MAS promotes sustained, non-inflationary economic

growth through monetary policy formulation and macroeconomic surveillance of emerging
trends and potential vulnerabilities. MAS also manage Singapore's exchange rate, foreign
reserves and liquidity in the banking sector. MAS is also an integrated supervisor
overseeing all financial institutions in Singapore - banks, insurers, capital market
intermediaries, financial advisors, and the stock exchange. Being an integrated supervisor
allows MAS to apply a consistent and progressive regulatory and supervisory framework,
ensuring a level-playing field across all market segments, sectors and activities.
The main purpose of MAS is to foster a sound and progressive financial services
sector in Singapore. MAS create and implement financial policies and ensure a strong
corporate governance framework and accounting standards. MAS ensure financial industry
remains vibrant, dynamic and competitive by working closely with other government
agencies and financial institutions to develop and promote Singapore as a regional and
international financial centre. Section 140 of Securities and Futures Act lists the offences
relating to take-over offers.
It is an offence for a person to give notice or publicly announce that he intends to

make a take-over offer if he has no intention to make one. It is also an offence to make a
take-over offer if a person has no reasonable or probable grounds for believing that he will
be able to perform his obligations pursuant to the offer being accepted or approved.
The Companies Act is also relevant in the context of corporate acquisitions and
mergers. Section 210 of the Companies Act provides for schemes of arrangement, and
Powers of court. Singapore incorporated companies can also use the amalgamation process
in Section 215A to 215J of the Companies Act to facilitate the combination of companies.
Section 215 of the Companies Act governs the compulsory acquisition of the shares of
minority shareholders once an offeror has acquired 90 per cent of the target’s shares
through a take-over offer (excluding the shares held by the offeror).
Shares held by the offeror include shares held by a nominee on behalf of the
offeror, as well as shares held by either a related corporation of the offeror or a nominee of
that related corporation. Under the Companies Act, a related corporation is a subsidiary,
holding company or a fellow subsidiary.
- 128 -
The Companies Act also contains provisions relating to financial assistance in
Sections 76 and 76A. Currently, the financial assistance provisions restrict a company
incorporated in Singapore from providing financial assistance, whether directly or
indirectly, to any person in the acquisition or proposed acquisition of shares in that
company or the holding company of that company.
The provisions relating to financial assistance are widely drafted. For instance, if a
party seeking to acquire shares in a target company procures the target company to charge
its assets to refinance a loan taken by the offeror to acquire the target company, this may
constitute financial assistance. Financial assistance is, however, a restricted but not a
prohibited activity under the Companies Act. It is possible to execute acquisition by
financial assistance, where the company obtains its shareholders’ approval by a special
resolution and complies with the procedures set out in Sections 76(10) to 76(14) of the
Companies Act, which include the filing of certain prescribed forms with the Registrar of
Companies and Businesses (the “Registrar”), publishing a notice of intention to give
financial assistance in a daily newspaper and permitting objections to be made by
shareholders, debenture-holders, creditors and the Registrar. A special resolution requires
the approval of a majority of not less than 75 per cent of shareholders present and voting at
a general meeting for which not less than 21 days’ prior notice has been given.
Where the company is a subsidiary of a listed corporation, or a subsidiary whose

ultimate holding company, is incorporated in Singapore, the listed corporation or ultimate
holding company is also required to obtain its shareholders’ approval for giving the
financial assistance. Financial assistance may also be given in other circumstances
including where the amount of financial assistance is not more than ten per cent of the
company’s paid-up capital and reserves or where the resolution to provide the financial
assistance receives the unanimous approval of all shareholders of the company.
Takeover Code and the SIC (SECURITIES INDUSTRY COUNCIL)
The Take-over Code applies to the acquisition of voting control of public

companies. It applies to corporations (including corporations not incorporated under
Singapore law) with a primary listing of their equity securities in Singapore and business
trusts with a primary listing of their units in Singapore. While the Take-over Code was
drafted to apply on listed public companies and listed registered business trusts, unlisted
public companies and unlisted registered business trusts with more than 50 shareholders or
unit holders, as the case may be, and net tangible assets of S$5 million or more must also
observe, wherever possible and appropriate, the letter and spirit of the Take-over Code as
set out in its General Principles and Rules.
The Takeover Code does not apply to take-overs or mergers of other unlisted public
companies and unlisted business trusts, or private companies. With respect to foreign-
incorporated companies and foreign registered business trusts, the Takeover Code applies
only to those with a primary listing in Singapore. The Take-over Code applies to all
offerors, whether they are natural persons or not, be they resident in Singapore or not and
whether citizens of Singapore or not, and whether they are corporations or bodies
unincorporated, be they incorporated or carrying on business in Singapore or not.
- 129 -
The Takeover Code also extends to acts done or omitted to be done in and outside
Singapore. The Takeover Code is administered and enforced by the SIC. The SIC is
provided with discretion to waive the application of the Take-over Code in relation to
Singapore incorporated companies or Singapore-registered business trusts with a primary
listing overseas, and unlisted public companies and unlisted registered business trusts with
more than 50 shareholders or unitholders, as the case may be, and more than S$5 million of
net tangible assets. Such discretion allows the SIC to waive the Take-over Code where the
costs of compliance outweigh the benefits. The SIC is made up of representatives from the
government, the MAS and the private sector.
The day-to-day business of the SIC is conducted by a professionally-staffed full

time Secretariat. The MAS is a statutory board formed under the Monetary Authority of
Singapore Act, Chapter 186 of Singapore, and is the de facto central bank of Singapore, as
well as the integrated regulator of the banking, insurance, financial, securities and futures
industries. The Take-over Code contains General Principles, Rules and Notes. Nonetheless,
the Take-over Code notes that it is impracticable to devise rules in sufficient detail to cover
all circumstances that can arise in take-over and merger transactions. Therefore, both the
letter and spirit of the Take-over Code must be observed, especially in circumstances not
explicitly covered by any Rules. The SIC may, pursuant to Section 139 of the SFA, also
issue rulings on the interpretation of the General Principles and the Rules in the Takeover
Code and lay down the practice to be followed by the parties in a take-over offer or a
matter connected therewith. In the course of a take-over, it is not unusual to require rulings
from the SIC. The SFA provides that such rulings or practice issued by the SIC shall be
final and not be capable of being challenged in any court. The SIC is available at all times
for confidential consultation on points of interpretation of the Take-over Code.
When there is any doubt as to whether a proposed course of conduct in a take-over

offer accords with the General Principles or Rules of the Take-over Code, it is advisable for
the parties or their advisers to consult the SIC in advance, as such confidential consultation
minimises the risk of breaches of the Take-over Code. The parties to a take-over are
primarily responsible for ensuring observance of the provisions of the Take-over Code. If
there appears to be a breach of the Take-over Code, the SIC may summon the alleged
offenders to appear before the SIC for a hearing, where every alleged offender will have
the opportunity to answer allegations and to call witnesses. The SFA provides the SIC with
powers to investigate any acts of misconduct in relation to or connected with a transaction
involving a take-over or merger transaction, where it has reason to believe that any party or
any financial adviser is in breach of the Take-over Code.
In this respect, the SIC is empowered to make enquiries, summon persons to give
evidence on oath or affirmation, or to produce any document or material necessary for the
purpose of the enquiry. Although the Take-over Code does not have the force of law and
does not give rise to criminal proceedings, its breach may result in the imposition of
sanctions by the SIC. Sanctions which the SIC may impose include private reprimands,
public censure and, where the breach is flagrant, further action designed to deprive the
offender temporarily or permanently of its ability to enjoy the facilities of the securities
market. If the SIC finds evidence to show that a criminal offence has been committed under
the Companies Act, the SFA or any relevant criminal law, it will recommend to the
Attorney-General, the prosecutorial authority in Singapore, that the alleged offender be
prosecuted. It is noted that the SFA sets out the criminal offence of insider trading and
prohibits a person with inside information from dealing in the shares of a target company.
- 130 -
Listing Manual and the SGX
Where either the acquiring company or the target company is a company listed on
the SGX, the Listing Manual applies. This is so by virtue of the listing contract between the
listed company and the SGX. In summary, the Listing Manual contains rules regulating the
general affairs of listed companies and therefore its provisions have to be taken into
account if either the acquiring company or the target company is listed on the SGX.
The listing rules set out in the Listing Manual are not statutory in nature; they are
made by the SGX, subject to the approval of the MAS as required under the SFA. The SFA
also empowers the SGX to apply to the court for a court order to enforce compliance with
the listing rules, though this power has been rarely, if ever, used. In practice, ready
observance of the Listing Manual is advised as failure to comply therewith may lead to a
reprimand by the SGX, and at worst, a de-listing.
Furthermore, the SFA provides that a company listed on the SGX must not
intentionally, recklessly or negligently fail to notify the SGX of information on specified
events or matters, as they occur or arise, which are required to be disclosed under the
listing rules for the purpose of making information available to the market. The Listing
Manual sets out the continuing listing requirements and corporate disclosure policy which a
listed company has to comply with. A listed company is required to keep the SGX, its
shareholders and other holders of its listed securities informed of all material information
relating to it, and this includes, of course, any information in relation to a takeover, merger
or acquisition.
A listed company intending to make an acquisition or a listed company who is the

target of an offer will have to make the necessary disclosures. The information to be
disclosed has to be factual, clear and succinct, and contain sufficient quantitative
information to allow investors to evaluate its relative importance to the activities of the
listed company. This includes information pertaining to the particulars of the transaction,
its rationale, any consideration payable, any analysis of financial impact, the conditions for
the transaction and the disclosure of any conflicts of interest.
The Listing Manual is also relevant where a listed offeror offers new shares as
consideration in its take-over offer. Where the target company is a listed company, the
Listing Manual contains provisions relating to reverse take-overs (see the discussion on
reverse take-overs). The approval of the SGX is required in a reverse take-over for the
transaction itself as well as for the listing of new shares in the target company.
Competition Act
The Competition Act, Chapter 50B of Singapore (the “Competition Act”), prohibits
mergers that have resulted, or may be expected to result, in a substantial lessening of
competition within any market of goods or services in Singapore. From 1 July 2007, a
person who is unsure whether a merger is prohibited by the Competition Act may apply to
the Competition Commission of Singapore (the “CCS”) for a decision on whether the
merger if carried into effect will infringe the provisions of the Competition Act.
- 131 -
Section 54 prohibits mergers that have resulted or may be expected to result in a
substantial lessening of competition within any market in Singapore for goods or services,
unless the merger falls within an exclusion in the Fourth Schedule, or is exempted by the
Minister on the ground of any public interest consideration. The Section 54 Prohibition
may apply even where the merger takes place outside of Singapore, or where any merger
party is outside Singapore, so long as the substantial lessening of competition is within any
market in Singapore.
The laws of other jurisdictions may be relevant to a take-over offer if the target
company has shareholders who are resident or incorporated outside Singapore in following
circumstances:
 The securities of the target company are listed or dealt in on a securities

exchange in that jurisdiction;
 A significant percentage of the target securities are owned by overseas
shareholders in that jurisdiction;
 There is a large number of overseas holders of the target securities in that
jurisdiction;
 The securities of the target company have been marketed in that jurisdiction; or
 The target company is required to comply with any filing or reporting
requirements relating to its securities in that jurisdiction.
4. CONSIDERATION
Cash Purchase Or Share Swap
An acquiring entity may offer cash, shares or other securities or a mixture of any of
these as consideration for the take-over bid. The offer may be in the form of cash from the
acquirer’s own resources; from debt financing; or from an underwritten issue of the
acquirer’s own shares.
In a cash purchase, the acquiring entity makes an offer and acquires the shares of
the target company for cash only. In a share swap arrangement, the acquiring entity
acquires shares in the target company from the shareholders of the target company and in
return, provides shares to itself. The Take-over Code provides that a mandatory offer has to
be in the form of a cash offer or be accompanied by a cash alternative.
In the case of a voluntary offer, a cash offer or an offer accompanied by a cash

alternative has to be made in certain circumstances. Apart from any mandatory cash and
securities components stipulated in the Take-over Code, the choice of consideration for the
take-over offer will depend, amongst other things, upon the acquirer’s own financial
position and, if it is proposing an underwritten share issue to effect a share swap, the
market’s appetite for its shares.
The shareholders of a target company may be given a choice of consideration, for

example, cash with a partial share alternative. They may also be offerod the facility to be
able to mix and match different forms of consideration between themselves by making
certain elections to the acquirer.
- 132 -
Reverse Takeover
In a reverse takeover transaction, the acquirer transfers to the target company

certain assets and business in exchange for new shares in the target company. The acquirer
then may be required to make, or may decide to make, a take-over offer for all the
remaining shares in the target company that it does not own.
Where the target company is a listed company, the effect of a reverse take-over is
that the acquirer gains control of a listed company, and such transactions are also known as
“back door” listings. These transactions are subject to additional approvals and
requirements by the SGX. The Listing Manual chapter 10 part VIII contains specific
provisions relating to “very substantial acquisitions or reverse takeovers”.
Whether a transaction is considered a very substantial acquisition or a reverse take-

over depends on various calculation modes set out in the Listing Manual or whether the
transaction would result in a change in control of the listed company.
In calculating whether a transaction is a very substantial acquisition for the

purposes of the Listing Manual, the following figures are taken into account:
 The operating profit before income tax attributable to the assets acquired, compared
with the operating profit before income tax of the target company and its
subsidiaries;
 The aggregate value of the consideration given or received, compared with the
market capitalization of the target company and its subsidiaries based on the total
number of issued shares excluding treasury shares; or
 The number of equity securities issued by the target company and its subsidiaries,
compared with the number of equity securities previously in issue.
If any one of the relative figures equals 100 per cent or more, the transaction will be
regarded as a very substantial acquisition or reverse take-over and the Listing Manual
requires the transaction to be made conditional upon the approval of shareholders.
Apart from the transaction itself, the shareholders will also have to approve the
issue of new shares in accordance with the Companies Act. Furthermore, the transaction as
well as the issue and listing of the new shares will have to be approved by the SGX.
In this respect, the SGX requires that the enlarged group consisting of the offeror
and offeror companies will have to re-comply with the SGX listing requirements. “Back
door” listings are viewed by the SGX in the same regard as initial public offerings.
5. DUTIES OF DIRECTORS AND CONTROLLING SHAREHOLDERS
The Take-over Code prevents a target company from frustrating a bona fide offer.
When a target company’s board of directors has been notified of a bona fide offer, or after
the target’s board has reason to believe that a bona fide offer is imminent, the board cannot,
without shareholders’ approval, take any steps which could effectively result in either the
- 133 -
offer being frustrated, or denial of the target shareholders’ opportunity to decide on the
merits of the offer.
The target company’s board of directors must obtain competent independent advice
when it receives an offer or is approached with a view to an offer being made and must
subsequently inform the shareholders of the substance of this advice.
Under common law, the directors of a company in Singapore owe a duty to act in
the interests of the company and its shareholders as a whole. Controlling shareholders are
not subject to any common law or fiduciary duties similar to those imposed on directors,
and are therefore entitled to act in accordance with their own interests.
However, controlling shareholders of a listed target company may be precluded

from voting at a general meeting of shareholders to approve a take-over or merger if they
have a conflict of interest, for instance, if they have a substantial interest in the offeror.
Shareholder Disclosures
The Take-over Code provides that parties to a take-over transaction and their
associates are free to trade in the target company’s shares but are subject to additional
disclosure obligations during the offer period. The parties to a take-over and their
associates are required to disclose shares purchased or sold by them on their own account
on a daily basis.
The term “associate” will normally include a holder of ten per cent or more of the
equity share capital of the offeror or target company. Disclosure has to be made to the SGX
and the SIC and to the press. Dealings by an offeror or the target company or by an
associate may be disclosed by the party concerned or by an agent, for instance, an
investment bank or stockbroker, who acts on its behalf.
Where there is more than one agent, particular care should be taken to ensure that
the responsibility for disclosure is agreed between the parties and that it is neither
overlooked nor duplicated. Apart from the Take-over Code, shareholder disclosure
obligations are found in the Companies Act and the SFA, and are required by the SGX with
regard to companies listed thereon.
Disclosure obligations arise when a shareholder becomes a substantial shareholder,

being a shareholder who owns five per cent or more of the aggregate nominal amount of all
the voting shares in a company. Disclosure must subsequently be made if there is a change
in the substantial shareholder’s “percentage level” of interest in voting shares in a
company. “Percentage level” is defined in Section 83 of the Companies Act.
In summary, substantial shareholders are required to make disclosure of changes of

their interest in threshold bands of one per cent. Disclosure is required to be made by the
shareholder to the listed company under the Companies Act and to the SGX under the SFA.
The listed company is also obliged to pass the details on to the SGX for public release.
- 134 -
Financial Disclosures
An offer document and an offer circular must contain, among other things, the
following financial information about the offeror or the target company, as the case may
be:
 Details, for the last three financial years, of turnover, exceptional items, net profit
or loss before and after tax, minority interests, net earnings per share and net
dividends per share and details relating to the foregoing in respect of any interim
statement or preliminary announcement made since the last published audited
accounts;
 A statement of the assets and liabilities shown in the last published audited
accounts;
 Particulars of all subsequent material changes (or where appropriate, a negative
statement) in the financial position of the offeror or the target company, as the case
may be, which are known;
 Significant accounting policies together with the notes of the accounts which are of
major relevance for the interpretation of the accounts; and
 Where, because of a change in accounting policy, figures are not comparable to a
material extent, this should be disclosed and the approximate amount of the
resultant variation should be stated. Any material change (together with particulars
of such change) in the financial position or prospects of a target company since the
date of the last balance-sheet laid before the target company in a general meeting
that is known to an offeror must also be disclosed in an offer document. Separately,
when a profit forecast appears in any document addressed to the shareholders in
connection with the take-over offer, the following reports are required (except for a
forecast made by an offeror offering solely cash):
 A report by the auditor or reporting accountant on the accounting policies and
calculations for the forecast;
 A report by the financial adviser, if he is mentioned in the document containing the
forecast, on his view on whether the forecast has been made after due and careful
enquiry; and
 Where revenue or profit from land and buildings is a material element in the
forecast, a report by an independent valuer.
Risk Involved
Suspension Of Trading And Compulsory Acquisition
If the offeror and its concert parties should, as a result of the offer or otherwise,
own or control above 90 per cent of the issued share capital of the target company, the
SGX may suspend the listing of the shares in the target company until such time when the
SGX is satisfied that the appropriate minimum shareholding spread stipulated by the SGX
is met.
The Listing Manual provides for a minimum shareholding spread of ten per cent of
shares, excluding treasury shares (excluding preference shares and convertible equity
- 135 -
securities), and held by the public (which excludes directors and substantial shareholders).
An offeror who acquires not less than 90 per cent of the issued target company shares
pursuant to a take-over offer (excluding those shares held at the date of the offer by, or by a
nominee for, the offeror or its holding company, subsidiary or fellow subsidiary) is entitled
to compulsorily acquire any remaining target shares under Section 215 of the Companies
Act.
Conversely, dissenting shareholders of the target company have a right to be bought

out by the offeror if the offeror and its subsidiaries hold 90 per cent or more of the issued
target company shares. To do so, the offeror needs to deliver a notice of the compulsory
acquisition to the dissenting shareholders of the target company, who then have the right to
request for the list of dissenting shareholders. The dissenting shareholders then have one
month from the date of notice or 14 days from the date on which the list of dissenting
shareholders is provided (whichever is the later) to object to the compulsory acquisition by
filing an application with the High Court.
If there is no objection or any objection is dismissed, all the share certificates in the
target company in the name of the dissenting shareholders are cancelled and new share
certificates are issued in the name of the offeror. The target company will hold the
consideration for the acquisition on trust for dissenting shareholders until claimed by them.
If, pursuant to an offer, the offeror fails to acquire a sufficient number of target company
shares to compulsorily acquire the remaining target company shares, subject to obtaining
the approval of the SIC, the offeror may request the target company to apply to the SGX to
be de-listed if it satisfies the following requirements under the Listing Manual.
The target company has to convene a general meeting of the shareholders of the
target company to seek their approval for the delisting. The delisting resolution has to be
approved by a majority of not less than 75 per cent, and must not be voted against by ten
per cent or more, in nominal value of the target company shares voted at the general
meeting. The directors and controlling shareholders of the target company are not
precluded from voting on the resolution. A reasonable exit alternative, which is normally in
cash, has to be offered to the shareholders and the target company must appoint an
independent financial adviser to advice on the exit offer.
Insider Dealing
If an offeror is in possession of price-sensitive information regarding the target

company, it cannot deal in the target company’s shares until the information has become
public or is no longer price sensitive. In the context of a take-over, being in possession of
price sensitive information would prevent the offeror from making the bid unless the
information is disclosed to all the shareholders of the target company as well.
The provisions relating to insider dealing are found in the SFA. An insider dealer
may be subject to criminal prosecution, to a civil action maintained by an aggrieved
investor, as well as to a civil action taken by the MAS.
In ascertaining whether take-over offers have to be made, the acquisition of

shareholdings by an offeror includes shares acquired by that person taken together with
shares held or acquired by persons acting in concert with him. The Take-over Code
provides that persons acting in concert comprise individuals or companies who, pursuant to
- 136 -
an agreement or understanding (whether formal or informal), cooperate, through the
acquisition by any of them of shares in a company, to obtain or consolidate effective
control of that company.
The following individuals and companies are presumed to be persons acting in

concert with each other unless the contrary is established:
 A company, its parent, its subsidiaries and its fellow subsidiaries, all their
associated companies, and companies whose associated companies include any
of the above companies, and any person who has provided financial
assistance(other than a bank in the ordinary course of business) to any of these
entities for the purchase of voting rights;
 A company with any of its directors (together with their close relatives, related
trusts as well as companies controlled by any of the directors, their close
relatives and related trusts);
 A company with any of its pension funds and employee share schemes;
 A person with any investment company, unit trust or other fund whose
investment such person manages on a discretionary basis, but only in respect of
the investment account which such person manages;
 A financial or other professional adviser, including a stockbroker, with its client
in respect of the shareholdings of the adviser and persons controlling, controlled
by or under the same control as the adviser, and all the funds which the adviser
manages on a discretionary basis, where the shareholdings of the adviser and
any of those funds in the client total ten per cent or more of the client’s equity
share capital;
 Directors of a company (together with their close relatives, related trusts and
companies controlled by any of such directors, their close relatives and related
trusts) which is subject to an offer or where the directors have reason to believe
a bona fide offer for their company may be imminent;
 Partners; and
 An individual, his/her close relatives, his/her related trusts, any person who is
accustomed to act in accordance with the instructions of the individual and
companies controlled by any of them, and any person who has provided
financial assistance (other than a bank in the ordinary course of business) to any
of these persons for the purchase of voting rights.
The Takeover Code states that it is not practicable to define “associate” in precise
terms which would cover all the different relationships which may exist in a take-over or
merger transaction.
The term is intended to cover all persons (whether or not acting in concert with the
offeror, the target company or with one another) who directly or indirectly own, or deal in,
the shares of the offeror or target company and who have (in addition to their normal
interests as shareholders) an interest or potential interest in the outcome of the offer.
- 137 -
Before an offer for a takeover or acquisition is made, the acquirer may require due
diligence to be conducted on the target company. There is no standard method for carrying
out due diligence.
However, as shall be seen, the due diligence process is often at times limited by
various legal and regulatory restrictions. While offerors seek to find out all they can about
the target company, there is no obligation imposed on a target company to assist an offeror
with its enquiries.
If a target company provides information to an offeror, the Take-over Code

requires that the same information has to be provided to any other bona fide offeror who
later emerges. This duty to provide information to all competing offerors extends to
persons seeking to acquire all or materially all of the assets and/or business of the target
company.
The directors of the target company have to authorise the disclosure and bear in
mind that their fiduciary duty is to act in the best interests of the target company. Notably,
any disclosure of information in the due diligence process by the target company is
hampered by the restrictions on disclosure set out in the Listing Manual as well as the
insider dealing laws and regulations. A listed company is subject to continuing disclosure
requirements which require the company to keep the SGX, the company’s shareholders and
other holders of the company’s listed securities informed of all material information
relating to it, and as a corollary, a listed company cannot provide any information to a
person which would put this person in a privileged dealing position
Therefore, in a take-over scenario, there is more often than not only limited due
diligence conducted by an offeror for a target company before a take-over bid is made. The
offeror will have to rely largely on information that is already publicly available. This may
be found in the target company’s memorandum and articles of association and other
documents and filings with the Registrar, including details of the company’s directors, and
details of the company’s issued share capital and shareholders.
Other public information may be found in any prospectus or shareholders’ circular

which the company has published. If the target company is listed, the company has a
continuing obligation under the Listing Manual to keep the public informed of major new
developments, including significant acquisitions and disposals and material trading
developments. The listed company will also have to publish half-yearly financial
information and other routine information such as results of meetings and dividend details.
Various investment banks and broking houses also publish research by their analysts.
The SFA also requires the listed company to announce and notify the SGX of
material information as it occurs or arises, in order for the SGX to disseminate it to the
market, and any intentional or reckless failure to do so would be a criminal offence.
6. ANNOUNCEMENT OF OFFER
The Takeover Code requires that a bid must first be notified to the target company’s
board of directors or its advisers. Following an approach to the board of the target company
which may or may not lead to an offer, the primary responsibility for making an
announcement will normally rest with the board of the target company.
- 138 -
The target company’s board must then inform its shareholders without delay when
it receives notification of a firm intention to make an offer from a serious source,
irrespective of whether the target company’s board views the offer favourably or otherwise.
The target company’s board must issue a paid press notice, or, where the offeror has
published a paid press notice, an announcement. Furthermore, when following an approach
to the target company, the target company is the subject of rumour and speculation about a
possible offer, or there is undue movement in its share price or a significant increase in the
volume of share turnover, whether or not there is a firm intention to make an offer, the
target company’s board must make an announcement.
When negotiations or discussions between the offeror and the target company are
about to be extended to include more than a very restricted number of people, the target
company’s board must also make an announcement. When a company’s board is aware of
negotiations or discussions between a potential offeror and shareholders holding 30 per
cent or more of the company’s shares or when the board is itself seeking potential offerors,
then where the company is the subject of rumour or speculation about a potential offer, or
there is undue movement in the company’s share price or a significant increase in the
volume of share turnover, or where more than a very restricted number of potential
purchasers or offerors are about to be approached by the board, the board must accordingly
make an announcement.
In these circumstances, the target company or company concerned may also make
a request to the SGX to grant a temporary halt in dealings in the securities of the relevant
company. The Take-over Code requires that absolute secrecy must be maintained before an
announcement of a take-over offer is made. Therefore, where there is a leak regarding a
potential take-over transaction, an offeror is required by the SIC to make an announcement
clarifying its position. The Take-over Code provides that the potential offeror must make
an announcement when, before an approach has been made to the target company, the
target company is the subject of rumour and speculation about a possible offer, or there is
undue movement in its share price or a significant increase in the volume of share turnover,
and there are reasonable grounds for concluding that it is the potential offeror’s actions
(whether through inadequate security, purchase of the target company’s shares or
otherwise) which have directly contributed to the situation.
The target company, if listed, may have to make an announcement to the SGX
accordingly, in compliance with the Listing Manual’s corporate disclosure policy. In the
announcement of an offer, there is no substantive differonce between the procedure for
hostile and recommended bids.
Typically, in a hostile bid, the respective boards of directors of the offeror and
target company make separate announcements and issue circulars separately. Previously,
this was also the standard procedure in situations where the directors of the target company
recommended the offer. In Singapore, in recent years, however, a handful of take-over
offers have been carried out on a “recommended” basis, involving joint announcements
and circulars issued by the offeror and the target company.
When a firm intention to make an offer is announced, the Take-over Code stipulates
information which has to be stated, including:
- 139 -
 The terms of the offer;
 The identity of the offeror;
 Details of any existing holding of securities which it owns or over which it has
control or which is owned or controlled by its concert parties;
 Details of any existing holdings for which it has received any irrevocable
undertakings to accept the offer;
 All conditions to which the offer is subject, including normal conditions relating
to acceptances; and
 Details of any arrangement in relation to the offeror’s shares or the target
company’s shares which might be material to the offer.
When an offeror announces a firm intention to make an offer, the offeror becomes
obliged under the Take-over Code to post an offer document not earlier than 14 days, but
not later than 21 days, after the announcement.
In cases where the offer is for cash or includes an element of cash, an offer should,
therefore, not be announced unless the offeror has the financial resources unconditionally
available to allow it to satisfy all acceptances. The SIC would expect the financial adviser
to the offeror (that is, a financial institution, such as a bank or investment bank, sponsoring
the take-over) to confirm this.
In a cash offer, the offer announcement must include a confirmation by the financial
adviser or other appropriate independent party (such as the offeror’s banker) that sufficient
resources are available to the offeror to satisfy full acceptance of the offer.
Stamp Duty And Tax Issues
Transfer for restructuring purposes may qualify for stamp duty exemption, subject
to certain conditions. Following amendments to the Stamp Duties Act, Chapter 312 of
Singapore, the scope of stamp duty exemptions has been expanded, subject to certain
conditions, in relation to transfers of assets between associated companies and upon the
reconstruction and amalgamation of companies.
Insofar as income tax on realised gains is concerned, there is no imposition of

capital gains tax in Singapore. Therefore, when the shareholders of a target company
dispose of their target shares, the question is whether the gain realised, if any, constitutes
capital gains or trading income, the latter of which is subject to income tax.
Whether the gain is treated as capital gains or trading income depends on whether
the relevant shareholders of the target company are regarded by the Inland Revenue
Authority of Singapore to be share traders.
7. POST TAKEOVER LIABILITIES
A take-over involving a transfer of shares, as opposed to a transfer of a business

undertaking, does not typically affect the employees of the acquiring company or the target
company. An employee of the target company will continue to be employed by the target
company and will not be transferred to the offeror.
- 140 -
However, in a transfer of business undertaking, the Employment Act, Chapter 91 of
Singapore, provides that all employees of the target that fall under the Employment Act
with respect to the undertaking at the date of the transfer will automatically become
employees of the offeror on the same terms and conditions as their employment under the
target company.
Employees that fall under the Employment Act are those not holding management,
executive or confidential positions. The transfer of employees who do not fall under the
Employment Act is a matter to be agreed between the transferor, the transferee and the
relevant employees.
In general, there are no statutory or regulatory requirements for employee

consultation and approval in relation to a take-over, save that the offeror may not enter into
any arrangements with employees who are also shareholders of the target company that
extend favourable conditions not granted to all shareholders. In addition, the offer
document would have to disclose (or where appropriate, contain negative statements):
 Details of any payment or other benefit which will be made or given to any
director of a target company or its related corporations (including a director who
is also an employee of such corporation) as compensation for loss of office or
otherwise in connection with the take-over offer; and
 Whether and in what manner the emoluments of the directors of an offeror
(including a director who is also an employee of the offeror) will be affected by
the acquisition of the target company.
8. DISPUTE RESOLUTION
The Code is administered and enforced by the Securities Industry Council whose members
comprise of representatives mostly from the private sector and some from the public sector.
It has powers under the law to investigate any dealing in securities that is connected with a
takeover or merger transaction. The duty of the Council is the enforcement of good
business standards and not the enforcement of law. The Council expects prompt co-
operation from those to whom enquiries are directed to ensure efficient administration of
the Code. The Securities Industry Council, as the administering body, performs its day-to-
day business through its Secretariat headed by the Secretary to the Council.
The Secretariat is available at all times for confidential consultation on points of

interpretation of the Code. When there is any doubt as to whether a proposed course of
conduct accords with the General Principles or the Rules, parties or their advisers should
consult the Secretariat in advance. Such confidential consultation minimises the risk of
breaches of the Code. If there appears to be a breach of the Code, the Secretary will
summon the alleged offender to appear before the Council for a hearing. Every alleged
offender will have the opportunity to answer allegations and to call witnesses. The Council
may also summon witnesses. As a rule, the Council's proceedings are informal and parties
appearing before the Council, whether for disciplinary or other purposes, should present
their case in person and lodge written submissions in their own name. While alleged
offenders and witnesses may consult their legal advisers during hearings before the
Council, these advisers may not examine or cross-examine witnesses nor answer questions
on behalf of their clients.
- 141 -
If the Council finds that there has been a breach of the Code, it may have recourse
to private reprimand or public censure or, in a flagrant case, to further action designed to
deprive the offender temporarily or permanently of its ability to enjoy the facilities of the
securities market. If the Council finds evidence to show that a criminal offence has taken
place whether under the Companies Act, the Securities and Futures Act or under the
criminal law, it will refer the matter to the appropriate authority.
PART XIV Sec 310 to 313 of the Securities and Futures Act connotes the
provision for appeals to minister. Whenever there is a dispute and regulation of the
Takeovers, then provisions relating to Security Industry Council in sec 138, 139, and 140,
will come into picture. When any dispute occurs relating to security, the Monetary
Authority of Singapore has been given powers, concerned with the investigation and
passing appropriate orders. Sec 310,
Where an appeal is made to the Minister under sec 310, the Minister may confirm,
vary or reverse the decision of the Authority (MAS) on appeal, or give such directions in
the matter as he thinks fit, and the decision of the Minister shall be final. Except for an
appeal under Part II, III or IIIA, where an appeal is made to the Minister under this Act, the
Minister shall, within 28 days of his receipt of the appeal, constitute an Appeal Advisory
Committee comprising not less than 3 members of the Appeal Advisory Panel and refer
that appeal to the Appeal Advisory Committee1.
The Appeal Advisory Committee shall submit to the Minister a written report on
the appeal referred to it and may make such recommendations as it thinks fit. The Minister
shall consider the report submitted in making his decision under this section but he shall
not be bound by the recommendations in the report. A member of the Appeal Advisory
Panel shall be appointed for a term of not more than 2 years and shall be eligible for re-
appointment. An Appeal Advisory Committee shall have the power, in the exercise of its
functions, to inquire into any matter or thing relating to the securities or futures industry
and may , for this purpose, summon any person to give evidence on oath or affirmation or
produce any document or material necessary for the purpose of the inquiry.
An advocate and solicitor who refuses to produce any document or other material
shall nevertheless be obliged to give the name and address (if he knows them) of the person
to whom, or by or on behalf of whom, the privileged communication was made.
For the purposes of this Act, every member of an Appeal Advisory Committee —
 Shall be deemed to be a public servant for the purposes of the Penal Code (Cap.
224); and
 In case of any suit or legal proceedings brought against him for any act done or
omitted to be done in the execution of his duty under the provisions of this Act,
shall have the like protection and privileges as are by law given to a Judge in the
execution of his office.
Every Appeal Advisory Committee shall have regard to the interest of the public, the
protection of investors and the safeguarding of sources of information. Subject to the
provisions of Part XIV, an Appeal Advisory Committee may regulate its own procedure
and shall not be bound by the rules of evidence.
- 142 -
According to sec 312, nothing in this Act shall require the Minister or any public
servant to disclose facts which he considers to be against the interest of the public to
disclose.
According to sec 313 the Minister may make regulations for the purposes and
provisions of this Part and for the due administration thereof.
Without prejudice to the generality of subsection (1) of sec 313, the Minister may
make regulations for or with respect to —
 The appointment of members to, and procedures of, the Appeal Advisory Panel
and Appeal Advisory Committees;
 The form and manner in which an appeal to the Minister under this Act shall be
made;
 The fees to be paid in respect of any appeal made to the Minister under this Act,
including the refund or remission, whether in whole or in part, of such fees;
 The remuneration of the members of the Appeal Advisory Panel and Appeal
Advisory Committees; and
 All matters and things which by this Part are required or permitted to be
prescribed or which are necessary or expedient to be prescribed to give effect to
any provision of this Part.
9. OTHER CONSEQUENTIAL LAWS
The Competition Act
The Competition Commission of Singapore is a statutory body established under

the Competition Act (Chapter 50B) on 1 January 2005 to administer and enforce the Act1.
It comes under the purview of the Ministry of Trade and Industry. Section 54 prohibits
mergers that have resulted or may be expected to result in a substantial lessening of
competition, unless they are excluded or exempted.
Apart from such mergers, complaints can also be lodged against anticipated
mergers which, if carried into effect, will infringe the section 54 prohibition. There is no
mandatory requirement for merger parties to notify their merger situations to the CCS1.
Merger parties are nevertheless allowed under sections 56 to 58 of the Act to notify their
merger situations to the CCS and apply for a decision as to whether the section 54
prohibition has been or will be infringed by the merger situation. In considering whether to
make an Application, merger parties are strongly encouraged to conduct a self-assessment
to ascertain if an Application is necessary. They should refer to the relevant CCS
guidelines (in particular Part 6 of these guidelines to determine if the merger situation is
excluded under the Fourth Schedule of the Act and the CCS Guidelines on the Substantive
Assessment of Mergers) as well as to the relevant regulations. They may also wish to seek
legal advice if necessary.
Merger parties should make an Application only if they have serious concerns as to
whether the merger situation has resulted, or may be expected to result, in a SLC.
- 143 -
10. CHALLENGES AND EMERGING ISSUES
On 8 June 2007, the SIC announced the extension of the Take-over Code to
property trusts structured as collective investment schemes (“REITs” Real Estate
Investment Trust). This development allowed for the safeguards in the Take-over Code to
apply to listed REITs and d provided a framework for the fair and equal treatment of all
unit holders in a take-over and merger situation.
The Take-over Code and the SFA were amended to give effect to the extension of
the Take-over Code to REITs. In the meantime, the SIC prescribed that parties intending to
acquire 30 per cent or more of the total units of a REIT or, when holding not less than 30
per cent but not more than 50 per cent of the total units of a REIT, acquire more than one
per cent of the total units of a REIT in any six-month period, should make a general offer
for the REIT. The SIC should be consulted in cases of doubt. The SIC is also studying
whether the changes should be made to the Take-over Code to adopt the recent changes in
the United Kingdom regime which has considerably tightened the aggregation and
disclosure rules in respect of dealings in options and derivatives.
In the meantime, a person who wishes to acquire options or derivatives should

consult the SIC beforehand, if the aggregation of the shares underlying such options or
derivatives with those already owned causes such person to exceed the mandatory offer
threshold.
- 144 -
CHAPTER – VII
MALAYSIA
Earlier the Takeovers in Malaysia were regulated by Part IV, of the Securities
Commission ACT. The Capital Markets and Services Act 2007 (“CMSA”) which came
into force on 28 September 2007 has repealed a substantial part of the SCA (namely, Part
IV which deals with fundraising activities).
Division 2 of Part VI of the CMSA which has been gazetted, with the intention to
replace Division 2 of Part IV of the SCA relating to takeovers, mergers and compulsory
acquisitions. After amendment in the laws regulating Takeovers after 2010 the provisions
of a new takeover regulation will be applicable.
However for pending cases the old provisions will be applicable. According to the
gazette, from 1st April 2010, PART VI DIVISION 2 of CMSA Act 2007, will regulate
the Take-overs, Mergers and Compulsory Acquisitions1 in Malaysia.
Types Of Transactions
Share against Asset Purchase
In Malaysia, the task of gaining control can be approached from a share purchase or
an asset purchase perspective depending on the rationale for the acquisition, the resources
of the acquirer, the financial health and viability of the target company and other more
technical factors such as tax and stamp duty considerations.
Depending on the type and nature of the assets to be acquired, the complications of
acquiring assets are sometimes less than those of acquiring a company. Generally, if a
company is acquired, proper due diligence would need to be conducted to investigate all its
assets and liabilities, including contracts it may have entered into and other actual or
contingent obligations. It is usually possible to buy an asset such as a property by itself,
without any legal complications, unless the property is charged or subject to other
encumbrances.
On the other hand, depending on the type and business operations of the target
company, the purchase of shares may be simpler and involve less expense as the
underlying assets and operational contracts of the target company will not have to be
separately transferred to or assigned in favour of the purchaser.
2. TRANS-NATIONAL TAKEOVERS
Malaysia welcomes and actively invites foreign investment1. While compliance

with the equity investment guidelines of the National Development Policy (“NDP”) is
desirable, conditions imposed on foreign investors can be flexible and are based on merits
of individual projects. For instance, 100 percent foreign equity ownership is permitted in
respect of certain export-based manufacturing companies, approved multimedia super
- 145 -
corridor companies, etc. In this regard, the government does not discriminate between
foreign and domestic investors.
3. TAKEOVERS REGULATION AND PROCEDURE
In Malaysia, the main legal framework governing the conduct of public company
takeovers are the Malaysian Takeover Code found in Part VI, of the CAPITAL MARKET
AND SERVICES ACT 2007, in accordance with sec 217, the Listing Requirements of
Bursa Securities (particularly Chapters 10 and 11 of the Listing Requirements) and the
Policies and Guidelines on Issue/Offer of Securities issued by the SC.
The Securities Commission Malaysia (SC) is a statutory body established on 1

March 1993, entrusted with the responsibility of regulating and systematically developing
the Malaysia's capital markets. It has direct responsibility in supervising and monitoring the
activities of market institutions and regulating all persons licensed under the Capital
Markets and Services Act 2007.
Prior to the establishment of the SC, the capital market was regulated by six
government bodies, namely:
 Capital Issues Committee (CIC), Ministry of Finance;
 Panel on Take-overs and Mergers, Prime Minister's Department;
 Foreign Investment Committee, Prime Minister's Department;
 Companies Commission of Malaysia;
 Ministry of International Trade and Industry (MITI); and
 Bank Negara Malaysia (BNM/Central Bank).
The SC's objective is to promote and maintain fair, efficient, secure and transparent
securities and futures markets and to facilitate the overall development of an innovative
and competitive capital market. The SC is a statutory body formed under the Securities
Commission Act 1993 (SCA) which reports to the Minister of Finance. It has the power to
investigate and enforce the areas within its jurisdiction. The SC is a self-funding
organisation where its income is derived from the collection of levies and application fees.
The SC is required to table its annual report in the Parliament.
The SC's many regulatory functions include:

 Registering authority for prospectuses of corporations other than unlisted
recreational clubs;
 Approving authority for corporate bond issues;
 Regulating all matters relating to securities and futures contracts;
 Regulating the take-over and mergers of companies;
 Regulating all matters relating to unit trust schemes;
 Licensing and supervising all licensed persons;
 Supervising exchanges, clearing houses and central depositories;
- 146 -
 Encouraging self-regulation; and
 Ensuring proper conduct of market institutions and licensed persons.
However SC's primary responsibility is to protect the investor. Apart from

discharging its regulatory functions, the SC is also obliged by statute to encourage and
promote the development of the securities and futures markets in Malaysia.
The SC administers the following acts:

 Securities Commission Act 1993;
 Capital Markets and Services Act 2007; and
 Securities Industry (Central Depositories) Act 1991.
The SC and Bursa Securities are the two principal regulatory authorities in the
context of takeovers. The Code contains principles and rules governing the conduct of all
persons or parties involved in a takeover. The objective of the regulatory regime of the
SCA is to ensure that the acquisition of voting shares or control of companies takes place in
an efficient, competitive and informed market. This includes the need to ensure that:
 Shareholders, directors and the market for the shares are aware of the identity of the
bidder, have reasonable time in which to consider a takeover offer and are supplied
with sufficient information necessary to enable them to assess the merits of any
takeover offer;
 So far as practicable, all shareholders of a target company have equal opportunities
to participate in benefits accruing from the takeover offer, including in the premium
payable for control; and
 Fair and equal treatment of all shareholders, in particular, minority shareholders, in
relation to the takeover offer, merger or compulsory acquisition would be achieved.
Other rules and requirements to comply with are the Listing Requirements of Bursa
Malaysia Securities Berhad, the Listing Requirements of the MESDAQ Market and the
Foreign Investment Committee’s Guidelines on the Acquisition of Interests, Mergers and
Takeovers by Local and Foreign Interests.
The Securities Commission (SC) established under the SCA is the authority
charged with the function to regulate takeovers and mergers of companies. Hence, it is the
SC which approves offer and other documents issued in connection with the takeover,
issues rulings and grants exemptions from compliance with the Code.
The Capital Markets and Services Act 2007 (“CMSA”) which came into force on
28 September 2007 has repealed a substantial part of the SCA (namely, Part IV which deals
with fundraising activities). Division 2 of Part VI of the CMSA which has been gazetted,
with intention to replace Division 2 of Part IV of the SCA relating to takeovers, mergers
and compulsory acquisitions. After amendment in the laws regulating Takeovers after 2010
the provisions of a new takeover regulation will be applicable. However for pending cases
the old provisions will be applicable. According to the gazette, from 1st April 2010, PART
- 147 -
VI DIVISION 2 of CMSA Act 2007 will regulate the Take-overs, Mergers and
Compulsory Acquisitions1 in Malaysia.
Some basic concepts are defined in sec 216 of the code.
“acquirer” means
 a person who acquires or proposes to acquire control in a company whether the
acquisition is effected by the person or by an agent; or
 two or more persons who, acting in concert with one another, acquire or
propose to acquire control in a company, whether the acquisition is effected by
the persons or by an agent;
 “control”, means the acquisition or holding of, or entitlement to exercise or
control the exercise of, voting shares or voting rights of thirty per centum or
more, or such other amount as may be prescribed in the Code in a company;
 “Dissenting shareholder” includes any shareholder who has not accepted a
takeover offer and any shareholder who has failed or refused to transfer shares
to an acquirer in accordance with a take-over offer;
 “Offeree” means a company whose voting shares or voting rights are subject to
a take-over offer;
 “Offeror” means a person who makes or proposes to make a take-over offer;
 “Take-over offer”, in relation to a company, means an offer made to acquire all
or part of the voting shares or voting rights, or any class or classes of voting
shares or voting rights, in the company;
 “Voting shares”, in relation to a company, has the meaning assigned to it in
subsection 4(1) of the Companies Act 1965.
For the purposes of this Division, a reference to “persons acting in concert” shall be
construed as a reference to persons who, pursuant to an agreement, arrangement or
understanding, co-operate to:–
 Acquire jointly or severally voting shares of a company for the purpose of
obtaining control of that company; or
 Act jointly or severally for the purpose of exercising control over a company.
The Code contains principles and rules governing the conduct of all persons or
parties involved in a take-over offer, merger or compulsory acquisition, including an
acquirer, offeror, offeree and their officers and associates.
The Securities Commission administers the Code according to the objectives

specified and does all such things as may be necessary or expedient to give full effect to the
provisions of this Division and the Code and without limiting the generality of the
foregoing, may–
 issue rulings from time to time, interpreting the Code;
- 148 -
 issue rulings on the practice and conduct of persons involved in or affected by
any take-over offer, merger or compulsory acquisition, or in the course of any
take-over, merger or compulsory acquisition; and
 enquire into any matter relating to any take-over offer, merger or compulsory
acquisition whether potential or otherwise, and for this purpose, may issue
public statements as the Commission thinks fit with respect thereto.
In making any recommendation, and in administering the Code and exercising its
powers under this Act, the Commission shall take into account the desirability of ensuring
that the acquisition of voting shares or control of companies takes place in an efficient,
competitive and informed market and, without limiting the generality of the foregoing,
shall have regard to the need to ensure–
 that the shareholders and directors of an offeree and the market for the shares that
are the subject of the take-over offer–
o they are aware of the identity of the acquirer and offeror;
o they have reasonable time in which to consider a take-over offer; and
o they are supplied with sufficient information necessary to enable them to
assess the merits of any take-over offer;
 that, so far as practicable, all shareholders of an offeree have equal opportunities to
participate in benefits accruing from the take-over offer, including in the premium
payable for control;
 that fair and equal treatment of all shareholders, in particular, minority
shareholders, in relation to the take-over offer, merger or compulsory acquisition
would be achieved; and
 in its response to, or making recommendations with respect to any takeover offer,
merger or compulsory acquisition, the directors of the offeree and acquirer shall act
in good faith to observe the objects, and the manner in which they observe the
objects, specified in this subsection, and that minority shareholders are not subject
to oppression or disadvantaged by the treatment and conduct of the directors of the
offeree or the acquirer.
Compliance with Code and rulings
An acquirer who has obtained control in a company shall make a take-over offer,
other than in respect of voting shares of the company or voting rights which at the date of
the offer are already held by the acquirer or which the acquirer is entitled to exercise, in
accordance with the provisions of the Code and any rulings.
An acquirer who has obtained control shall not acquire any additional voting shares
in that company or voting rights, as the case may be, except in accordance with the
provisions of the Code and any ruling made under the code.
A person, who contravenes the provisions, commits an offence and shall, on

conviction, be liable to a fine not exceeding one million ringgit or to imprisonment for a
term not exceeding ten years or to both.
- 149 -
Exemptions
The Commission may grant exemption in writing to any particular person or take-
over offer or to any particular class, category or description of persons or take-over offers
from the provisions of this Division, the Code and any ruling made under the code. Any
exemption granted may be subject to any conditions, restrictions or limitations as may be
imposed by the Commission.
Action by Commission in cases of non-compliance with Code and rulings
Where any person who is under an obligation to comply with, observe or give effect
to the provisions of this Division or the Code, or any ruling made under the code,
contravenes or fails to comply with, observe or give effect to any such provision or ruling,
the Commission may take one or more of the following actions:
 Direct the person in breach to comply with, observe or give effect to any such
provision of the Code or rulings;
 Impose a penalty, in proportion to the severity or gravity of the breach on the
person in breach, but in any event not exceeding one million ringgit;
 Reprimand the person in breach;
 Direct a stock exchange to deprive the person in breach access to the facilities of
the stock exchange;
 Where the person in breach is a listed corporation, direct the stock exchange–
o to suspend trading in the securities of the corporation;
o to suspend the listing of the corporation; or
o to remove from the official list the corporation or the class of securities of
the corporation;
 Where the person in breach is a corporation that is not listed, direct any stock
exchange to prohibit the listing of any of its securities;
 Direct a stock exchange to prohibit the person in breach from engaging in
transactions to be executed through the use of the facilities of the stock exchange;
or
 Require the person in breach to take such steps as the Commission may direct to
remedy the breach or mitigate the effect of such breach, including making
restitution to any other person aggrieved by such breach.
The Commission shall give a written notice to a person in breach of its intention to
take action and shall give the person in breach an opportunity to be heard prior to it taking
any action.
The court may, in a case where the Commission gives a direction, on an application
by the Commission, make an order directing the person in breach to comply with, observe
or give effect to those provisions of the Code or rulings.
- 150 -
False or misleading documents, information, etc.
Where any document or information is required to be submitted to the Commission

under this Division or the Code in relation to a take-over offer, merger or compulsory
acquisition–
 an acquirer, an offeror or a person making a compulsory acquisition or effecting

a merger, its officers or associates;
 an offeree, its officers or associates;
 a financial adviser or an expert; or
 any other person, shall not–
(A) Submit or cause to be submitted any document or information that is false or
misleading;
(B) Provide or cause to be provided any document or information from which there is
material omission; or
(C) Engage in conduct that he knows to be misleading or deceptive or is likely to mislead
or deceive.
It shall be a defence to a prosecution or any proceeding for a contravention of the

provisions if it is proved that the defendant, after making enquiries as were reasonable in
the circumstances, had reasonable grounds to believe, and did until the time of the
provision of the document or information or engaging in the conduct was of the belief that–
 The document or information was true and not misleading;
 The omission was not material;
 There was no material omission; or
 The conduct in question was not misleading or deceptive.
A person who contravenes the abovementioned provisions commits an offence and
shall, on conviction, be liable to a fine not exceeding three million ringgit or to
imprisonment for a term not exceeding ten years or to both.
4. TRIGGER POINTS/ INITIATION
Compulsory acquisition
Where a take-over offer by an offeror to acquire all the shares or all the shares in
any particular class in an offeree has, within four months after the making of the take-over
offer, been accepted by the holders of not less than nine-tenths in the nominal value of
those shares or of the shares of that class (including shares already held at the date of the
take-over offer by the offeror or persons acting in concert), the offeror may, at any time
within two months from the date the nine-tenths in the nominal value of those shares have
been achieved, give notice in the manner prescribed under the Code to any dissenting
shareholder that it desires to acquire his shares together with a copy of a statutory
declaration by the offeror that the conditions for the giving of the notice are satisfied.
- 151 -
Where an offeror has given notice to any dissenting shareholder that it desires to
acquire his shares, the dissenting shareholder shall be entitled to require the offeror, by a
demand in writing served on the offeror within one month from the date on which the
notice is given, to supply him with a statement in writing of the names and addresses of all
other dissenting shareholders as shown in the register of members and the offeror shall not
be entitled or bound to acquire the shares of the dissenting shareholders until fourteen days
after the posting of the statement of those names and addresses to the dissenting
shareholder.
Upon the giving of the notice and statutory declaration and compliance, the offeror
shall acquire those shares on the terms of the take-over offer or, if the take-over offer
contained two or more alternative sets of terms, on the terms which were specified in the
take-over offer as being applicable to the dissenting shareholders.
A person commits an offence if he–

 Sends a copy of a notice or statutory declaration which is not in the prescribed
manner; or
 Makes a statutory declaration under concerned provisions, knowing that the
declaration or the statement, as the case may be, to be false, or without having
reasonable grounds for believing it to be true.
Where a person is charged for an offence, it is a defence for him to prove that he
took reasonable steps for securing compliance with that subsection. Where, during the
period within which a take-over offer can be accepted, the offeror acquires or contracts to
acquire any of the shares to which the take-over offer relates, otherwise than by virtue of
acceptances of the take-over offer, then if–
 The value of the consideration for which they are acquired or contracted to be
acquired (“the acquisition consideration”) does not at that time exceed the value
of the consideration specified in the terms of the take-over offer; or
 The terms of the take-over offer are subsequently revised so that when the
revision is announced the value of the acquisition consideration at the time
mentioned, no longer exceeds the value of the consideration specified in those
terms, the offeror shall be treated, for the purposes of this section, as having
acquired or contracted to acquire those shares by virtue of acceptances of the
take-over offer but in relation to any other case those shares shall be treated as
excluded from those to which the take-over offer relates.
Where a notice has been given by the offeror, the offeror shall, after the expiration
of one month after the date on which the notice has been given, or where dissenting
shareholder, after fourteen days from the date the statement has been posted to the
dissenting shareholder–
 Send a copy of the notice to the offeree together with an instrument of transfer
executed on behalf of all such dissenting shareholders by the offeror; and
 Pay, allot or transfer to the offeree the amount or other consideration for the
shares to which the notice relates, and the offeree shall thereupon register the
offeror as the holder of those shares.
Any sums received by the offeree under these provisions, shall be paid into a
separate bank account, and any such sums and any other consideration so received shall be
- 152 -
held by that offeree in trust for the persons entitled to the shares in respect of which the
sum or other consideration was received.
Where any consideration other than cash is held in trust by a company for any
person under this section, it may, after the expiration of ten years from the date on which
the consideration is paid, allotted or transferred to it, transfer the same to the Minister.
The Minister shall sell or dispose of any consideration received, in such manner as
he thinks fit and shall deal with the proceeds of the sale or disposal as if it were monies
paid to him pursuant to the law relating to unclaimed monies.
5. RIGHTS OF STAKEHOLDERS
Right of minority shareholder
If a take-over offer relates to all the shares or to all shares in any class in an offeree
and, at any time before the end of the period within which the take-over offer can be
accepted–
 The offeror has, by virtue of the acceptances of the take-over offer, acquired
some (but not all) of the shares to which the take-over offer relates or shares of
any class to which the take-over offer relates; and
 Those shares, with or without any other shares or any other shares of that class
to which the take-over offer relates, as the case may be, which the offeror or
persons acting in concert has acquired amounts to not less than nine-tenths in
value of all the shares in the offeree or of that class in the offeree, the holder of
any shares or any class of shares to which the take-over offer relates may, by
notice to the offeror, require him to acquire those shares, and the offeror shall be
bound to acquire those shares on the terms of the take-over offer or such other
terms as may be agreed.
Within one month of the time specified, the offeror shall give notice, to any
shareholder who has not accepted the take-over offer, in the manner prescribed under the
Code of the rights that are exercisable by him and, if the notice is given before the period
mentioned in the provisions, it shall state that the take-over offer is still open for
acceptance.
A notice may specify the period for the exercise of the rights conferred by this
section and in that event the rights shall not be exercisable after the end of that period; but
no such period shall end less than three months after the end of the period within which the
take-over offer can be accepted.
The provisions mentioned in relation to giving notice, shall not apply if the offeror
has given the shareholder a notice in respect of the shares in question if compulsory
acquisition offers has been accepted by the offeree under sec. 222(1) of the code. If a
person contravenes provisions relating to giving notice, commits an offence.
- 153 -
6. LEAVERAGE ON TO THE COURTS
Application to court
Where a notice is given under the provisions of the code, the court may, on an
application made by any dissenting shareholder within one month from the date on which
the notice was given–
 Order that the offeror shall not be entitled and shall not be bound to acquire
those shares; or
 Specify terms of acquisition that are different from the terms of the takeover
offer.
If an application to court is pending at the end of the period mentioned, that

provisions shall not have effect until the application has been disposed of. When the holder
of any shares exercises his rights under subsection 223(1), the court may, on an application
made by such holder of shares or the offeror, order that the terms on which the offeror shall
acquire the shares shall be as the court thinks fit. No order for costs shall be made against a
shareholder making an application unless the court considers that–
 The application was unnecessary, improper or vexatious; or
 There has been unreasonable delay in making the application or unreasonable
conduct on the part of the shareholder in conducting the proceeding on the
application.
The court may, on an application made by an offeror who has not obtained
acceptances to the extent necessary for entitling him, make an order authorising the offeror
to give notices.
The court may only grant an order upon being satisfied that–
 The failure of the offeror to obtain such acceptances was due to the inability of
the offeror to trace one or more of the persons holding shares to which the take-
over offer relates after having made reasonable enquiries;
 The shares which the offeror has acquired or contracted to acquire by virtue of
acceptances of the take-over offer, together with the shares held by the person
mentioned in paragraph (a), amount to not less than the minimum specified in
subsection 222(1); and
 The consideration offered is fair and reasonable:
Provided that the court shall not make such an order unless it considers that it is just
and equitable to do so having regard, in particular, to the number of shareholders who have
been traced but who have not accepted the take-over offer.
Section 11 of the Securities Industries Act2005, which has been amended to

provide clarity in terms of the list of persons to whom the securities laws and the rules of
the exchange apply. These are the exchange holding company and its business subsidiaries
such as the exchange, the central depository and clearing house.
- 154 -
The list also includes stock broking companies, clearing members of the clearing
house, listed corporations and directors and advisers of such listed companies. The scope
of section 100 of the Securities Industries Act, which connotes the power of Court to make
certain orders, has been significantly expanded to allow the SC to apply to the High Court
for an order in respect of both an actual or prospective contravention of any "relevant
requirement". In this regard, the range of offences comprising a "relevant requirement", has
been expanded to include contraventions of any securities laws and any other laws under
the purview of the SC.
Section 100 of the SIA provides for the exchange holding company, stock exchange
or recognised clearing house to apply to the High Court for an order where a director has
already contravened a requirement imposed under the rules of the market institution. Any
person who has been aggrieved by an alleged contravention by another person of a relevant
requirement as defined under section 100 of the SIA may make an application to the High
Court for an order under the provision.
Among others, section 100 covers orders restraining a person from dealing with
specified assets, restraining a person from exercising voting rights in specified securities,
restraining a person from issuing securities, and in the case of a director, removing him
from office. Section 106C of the Futures Industry Act 1993 (FIA) and section 58 of the
Securities Industry (Central Depositories) Act 1991 (SICDA) have also been rationalised to
reflect these amendments and the scope of their applicability in the context of the market or
service concerned.
7. OTHER CONSEQUENTIAL LAW
Foreign Investment Restrictions
While welcoming foreign investment, the Malaysian government is also keen to

increase Malaysian and Bumiputra (the indigenous people of Malaysia) ownership of
Malaysian incorporated companies.
In order to realize these aims, the Malaysian government has adopted the NDP,
which has the objective of ensuring that the ownership of the Malaysian economy
(including property or assets as well as share capital in any Malaysian company) at least
reflects the following equity composition, namely, at least 30 percent ownership by
Bumiputras, 40 percent by other Malaysians and a maximum of 30 percent ownership by
foreigners. The government is considering replacing the NDP with a New National Agenda
under the Ninth Malaysia Plan (2006 - 2010).
Foreign ownership of the Malaysian economy is controlled by legal and non-legal

(or administrative) means.
Non-legal (Administrative) Control
In general, non-legal (or administrative) control is by the Foreign Investment

Committee (“FIC”) through its guidelines (“FIC guidelines”).The FIC implements the NDP
through the FIC guidelines. There are two sets of FIC Guidelines:
- 155 -
 Guideline on the Acquisition of Interests, Mergers and Takeovers by Local and
Foreign Interests; and
 Guideline on the Acquisition of Properties by Local and Foreign Interests. The
guidelines are detailed and contain extensive conditions and requirements for
different categories of acquisitions.
Any takeover of a Malaysian company would invariably require the approval of the
Foreign Investment Committee (“FIC”). The approval of the FIC is required for, inter alia:
 Merger or takeover of any local company or business in Malaysia by local or
foreign interests;
 An acquisition of 15% or more of the voting rights of a local company or business
or an acquisition of 30% or more of the voting rights of any local company or
business by any associated or non-associated group of foreign interests regardless
of whether the value is more than Ringgit Malaysia Ten Million (RM10,000,000);
and
 An acquisition of interest in a local company or business where the purchase
consideration is more than Ringgit Malaysia Ten Million (RM10, 000,000) by local
or foreign interest.
Therefore, despite the word “foreign” in the FIC’s name, any takeover of a
Malaysian company whether by local or foreign interest would require the approval of the
FIC. Approval of the FIC is usually given subject to the condition that the target company
shall have at least 30% Bumiputera (the indigenous races of Malaysia) ownership.
Applications for exemptions are considered on a case by case basis.
A bidder will have to investigate the rules and legislation specific to the business of
the target company. For example, if the target company is a manufacturing company
holding a manufacturing licence issued under the Industrial Co-ordination Act, 1975 then
the approval from the Ministry of International Trade & Industry is required. An
acquisition of shares in banking and financial institutions and insurance companies require
the approval of the Minister of Finance and of the Central Bank under the Banking &
Financial Institutions Act, 1989 and the Insurance Act, 1996 respectively.
For banking and financial institutions and insurance companies, the prior approval
of the Minister of Finance and the Central Bank is required before the bidder may
commence negotiations to acquire an interest of 5% or more in such companies. It is also
important to note that for certain sectors in Malaysia, there are a cap on the equity which
may be held by foreign investors. These include banking and financial institutions,
insurance companies and telecommunication companies.
Acquisition of Properties
The Guideline on the Acquisition of Properties by Local and Foreign Interests

(“Guideline on Acquisition of Properties”) impose several conditions on acquisition of
properties by foreign interests, depending on the type of property (whether residential,
commercial, agricultural, or industrial), how it was acquired (for example, by auction) and
by the type of acquirer. Certain exemptions are available to manufacturing companies and
companies which have multimedia super corridor (MSC) status.
- 156 -
In general, any acquisition of property by foreign interests, including Permanent
Residents require the approval of FIC, and charging of property in Malaysia to foreign
interest also requires FIC approval.
Implementation of FIC Guidelines
The FIC guidelines are not law or public policy and are usually enforced
administratively. Companies wishing to obtain contracts from various government
departments, statutory bodies and government-owned companies are generally required to
have some local equity participation and, in some cases, majority Bumiputra ownership.
The equity guidelines implemented by the FIC are not inflexible and often serve as
a guide. A higher percentage of foreign ownership in Malaysian companies or businesses
may be allowed on a case-by-case basis. It should be noted that strictly speaking, there is
no legislation prohibiting 100 percent foreign ownership of the share capital of Malaysian
companies. However, this is generally not encouraged by the Malaysian government.
While approvals are still required to be sought for acquisitions, the government has
also liberalized its stand and indicated that:
 In respect of acquisitions by Malaysian and foreign interests, the only equity
condition imposed would be to maintain at least 30 percent Bumiputra equity
participation; and
 The 30 percent Bumiputra equity requirement would be applied across the
board by all government departments and ministries except where specific
exemptions had already been granted by the Malaysian government.
Consideration must be given to the application of the FIC Guidelines in an
acquisition of shares of a Malaysian company or Malaysian assets. In certain
cases, there may be a requirement to seek FIC approval prior to the acquisition
and this should be taken into account in the sale and purchase agreement.
Listing on Bursa Malaysia
Bursa Malaysia is an exchange holding company approved under Section 15 of the

Capital Markets and Services Act 20071. It operates a fully-integrated exchange, offering
the complete range of exchange-related services including trading, clearing, settlement and
depository services. In a bid to promote participation of foreign issuers on Bursa Malaysia,
the local stock exchange:
Minimum Bumiputra equity participation in a listed entity has been set at 30

percent upon listing; and foreign equity conditions have been relaxed to attract more
foreign companies to list on Bursa Malaysia to facilitate the aims of the Capital Market
Masterplan.
Legal control
Legal control is through administrative discretion conferred under statutes or

subsidiary legislation. Equity ownership can be controlled through the issuance of licences,
permits and employment passes or in the purchase of real property and acquisition of any
interest in real property. Equity conditions may be imposed on licences granted by
- 157 -
government or statutory bodies, or by the Malaysian Securities Commission on initial
public offerings.
In a share acquisition, the approval of the relevant licensing body must also be
taken into consideration. The licensing conditions of certain licences may stipulate that the
approval of the appropriate licensing body must be obtained for any transfer of the shares
in the licensed entity.
Exchange Controls
The relevant legislation in Malaysia governing exchange control is the Exchange

Control Act 1953. The Controller has, under Section 39 of the Exchange Control Act,
issued the Exchange Control Notices of Malaysia (“ECMs”) which constitute the
Controllers general permissions and directions. In certain instances, the specific approval
of the Controller is still required. With the removal of significant restrictions in April 2005,
Bank Negara has placed the regulatory regime of exchange control back to the position that
applied before 1 September 1998.
Indeed, in some instances, the regulatory scheme has been eased even beyond the
position prior to the Asian financial crisis of 1997/1998, lending support to the
governments’ assertion that Malaysia no longer has any capital controls.
Among the recent changes, regulations governing investment abroad were relaxed:
 Residents without domestic credit facilities can invest abroad in foreign currency
either from their own foreign currency or conversion of ringgit funds. Individuals
with domestic credit facilities can invest abroad up to RM100,000 per annum, while
corporations with domestic credit facilities can invest in foreign currency assets up
to RM10 million per annum. Such corporations must have a minimum
shareholders’ fund of RM100, 000 and have been in operation for a minimum of
one year.
 The threshold for investing abroad funds attributed to residents by a unit trust
company has been increased to 30 percent of the Net Asset Value (NAV) of all
resident funds managed by the unit trust company. Fund managers may invest
abroad any amount of funds belonging to non-resident clients and resident clients
that do not have any domestic credit facilities, and up to 30 percent of funds of
residents with domestic credit facilities.
 Insurance companies and operators may also invest abroad up to 30 percent of the
NAV of the investment-linked funds that they market. Malaysias Exchange Control
Regime.
Some of the exchange controls are as follows:
 Residents can pay non-residents in either Ringgit or foreign currency up to RM50,
000. For amounts in excess of this, a bank statistical form is required to be
completed.
 There is no restriction on payments to non-residents for the import of goods and
services. Such payments must be in foreign currency.
 Residents and non-residents are allowed to import and export Ringgit notes up to
RM1, 000. Residents and non-residents are allowed to import any amount of
- 158 -
foreign currency. However, residents are allowed to export foreign currency only
up to the equivalent of RM10, 000. Non-residents are allowed to export foreign
currency up to the amount of foreign currency brought into Malaysia.
There is no restriction on repatriation of capital, profits, dividends, interest, fees or
rental by foreign direct investors or portfolio investors.
 Ringgit assets purchased by residents from non-residents may be settled in ringgit
or foreign currency. However, all remittances abroad must be in foreign currency.
 Non-residents may transfer Ringgit securities to another non-resident, where
settlement for such transfers may be made in ringgit (if settled in Malaysia) or in
foreign currency (if settled outside Malaysia).
 Licensed onshore banks may extend ringgit intra-day and overnight overdraft
facilities in aggregate not exceeding
 RM200 million to a non-resident stock broking company or a non-resident
custodian bank to facilitate settlement for the purchase of shares listed on Bursa
Malaysia.
 Companies with multimedia super corridor status will continue to be exempted
from all exchange control rules.
 Approved Operational Headquarters (OHQs) are allowed to obtain any amount of
credit facilities in ringgit. They may also obtain any amount of foreign currency
credit facilities from licensed onshore banks and licensed merchant banks in
Malaysia, and from any non-resident, provided the OHQ does not on-lend to, or
raise the funds on behalf of, any resident.
 OHQs may invest abroad any amount including extension of credit facilities to their
related overseas companies, to be funded with foreign currency funds or foreign
currency borrowing.
Corporate and Securities Law Issues
Disposal of the whole or substantially the whole of the companies undertaking or

property Section 132C of the Malaysian Companies Act provides that if the target company
is disposing of the whole or substantially the whole of its undertaking or property, the
approval of the shareholders at a general meeting must be obtained. Further, Section 132C
also provides that where the purchaser is a Malaysian incorporated company the approval
of the shareholders of the purchaser must be obtained for the acquisition of an undertaking
or property of a substantial value. In either case, the approval would only be required if the
disposal or acquisition would materially and adversely affect the performance or financial
position of the target or the purchaser, as the case may be.
8. CONSIDERATION
Consideration shares
The approval of the shareholders of the purchaser may be required when the
allotment and issue of shares in the purchaser constitutes part of or all of the purchase price
for the acquisition of shares or assets in the target. Such approval is necessary if the
allotment and issue leads to an increase in authorized capital of the purchaser (Section 62
- 159 -
of the Malaysian Companies Act) or exceeds the existing authority of the directors to allot
and issue shares (Section 132D of the Malaysian Companies Act).
However, in the latter case, Section 132D (6A) of the Malaysian Companies Act
exempts the directors from having to obtain the authority or approval of the shareholders
for share issues which are made as consideration for the acquisition of shares or assets by
the issuing company provided that the shareholders have been notified of the intention to
issue the shares at least 14 days before the date of issue of the shares.
Connected transactions
Section 132E of the Malaysian Companies Act requires approval of the

shareholders of the relevant parties where the transaction is between a company and its
director (or a director of the holding company or a person connected with such directors)
and involves the acquisition or disposal of non-cash assets (including shares) with a value
of either more than RM250,000 or 10 percent of the companies asset value subject to a de
minimis threshold of RM10,000.
Section 132G of the Malaysian Companies Act also prohibits a company from
entering into any arrangement or transaction to acquire the shares or assets of another
company if a shareholder or director of the first company (or person connected to such
substantial shareholder1 or director) has a substantial shareholding in the second company,
unless the arrangement or transaction was entered into three years after the connected
shareholder or director or person first held shares in the second company or three years
after the assets were first acquired by the company. “
Specific Industry Regulation
Generally, it is government policy (rather than statute) which would limit

acquisitions, in specific industries, although certain Malaysian legislation (such as that
governing banking) sets caps on foreign equity participation in Malaysian companies
operating in particular industries. Generally, the broad principles of the NDP are applied
and the Malaysian government policy imposed on foreign participation varies between
industries.
9. NON-REGULATORY CONSENTS AND APPROVALS
Non-regulatory consents and approvals are left to the administrative discretion of

various government bodies. As discussed above, equity ownership imposed under the NDP
can be controlled through, amongst others, the issuance of licenses, permits and
employment passes or in the purchase of real property and acquisition of any interest in
real property. These requirements are subject to change from time to time.
10. TAXATION ISSUES
In Malaysia, profits derived by the transferor from the disposal of trading stock
would be taxable at the normal corporate income tax rate, currently 28 percent. However,
Malaysian resident companies with paid up capital of RM2.5 million and less will be
subject to income tax at the rate of 20% on the first RM 500, 000 of its chargeable income.
- 160 -
The remaining chargeable income will continue to be taxed at the rate of 28%. When
trading stock is sold upon the discontinuance of a trade or business, the value of the trading
stock sold is prescribed by Section 35 of the Malaysian Income Tax Act, which provides
that the value shall be equal to the purchase price where the transferee intends to carry on a
trade or business in Malaysia and where the stock would be deductible as an expense in the
transferees business. Otherwise, the transfer and all associated tax consequences are
deemed to occur at market value.
Generally the transfer of depreciable capital assets does not incur income tax unless
capital allowances have been granted and the disposal value exceeds the written-down
value, resulting in a balancing charge in respect of which the transferor becomes subject to
corporate income tax. There is, however, a provision in the Malaysian Income Tax Act for
the transfer of such assets on a rollover basis between related parties. Disposal value will
normally be the sale price, but for plant and machinery the market price, if higher, will be
used.
Carrying forward net operating losses following a change in ownership
In Malaysia, a company is entitled to carry forward business losses incurred in one

year of assessment for deduction against its statutory income in future years. However,
unlike in Singapore, unabsorbed business losses may only be offset against future income
from business sources. There are also no “continuity of ownership” provisions in the
Malaysian Income Tax Act in respect of loss relief. In short, only business losses can be
carried forward indefinitely. There are no carry-back loss relief provisions.
Capital gains tax
Like Singapore, Malaysia does not impose capital gains tax. However, there is
taxation of gains from transactions in real property and real property companies (“RPC”).
Gains from the disposal of real property and shares in RPC within five years of the date of
acquisition are taxable at specified rates. The rate of tax depends on the number of years
the real property or shares in a RPC have been held by the disposer of such property or
shares.
For individuals, it ranges from a maximum of 30 percent of chargeable gains for

chargeable assets disposed of within two years of their acquisition to 0 percent if disposed
of in the sixth year after acquisition or thereafter. For companies, it ranges from a
maximum of 30 percent of chargeable gains for chargeable assets disposed of within two
years of their acquisition to 5 percent if disposed of in the fifth year after acquisition or
thereafter. Gains of non-citizens and non-permanent residents, from the disposal of real
property or shares in a RPC, will be taxed at the rate of 30 percent if disposed of within
five years after acquisition and at 5 percent if disposed of in the sixth year after acquisition
or thereafter. A RPC is defined as a controlled company which owns land with a defined
value of not less than 75 percent of the RPC’s total tangible assets.
Withholding tax system
Malaysia imposes a withholding tax on certain payments to non-residents such as

royalties, technical fees, installation fees and rental of moveable property, where the
payments are sourced or deemed sourced in (i.e. accrued in or derived from) Malaysia.
- 161 -
Dividends are not subject to withholding tax in Malaysia. There are provisions in the
Malaysian Income Tax Act which deem certain types of income (e.g. interest, royalties,
technical fees, rental of movable properties) to be sourced in Malaysia if they are broadly:
Borne by a Malaysian resident or permanent establishment; Deductible against

Malaysian taxable income. However, with effect from 21 September 2002, payments to
non-residents for services performed outside Malaysia will be exempted from withholding
tax. The exemption specifically applies to services rendered in respect of technical advice,
assistance or technical services in relation to the management or administration of any
project, or services rendered in connection with the use of property or rights belonging to,
or the installation or operation of any plant machinery or apparatus purchased from the
non-resident. The withholding tax rates for the payments of interest, royalties, rent and
technical assistance or management fees to non-residents are as follows:
Stamp duties
In practice, stamp duties on the transfer of an asset can be greater than stamp duties
payable on the transfer of shares. Stamp duties are generally payable by the purchaser but
some parties may agree to split the duty payments equally between the purchaser and the
vendor. In general, in a share acquisition the purchaser pays stamp duty of 0.3 percent of
the purchase price paid or of the market value, whichever is higher.
However, mutual agreement between the parties to allow the cost to be borne by
either or both of the parties is possible. In an asset acquisition, depending on the type of
assets in question, it may be possible to structure the acquisition such that legal title to the
assets is transferred by delivery. This would preclude the agreement becoming an
instrument of conveyance and the agreement should therefore be subject to nominal stamp
duty. However, certain assets (e.g. land and shares) may only be transferred through
prescribed instruments of transfers.
These instruments will incur stamp duty levied on an ad valorem basis. Further,
legal assignments of assets will similarly be subject to stamp duty on an ad valorem basis.
The rate of stamp duty payable for real property is generally, 1 percent on the first
RM100,000, 2 percent on the next RM400,000 and 3 percent on the remaining amount
exceeding RM500,000. However, transfers of property to a Real Estate Investment Trust
(REIT) or Property Trust Fund (PTF) are exempted from stamp duty.
Documentation And Due Diligence
Preliminary Agreement - Memorandum of Understanding / Letter of Intent

A memorandum of understanding (“MOU”)/letter of intent is relatively common in
Malaysia, as a precursor to definitive agreements. It is sometimes entered into to clearly
spell out the responsibilities of the parties involved in the transaction. Further, MOUs
containing “exclusivity clauses” may also serve to prevent the parties from negotiating with
other third parties.
Depending on the intention of the parties and the way it is drafted, a MOU or a
letter of intent can be a binding contract between the parties involved. However, an
agreement to agree is generally not enforceable under Malaysian law. If the intention of the
- 162 -
parties is not to be bound by the MOU or the letter of intent, care must be taken in the
drafting of the document to so reflect such an intention.
Due Diligence
Due diligence is a common feature of acquisition transactions in Malaysia.

Purchasers are generally encouraged to conduct proper due diligence on the assets or shares
they propose to purchase to avoid complications in the course of undertaking the
acquisition and after the acquisition. As for acquisitions or take-over of shares in a listed
companies, due diligence on the public documents relating to the offer has become
essential.
The Malaysian Securities Commission Act requires information given in any

document relating to the takeover, for instance a takeover offer document to be true,
accurate and not misleading and should not contain any material omission. In the case
where misleading information is located in the offer document, it would be a defense, if, it
can be shown that the Offeror has conducted proper due diligence and has reasonable
grounds to believe that the information was not misleading or untrue at the time of
disclosure. Further, there are also strict insider trading laws which prohibit parties from
providing material non-public, price sensitive information to a potential purchaser, and a
potential purchaser in possession of such information cannot acquire the shares.
A potential acquirer of shares in a listed company may also seek comfort from the
obligation imposed on the listed company to disclose proper corporate information relating
to its business activities etc. The Kuala Lumpur Stock Exchange has stressed that its
corporate disclosure policy forms part of the continuing listing requirements to which the
listed company is subject. Amongst others, these include rules relating to:
 Immediate public disclosure of material information;
 Thorough public dissemination of material information;
 Clarification or confirmation of rumours and reports;
 Unwarranted promotional disclosure; and
 Insider trading.
Documentation and Agreements
In Malaysia, it is common for the purchasers’ lawyers to prepare the first draft of
the acquisition documentation and agreements. In a takeover offer transaction, both the
offeror/acquirer and the target company would be obliged fr the preparing the necessary
statutory documents and other relevant documents to inform, amongst others, the
authorities and the shareholders of the offeree of the proposed takeover offer. The
offeror/acquirer is therefore required to prepare an offer document and the target company
an independent advice circular for its shareholders. Both documents are required to contain
information which is true, not misleading and devoid of material omissions.
- 163 -
Representations and Warranties
Representations and warranties are commonly found in most acquisition

agreements in Malaysia. Assurances may be obtained that the purchaser has been properly
authorised according to the purchaser’s internal rules. Also, the vendor is typically also
required to warrant that it has the authority to sell, for instance, its assets to the purchaser.
Further, the vendor is likely to warrant the condition of the business of the target company
in considerable detail. Warranties will include the financial position of the vendor, its
commitments and contingencies, records and returns, its title and insurance, etc.
Completion of a transaction is generally effected following the satisfaction of

conditions precedent specified in the transaction agreements. For instance, the acquisition
of shares in a manufacturing company may require the consent of the Ministry of
International Trade and Industry. If the necessary approvals are not obtained in a specified
time period, the parties may either waive the condition or terminate the transaction.
11. PUBLIC OR LISTED COMPANY CONSIDERATIONS
Acquisition of a Substantial Shareholding
Insider trading
Section 132A of the Companies Act prohibits an officer, agent or employee of a

corporation from making improper use of any specific confidential information acquired by
virtue of his office to gain an advantage for himself or for any other person. Section 132B
prohibits the use of information obtained by any person by virtue of his official capacity to
gain an advantage for himself of for any other person in relation to dealing in the securities
of a corporation. Contravention of either Section is punishable by a prison term of up to
five years or a fine of up to RM30, 000 or both.
Listing rules
Generally, if an offeror has received acceptances that bring the holdings owned by
it and its concert parties to at least 90 percent of the target company’s securities, the
announcement that such acceptances have been received may result in the delisting or
suspension of all the securities of the target company from the Main Board or the Second
Board of Bursa Securities (depending on which Board the company is listed). In most
cases, this is a situation which the offeror may wish to avoid as the listed status of the
target company will usually be of considerable value to it. In this case, the offeror may seek
the SC’s and Bursa Securities approval for a placement of some of its shares during the
offer period so that its aggregate holdings will not exceed 90 percent.
Even in the case where the level of acceptance is below 90 percent, the target
company is required to submit certain information as to the spread of its shareholdings to
Bursa Securities. Bursa Securities must be satisfied that there is an adequate spread of
securities in the public’s hands. If the listed company does not comply with spread
requirements, it could be in breach of the Listing Requirements and subject to suspension
in the trading of its securities or ultimately, delisting. Upon the completion of the takeover
offer, the listed company must furnish a schedule of the company’s securities to Bursa
- 164 -
Securities in the format set out in the Bursa Securities Listing Requirements. This schedule
generally requires the company to list the shareholdings in the company.
Initial Public Offerings by foreign corporations
In order to provide a broader variety of offerings on Bursa Malaysia, the SC has

adopted a new policy with respect to initial public offerings (“IPOs”) of foreign
corporations. Under the new policy, foreign controlled corporations may be listed on Bursa
Malaysia, provided that they have substantial operations in Malaysia. Previously, foreign
controlled entities seeking a listing on the local bourse were required also required to be
locally incorporated in addition to having substantial Malaysian operations. If an entity is
Malaysian controlled, it can be listed on Bursa Malaysia even if it is foreign incorporated
or has substantial or major foreign operations.
Acquisitions and Disclosures by Public Companies
Types of transaction
A takeover of a listed company can proceed in any one of the following ways:
 An investor may participate in a rights issue of a public company, subject to SC
approval;
 An investor may participate in the equity of a company through a private
placement of shares in the company, which is regulated by the SC;
 Through a takeover scheme or takeover governed by the Malaysian Code; or
 An investor may be able to achieve a “backdoor” listing through the sale assets,
businesses or interests to a listed company and the issue of shares to the vendor
company, resulting in a change of control in the listed company through the
introduction of a new dominant shareholder or group of shareholders.
Shareholding Requirements for Maintaining or Regaining a Listing on Bursa
Malaysia
Main Board Requirements
 Minimum paid up capital of RM60 million, comprising ordinary shares of at
least RM0.10 each.
 At least 25 percent of the issued and paid-up capital is in the hands of a
minimum of 1000 public shareholders each holding not less than 100 shares
each.
Second Board Requirements
 Minimum paid-up capital of RM40 million, comprising ordinary shares of at
least RM0.10 each.
 At least 25 percent of the issued and paid-up capital is in the hands of a
minimum of 1000 public shareholders, each holding not less than 100 shares
each.
Under the Bursa Malaysia Listing Requirements issued and paid-up capital of the
company held by employees and Bumiputra investors (for the purposes of the NDP) are
allowed to make up the 25 percent public shareholding spread.
- 165 -
A company which fails to comply with the spread requirements is given six months,
or such other period as may be determined by Bursa Securities by notice, to rectify the
situation. In the event that the shareholding spread is 10% or less, Bursa Malaysia may
suspend trading in the securities.
The penalties for breach of any requirement under the Bursa Securities Listing
Requirements, including the spread requirements discussed above, include a public
reprimand, the delisting of the company, a fine not exceeding RM1 million, the suspension
in the trading of the securities for any period of time or the restriction of dealing in the
securities of the errant company to immediate or prompt bargains (i.e. the shares of the
errant company can only be traded if cash is paid upon the purchase of those shares). Bursa
Malaysia is also empowered to impose any other conditions or penalties as it may see fit.
General disclosure obligation
The Listing Requirements of Bursa Malaysia provides for continuing disclosure

obligations of a public company. These continuing obligations include the obligation to
notify Bursa Securities of any information concerning the company or any of its
subsidiaries necessary to avoid the establishment of a false market in the company’s
securities or which would be likely to materially affect the price of its securities; any
change in management; any notice of substantial shareholdings or changes thereto received
by the company and details thereof, and any acquisition of shares in either a listed or
unlisted company that exceeds a specified limit.
Specific disclosure obligations
Transactions exceeding the value of 5 percent In a transaction where the relative figures
amount to more than 5 percent in respect of:
 The value of the assets which are the subject matter of the transaction,
compared with the net tangible assets of the listed issuer;
 Net profits (after deducting all charges and taxation and excluding extraordinary
items) attributable to the assets which are the subject matter of the transaction,
compared with the net profits of the listed issuer;
 The aggregate value of the consideration given or received in relation to the
transaction (including any liability to be assumed, where applicable), compared
with the net tangible assets of the listed issuer;
 The equity share capital issued by the listed issuer as consideration for an
acquisition, compared with the equity share capital previously in issue;
 The aggregate value of the consideration given or received in relation to the
transaction (including any liability to be assumed, where applicable), compared
with the market value of all the ordinary shares of the listed issuer;
 The total assets which are the subject matter of the transaction compared with
the total assets of the listed issuer;
 In respect of joint ventures, business transactions or arrangements, the total
project cost attributable to the listed issuer compared with the total assets of the
listed issuer or in the case where a joint venture company is incorporated as a
- 166 -
result of the joint venture, the total equity participation of the listed issuer in the
joint venture company (based on the eventual issued capital of the joint venture
company) compared with the net tangible assets of the listed issuer. The value
of the transaction should include shareholders loans and guarantees to be given
by the listed issuer; or
 The aggregate cost of investment of the subject matter of the transaction divided
by the net tangible assets of the listed issuer, in the case of a disposal and where
the acquisition of the subject matter took place within the last 5 years.
As soon as possible after terms have been agreed, 300 copies of an announcement
should be given to Bursa Securities (for release to the market and consequently to the
press), detailing the information prescribed by the Bursa Securities Listing Requirements.
Transactions exceeding 15 percent
For a transaction where the relative figures as set out above amount to more than 15
percent, a circular should be sent to the shareholders for their information.
Transactions exceeding 25 percent
For a transaction where the relative figures as set out above amount to more than 25
percent, the transaction should be made conditional upon approval by the shareholders of
the company at a general meeting.
Other disclosure obligations
There are similar disclosure obligations, for instance, where a company is involved
in a transaction involving the interests of directors or substantial shareholders and where a
transaction might reasonably be expected to result in either the diversion of 25 percent or
more of the net assets of the company to an operation which differs widely from those
operations previously carried on by the company.
Connected transactions
If a company proposes to sell any company, business or asset to a director, past

director, substantial shareholder or past substantial shareholder of either the company, its
subsidiaries, or its parent company; or to acquire an interest in any company, business or
asset in which such a person is interested, Bursa Securities will normally require that a
circular be sent to shareholders (notwithstanding that it might not otherwise be an
acquisition or realization which would require a circular) and that their prior approval of
the transaction be sought at a general meeting. It is also likely that the Malaysian
Companies Act will impose conditions, such as obtaining shareholder approval, where
there are related party transactions. The same requirements apply in cases of joint ventures,
business transactions or arrangements which involve the interests of directors or substantial
shareholders, past and present.
Disclosure based regulatory regime
In 2003, the Malaysian Securities Commission completed the move from a merit
based to a disclosure based regulatory (DBR) regime in connection with the issue and offer
- 167 -
of securities. The disclosure based regulatory regime offered a more streamlined regulatory
approach, a quicker approval process and more business friendly and market based rules.
Most importantly, it will also meant that issuers now have greater freedom and flexibility
to price securities offered to the market. The DBR regime is characterized by a twin track
regulatory review process involving:
 A “declaratory approach” in respect of securities issues such as rights issues,
bonus issues and employee share option schemes;
 An “assessment approach” in relation to IPOs, reverse takeovers, mergers and
acquisitions and proposals relating to financially distressed listed entities.
Pursuant to the declaratory approach, the Commission will grant approvals for
proposals provided that the issuer and its principal adviser declare that relevant regulations
and procedures have been complied with. The assessment approach will involve more
focused review of the suitability of the proposal.
Amendments to Securities Laws
Following the demutualization of the Kuala Lumpur Stock Exchange on 5 January

2004, amendments were made to the securities laws to accommodate the new structure of
the exchange, and to enhance the securities regulatory framework and powers of the SC,
especially in the area of investor protection.
These amendments:
 Streamlined and strengthened the framework on investment advice;
 Enhanced civil and administrative powers;
 Introduced whistle blowing provisions; and
 Facilitated regulation and development of the securities laws and ensured the
integrity of the capital markets.
Enhanced enforcement capabilities
The amendments have clarified and expanded the scope of the powers of the SC to
take civil and administrative actions. In addition to the general provision that the SC may
take actions against any person who fails to comply, observe, or enforce or give effect to
the rules of the exchange, clearing house, central depository or provisions in any of the
securities laws, the amendments list specific persons who are subject to the SC’s powers.
They include, among others, the directors, officers and advisers of listed corporations.
Further, the amendments enhance the ability of the SC to require the person in breach to
take any such steps as the SC may direct to remedy the breach or mitigate the effect of such
breach, including making restitution to the person aggrieved by the breach. The
amendments have also expanded the range of situations where the SC may apply to the
High Court for certain orders.
Competition Law
There are generally no anti-trust laws in Malaysia. However, the Communications

and Multimedia Act contains provisions prohibiting anticompetitive conduct in relation to
the communications and multimedia industry. The fair trade practices policy, FTPP will
- 168 -
seek to promote competition in the conduct of trade or business, and will be the precursor
to a Fair Trade Practices Act.
The Competition Bill 2010 (“Bill”) was tabled in the Malaysian Parliament for first
reading on 6 April 2010 together with the Competition Commission Bill 2010. The former
seeks to promote economic development and protect consumer interests by prohibiting anti
competitive conduct and practices, while the latter will establish a competition commission
responsible for enforcing the proposed Competition Act.
The Bill prohibits:

 Agreements or concerted practices between enterprises or associations of
enterprises which have the object or effect of significantly preventing, restricting or
distorting competition; and
 The abuse by enterprises of a dominant position i.e. a situation where an enterprise
possesses significant power in a market which enables it to adjust prices or outputs
or trading terms without effective constraints from competitors.
Enterprise covers any entity carrying on commercial activities relating to goods or

services and a subsidiary will be regarded as a single enterprise with its parent company, if
the subsidiary does not enjoy real autonomy in determining its actions on the market.
‘Commercial activities’ include those transacted outside Malaysia which have an effect on
competition in Malaysia but excludes:
(i) Commercial activities governed by the Communications and Multimedia Act 1998
and Energy Commission Act 2001 as these two legislations already have
competition provisions within them and arguably the regulation of these two sectors
are better left managed within their respective industry; and
(ii) Any activity in exercise of governmental authority or conduct based on the
principle of solidarity, or where goods or services purchased are not part of an
economic activity.
An enterprise which is a party to any prohibited anti-competitive agreement or

practice can be relieved of its liability or obtain exemption if it can establish that: (i) there
are significant technological, efficiency or social benefits; (ii) the benefits could not
reasonably have been provided without the agreement having the anti-competitive effect;
(iii) the detrimental effect on competition is proportionate to the benefits provided; and (iv)
competition would not be eliminated completely.
The Bill sets out an illustrative list of activities which may constitute an abuse of
dominant position and expressly provides that the market share of an enterprise would not
in itself be conclusive evidence of whether the enterprise occupies a dominant position in
the market. The Bill also empowers the Minister of Domestic Trade, Cooperative and
Consumerism to exclude certain types of activities from prohibition.
The Bill however does not have provisions for fair trade practices and a merger
control regime which are commonly found in most antitrust legislation. However this is a
first step in the right direction as the benefit of competition is manifold and Malaysia truly
- 169 -
needs to be more competitive if it wishes to achieve its vision of becoming a developed
nation.
GUIDELINES ON PREVENTION OF MONEY LAUNDERING & TERRORISM

FINANCING FOR CAPITAL MARKET INTERMEDIARIES were issued on 31
March 2004, and revised on 11 January 2007. These Guidelines are issued pursuant to
section 158 of the Securities Commission Act 1993. A failure to comply with any of the
requirements of this Guideline by a reporting institution or its representatives (where
applicable), will in the absence of extenuating circumstances, reflect adversely on their
fitness and properness.
These Guidelines seek to provide guidance to reporting institutions such as Dealers,

Fund Managers, Futures Brokers and Futures Fund Managers licensed under the Securities
Industry Act 1983 (“SIA”) and Futures Industry Act 1993 (“FIA”) and management
companies approved by the Securities Commission under the Securities Commission Act
1993 (“SCA”) for compliance with the provisions of the Anti-Money Laundering Act 2001
(“AMLA”).
Whistle blowing provisions
The whistle blowing provisions were intended to complement enforcement efforts

and assist in curbing corporate abuses and promoting better corporate governance. In
general, the amendments provide for the reporting of breaches of the law to the relevant
authorities and incorporate legal protection to informants for bringing transgressions to
light.
In respect of auditors of public listed corporations, the provisions impose a
mandatory obligation to immediately report to the relevant authority, breaches of any
securities law, rules of a stock exchange or any matter which may adversely affect to a
material extent the financial position of the listed corporation.
The SC may also require the auditor to submit any additional material in relation to
the audit as the SC may specify, enlarge, or extend the scope of the audit and/or carry out
any specific examination or establish any procedure in any particular case. The auditor
shall be remunerated for carrying out any orders required by the SC and shall be protected
against any legal action in respect of such disclosure.
12. CONCLUSION
In practice, merger and acquisition laws are an intricate interplay of various laws
and regulations. These laws and regulations are also subject to Malaysian government
policy applicable to the particular area of industry where the target company may be
operating. In short, the regulatory and legal regime governing merger and acquisition
activity in Malaysia is relatively fluid and it is always advisable to seek proper professional
advice when considering any merger or acquisition in Malaysia.
- 170 -
CHAPTER - VIII
CONCLUSION
Takeovers, plays a vital role to transform the life of business entities. The primary
objective of takeover regulations is to protect the interests of shareholders during takeover
deals. The present study for understanding takeover regulations, mechanisms and
procedures in various jurisdictions of United States, European Union (UK, France and
Germany), Hong Kong, Australia, Singapore and Malaysia was based on the project outline
provided by ITC. However, as the study progressed, it was experienced by the research
team that presenting report on the lines of project outline would be confusing, owing to the
vast difference in the legal, judicial and regulatory framework and the processes in
takeover processes in the given jurisdictions. Therefore approval was sought to present the
final report country-wise which would enable ITC to arrive at a clearer picture of the
subject.
The study demonstrates how historical events, economic, regulatory & legislative
structures and judicial & administrative mechanisms have impacted takeover deals in the
above jurisdictions.
Efforts have been made to study the substantive takeover rules and the processes
through which takeovers are created and enforced. In some of the jurisdictions viz. the
United Kingdom (U.K.) European countries, the laws and regulations adequately protect
the interests of minority shareholders. However, it was revealed during the study that at
the micro level, the takeovers in the U.K. and in the United States of America (U.S.) were
regulated differently.
In the U.K., and in other majority EU jurisdictions acquisition of a set threshold of

the voting shares (thirty percent) requires the buyer to launch a mandatory tender offer on
all the outstanding shares at the highest price paid for those shares. No laws or regulations
of this sort are provided under U.S. law at the federal level, even if some states provide for
“best-price rules” whose effects are similar to the U.K. mandatory bid rule. Similarly, the
British “City Code” imposes a ban on directors’ actions that might frustrate a hostile bid
without shareholder approval, which contrasts starkly with the relative freedom that U.S.
directors have to resist a hostile acquisition.
The statutory and regulatory mechanisms of all the jurisdictions that we studied are
entirely different. USA experienced more liberal and settled approach to takeovers, despite
complexities of applicable regulations due to State laws qua the Federal Regulations. The
laws and regulations in the US emphasized transparency and disclosures in the interests of
shareholders and investors; restraint of trade or attempt to monopolistic trade; lessening
competition tendering to create a monopoly; insiders an obligation to disclose material non-
public information etc. in the EU countries the approach was more simplified due to
adaptation of uniform EU Guidelines. In the UK the City Code & the Companies Act is
the prominent legislation for governing the takeovers along with the functional
involvement of other bodies Competition Commission, the Office of Fair Trading and the
European Commission.
- 171 -
Notwithstanding the widespread ownership structure that both systems have in
common, the role of institutional investors in the U.K. as shareholders and as an organized
group influencing the policy makers, is absent in the U.S. Instead, in the U.S., direct
investment by small and disorganized shareholders is more common.
The importance of the rule-making process in determining the substantive

regulatory outcome has also been studied. It led the researchers to the inference that the
corporate directors and managers in the context of American federalism have a more
effective role as compared to their British counterparts in shaping the takeover rules. The
U.S. takeover processes have largely evolved from judicial precedents and judge-made
rules while in U.K. the role of legislative and case-law processes appears to be limited.
Thus, there are three pillars of U.K. takeover regulation i.e. the mandatory bid, the
non-frustration rule, and breakthrough rule which have been explained in Chapter-III. In
the U.K., coordinated and influential institutional investors are able to promote private
takeover regime, particularly favorable to minority investors. The pillars of this regime are
the mandatory bid and the non-frustration rule. In the U.S., by contrast, incumbent
directors and managers are able to obtain more leverage to resist takeovers, due to a
number of factors ranging from U.S. federalism that shows the voice of corporate managers
to the lesser impact of institutional investors’ lobbying efforts on the development of case-
law.
Prohibition of the directors’ controlled frustrating actions together with the

mandatory bid mechanism, the non-frustration prohibition are also called “board
neutrality” or the “passivity rule” which is observed as the landmark difference between
the takeovers in U.S. and U.K.. The degree of freedom enjoyed by American directors in
structuring and deploying pre-and post-bid defenses with the only substantive limitation
being their fiduciary duties, is contrary to the practices in the UK and those European
countries which have adopted the U.K. takeover mechanisms. The non-frustration
prohibition of the General Principle 3 of Rule 21 of the U.K. Takeover Code prevents
directors from either adopting or setting into motion most pst-bid defenses. However, it
cannot be denied that board neutrality and shareholder principles in the U.K. were
perceived and introduced as adequate protection of other shareholders against directors’
and managers’ conflicts of interest in a takeover.
Public takeovers in France are regulated by a single Market Authority, the Autorité
des marchés financiers (AMF). AMF has been entrusted with the task of stock market
regulation, with clear-cut principles governing Investors’ Protection, information and
transparency. In addition, it has been charged with the important role as the French
regulator for governing international takeover transactions. AMF is also responsible for
issuing and enforcing the ‘general regulations’, which contains both the rules on the
conduct of takeovers and associated disclosure obligations. In addition to AMF, the
involvement of Finance Ministry of France through the “Direction Generale de la
Concurrence, de la Consommation et de la Repression des Fraudes” (DGCCRF) and the
“Counseil de la Concurrence” (the Competition Council) is on the similar lines of
Competition Commission and other regulatory bodies in other jurisdictions.
In Germany the Securities Acquisition & Takeover Act (Wertpapiererwerbs und

Übernahmegesetz) which is "WpÜG" prescribes the general law governing German
takeover Code more specifically under sec. 3 of WpUG. The Federal Financial Supervisory
- 172 -
Authority (Bundesanstalt für Finanzdienstleistungsaufsicht or BaFin) has been given the
authority to enforce the provisions of WpUG which also aims at countering the mischief
which might impair the orderly implementation of the takeover procedure or which could
bring significant disadvantages to the security market. For regulating the takeover deals,
relevant expert Boards are constituted. The Federal Securities Agency (FSA) prescribes
the procedural requirements and monitors to launch an offer document with Federal
Agency before the securities are listed on the German Stock Exchange.
In Australia, legislation governing takeovers is contained in chapter 6 of the

Corporations Act, 2001. The conduct of participants is regulated by the Australian
Securities and Investments Commission (ASIC) and disputes between participants are
resolved by the takeovers panel. Australian takeovers legislation has evolved particularly
during the last two decades so that that the takeovers in Australia occur in fair, transparent
efficient, competitive and informed manner. Australian takeovers legislation applies to
takeovers of companies or other bodies corporate which are registered in Australia and are
listed on the Australian securities exchange (ASX) or have at least 50 shareholders. It also
applies to takeovers of listed managed investment schemes (Unit Trusts etc). The
alternatives to takeover bids are usually achieved through other mechanisms viz. schemes
of arrangement; selective reductions of capital; share buy-backs; asset transfers; reverse
takeovers and shareholder approved acquisitions.
In Hong Kong the Securities and Futures Commission ("SFC") has notified Codes
on Takeovers and Mergers and Share Repurchases and the proposed procedures under the
Codes. These procedures were formulated in close consultation with the Takeovers Panel.
The primary purpose of the Hong Kong Takeovers Code and Share Repurchase Code is
to afford fair treatment for shareholders who are affected by takeovers, mergers and share
repurchases. The Codes seeks to achieve fair treatment by requiring equality of treatment
of shareholders, mandating disclosure of timely and adequate information to enable
shareholders to make an informed decision as to the merits of an offer and ensuring that
there is a fair and informed market in the shares of companies affected by takeovers,
mergers and share repurchases. The Codes also provide an orderly framework within which
takeovers, mergers and share repurchases are to be conducted. The Codes do not have the
force of law. They are framed so far as possible in non-technical language and should not
be interpreted as if they are statutes. The Codes represent a consensus of opinion of those
who participate in Hong Kong’s financial markets and the SFC regarding standards of
commercial conduct and behaviour considered acceptable for takeovers, mergers and share
repurchases. This consensus of opinion is reflected in rulings made by the Panel when
interpreting the Codes given the diverse range of interests represented by the Panel’s
members.
Public companies in Hong Kong (whether listed on the Stock Exchange or not) fall
within the regulatory framework of the Code. Private companies are exempt from its
provisions. It largely resembles its English counterpart although there are significant
differences. The Code is not legally enforceable but provides guidelines for companies and
their advisers contemplating, or becoming involved in, takeovers and mergers affecting
public companies in Hong Kong. The aim of the Code is to ensure fair treatment to
shareholders affected by merger or takeover transactions. It requires the timely disclosure
of adequate information to enable shareholders to make an informed decision as to the
merits of any offer. The Hong Kong Takeover Code regulates acquisitions of shares in an
offeree company which change its control, currently defined as a holding, or aggregate
- 173 -
holdings, of 30% or more of the voting rights of a company, irrespective of whether that
holding or holdings gives de facto control. The Code applies not only to the offeror and
the offeree company, but also to those persons "acting in concert" with the offeror. Rule 26
of the Code requires the making of a mandatory general offer to all shareholders of the
offeree company (unless a waiver has been granted by the executive director of the
corporate finance division of the Securities and Futures Commission (the "Executive")),
where a person or a group of persons acting in concert (a) acquires control of a company
(meaning 30% or more of the voting rights), whether by a series of transactions over a
period of time, or not; or (b) when already holding between 30% and 50% of the voting
rights of a company, acquires more than 2% of the voting rights in the target company in a
12-month period from the date of the relevant acquisition. This is known as the creeper
provision. It was reduced (subject to certain grandfathering provisions) from 5%, at the
same time as the trigger level was reduced from 35% to 30%.
As per the Hong Kong Code, persons acting in concert are persons who pursuant to
an agreement or understanding, actively co-operate to obtain or consolidate control of a
company through the acquisition by any of them of voting rights of the company. The
Executive has wide discretion to grant waivers in respect of Rule 26 of the Code, subject
only to his adherence to the spirit and general principles of the Code. In particular, when
the issue of new securities as consideration for an acquisition, a cash subscription, or the
taking of a scrip dividend would otherwise result in an obligation to make a general offer
under Rule 26 of the Code, the Executive will usually waive the obligation if there is an
independent vote, on a poll, at a shareholders' meeting (which is commonly known as the
"whitewash" procedure). If the whitewash is obtained, the person or persons who otherwise
would have been required to make the mandatory offer are precluded from acquiring
additional shares in the listed company for 12 months following the acquisition unless
authorised by a separate vote. From a practical viewpoint, it is wise to seek clarification
from and the co-operation of, the Executive at the earliest stage possible if an application
for a waiver is being considered.
As the Code is voluntary, reliance is placed on directors and advisers of public

companies to conduct themselves in accordance with the Code. The Code does not have
the force of law, so fines or imprisonment cannot be imposed for breaches. However, the
Listing Rules expressly require compliance with the Code by public companies listed on
the Stock Exchange. Any breach of the Code will be deemed to be a breach of the listed
company's listing agreement. In addition, if the Takeovers and Mergers Panel finds that
there has been a breach of the Code it may impose a variety of sanctions ranging from
private reprimand to a cold-shouldering order to the local securities industry, in respect of a
person who has breached the Code. Hostile takeovers in Hong Kong have been rare
occurrences, for the simple reason that most public companies have been closely controlled
by the founding families.
The Singapore Code on Takeovers and Mergers is issued by the Monetary

Authority of Singapore pursuant to section 321 of the Securities and Futures Act. Similar to
Hong Kong, the Code is non-statutory in nature and does not have the force of law. Its sole
objective is fair and equal treatment of all shareholders in a take-over or merger situation
and it is not concerned with the financial or commercial advantages or disadvantages of a
take-over or merger. Therefore the matters relating to financial or commercial advantages
or disadvantages of a take-over or merger are decided by the company and its shareholders.
The Code represents the collective public opinion on the standard of conduct to be
- 174 -
observed in general, and how fairness can be achieved in particular, in a takeover or merger
transaction. A fundamental requirement is that shareholders in the company subject to a
takeover offer must be given sufficient information, advice and time to consider and decide
on the offer.
The Code is administered and enforced by the Securities Industry Council whose
members comprise of representatives mostly from the private sector and some from the
public sector. The Council may, from time to time, issue notes on the interpretation of the
General Principles and the Rules. It also has powers under the law to investigate any
dealing in securities that is connected with a take-over or merger transaction. The duty of
the Council is the enforcement of good business standards and not the enforcement of law.
The Council expects prompt co-operation from those to whom enquiries are directed to
ensure efficient administration of the Code
Takeovers in Malaysia are primarily regulated under the Securities Commission Act
1993 (SCA) and the Malaysian Code on Takeovers & Mergers Code 1998. The Code
contains principles and rules governing the conduct of all persons or parties involved in a
takeover. The objective of the regulatory regime of the SCA is to ensure that the
acquisition of voting shares or control of companies takes place in an efficient, competitive
and informed market. This includes the need to ensure that (a) shareholders, directors and
the market for the shares are aware of the identity of the bidder, have reasonable time in
which to consider a takeover offer and are supplied with sufficient information necessary to
enable them to assess the merits of any takeover offer; (b) so far as practicable, all
shareholders of a target company have equal opportunities to participate in benefits
accruing from the takeover offer, including in the premium payable for control; and (c) fair
and equal treatment of all shareholders, in particular, minority shareholders, in relation to
the takeover offer, merger or compulsory acquisition would be achieved.
The Securities Commission (SC) established in Malaysia under the SCA is the
authority charged with the function to regulate takeovers and mergers of companies.
Hence, it is the SC which approves offer and other documents issued in connection with the
takeover, issues rulings and grants exemptions from compliance with the Takeovers and
Mergers Code. In addition, any takeover of a Malaysian company would invariably require
the approval of the Foreign Investment Committee (FIC).
The approval of the FIC is required for, inter alia: (a) merger or takeover of any local
company or business in Malaysia by local or foreign interests; (b) an acquisition of 15% or
more of the voting rights of a local company or business or an acquisition of 30% or more
of the voting rights of any local company or business by any associated or non-associated
group of foreign interests regardless of whether the value is more than Ringgit Malaysia
Ten Million and (c) an acquisition of interest in a local company or business where the
purchase consideration is more than Ringgit Malaysia Ten Million by local or foreign
interest.
Thus the Takeovers and Mergers Code in Malaysia applies when the target
company is: (a) a public company; or (b) a private company which has either shareholders’
funds or a paid up capital of Ringgit Malaysia Ten Million or more based on the latest
audited accounts (on a consolidated basis, if applicable) and where the consideration of the
purchase is Ringgit Malaysia Twenty Million or more.
- 175 -
In all the countries, there is a definitive role of institutional investors in the takeover
processes. The mandatory bids and the “non-frustration principle” in continental European
legal systems are characterized by relatively weak institutional investors resulting into a
lopsided ownership structure. The analysis shows that mandatory bids with strong block-
holders may actually protect incumbents by making the acquisition of control more
expensive. Similarly, the board neutrality rule in a system where the controlling
shareholder holds a significant participation interest (often exceeding fifty percent of the
voting shares), does not really subvert the power of the incumbents to resist hostile
takeovers. Instead, it may actually favour the adoption of defences that may have fewer
risks in terms of liability for the directors.
In the U.S, a shareholder rights plan, popularly known as a "poison pill", denotes
defensive tactic used by a corporation's board of directors against a takeover. In the field
of mergers and acquisitions, shareholder rights plans were devised in the early 1980s as a
way for directors to prevent takeover bidder negotiating a price for sale of shares with
shareholders and instead forcing the bidder to negotiate with the board. The shareholder
rights plans, are unlawful without shareholder approval in many jurisdictions such as
the United Kingdom, France and Germany where this practice is followed throughout
the European Union, and lawful without shareholders’ approval if used "proportionately" in
some States of USA viz. Delaware. Such concept is unheard of in Singapore, Malaysia and
Hong Kong.
The typical shareholder rights plan involves a scheme whereby shareholders will
have the right to buy more shares at a discount, if one shareholder buys a certain
percentage of the company's shares. The plan could be triggered, e.g. when any one
shareholder buys say, up to 20% of the company's capital, at which point every other
shareholder (except the one who already possesses 20%) will have the right to buy a new
issue of shares at a discount. The plan is issued by the board as an "option" or a "warrant"
attached to existing shares, and can only be revoked at the discretion of the board of
directors. The point is that the shareholder who could potentially reach the 20% threshold
will be a takeover bidder. If every other shareholder will be able to buy more shares at a
discount, this would mean that the bidder's interest will be diluted, and the cost of the bid
will rise substantially. If the bidder knows that this will happen, the bidder will not attempt
to take the corporation over without the board's approval. They will negotiate with the
board so that the plan is revoked.
Shareholder rights plans, or poison pills, are controversial because they hinder an
active market for corporate control. However, giving discretion to directors to prevent
takeovers puts directors in a powerful position to enrich themselves as the price for
consenting to a takeover.
Takeover law is still evolving in continental Europe, as individual countries slowly

fall in line with requirements mandated by the European Commission. Formal poison pills
are quite rare in continental Europe, but national governments hold golden shares in many
"strategic" companies such as oil and gas monopolies and telecommunication companies.
Governments have also served as "poison pills" by threatening potential suitors with
negative regulatory developments if they pursue the takeover.
In all the jurisdictions, there is commonality in requirement of Public

Announcement, Notifications and transparency and disclosure norms, regulations for
- 176 -
determination of offer price or considerations for takeover, role of competition
commission, stock exchanges and statutory compliances was observed. Only difference
was the procedural modalities of the laws and regulations in takeover deals.
Director’s Liability in Takeover deals
The world has come a long way since the notorious English case of Re Cardiff
Savings Bank [1892] 2 Ch 100 where a director who was appointed to the board of the
Cardiff Savings Bank at the age of six months and who attended only one board meeting in
38 years, was held not to be liable in negligence for mismanagement that had occurred.
The problem of officer liability for insolvency arises from the risks resulting from
the separation-of ownership and control. Directors manage other people’s assets and so the
law imposes duties on them to manage in the interests of the beneficiaries. As is so often
the case, the real test of the credentials of a jurisdiction is when legal doctrine really
matters and when the law has to make a choice between the victor and the victim. The
shareholders have lost everything and the creditors have also lost much of their claims so it
is not unnatural that those whose assets have been devastated in this way should look
around for someone to blame. During Corporate Mergers, amalgamations and takeovers it
is the task of the law to control these emotions in some common sense way which is
proportional to the offence.
The above areas of liability of Directors should be compared with other personal
liabilities of directors for breach of company laws such as paying dividends out of capital,
ultra vires transactions, misrepresentation in a prospectus or false or incorrect financial
statements, self-interested transactions (such as personal loans by the company to the
director or diversion of corporate opportunities to the director personally) and the like.
Most jurisdictions impose civil or criminal liability or both for these violations of corporate
law. One may also add personal liability for torts committed by the company and
environmental pollution.
The study reveals the gap between the Asian, U.S. and the European Union
approaches to regulating takeovers. While dealing with hostile takeovers, the E.U. has a
board neutrality requirement and a mandatory bid for all outstanding shares, while the U.S.
does not have so. Possible explanation for these differences might be due to ownership
structure of the target company: Europe is dominated by controlling shareholders
(primarily, family owned business structure), while the U.S. is characterized by diffused
ownership (corporate control). Another distinction in takeover approach may be due to the
role of institutions that have the responsibility for interpreting and creating takeover
regulations. In the U.S., primarily the Delaware regulations and precedents are the
benchmarks. In the E.U., it is the European Commission and the Parliament. These very
different institutions take into account different factors when coming to their conclusions in
regulating takeovers and thus differing in the approaches while dealing with takeovers in
their respective jurisdictional domains.
- 177 -
- 178 -
Appendix B
DUE DILIGENCE REVIEW QUESTIONNAIRE
(AN INDICATIVE FORMAT FOR A COMPANY UNDER SEZ)
BACKGROUND OF THE COMPANY TO BE ACQUIRED
The Target Company is in the business of ……………… and has the facilities of
……………. comprising of … No. of Factories / Manufacturing Units of various capacities
and has been agreed to be transferred into the Acquirer which is a Joint Venture Company.
INITIAL
We propose to have discussions with the persons-in-charge to understand and appreciate

the activities. You are requested to provide contact details of the concerned persons. In
addition, we request you to furnish a detailed note on the business in light of current
practices, emerging markets, competitors, etc.
FOLLOWING IS THE PRELIMINARY LIST OF DOCUMENTS AND

INFORMATION REQUIRED FOR DUE DILIGENCE:
A. SPECIAL ECONOMIC ZONE
1. Copy of the in-principle approval and formal approval for the SEZ.
2. Copy of Notification.
3. Status of the Facility – Developer, Co-developer, Infrastructure facility, unit.
4. Copy of application for SEZ unit, the Letter of Approval and the Bond-cum-legal-
undertaking. Amendment, if any, which may have been effected to these
documents.
5. Copy of lease agreements entered into with the Developer.
6. Copy of quarterly, half-yearly and annual performance reports (now known as Form
I).
7. Details of transactions undertaken with units in the same SEZ and other SEZ.
- 179 -
8. Descriptive Note on procedure followed for removal of goods to the Domestic
Tariff Area and sample documents in this regard.
9. Note on the documentation adopted by the Facility for receipt and removal of goods
into the SEZ.
10. Whether there have been any proceedings (pending or otherwise) for violations of
provisions in the SEZ Act, or clauses in the Letter of Approval.
11. Any other information that in your judgment may be of significance and have a
bearing on the review exercise.
B. INDIRECT TAXES
i. CUSTOMS
1. Product description along with HSN codes (classification) of goods that the Facility
imports. Mention inter-alia the countries of import and value of imports.
2. Details of the basic customs duty, Surcharge, CVD, SAD levied on the goods
imported by the Facility.
3. Note on method of valuation adopted by the Facility.
4. Whether any transactions have been undertaken with related parties (as defined in
the Customs Act, 1962) and order if any passed by the Special Valuation Branch in
this regard.
5. Details of any exemptions (including licenses and other benefits) that have been
claimed while determining the rate of duty. If any exemption benefit has been
claimed kindly elaborate.
6. Details of abatements allowed on account of damaged or deteriorated goods have
been taken into account while determining the duty payable.
7. Details (if any) of remission of duty on lost, destroyed or abandoned goods has
been availed.
8. Details of disputes pending with the Customs Department/ Special Valuation
Branch.
ii. EXCISE (IF APPLICABLE)
1. Details of goods manufactured by the Facility.

- 180 -
2. Classification of the goods manufactured under the Central Excise Tariff Act, 1975.
3. Basis of Valuation of goods manufactured by the Facility. Provide details of all the
permissible deductions that have been claimed while determining the value at
which goods are to be assessed.
4. Details of the Excise Duty, Surcharge, Cess, levied on the goods manufactured by
the Facility.
5. Details of any exemptions that have been claimed while determining the rate of
duty?
6. Whether goods are send for job work outside the Facility? If yes, details of
procedure followed by the Facility?
7. Whether there are any Exports. If yes any export benefit claimed by the Facility?
8. Treatment is given for waste, scrap or disposal.
9. Details of CENVAT Credit. Monthly summary for last 12 months.
10. Copies for the last 12 months of the TR-6 challans, E.R.1
11. Details of Disputes pending with the Excise department.
iii. SERVICE TAX
1. Details (descriptive note) of activities (services) carried out by the Facility.

2. List of taxable services for which registration has been obtained.
3. Copy of the Registration Certificate (Form ST-1) and letter allotting service tax
code number. Please furnish such details for all premises from which services are
rendered.
4. Whether registration as Input Service Distributor and person liable to pay tax as
service recipient has been obtained. If yes, please provide details for the same.
5. Invoices / Debit Notes of each category raised by the Facility for rendering of
services.
6. Specimen contracts the Facility routinely enters into.
7. Returns and challans (Form ST-3 and TR-6) for the last 36 months.
8. Whether the Facility has been involved in Export of services.
9. Whether the Facility is providing any exempted services / non-taxable services
rendered by the Facility.
10. Details of procurement of any services from non-resident service provide.
- 181 -
11. Details of abatement claimed by the Facility.
12. Whether the Facility is claiming any CENVAT Credit of service tax paid on
services consumed/received by it?
13. Whether the Facility is maintaining separate accounts and records for services
consumed for providing taxable services and services consumed for providing non
taxable services?
14. Details of service tax disputes pending at any level.
iv. SALES TAX / VAT
1. Total sales (monthly basis and rate wise) for the last 36 months
2. Copy Registration certificate under local sales tax law and Central Sales Tax Act,
1956.
3. Monthly returns and challans for the last 36 months.
4. Sales of key product segments and sales tax rates
5. Composition of Sales & Purchases (in Percentage and Value)
Within State (%)
Outside State (%)
Exports (%)
6. Details of stock transfers into and outside the state. Also provide status of C, F
Forms collected and pending.
7. A note on the operations and logistics network.
8. Kindly furnish sample copies of invoices.
9. Details of Inputs / Capital goods on which credit availed and not availed.
Calculation of ‘burnout’ may also please be provided.
10. Details of disputes pending at any level including up-to-date status. Also furnish
details of any issues that were recently closed.
- 182 -
C. DIRECT TAXES
1. Copies (for last 3 financial years) of Tax Audit Report issued by a Chartered
Accountant
2. Documents detailing computation of Statement of Total Income including
deduction under section 80IA, 80IB and 10AA of the Income Tax Act, 1961 and
Minimum Alternate Tax. These must be accompanied by underlying returns and
challans.
3. Tabulation for the last 3 years details of Tax Deducted at Source and deposited.
Kindly support these with challans and returns.
4. Details of any proceedings / issues pending with the Income tax department along
with recent status of demands raised.
5. Tabular statement detailing for the last 3 years Dividend Distribution Tax
6. Documents and Returns filed in respect of the Fringe Benefit Tax?
D. LEGAL
NOTE: THE TERM ‘COMPANY’ USED IN THE ENSUING PARAGRAPHS IS TO DENOTE
REFERENCE TO THE COMPANY OWNING THE FACILITY.
i. GOVERNMENT FILINGS AND REGULATIONS
1. All filings and correspondence with, and reports to, any regulatory bodies which
regulate a material portion of the business of the Facility.
2. All material governmental permits, licenses or similar arrangements of the Facility,
including agreements with government instrumentalities and authorities, domestic
and foreign in relation to the Business.
3. Details of any known failure to comply with applicable laws, regulations or
byelaws or the conditions attached to any license in any relevant jurisdiction.
Details of all investigations against the Facility by national, governmental, state,
federal or other bodies.
- 183 -
4. Whether any renewal is due and whether any of such licenses, consents, permits or
authorities have been breached or is likely to be suspended, cancelled, refused or
revoked.
5. Details of any order, judgment or decree of any court, governmental or regulatory
body to which the Facility is party or by which it is bound.
6. Any deficiency letter/notice by any Governmental authority with respect to any
default by the Facility under any law.
ii. FINANCING
1. List of the top ten suppliers of credit and/or loans to the Facility, together with
copies of any agreements relating to any such supplier.
2. All documents and agreements evidencing any financing arrangements involving
the Facility, including sale and lease-back arrangements, bonds and installment
purchases.
3. Correspondence with lenders, including all compliance reports submitted by the
Facility or by its independent public accountants.
4. Any comfort letters, guarantees and collaterals.
5. Details of all performance, corporate guarantees and indemnities issued by the
Facility in favour of third parties.
iii. INTELLECTUAL PROPERTY
1. List and details of any material intellectual property rights registered, not registered,
or for which applications for registration have been made, including, patents,
licenses, trademarks, trade names, domain names, copyrights and other intellectual
property rights (including technology transfers) owned or used by, licensed from or
to, and other intellectual property rights (including those under applications) (“IP”)
related to the Facility and/or the Business of the Facility, a copy of all IP certificates
and registrations (as applicable) related to the Business.
2. Assignments, licence agreements, user agreement or other agreements under which
the Company (in relation to the Facility) validly uses third party IP.
3. Details of any actual or potential claims by employees or former employees for
compensation in respect of any inventions or other developments made by that
person(s) whilst employed by the Facility.
- 184 -
4. Details of IP acquired from third parties, documentation regarding the acquisition
and transfer of such patents and designs as well as evidence concerning the
registration of such transfers with the applicable authority.
5. Details of any trade secrets such as formula, production manuals or techniques.
6. Particulars of any arrangements (including copies of any agreement etc.) relating to
confidentiality, obligations and restrictive covenants imposed on employees and
former employees.
7. Statement indicating whether any employees or former employees have breached
any confidentiality agreements or restrictive covenants relating to the Facility's
intellectual property obligations or covenants? If so, please provide particulars
including any steps taken by the Company (in relation to the Facility) to remedy the
situation.
8. Particulars of any license, royalty and other intellectual property agreements (where
the Facility as a unit or the Company is licensor or licensee).
iv. INSURANCE
1. Copy of insurance policies (casualty, property, title, liability, errors and omissions,
officers and directors, general liability insurance, key-man insurance, products
liability insurance and environmental impairment insurance, etc.) including detail
on premiums and claims recoveries/payouts since formation with respect to the
Facility. To the extent insurance carriers and coverages have changed since
formation, please so indicate. Details of circumstances in which the Facility has
been unable to insure against specific risks.
2. List of material insurance claims filed or potential claims.
3. Status of payment of insurance premiums.
v. EMPLOYMENT
1. All employment agreements, consulting agreements, confidentiality agreements,

stock repurchase agreements, earnout undertakings, agreements as well as
conditions and non-competition and non-solicitation agreements of the Facility and
its key employees.
2. Reports of any strikes, grievances filed, hearings held, and any other labour-related
problems; yearly reports on labour aspects.
- 185 -
3. Copy of material health and safety reports, violations or notices and
correspondences by government inspector or internal body in the last three years in
connection with employee health and safety.
4. Schedules of salaried and hourly employees showing their current compensation
rates (base pay and bonus).
5. Organization chart and number of employees in each Department, for example,

production, sales, administration, etc.
vi. AGREEMENTS
1. List of all existing customers of the Facility and for each customer the annual
turnover.
2. List of all existing suppliers of the Facility and for each supplier the annual
turnover.
3. All existing (sample) agreements (oral and/or written) with the listed customers and
suppliers and all amendments thereto.
4. Any side letters between the Facility and the users with regard to dividend rights,
board appointments, etc.
5. Contracts by the Company (in relation to the Facility) in relation to the Facility and
any equipment manufacturer, warranty etc.
6. Material documentation relating to any current negotiations with suppliers and
customers.
7. Agreements with customers and suppliers including a change of control clause or
requiring a specific consent from an authority for their transfer.
8. Agreements concluded with administrative bodies and material documentation
relating to the granting procedure.
9. General terms and conditions of sale or purchase and any standard form agreements
(purchase or sale orders, invoices, etc.) with clients and suppliers.
10. All non-competition agreements or other commitments limiting the freedom of the
Facility to engage in any line of business or to compete with any other person or to
engage in any line of business.
11. All material marketing, sales, franchise and distribution agreements, outsourcing
contracts for media and/or creation services to which the Company (in relation to
- 186 -
the Facility) is a party, and a list of all independent sales persons or distributors
with whom the Company (in relation to the Facility) conducts business.
12. All management service, consulting or any other similar type of contract of the
Company (in relation to the Facility).
13. Agreements entered into or expected to be entered into for material capital
expenditures.
14. Any waivers or agreements cancelling claims or rights of substantial value or any
documents relating to material write-downs or write-offs of notes or accounts
receivable.
15. Any contracts or agreements similar to the above which are presently under
negotiation.
16. Any material correspondence related to the above.
17. All other material contracts and agreements involving the Company not otherwise
covered by the foregoing, including, but not limited to, distribution, agency or
commission agreements and finder's fee agreements.
18. Agreements relating to the acquisition and disposition of assets or operations
19. Indemnification agreements, warranties and guarantees to which the Company (in
relation to the Facility) is a party, or which have been issue by the Company’s (in
relation to the Facility) parent in connection with the Company’s (in relation to the
Facility) business
vii. PLANT, EQUIPMENT AND OTHER FIXED ASSETS
1. Please provide a schedule of plant, equipment, machinery, furniture, fittings and

other fixed assets.
2. Please identify any assets which are subject to any hire, rental, lease, hire purchase,
conditional sale or similar arrangement.
3. Please identify any assets owned by the Company (in relation to the Facility) but
not in the possession or control of the Company (in relation to the Facility).
4. Copies (or details where unwritten) of any maintenance or other servicing contracts
relating to the assets of the Company (in relation to the Facility).
5. Copies of any warranties provided in respect of any equipment in possession of the
Company (in relation to the Facility) worth more than Rs. [•].
- 187 -
viii. LITIGATION
1. A schedule of all significant suits, actions, litigations, administrative proceedings or

other governmental investigations, or inquiries, pending or threatened, affecting the
businesses or operations of the Company (in relation to the Facility). Please provide
a brief description of (a) the parties involved, (b) the nature of the proceeding, (c)
the date and method commenced, (d) the court wherein such action is pending and
its status, and (e) the amount of damages and nature of other relief sought. In the
case of all pending litigation, please have copies of the pleadings and all associated
correspondence available for our review.
ix. ENVIRONMENT
1. If applicable, environmental permits, registration or permit application (in particular

concerning air, water noise, toxic products and hazardous waste) filed during the
last ten years and the relevant authorizations and all relevant and material
correspondence in connection therewith.
2. If applicable, for each site, environmental audit reports (internal or external,
including government surveys) and any memoranda, reports, consultant letters, etc.
concerning material environment studies or testing clone on soil or groundwater;
internal memoranda concerning environmental incidents; due diligence reports and
documents for sites acquired; environmental compliance programs in effect.
Records of relevant and material non-compliance or active or potential
government/public investigation or complaints in connection with any
environmental laws, regulations, guidelines or permits and summary of remedial
action thereof and the obligations in connection therewith, and in particular those
obligations mandated by a government agency.
3. If applicable, notices to and from environmental regulatory authorities, including
notices of violation, regarding activities of the Company (in relation to the Facility).
x. MISCELLANEOUS
1. Any other documents or information which, in your judgment, are significant with
respect to any portion of the business of the Company (in relation to the Facility) or
which should be considered and reviewed in order to adequately disclose the
- 188 -
Company’s (in relation to the Facility) business and financial condition to
prospective investors.
2. Explanation of any unusual event or issue relating to the Company (in relation to
the Facility) or the assets transferred not covered by the above questions, and which
has or may have an impact, financial or otherwise, on the normal course of the
Company’s (in relation to the Facility)’s operations, or which should be revealed in
order to present a fair and accurate picture of the Company (in relation to the
Facility).
3. A list of all notifications required to be given or consents to be obtained from any
third party (including any governmental agency or instrumentality) in connection
with the proposed transactions.
E. GENERAL/OTHERS
Kindly provide the following further documents / information:

1. Copy of the published Annual Report and Balance Sheet for the last 3 financial
years.
2. Copy of detailed Trial Balance for the current fiscal.
3. Audit report issued by Internal Auditors, if any.
4. Details of Stamp Duty paid.
6. Competitors in the Region
- 189 -
REFERENCE
I. Primary Source
1. Authorities:
 Alaska Statutes (2010): Alaska Corporation Act (U S)
 Australian Securities and Investments Commission Act 2001
 California Code (2009):Californian Corporation Act (U S)
 City Code on Takeovers and Mergers( U K )
 Competition Act of Singapore 2004
 Delaware Code:Delaware Corporation Act (U S)
 Exon-Florio Act (Amendment) 2007 (U S )
 German Securities Acquisition And Takeover Act 2001
 New York Code (2006): New York Corporation Act ( U S )
 Code of Virginia (2009) : North Virginia Corporation Act (U S )
 Security Exchange Act, 1934 (U S)
 Singapore Code on Takeovers and Mergers
 The Capital Markets and Services Act 2007 of Malaysia
 The Clayton Act,1914
 The Alabama Code : Title 10 : The Corporation Act; ( U S )
 The Hart-Scott-Rodinho Antitrust Improvement Act, 1976 ( U S )
 The Sherman Act,1890 ( U S )
 The William Act,1968 (U S )
2. Case Laws
 Commission v. French Republic Case No. 367/98

 Edgar v. MITE Corp. 457 U.S. 624 (1982)
 Fleet Aerospace Corp. v. Holderman 796 F.2d 135 (6th Cir. 1986),
 Gelco Corp. v. Coniston Partners 652 F. Supp. 829 (D. Minn.1986)
 Pike v. Bruce Church Inc 397 U.S.137 (1970) at p.142
 Revlon Inc. v. Mac Andrews & Forbes holding Inc. 506 A2d 173(Del.1986)
 Resident European Fund and others Vs. Coats Holdings Plc
 R Vs. The Panel on Takeovers and Mergers (Ex parte Mohamed Al Fayed)
- 190 -
 Terry v. Yamashita 643 F.Supp. 161 (D. Hawaii 1986)
 Time Incorporated v. Paramount Communication Inc. 571 A.2d 1140 (Del.
1989).
 Unocol Corporation v. Mesa Partners II 493 A.2d 946 (Del. 1985)
II. Secondary Source
1. Books/commentary:
 John Armour, The Divergence of U.S. and U.K. takeover Regulation ,
(University of Oxford Regulation Publication, 2007)
2. Journals:
 Areye Lucian Bebchuk and Allen Ferrell, A new approach to takeover
law and regulatory competition, Virginia Law Review : ( March, 2001)
 Allen Ferrell and Lucian Areye Bebehuk, Federalism and corporate
law”the race to protect mangers from takeovers Columbia law review,
(1999)
 Daniel M Kein, The European community’s proposed directive on
takeover bids and its impact on shareholder’s rights, Brooklyn Journal
.International Law. Vol.xvi:3 (2009)
 Deborah DeMott, Current Issues In Tender Offer Regulation: Lessons
From The British, 58 N.Y.U.L. New York law Journal, Rev.945
 Edward P Welch and Robert Saunders , Freedom And Its Limits In The
Delaware General Corporation Law, Delaware Journal of Corporate
Law ,Vol.33,(2008)
 Elliott H Dejarnette, Take-Over-Bid Disclosure Act, University of
Richmond law review, Vol.12:745, (1978)
 Ferrarini A.Guido, One share- one vote: A European Rule?, Institute for
Law and Finance, Working paper series no.47, (May 2006)
 Janet Macdavid and Hogan Hartson, Antitrust Issue Involving
Acquisitions Of Financially Distressed Companies, Practising law
Institute journal,(2009)
 Jenifer Hill, Compensation for Director’s loss of office:Taupo Totara
Timber Co.v.Rowe, 8 Sidney.Review. 678 1977 (1979)
 Joseph Sidak Gregory, Antitrust Prelimlinary Injunctions In Hostile

Tender Offers, Kansas Law Review, Vol.30, NO.4, (1982)
- 191 -
 John Finely and Andrew J. Colao ,Overview of “the Williams Act”;
Commercial law and Practice course handbook series, Practising Law
Institute, (1995).
 John Elofson, Lie Back And Think Of Europe: American Reflections On
The Eu Takeover Directive, Wisconsin International Law Journal 22 no3
523-95,(2004)
 Jonathan Mukwiri, The Myth Of Tactical Litigation In UK Takeovers,
The Journal of corporate law studies , vol. 2 373-88 0 (2008)
 Klaus Hopt, Takeover Regulation In Europe- The Battle For The 13th
Directive On Takeovers 15 Australian. Journal of Corp. Law 1 (2002)
 Lawrence A Hamermesh. Introduction: The Delaware general
corporation law for the 21st century , Delaware Journal of Corporate
Law, Vol.33.(2008)
 Marc Goergen, Marina Martynova, Renneboog Luc, Corporate
Governance Convergence: Evidence from takeover regulation, ECCI
working paper series in Law, working paper no.33/2005 (2005)
 Marco Ventoruzzo, Europe’s Thirteenth Directive And U.S. Takeover
Regulation: Regulatory Means And Political And Economic Ends, Texas
International Law Journal 41 no 2 171-221 (September 2006)
 Paul H. Edelman and Randall Thomas, Voting Models ,Corporate
Elections And Takeover Bid, Vanderbilt University law School, Law and
Economics ,Working Paper No.03-09,(2003)
 Peter S. Partee and Scott Bernstein, Rulings Impact Hostile Takeovers
Of Bankrupt Companies’ Debt, New York Law Journal, (2010)
 Richard Kihlstrom and Michael L.Wachter, Corporate Policy And The
Coherence Of Delaware Takeover Law, University Of Pennsylvania law
Review, vol. 152:153 , (2003).
 Roberta Romano. A Guide To Takeovers:Theory,Evidence,And
Regulation, Yale law journal,(1992)
 Robert Suggs , Business Combination Antitakeover Statutes:The

Unintended Repudiation Of The Internal Affairs Doctrine And
Constitutional Constraints On Choice Of Law, Ohio State Law journal,
Vol.56:1097,(1995)
- 192 -
 Thomas Papadopoulos, The Mandatory Provisions Of The Eu Takeover
Bid Directive And Their Deficicencies, Law and financial market
Review 1, no6 525-33 N (2007)
 Timotby Sukel et al , Recent Developments In Fidelity And Surety Law,
Tort and Insurance Law Journal, Vol.XXX ,No.2,Winter ,(1995)
3. Electronic - References:
 Aparna Sethi, Social Identity Crisis Amongst Empyoees Im Mergers
And Acquisitions, available at www.ssrn.com ( accessed on 4.12.2010)
 Beate Sjafell, The Golden Mean Or A Dead End, available at

www.ssrn.com (accessed on 3.12.2010)
 Bruckhaus Deringer Freshfields, Public takeovers in France, (2007)

available at
www.freshfields.com/publications/pdfs/2007/jun18/18999.pdf (
accessed on 2.12.2010)
 Bruckhaus Deringer Fteshfields, The Takeover Directive:

Implementation In Germany, (2006) available at
www.freshfields.com/publications/pdfs/2006,( accessed on 3.12.2010)
 Craig Cleaver et al , United Kingdom- Takeovers Guide 3(2009)

available at
www.ibanet.org/Document/Default.aspx?DocumentUid=4AB94473
(accessed on 30.11.2010)
 Jo Danbolt, Cross-Border Acquisitions Into The Uk –An Analysis Of

Target Company Returns, available at www.ssrn.com (accessed on
29.11.2010)
 Sandra Betton, Corporate Takeovers, 2008, available at www.ssrn.com

(accessed on 29. 11.2010)
- 193 -
 Thomas Chemmanur et al, Management Quality And Anti-Takeover
Provision available at www.ssrn.com ( accessed on 1.12.2010)
 Lexis Nexus
 West Law
 Heinonline
 Wilson Web
Appendix A
COMPARATIVE SUMMARY OF OBSERVATIONS
The following summary should be used only for reference since it is not a comprehensive
statement of the law and practice relating to the area of Takeovers.
Before, proceeding with such corporate activities of Mergers, Amalgamations and

Takeovers, the Companies undertaking such activities are required to exercise abundant
caution to save time and cost overruns at a later stage. Therefore, it is of utmost
importance for any Company/Corporate to consider these aspects, should they wish to
initiate such activities of M&A or Takeovers. The present study is not exhaustive in as
much as it deals only with the overview of Legal and Regulatory framework provided for
Takeover mechanisms in the specified countries. Therefore, this work should not be relied
upon without specific professional advice from experts, who may be dealing in the various
related areas of Law viz. Sectoral/Regulatory Requirements, Intellectual Property Rights,
Taxation, Labour & HR, Technology Transfer, and other International Business practices
or other subjects requiring specific expert advice. (For the sake of convenience and ready
reference, the General Checklist of Due-Diligence is enclosed)
Sr. Country Law/Regulation Major features Special Facilities Mode of

No Dispute
Resolution
- 194 -
1. USA Williams Act,  Mandatory disclosures of  Provides  State courts
1968 information relating to cash and transparency and federal
tender offer Court,
 Protects
 Regulates two areas: disclosure minority  Most
information and procedural shareholders matters are
requirements of tender offers settled out
of court
through
mediation
and
arbitration
Sherman Act  Delaware

1890  Purpose is not courts
 Prohibits unethical mergers that to protect precedents
tends to create monopoly competitors but are
rather to followed
 Puts a check on anti competitive
protect
Clayton Act behaviour
competition
1914
 It prohibits price discrimination  Amendment of
between different purchasers 1950 added an
‘incipiency
 Provides voting securities and
Doctrine’ to
asset thresholds where mergers
prevent anti-
and acquisitions are affected
Hart-Scott- competitive
Rodino Anti practices
Trust
Improvements  This was adopted to provide the
Act, 1976 federal Government the power  It gives the
to review potential takeovers federal trade
and acquisitions. commission
 Looks into all procedural very wide
matters relating to monetary powers
Exon-Florio Act,
1988 aspects.
The US does not have statutory

process to review takeovers with  It provides for
respect to foreign investments and Tier-I and Tier-
acquisitions but this Act gives the II exemptions
president of US to investigate and
 Under Tier I if
the power to prohibit and unwind
the common
transaction involving investment
shares of the
by non- State entities if it threatens
target company
to impair national security
is less than
interests.
10% then the
acquirer
company will
receive - 195 -
exemptions
under all
applicable US
EURPOEAN UNION: While examining the Takeover laws for European countries, the researchers observed that,
of late, there are many Indian companies which are venturing to acquire new business opportunities in many
counties of Europe viz. Finland, Austria, Belgium, Hungary, Czechoslovakia and other Scandinavian countries.
Studies also revealed that while the EU Directives are applicable per se for Mergers and Acquisitions, yet there is
no such framework for pursuing Takeover activities under European Union Directives and country-specific laws
and regulations are required to be adhered to. However, as per the scope of reference by the sponsors, present study
is confined only to UK, France and Germany.
- 196 -
2. United City Code On Two main circumstances will Non- frustration  The day- to
Kingdom Takeovers & trigger mandatory bid requirement rule applies day work of
Mergers 1. Iif any person acquires takeover
whether by a series of supervision
tansaction of not, an and regulation
interest in sharewhich carry is carried out
30% or more of the voting by the
rights of a company or executive,
which is
2. Any person together with independent of
persons acting in concert the panel. It
with him is interested in can act suo
shares which in the moto or at the
aggregate carry not less instigation of
than 30% of voting rights third parties
of a company but does not
hold shares carrying more  Gives rulings
than 50% of of such voting on the
rights interpretation,
application or
 The panel on takeovers and effect of the
mergers regulates, supervises City Code
and administers takeover
activities within UK. Its  Executive is
statutory functions are set out in available for
the Companies Act 2006. consultation.
 Art 8 of the Directive contains  Hearing
general disclosure, obligations Committee: it
which are implemented by reviews the
Section 943 of the Companies rulings of the
Act 2006 which requires the executive. It
panel to make appropriate rules also hears
as per the rules set under the EU disciplinary
directive s as regards takeovers proceedings
instituted by
the executive.
The takeover
Appellate Board:
it is an
independent
body which hears
appeal against
the ruling of the
hearing
committee
- 197 -
3 France The French domestic merger  Notification Pubic takeovers
control regime is enforced by the to the are regulated by
French Finance Ministry through Ministry is a single market
the ‘Direction Generale de la mandatory authority ie the
Concurrence, de la Consommation when AMF and the
et de la Repression des Fraudes merger competition
(DGCCRF) and by the ‘Counseil threshold Council.
de la Concurrence’ (the limits are
competition Council) met. It may
There are two trigger points: be made in
the form of
 Acquisition of more than an
33.33% of the voting capital or agreement
of voting rights or signed as
 Acquisition of at least 2% more a letter of
of the voting capital or voting intent. If it
rights within less than one year fails to
by a person holding between notify the
33% and 50% of the voting Ministry
capital or the voting rights will levy a
fine at the
 The French Ministry regulates rate of 5%
takeover bid process in two of the pre
phases. tax turnover
 Phase I: Ministry takes 5 weeks in France as
to review transaction which penalty
may be extended by an
additional period of 3 weeks
 Aft
er this review the Ministry may
approve the transaction or
express reservation with respect
to it. In case of reservations, it
will refer the case to the
competition council which
triggers phase II.
 Phase II: Competition council
has a period of three months to
carry out the in-depth
examination of the proposed
transaction and report to the
Ministry. The report is not
binding on the Ministry.
In principle a transaction cannot be
completed until it has been
approved by the Ministry.
- 198 -
4. Germany German It applies only to public offers Special features  “BaFin’ is a
Securities aimed at the acquisition of under takeover federal agency
Acquisition and controlling shares defences: who has the
Takeover Act power to
 Indirect or direct acquisition  Non-
(Wertpapiererw counter
will be triggered by acquiring frustration
erbs – und mischief
30% of the voting rights of the rule
Ubernahmegeset which would
target company
z or “WpUG”)  Break impair the
 Cash consideration must be through Rule implementatio
offered as an alternative where n of the
 Principle of
the bidder over a period takeover
Reciprocity:
beginning 6 months before the procedures or
in case if the
publication of the offeror’s cause any
target
intention to launch a bid and has disadvantage
company has
purchased for cash 5% or more to the security
opted for the
of the shares or voting rights in market.
European
the target company
Break There are no
 The offeror has to announce through rule, separate dispute
publicly its intention and must it has the settlement bodies
notify the management board of right to to decide ad
the target company immediately display these investigate
after the offeror has reached rules even if takeover disputes
such a decision the offeror is
not subject to
 Publication and notification
equivalent
shall take place within a week
provision
after the publication of offer
thereby
document without delay
allowing the
Squeeze out: In case the target
mandatory bid or takeover is company an
aimed at the acquisition of control opportunity
where a bidder holds at least 95% to reciprocate
of the target companies voting the same.
capital or voting rights, it will also
be able to acquire the remaining
voting shares at a fair price &
within a period of 3 months such
application for squeeze out has to
be made
- 199 -

Takeovers Comparative Laws PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Takeovers Comparative Laws PDF

Uploaded by

Copyright:

Available Formats

SYMBIOSIS LAW SCHOOL,PUNE

COMPARATIVE ANALYSIS OF CORPORATE TAKEOVER LAWS AND THEIR

For ITC Ltd.

Electronic copy available at: http://ssrn.com/abstract=1999163

This research work is based on the project outline provided to the

For Symbiosis Law School

February 2011 Dr. Shashikala Gurpur

Electronic copy available at: http://ssrn.com/abstract=1999163

CHAPTER Page No.

II. UNITED STATES OF AMERICA 12- 38

III. EUROPEAN UNION 39- 78

IV. AUSTRALIA 79- 100

V. HONG KONG 101- 118

VII. MALAYSIA 145- 170

VIII. CONCLUSIONS 171-177

Appendix A Comparative Summary of Observations

‘Takeover’ takes place when an acquiring individual or company acquires the

2. DEFINITION OF ‘TAKEOVER’ & ITS DISTINCTION WITH AQUISITION

Although the concept of takeovers is easily comprehendible, it does not have a

3. ‘TAKEOVERS’ DISTINGUISHED FROM ‘MERGERS’

A Takeover may also be “Friendly” or “Hostile”. Sometimes, negotiation may be

Any takeover provides to all stakeholders the following benefits:

 Diversifying the areas of business may be one of the contributing

 Garnering advantages in taxes and revenues may be the factors

5. THEORIES RELATING TO TAKEOVERS:

The following theories, stipulate the necessity of takeover activities: -

6. RISKS INVOLVED IN TAKEOVERS:

7. SCOPE OF PRESENT STUDY

UNITED STATES OF AMERICA

The history of Corporate Mergers and Acquisitions in United States of America

The statutes relevant to Corporate Takeovers in the US are: -

The William Act provides Takeover Regulation for two areas:

Sherman Act 1890

Clayton Act 1914

The Hart-Scott-Rodino Antitrust Improvements Act, 1976

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended was

Security Exchange Act, 1934

State Laws on Anti Trust & Takeovers

Any discussion of the potential liability of officers and directors of an business

Practice Consideration: Counsel must always be aware of the state of incorporation or

Generally, in States 2 types of Statutes were introduced: -

 DISGORGEMENT STATUTE; e.g. in the State of Pennsylvania requires any

The applicable regulatory framework is quite different for a single-step merger

Preliminary Negotiations: Majority of acquisition transaction in United State commence

Preliminary purchases of Shares by an Acquirer: An acquirer may purchase a limited

5. REGULATION OF TENDER OFFERS IN TAKEOVERS

The highlights of the procedure are: -

Consideration: There is no restriction on the acquirer receiving advance binding

If the acquirer is not a public company, relevant registration statement under

6. RIGHTS, DUTIES AND LIABILITIES OF THE BOARD OF

The duties of the board of directors can be divided into 2 categories:

 The recommendation of the board of directors, together with a summary of the

Minority Shareholders: There are no compulsory acquisition procedures as such, for

The second route, to eliminate minority shareholders following the completion of

7. THE REGULATORY AUTHORITIES:

The Foreign Company may choose between a subsidiary/direct ownership, control

Other Regulations for foreign acquisition: In general, United State is favourable

The takeovers relating to specific business sectors controlled by regulatory

 The effect on adequacy of transportation

Telecommunication: The Federal Communications Commission (FCC) has primary

10. STATE CONTROL ON TAKE-OVERS

The Legitimacy of State Regulation: CTS Corp. v. Dynamics Corp. of America

In response to MITE, a number of States enacted laws designed to provide the