Take-overs, mergers and acquisitions in Singapore

TAKEOVERS
Exam Tip: Focus on Definition of Concert Parties, Mandatory and Voluntary Offers and Chain Principle (that’s
like mostly everything!)

Applicable Laws
1. • Part VIII of the Securities and Futures Act 2001 (No. 42 of 2001) (“SFA”)
 2000 revision was the last recent revision
 now before securities industry council – set of proposals. Antoehr set of revisions coming up end
2006
2. • The Singapore Code on Take-overs and Mergers (“Take-over Code”)
 – given the force of law.
 ‘revised code’
 Revised Take-over Code in January 2002
3. • The Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX Listing Manual”) –
only applies to comp that are listed
4. Common Law

- bulk of rules and regulations are drawn from:

a) the Code;
b) the SGX Listing Manual (the “Listing Manual”);
c) s. 138, 139, 140 Securities and Futures Act; and
d) s. 215 Companies Act

Regulatory Bodies

Take-overs in Singapore Regulated by

1. Securities Industry Council (“SIC”)
- • Enforces the Take-over Code
- • Established under the SFA
- note:
o • Part VIII of the SFA
o Sections 138, 139 and 140 of the SFA
o SIC x power to impose sanctions. Only has power of reprimand
o But client obv does not want to be reprimanded
o 139 – compliance with takeover cod is stat oblig. Before SFA in place, co mpliance with cod not
stat oblig. Only matter of market practice but now given stat force
2. SGX-ST
• Enforces the SGX; Listing Manual

SECURITIES INDUSTRY COUNCIL

Function of the SIC
 S139 (5) SFA – administration and enforcement of the Take-over Code
 S138 (4) SFA – Enquire into any matter or thing related to the securities industry
 S138 (2) SFA – to advise the Minister on all matters relating to the securities industry.

Powers of the SIC

 S138 (4) SFA:
- summon any person to give evidence on oath or affirmation
- produce any document or material necessary for the purpose of the enquiry
 S138 (5) SFA – solicitor or advocate obliged to give SIC name and address of the person who made the
communication if the document that is required is protected by solicitor-client privilege

 S138 (9) SFA – may regulate its own procedure; not bound by the rules of evidence.

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 S139 (7) SFA
- may issue rulings on the interpretation of the general principles and rules in the Take-over Code
- lay down practice to be followed by parties concerned in a take-over
 S139 (9) SFA – invoke sanctions including public censures against the parties in breach of the Take-over
Code.

Securities Industry Council

138. —(1) The advisory body known as the Securities Industry Council referred to in section 14 of the repealed Securities
Industry Act (Cap. 289, 1985 Ed.) shall continue in existence as if it had been established under this Act.
(2) The function of the Securities Industry Council shall, in addition to the functions conferred upon it under this Part, be to
advise the Minister on all matters relating to the securities industry.
(3) The Securities Industry Council shall consist of such representatives of business, the Government and the Authority as the
Minister may appoint and those representatives shall serve for such period or periods as the Minister may determine.
(4) The Securities Industry Council shall have the power, in the exercise of its functions, to enquire into any matter or thing
related to the securities 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 enquiry.
(5) Nothing in subsection (4) shall compel the production by an advocate and solicitor of a document containing a privileged
communication made by or to him in that capacity or authorise the taking of possession of any such document which is in his
possession.
(6) An advocate and solicitor who refuses to produce the document referred to in subsection (5) 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 communication was made.
(7) The Authority may consult the Securities Industry Council for the proper and effective implementation of this Act.
(8) For the purposes of this Act, every member of the Securities Industry Council —
(a) shall be deemed to be a public servant within the meaning of the Penal Code (Cap. 224); and
(b) shall have, in case of any action or suit brought against him for any act done or omitted to be done in the execution of his
duty under the provisions of this Act, the like protection and privileges as are by law given to a Judge in the execution of his
office.
(9) The Securities Industry Council shall in the exercise of its functions have regard to the interest of the public, the protection
of investors and the safeguarding of sources of information.
(10) Subject to the provisions of this Act, the Securities Industry Council may regulate its own procedure and shall not be bound
by the rules of evidence.

Offences Relating to Take-over Offers (Section 140 of the SFA)

– • A person is guilty of an offence punishable with a maximum fine of $250,000 or imprisonment for a
maximum term of 7 years or both, if he:
- gives notice or publicly announces that he intends to make a take-over offer when he has no
intention to make the offer
- makes a take-over offer or gives notice or publicly announces that he intends to make a take-over
offer when he has no reasonable or probable grounds for believing that he will be able to perform
his obligations if the take-over offer is accepted or approved
– purpose is to protect market and comp subj to market and code. Code x want someone to play market
without serious intent to make takeover offer.
– Membes of public trade on expectation of offer takeover and offeror x fulfil oblig/expectations, then
investing public willlose money
– May also be charged with market rigging. Fact that did not comply with code may be considered ->>

 What constitutes an offence under s140 SFA:

- s140 (1) SFA: A person giving notice or publicly announcing that he intends to make a take-over offer
if he has no intention to make that offer.
- s140 (2) SFA: A person giving notice or publicly announcing that he intends to make a take-over offer
when there are no reasonable or probable grounds into believing that he will perform his obligations.

 Liability incurred under s140 SFA

- s140 (3) SFA: conviction to a fine ≤ S$250,000 or to imprisonment of a term ≤ 7 years or both.

Securities Future Act 2001 (read the section! Summarized it above but pls read it!)
Offences relating to take-over offers

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140. —(1) A person who has no intention to make an offer in the nature of a take-over offer shall not give notice or publicly
announce that he intends to make a take-over offer.
(2) A person shall not make a take-over offer or give notice or publicly announce that he intends to make a take-over offer if he
has no reasonable or probable grounds for believing that he will be able to perform his obligations if the take-over offer is
accepted or approved, as the case may be.
(3) Where a person contravenes subsection (1) or (2), the person and, where the person is a corporation, every officer of the
corporation who is in default shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $250,000 or
to imprisonment for a term not exceeding 7 years or to both.
[Companies, s. 213 (9)]

- Take-over Code Sections 139(8) and (9) of the SFA: breach of the Take-over Code:
o Shall not of itself render the party in breach liable to criminal proceedings
o May be relied upon by any party to criminal or civil proceedings to establish or negate any
liability
o SIC may invoke private reprimand or public censure on party in breach of the Take-over Code
(read with the Introduction to the Take-over Code)

Enactment of Code under s139 of SFA

 s139 (2) – issuance of the Singapore Code on Take-overs and Mergers for more effective administration,
supervision and control of take-over offers.
 s139 (4) – Code shall apply to all take-over offers and all parties involved shall comply with its provisions
and compliance is a statutory duty.
 s139 (5) – administered and enforced by the SIC.

Securities Future Act 2001 (the 3 sections are impt so pls read all provisions)

Take-over Code
139. —(1) This section and section 140 shall apply to and in relation to all natural persons, whether resident in Singapore or
not and whether citizens of Singapore or not, and to all corporations or bodies unincorporate, whether incorporated or
carrying on business in Singapore or not, and shall extend to acts done outside Singapore.
(2) For the more effective administration, supervision and control of take-over offers and matters connected therewith, the
Authority shall, on the advice of the Securities Industry Council and under section 321, issue a code known as the Singapore
Code on Take-overs and Mergers (referred to in this Act as the Take-over Code).
(3) For the avoidance of doubt, the Take-over Code shall be deemed not to be subsidiary legislation.
(4) The Take-over Code shall apply to a take-over offer and to matters connected therewith, and all parties concerned in a
take-over offer or a matter connected therewith shall comply with its provisions.
(5) The Take-over Code shall be administered and enforced by the Securities Industry Council.
(6) The Authority may, on the advice of the Securities Industry Council, revise the Take-over Code by deleting, amending or
adding to the provisions thereof.
(7) The Securities Industry Council may issue rulings on the interpretation of the general principles and rules in the Take-over
Code and lay down the practice to be followed by parties concerned in a take-over offer or a matter connected therewith, and
such rulings or practice shall be final.
(8) A failure of any party concerned in a take-over offer or a matter connected therewith to observe any of the provisions of
the Take-over Code shall not of itself render that party liable to criminal proceedings but any such failure may, in any
proceedings whether civil or criminal, be relied upon by any party to the proceedings as tending to establish or to negate any
liability which is in question in the proceedings.
(9) Nothing in subsection (8) shall be construed as preventing the Securities Industry Council from invoking such sanctions
(including public censure) as it may decide in relation to breaches of the Take-over Code by any party concerned in a take-
over offer or a matter connected therewith.
(10) Where the Securities Industry Council has reason to believe that any party concerned in a take-over offer or a matter
connected therewith, or any person advising on a take-over offer or a matter connected therewith, is in breach of the
provisions of the Take-over Code or is otherwise believed to have committed acts of misconduct in relation to such take-over
offer or matter, the Securities Industry Council shall have power to enquire into the suspected breach or misconduct.
(11) For the purpose of subsection (10), the Securities Industry Council may summon any person to give evidence on oath or
affirmation, which it is hereby authorised to administer, or produce any document or material necessary for the purpose of the
enquiry.

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[Companies, s. 213]

Obligations
 ensure that adequate information and sufficient time is provided to the shareholders so that they can make a
judgment on the merits of the offer
 set out desired standards to be achieved and procedures
 ensure that shareholders are treated fairly and equally

Take-over Code
• issued by the Monetary Authority of Singapore pursuant to s. 321 Securities and Future Act
Codes, guidelines, etc., by Authority
321. —(1) The Authority may issue, in such manner as it considers appropriate, such codes,
guidelines, policy statements, practice notes and no-action letters as it considers appropriate for
providing guidance —
(a) in furtherance of its regulatory objectives;
(b) in relation to any matter relating to any of the functions of the Authority under any of the
provisions of this Act; or
(c) in relation to the operation of any of the provisions of this Act.
(2) The Authority may publish any such code, guideline, policy statement, practice note or no-action
letter, and in such manner as it thinks fit.
(3) The Authority may revoke, vary, revise or amend the whole or any part of any code, guideline,
policy statement, practice note or no-action letter issued under this section in such manner as it
thinks fit.
(4) Where amendments are made under subsection (3) —
(a) the other provisions of this section shall apply, with the necessary modifications, to such
amendments as they apply to the code, guideline, policy statement, practice note or no-action letter;
and
(b) any reference in this Act or any other written law to the code, guideline, policy statement,
practice note or no-action letter however expressed shall, unless the context otherwise requires, be a
reference to the code, guideline, policy statement, practice note or no-action letter as so amended.
(5) Any person who fails to comply with any of the provisions of a code, guideline, policy statement
or practice note issued under this section that applies to him shall not of itself render that person
liable to criminal proceedings but any such failure may, in any proceedings whether civil or criminal,
be relied upon by any party to the proceedings as tending to establish or to negate any liability which
is in question in the proceedings.
(6) The issue by the Authority of a no-action letter shall not of itself prevent the institution of any
criminal proceedings against any person for a contravention of any provision of this Act.
(7) Any code, guideline, policy statement or practice note issued under this section —
(a) may be of general or specific application; and
(b) may specify that different provisions thereof apply to different circumstances or provide for
different cases or classes of cases.
(8) For the avoidance of doubt, any code, guideline, policy statement, practice note or no-action
letter issued under this section shall be deemed not to be subsidiary legislation.
(9) In this section, a “no-action” letter means a letter written by the Authority to an applicant for such
a letter to the effect that, if the facts are as represented by the applicant, the Authority will not
institute proceedings against the applicant in respect of a particular state of affairs or particular
conduct.

 Code contains 5 main sections:

- Introduction – all shrs to start out on eq basis. Spirit of the code that rules and not just the letter.
- Definitions
- General Principles – abt 13
- Rules – abt 30
- Appendices which contains
(1) Whitewash guidance note

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 (2) Share buy-back guidance note

- Who does code apply to - offerors, natural persons or corporations. Applies to both listed and
unlisted public comp. if not listed and more than 15 members or NTA or more than 5 milion dollars,
this applies
- Just because unlisted does not mean that code x apply.

Nature and Purpose of the Code

 Fair and equal treatment of all shareholders in a take-over.
 Represents the collective opinion on standard of conduct to be observed in a take-over situation: fundamental
requirement is that sufficient information, advice and time should be given to shareholders.
• Code states that 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
• General Principles of conduct to be observed in bid situations
• Lays down certain Rules, some of which are precise, others no more than examples of the application of
the General Principles
• the principal objectives of the Code could perhaps be summarized as follows:
a) fair dealing and equity as between all shareholders
b) control should not be acquired by stealth or by discriminatory purchases
c) adequate information and sufficient time
d) directors of the company who are in receipt of an offer should not do anything to frustrate
the offer before shareholders have had an adequate opportunity to consider it

Scope of the Code

 Applies both to take-overs and mergers
 Applies to take-overs and mergers for:
- Listed public companies
- Unlisted public companies with
(a) 50 or more shareholders;
(b) net tangible assets of $5 million or more.
 Applies to both individuals and companies whether established within or outside of Singapore. Ie Applies to
both foreign and local offerors

Common Terms
 Offeror - The one making the offer and it includes corporation and bodies unincorporated and natural
persons.
 Offeree or Target Company - The controllers of the company to be acquired
 Concert Party –
 Effective Control – not 50%. Offeror and concert parties acqg 30% or more of voting rights of company.
Non voting shares – does not trigger obligations under code. Effective control gives oblig to make mandatory
offer.
- 1. ACQUIRING
- 2. CONSOLIDATE – IF ALREADY OWN bet 30 and 50% AND ACQ 1 PERCENT OR
MORE IN ANY 6 MTH PERIOD (ROLLING PERIOD)
 Effective Control:
- A holding or aggregate holdings of shares carrying 30% or more of the voting rights of a company
irrespective of whether that holding gives de facto control. (Usually happens when person used to hold
<30% increases his aggregate holding to 30% or more.)
 Consolidated Effective Control
- Refers to a situation where a person who already owned between 30% and 50% of the company’s
voting rights, increases their aggregate holding of voting rights in the company by more than 1%
within a 6 month period.

Definition of Acting in Concert

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- One of first few things to do - EST WHO concert parties of offeror are

Definitions Clause 1 under the Code

- Persons acting in concert comprise individuals or companies who, pursuant to an agreement or
understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares
in a company, to obtain or consolidate effective control of that company
 1. don’t need formal agremenet, can have informal understanding which is good enough
to catch
 2. understanding pursuant ot which acq or consol effective control of comp. factual mater
to be determined by practitioner early in process

– Summary – 3 elements of definition:

(i) agreement or understanding
(ii) active cooperation to acquire shares
(iii) intent to obtain or consolidate control.

- Not easy to show the 3 elements. Control is defined in the Code as having 30% or more of voting rights in
the company.

Persons Deemed to be Acting in Concert

 deeming provisions are such that once it is deemed, it is up to the offeror to rebut the proposition.
o Rebutrable presumption. Once est who parties are, to look at whether any deemed concert parties.
o need to include concert parties’ shareholdings. Price at which transacted will affect price of
takeover. Establishing concert parties and balancing against need to keep confidentiality is prob. if
ask all concert parties whether they have shares – may trigger suspicion.
o Need to est concert party relationships.
o X apply to target comp, only to offeror.

1. • The following companies with each other:

– a company;
– parent company of the company;
– subsidiaries of the company;
– fellow subsidiaries of the company;
– associated companies of the company or its parent company, subsidiaries or fellow subsidiaries; and
– companies whose associated companies include any of the above companies

2. • A company with 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)

3. • A company with any of its pension funds and employee share schemes

4. • 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

5. • A financial or other professional adviser, including a stockbroker, with its client in respect of the
shareholdings of:
- the financial adviser and persons controlling, controlled by or under the same control as the
adviser; and
- all the funds which the financial adviser manages on a discretionary basis, where the shareholdings
of the adviser and any of those funds in the client total 10% or more of client’s equity share capital

6. • Directors (together with their close relatives, related trusts as well as companies controlled by any of the
directors, their close relatives and related trusts) of a company which is subject to an offer or where the
directors have reason to believe a bona fide offer for their company may be imminent

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7. • The following persons and entities with each other:
- an individual;
- the close relatives of the individual;
- the related trusts of the individual;
- any person who is accustomed to act in accordance with the instruction of the individual; and
- companies controlled by any of the above persons or entities
Rebuttal of concert-party presumption between close relatives
 Factors which the SIC would consider in deciding whether the concert-party presumption between close
relatives is rebutted are:
(i) The pattern, volume, timing and price of share purchases by the close relatives
(ii) Voting pattern of the shares by the close relatives; and
(iii) Whether the close relatives are of independent financial means commensurate with their
acquisitions.

General Principles

 Clause 1 - The Spirit of the Code

- Persons engaged in take-overs and mergers must observe both the spirit and precise wording of the
General Principles and Rules.
- General Principles and the spirit of the Code will apply in areas not explicitly covered by any Rule.
- Spirit of the Code implies the fundamental treatment of Shareholders however, no precise definition
and extremely wide.

- Equality of Treatment
 • An offeror must treat all shareholders of the same class in an offeree company equally (Clause 3
of General Principles of the Take-over Code)
 Despite the shareholders having different class of shares and required to make offer of all class of
shares.
 1 warrant (right to exercise into shares) to 1 share.
 • In the course of a take-over or merger transaction, or when such transaction is in contemplation,
the offeror, the offeree company and their respective advisers must not give information to some
shareholders that is not made available to all shareholders.
 Must let them make fair assessment
 Target comp x make ovaialbe to offeror info not disclosed to shrs – in breach of oblig in code.
 Eg If direc prov forecast to offeror, then obliged to prov the same forecst to shrs.

 GP 7: Frustration of offer by offeree board

- Once a bona fide offer has been communicated to the board of an offeree company or after the board
of an offeree company has reason to believe that a bona fide offer is imminent;
- No action shall be taken by the board of the offeree company in relation to the affairs of the company,
without the approval in general meeting of shareholders of the offeree company;
- Which could effectively result in any bona fide offer being frustrated or the shareholders being denied
an opportunity to decide on its merits.
- Expanded by Rule 5.

 GP 9: Information to all Shareholders

- In the course of a take-over or merger transaction, the offeree company must not give information to
some shareholders that is not make available to all shareholders.
- Principle based on Clause 3 where there should be equal treatment of all shareholders.
- However, principles does not apply to provision of information in confidence by the offeree company
to a bona fide potential offeror or vice versa.

 GP 11: Standard of care in documents

- Documents such as advertisements, opinions, recommendations and prospectuses should meet the
highest standard of care and accuracy especially pertaining to profit forecast (require special care).

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 GP 8: Competent independent advice
- An offeree board which receives an offer should seek competent independent advice.
- Usually seek advise from Financial Advisor who will set out how the offer price compares with (1) the
price earning ratio (2) current market and then give a recommendation on whether the offer is a good
or bad one.

Takoevers in general

A. DEFINITIONS AND MEANS

- “take-over” may be taken to mean an offer made to the existing shareholders of a company to acquire
their shares for a consideration in cash or securities or in a mixture of the 2
- in a closely held company, the take-over will usually be effected by a share acquisition agreement
between the acquirer and the controllers of the company to be acquired
- in a widely held company, the take0over may be effected in 3 ways:
1) by a share acquisition agreement between the acquirer and the controllers if the target company; or
2) by marker purchases if there is a market for the shares in the target company; or
3) by means of a take-over bid
- “merger” is an arrangement whereby the assets of two companies become vested in, or are brought
under the control of one company (which may or may not be one of the original two companies) which
has as its shareholders all, or substantially all, the shareholders of the original two companies
- “take-over bid” is a technique for effecting a take-over or a merger

B. CONTROL
- control may be classified into 5 categories:
a) management control which is manifested in the form of control over the process of appointing
proxies, management is in a position to strike the first blow and their solicitation of proxy votes is
likely to meet with a substantial response
b) effective control which involves control exercised through holding a block of shares, enables
control to be effectively maintained by a combination of the voting power conferred by the block
of shares, the general apathy of shareholders and the advantage conferred by control of the
instruments by which proxies are appointed
c) majority control which involves ownership and control of more than 50 per cent of the voting
rights
d) super majority control which involves ownership and control of 75 per cent or more of the voting
rights exercisable in a general meeting of the company, this is sufficient to pass special resolutions
e) complete control which involves ownership and control of the entire issued share capital of a
company

C. PRELIMINARY CONSIDERATIONS
- the acquirer will need to direct its attention, among other things, to 2 issues:
• degree of control that it should aim for
• whether it should make the offer to the general body of shareholders of the target company or to
approach only the controllers of the target company
- control
• whether the acquirer wants unfettered access to the assets of the target company, or is interested in
assuming the direction of the corporate strategy
• if the latter is sought, an acquisition of effective or voting control will normally achieve the result
• if a target company is a listed company, consideration should be given to whether the listing is to
be maintained
• if the offeror decides on maintaining the listing, should make sure it stops short of super majority
control
• if this threshold is passed the criterion for continued listing may be breached and Singapore
Exchange Securities Trading Limited may take steps to delist the target company
- offer to
• depends on size of the target company

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 • if it is small and management and ownership are identified with the same persons, the acquirer will
usually enter into a private agreement with the controllers
• in a widely held company, an offer to those shareholders whose shares the acquirer wishes to
acquire, will usually be conditional on acceptance by a given percentage of the offeree
shareholders
• reason for this condition is that the acquirer is interested in acquiring control and is not interested
in the shares of any one particular shareholder
• by making it conditional upon acceptance of a certain percentage of shares, the acquirer can
withdraw if it fails to secure the requisite percentage of shares
• if the acquirer is interested in acquiring complete control, it will make the offer conditional upon
acceptance of at least ninety per cent of the shares bid for
• if this condition is fulfilled, the acquirer may proceed to acquire the remaining shares under the
relevant statutory compulsory acquisition provisions (s. 215 Companies Act)
- the tactics and the strategy a potential acquirer has to adopt depends to some extent on whether the bid
would be (i) recommended, (ii) unopposed or (iii) defended by the board of the target company
- a recommended bid is one where the directors of the target company agree to the take-over bid, accept
the offer in respect of their shareholdings and recommend other shareholders to accept the offer
- where target company neither recommends nor opposes the offer, the bid would be classified as an
unopposed bid
- in a defended bid, the board of the target company would recommend rejection of the bid and perhaps,
take defensive action to make the target unattractive to the offeror
- the tactics would also depend on whether a rival bidder enters the ring
- board of the target may feel more comfortable with a bidder selected by or known to them

D. IMPACT ON THE ECONOMY

- anti-trust laws were passed by some governments with the aim to regulate abuses by big companies
and, in some cases, to prevent mergers or take-overs that create dominant companies
- singapore, unlike many other jurisdictions, does not have any anti-trust or anti-competition legislation
- 3 major categories of take-overs and mergers:
a) horizontal mergers which involve mergers between companies in the same industry;
b) vertical merges which involve 2 companies that are either customers of, or suppliers to, one
another; and
c) conglomerate mergers which are neither horizontal nor vertical and involve diversification by the
acquiring company into an unrelated market
 horizontal mergers  market dominance and reduction in competition
 vertical & conglomerate  do not lead to concentration in supply of goods or services
 but vertical mergers could reduce the degree of competition by controlling the prices which a
company’s competitors must pay for raw materials and by limiting marketing opportunities of
competitors
 may lead to growth of diversified mega companies capable of exercising considerable pressure on the
economy
 several factors which militate against conglomerates becoming “super-monopolists”
 conglomerates are likely to encounter difficulties in digesting more and larger companies and during
periods of substantial pains resulting from growth, conglomerates my even sell some of the companies
acquired
 conglomerates continually buy and sell companies and their assets
 operational gains:
 horizontal mergers offer scope for rationalization of production facilities and elimination of duplication
of operations
 vertical mergers can ensure a steady flow of raw materials at a lower cost since the profits of
middlemen, agency fees and negotiation and information cost do not feature where there is a link
between the supplier of raw materials and the manufacturer
 such a merger also results in lower costs in intra-company sales and allows for greater margins of
profits and lower prices
 reduce cost and create more efficiency

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  conglomerate mergers are usually driven by a desire to diversify and spread “the eggs in different
baskets” and to respond strategically to environmental changes and uncertainties (e.g. the take-over of
SPPL by Tuan Sing Holdings in 1983 pg.69)
 operational gains are also possible when 2 companies whose activities are complementary to one
another can bring considerable benefits from the pooling of technical expertise, facilities, marketing
networks and contacts and financial and management resources
 e.g. of the above is the take-over of Straits Steamship Company Limited (“Straits”) by Keppel Shipyard
Limited (“Keppel”) in 1983, and the take-over by Suntory Limited of Cerebos Pacific Limited in 1990
pg. 70)
 sometimes, a majority shareholder’s perception of the potential benefits of take-overs and mergers may
not coincide with that of the minority shareholders
 e.g. of above was the attempt by Sir Yue-Kong Pao to draw together his shipping and property empires
through a merger of his two main publicly0traded vehicles in Hong Kong, World International Holdings
(“World”) and Hong Kong and Kowloon Wharf and Godown (“Wharf”) in 1981 (pg. 70):
 the independent shareholders of Wharf were unhappy with the proposed merger
 the Wharf shares, being valued at HK$6.35 for the purposes of the merger, was widely believed to
be undervalued, the assets of Wharf were HK$10 a share
 Wharf shareholders were given very little information other than the recommendation of Wardley
Limited
 a group of dissenting shareholders led by George Chao commissioned Jardine Fleming to oppose
the bid
 in times of boom, companies can be expected to sniff out growth potentials and consolidate market
positions
 these companies should not be stopped merely on the ground that empirical studies show a lack of
success

E. MAKING AN OFFER
- begin by gathering all relevant information
- specialist merchant bankers will be brought in to advise on the price, terms and form of consideration for the
offer
- initial offer will be something less than the best offer
- advisers have responsibility to warn clients of the need for absolute secrecy
- General Principle 6 of the Code stipulates that an offeror should only announce an offer after the most
careful consideration and only when the offeror has reason to believe that it can and will continue to be able
to implement the offer
- primary thrust of principle 6 is on the availability of adequate financial resources to implement the offer
- where offeree company has shareholders in the United States and consideration includes securities of the
offeror which are not registered with the Securities Exchange Commission in the United States, it is likely
that the offer of these securities to such shareholders will be precluded under the United States Securities
Act of 1933
- it will be appropriate to obtain American legal advice at an early stage
- the result is likely to be that the offer is framed so that the US shareholders are not offered securities unless
the offer would fall within one of the exemptions in the 1933 Securities Act
- there may be a number of ways of dealing with this
- the offer may include a term under which the securities to which the US shareholders are entitled, are sold
on their behalf and the cash paid to them
- other regulatory restrictions and requirements include:
1) those deriving from the constitution of the offeror or the target contracts or undertakings to which either
of them is a party or the law of their places of incorporation;
2) those imposed by any stock exchange on which the offeror’s securities are listed;
3) those arising under the laws relating to changes of control of companies carrying on business in heavily
regulated industries
- precise procedure to be followed depends on whether or not the board of directors of the offeree company
recommends acceptance of the offer

Recommended Offers
• offeror will normally approach the offeree board and forward a proposal to the board

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• offeror and target will then make a joint announcement setting out in detail the agreed terms of the offer
together with a description of the businesses of the 2 companies
• announcement will normally be the only document recording the terms of the agreement between the
parties other than the offer document itself
• sometimes, understandings relating to matters such as the future conduct of the targets business may be
recorded in “comfort letters”
• basic terms of the offer are normally quite straightforward
1. each shareholder will be offered a specified amount of cash or new securities of the offeror for every offeree
company share held and may be given the option of choosing between different forms of consideration (e.g.
notes may be offered in lieu of cash)
• where consideration offered comprises shares, cash is frequently provided as an alternative to securities by
means of what is known as “cash underwriting”
• this allows the offeree company shareholders who accept that offer to elect immediately to sell those shares
for cash to underwriters
• such sales are effected pursuant to an underwriting agreement
• from the point of view of the offeror, the offer consideration comprises securities but, from the point of view
of the accepting shareholders, there is a choice of shares or cash
• conditions will normally include:
2. conditions relating to the minimum number of acceptances which are required
3. conditions relating to the obtaining of regulatory consents
4. conditions designed to protect the offeror against unforeseen changes in the constitution of
business of the target
5. a condition relating to the approval of the offer by shareholders of the offeror
• such undertakings are normally irrevocable and accordingly, referred to as “irrevocable undertakings” or
(“irrevocable acceptances”) and require that the relevant shareholders accept the offer within a few days if
its being made
• normally prohibit the shareholders from doing anything which could prejudice the offer
• parties will then prepare the offer document which contain the formal legal offer to purchase the shares held
by the offeree company shareholders
• by convention this is made by a merchant bank on behalf of the offeror
• circular issued by the board in response to the offer will normally contain a letter from the chairman of the
target company, explaining the future prospects of the company and recommending that shareholders accept
the offer, together with a considerable amount of information which is required by the Code
• e.g. of above is take-over of Straits Steamship by Keppel in 1983 (pg. 76)
• the Code requires that offers initially be open for a minimum of 28 days after the posting of the offer
document and, in practice, in order to preserve maximum flexibility, an initial period of 28 days is usually
used
• simple recommended offer  shareholders will normally accept the offer within this period
• offer may be complicated by a number of other factors
• may be impossible for the offer to be declared wholly unconditional because the necessary regulatory
consents have not been obtained
• a rival bidder may enter the ring and announce a competing offer, in which case, shareholders may not have
accepted the original offer in sufficient numbers for it to become unconditional
• in such cases, the offer timetable may be extended

Contested Offers
• considerably longer
• may follow from unsuccessful talks with the target
• offeror may seek surprise by announcing his offer without a prior approach to the board of the target
• Rule 1 of the Code requires that offers must be put forward in the first instance to the board of the target
company or to its advisers
• Rule 1 does not require the offer to be forwarded to the offeree board in writing and accordingly, the
Rule may be complied with by means of a telephone call before the offer is publicly announced

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 • E.g. in the Singapore market, the first major contested take-over was United Industrial Corporation’s
bid for Singapore Land in 1990 (pg. 77)
• Offeror and offeree board will attempt to persuade shareholders to accept or, as the case may be, reject
the offer

E. STAKE-BUILDING
- prior to any decision as to whether or not to make a bid, purchase some of the target company’s shares
- act as a “beach head” to improve the chances of success
- also act as a hedge against failure in that, if a third party makes a successful competing offer, the
original offeror may sell his stake at a profit to that third party thereby recouping the expenses of its
own unsuccessful offer
- also to secure some specific objective such as to enable it to require that a general meeting of the target
be convened or to enable it to block a resolution
- its nothing illegal or improper
- objectionable only if that fact is concealed
- secret stake building is regarded as undesirable for various reasons:
a) significant share acquisitions and disposals should be disclosed to the shareholders and those
dealing with the company to protect their interests
b) disclosure ensures that the conduct of the affairs of the company is not prejudiced by uncertainty
over the identity of those who may be in a position to influence
c) disclosure also acts as a shield against “take-overs by stealth”, board of offeree company should
be given an opportunity to defend its brand of management and the company
d) allowing a secret build up could lead to creation of a false market

F. CONDUCT OF THE OFFER

- the Code requires the offer to be put forward in the first instance to the offeree board
- the Code has a number of in-built safeguards
A. firstly, when any firm intention to make an offer is notified to the offeree board from a serious source,
shareholders must be informed without delay
- board is required to advise the Stock Exchange of such notice
- board when approached is entitled to be satisfied that the offeror is, or will be, in a position to
implement the offer in full
B. secondly, Code imposes a mandatory obligation on the offeree board to obtain competent independent
advice and make it known to its shareholders
- General Principle 7 of the Code constitutes the most critical safeguard:
• once a bona fide offer ahs been communicated to the board of an offeree company or after the
board of an offeree company has reason to believe that a bona fide offer is imminent, no action
shall be taken by the board of the offeree company in relation to the affairs of the company,
without the approval in general meeting of the shareholders of the offeree company, which could
effectively result in any bona fide offer being frustrated or in the shareholders of the offeree
company being denied an opportunity to decide on its merits
- principle 7 is expanded by Rule 5 which specifies certain matters which are deemed to constitute
frustrating action
- Rule 5 does not contain an exhaustive list
- General Principle 7 may prevent the taking of legal action by an offeree company in litigious
jurisdictions
- generally, the lobbying of shareholders, employees and the press is not restricted
C. Code requires the offeree board to circulate its views on the offer
- circular must contain a wide range of information including information relating to the director
shareholdings in the offeree company, the offeror company and details of service contracts etc
- eliminates any possibility of surreptitious action
- in the case of a recommended offer:
1. offeror will put a proposal to the board of the offeree and
2. following negotiations, make a joint announcement
3. setting out in details the agreed terms of the offer
4. parties will then prepare an offer document
4a. which will be sent to all shareholders of the offeree company

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 4b. document should be normally posted by the offeror not earlier than 14 days but not
later than 21 days from the date of the offer announcement
4c. SIC should be consulted if the offer document is not posted within this period
5. board of the offeree company should circulate to its own shareholders
• circular from offeree board will normally contain a letter from the Chairman of the
board explaining the potential benefits of the take-over and recommending that
shareholders accept the offer

- possible for a group of the target shareholders, at their own expense, to circularize all the shareholders
recommending rejection of the bid
- contested offer:
1. may refuse all co-operation and
2. the offeror may have to fall back on its statutory rights to inspect the register of members in order
to obtain the names and addresses of the offerees shareholders
• Rule 9.1 requires any information, including particulars of shareholders, given to a preferred suitor
should, on request, be furnished equally and as promptly to a less welcome but bona fide offeror
3. where the offer is opposed by the offeree board, it will usually send out a circular (usually called
the defence document) opposing the bid, recommending its rejection and setting out information
seeking to justify the rejection
4. will then follow a long period during which the offeror and the board of the offeree will seek to
persuade the shareholders to accept, or as the case may be, reject the offer
5. directors of the offeree company may, in recommending rejection of the offer, also offer some
inducement to the shareholders for the future, for e.g., by way of announcing an increased dividend
or by forecasting increased profits

H. CONCLUSION
- aggression and bitterness of New York and London markets are alien to the Singapore market
- aggression, confrontation and bitterness (to a lesser extent) are generally avoided by Asian businessmen
merchant bankers in Singapore would not test the limits of the Code and the tolerance of the Code
regulators

Types of Take-overs

MANDATORY OFFER

Rule 14.1 states out 2 situations when a mandatory offer kicks in:
(i) Any person 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 him) carry 30% or
more of the voting rights of a company; or

(i) If Offeror Company and its concert parties have less than 30% of shares in Offeree
Company and has acquired shares in Offeree Company which (taken together with its existing holding of shares
in Offeree Company and shares held or acquired by its concert parties) total 30% or more of shares in Offeree
Company

(ii) Any person who, together with persons acting in concert with him, holds not less than 30% but not
more than 50% of the voting rights and such person, or any person acting in concert with him,
acquires in any period of 6 months additional shares carrying more than 1% of the voting rights. (also
called the “creep rule”)

(ii) If Offeror Company and its concert parties have not less than 30% but not more than
50% of shares in Offeree Company, it has acquired in aggregate more than 1% of shares in Offeree Company
during a period of 6 months

 => Required to extend offers immediately to holders of any class of share capital of the company which
carries votes. In addition, each concert party may, according to the circumstances of the case, have the
obligation to extend an offer.

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 *** if more than 50 per cent, then no oblig. Free to take over without offer.

Conditions Imposed in Mandatory Offer

 Only 1 condition imposed found under Rule 14.2:
- The Offeror obtaining acceptances which will result in the Offeror and its concert parties holding
shares carrying more than 50% of the voting rights of the Offeree.
- 50 +1 share very impt threshold
- in mandatory offer can only impose one condition
Consideration for Mandatory Offer
 Rule 14.3:
 • Consideration must be in cash or accompanied by a cash alternative
 • Offer price must be the highest price paid by Offeror Company or its concert parties for the shares in
question in the preceding 6 months

VOLUNTARY OFFER

– not under oblig

 Where Offeror Company does not incur Rule 14 obligation and makes the take-over offer voluntarily
 Rule 15.1:
- Take-over offer by offeror when he has not incurred an obligation to make a general offer for the
company under Rule 14.1 (Mandatory Offer).
- Examples:
(1) When Offeror owns more than 50% of the shares
(2) Offeror has less than 30% but more than 50% but does not acquire more than 1% in 6 months.

15.1 Conditions
- A voluntary offer is a take-over offer for the voting shares of a company made by a person when he has not
incurred an obligation to make a general offer for the company under Rule 14.1.
- A voluntary offer must be conditional upon the offeror receiving acceptances in respect of voting rights
which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in
the offeror and person acting in concert with it holding more than 50% of the voting rights.
- In addition, a voluntary offer must not be made subject to conditions whose fulfillment depends on the
subjective interpretation or judgement by the offeror or lies in the offeror's hands. Normal conditions, such
as level of acceptance, approval of shareholders for the issue of new shares and the Securities Exchange's
approval for listing, may be attached without reference to the Council. The Council should be consulted
where other conditions would be attached.

Consideration for Voluntary Offer - diff fr mandatory offer

 Rule 15.2:
- Consideration may be in cash or securities or a combination;
- Offer price must be the highest price paid by Offeror or its concert parties for the shares in question in
the preceding 3 months.
 • exception to the above – Requirement of cash or cash alternative under Rule 17:
- Where the Offeror Company and its concert parties have bought for cash, shares of the
Offeree carrying 10% or more of the voting rights of that class, during the offer period and
within 6 months prior to its commencement, then an offer must be in cash or accompanied by
a cash alternative at not less than the highest price paid by the Offeror Company or its concert
parties during the offer period and within 6 months prior to its commencement

Conditions Imposed on Take-over Offers – see chart

 Voluntary Offer – can impose provided that objective in nature. Min condition is same as mandatory offer –
50+! Or regulatory approval by gobt etc or third party approval received. But they must be cleared with SIC
and must be obj in nature. Impt. Cannot have sitn where takeover only where due diligence satisfacrily done.
SIC wil object – too subjective

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 But another cond may be that audited NTA not less than 50 million dollars.
 Conditions can be invoked
 Where conds not met – can walk away for normal contract but in takeover, to go to SIC. They have to be
satisfied that non fulfillment is material in context of entire offer. If the shortfall is deminis, can still oblige u
to proceed with takeover offer.
 Get conds down early and clear early with SIC so that can minimize issues that aris duing course of takeover
offer.

 Compulsory Condition:
- Conditional upon the offeror receiving acceptances which will result in the offeror and its concert
parties to hold more than 50% of the voting rights. I.e. if accepted in full, would result in offeror
holding shares carrying > 50% of the voting rights of offeree, that the offer will not be unconditional.
Stops the making of partial bids. Cannot be unconditional unless u have 50%; else offer will lapse if
you don’t.
- Rationale for 50% threshold: bidder will have management control even if transactions between the
bidder and the target restricted.

 Conditions which cannot be attached:

- Voluntary offer must not be made subject to conditions whose fulfilment depends on the subjective
interpretation or judgment by the Offeror.
- Subjective interpretation/judgement can create uncertainty.
- The test is: the clause has to be sufficiently objective and depends on the judgment of parties other
than the offeror of its concert parties.

 Normal Conditions which may be attached without SIC’s approval:

- Level of acceptance
- Approval of shareholders for the issue of new shares
- SGX-ST approval for listing

 All other conditions may only be attached with approval from SIC.

1. Mandatory and Voluntary Offers Compared (impt)

Mandatory Voluntary
Circumstances  Acquired >30% of voting rights  Any other situation not required to make a
 Originally holds >30% but <50% of the mandatory offer
voting rights but obtains 1% in the next 6
months.

Conditions  Offeror + CP has to obtain >50% of  Compulsory Condtion: Offeror + CP has to

voting rights after acceptance obtain >50% of voting rights after acceptance

 Conditions which do not require SIC’s approval:

level of acceptance, approval of shareholders for
the issue of new shares, approval from SGX-ST
for listing.

 Conditions which cannot be attached: conditions

which are left to the subjective interpretation of
the Offeror.

 All other conditions requires approval from SIC

Consideration  Cash or cash alternative based on the  Cash or securities or combination based on the
highest price paid by the Offeror in the highest price paid by the Offeror in the last 3
last 6 months. months

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  Unless Offeror bought ≥10% voting rights of
shares of that class for cash during the offer
period, then the consideration has to be in cash or
cash alternative based on the highest price paid in
the last 6 months.

PARTIAL OFFER

Offeror Company - Offeree Company

- • Where a take-over offer is for some (and not all) shares in the Offeree Company
- • It has to be approved by the SIC
- • May be made only for:
 less than 30% of Offeree Company
 more than 50% of Offeree Company but less than 100%
 ie cannot be 40%. Give you effective control and with thism need to make mandatory takeover
offer.
- Make offer for 75 per cent – then each shr accept pro rata for 75%
1. the partial offer is not a mandatory offer under Rule 14
2. The offeror would not acquire any shares in the 6 months prior to the date of offer announcement, during the
offer period and 6 months after the close of the partial offer.
 SIC will not approve partial offer for between 30% and 50% of the Offeree.

Consideration for Partial Offer

• Consideration may be in the form of cash, securities, or a combination of both
 Rule 16.5:
- Consideration may be in cash or securities or a combination;
- Offer price must be the highest price paid by Offeror or its concert parties for the shares in question in
the preceding 3 months.
 Rule 17 also applies (rf above for rule 17)

REVERSE TAKE-OVER

- A reverse takeover (RTO), also known as a back door listing, or a reverse merger, is a financial
transaction that results in a privately-held company becoming a publicly-held company without going the
traditional route of filing a prospectus and undertaking an initial public offering (IPO). Rather, it is
accomplished by the shareholders of the private company selling all of their shares in the private company
to the public company in exchange for shares of the public company.
- While the transaction is technically a takeover of the private company by the public company, it is called a
reverse takeover because the public company involved is typically a "shell" (also known as a "blank check
company", "capital pool company" or "cash shell company") and it typically issues such a large number of
shares to acquire the private company that the former shareholders of the private company end up
controlling the public company.
- There are two ways for a privately-held company to go public: Through an initial public offering of stock
(IPO), or via reverse takeover.
- In a reverse takeover, shareholders of the private company purchase control of the public shell company and
then merge it with the private company. The publicly traded corporation is called a "shell" since all that
exists of the original company is its organizational structure. The private company shareholders receive a
substantial majority of the shares of the public company and control of its board of directors. The
transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private
company does not go through an expensive and time-consuming review with state and federal regulators
because this process was completed beforehand with the public company.
- The transaction involves the private and shell company exchanging information on each other, negotiating
the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a
substantial majority of its shares and board control to the shareholders of the private company. The private
company's shareholders pay for the shell company by contributing their shares in the private company to the

16
 shell company that they now control. This share exchange and change of control completes the reverse
takeover, transforming the formerly privately-held company into a publicly-held company.
- There are several potential problems that arise in connection with a reverse takeover. First, there may be
large blocks of stock in the hands of individuals who are eager to sell at any price, thereby making it
difficult to support the market during the period immediately after the reorganization. Second, in addition to
inheriting the shareholders and brokers associated with the public company, the shareholders of the private
company will also inherit the business history of the public company.
- Accordingly, a thorough due diligence investigation of the public company and its principal shareholders is
essential to ensure that there are no unreported liabilities or other legal problems. Finally, it may be
necessary to performcatch-up audits and do corporate cleanup to make the combined companies ready for
trading.
- In general, reverse takeovers are viewed with some skepticism by both the financial community and the
regulatory authorities until the reorganized company has been active for a sufficient period of time to
demonstrate credible operating performance. Until this performance is demonstrated, it can be very difficult
to raise additional money for a company that went public through a reverse takeover transaction.
- Therefore, the reverse takeover strategy is most appropriate in cases where the immediate financial needs of
the privately-held company can be met by the pre-combination private placement and the purpose for
establishing a public trading market is not related to a perceived short-term need for additional capital. If a
privately-held company believes that substantial additional capital will be required within the next 6 to 12
months, a reverse takeover transaction may not be the best alternative.

Company A: has assets that want to list - Company B

 Company A sells assets to Company B for shares in Company B and Company A holds 30% or more of
shares in Company B after sale and incurs an obligation to make a mandatory take-over offer for B =. Gives
rise to mandatory takeover offer.
 Asset sale to listed comp in exchange of consideration shares => takeover code applies.

 Accidental triggering of mandatory offer – should be avoided as take-overs should not be accidental but
should be well-structured.

 May utilise whitewash procedures to waive requirement imposed in situations of a reverse take-over.

 Whitewash will be granted subject to:

- Majority of holders of voting rights of the offeree company present and voting at an EGM approve by
way of a poll, a resolution to waive their rights to receive a general offer from the offeror and concert
parties.
- Offeree company appoints independent financial adviser to advise its independent shareholders on the
Whitewash Resolution.
- Sets out clearly in its circular to shareholders details or convertibles.
- Whitewash Resolution must be completed within 3 months of the approval of the Resolution.
COMPETITIVE OFFER
- In situation of a competitive take-over, Company A has 3 options:
o A does nothing;
o Increase the offer Price; or
o Withdraws the offer.

- Rule 4 states that an offeror may not withdraw an offer without SIC’s consent however, it is also stated in
the notes that an offeror need not normally proceed with an announced offer if a competitor has already
posted a higher offer.

The Chain Principle

Offeror --- acquires more than 50% of shares -- X (not listed comp, may not be comp to which takeover code
applies. But happens to own mor than 30%) owns 30% or more of shares ----SingCo (public company)

17
 • Offeror may acquire or consolidate effective control in SingCo (which is a company to which the Take-over
Code applies) because of its acquisition of shares in X (which may not be a company to which the Takeover
Code applies)
 • Offeror must make a mandatory take-over offer for SingCo if SingCo constitutes or contributes significantly
to X in the following aspects:
(i) assets
(ii) market capitalisation
(iii) sales; or
(iv) earnings
(v) significant – 20%
 When offeror and concert parties acquires statutory control of Company X (which
Offeror need not be a company to which the code applies to) acquire or consolidate
effective control of a second company (Company Z) because X itself holds either
directly or indirectly a controlling interest of Z, SIC will not normally require an
offer to be made unless Z contributes significantly to X in the following aspects:
(i) assets;
(ii) market capitalisation (where X and Z are listed);
Company X (iii) sales; or
(iv) earnings.

– The Chain Principle – when a person or group of persons acting in concert

acquire or consolidate control of a second company because the first company that
they acquire holds a controlling block in the second. Offer is normally not
Company Z
required unless
o shareholding in the 2nd co is significant in relation to the 1st co
o or the main purpose of acquiring the 1st co was to gain control of the 2nd.

Offer Timetable (Rule 22)

(1) Despatch of offer document

- Normally posted not earlier than 14 days but not later than 21 days from the date of the offer
announcement.

(2) Despatch of the offeree board circular

- Board should advise within 14 days of posting of the offer document.

(3) First Closing date

- Offer must be kept open for at least 28 days after offer document is posted

(4) Further closing dates to be specified

- Shareholders who have not accepted the offer should be notified in writing at least 14 days before the
offer is closed.

(5) No obligation to extend

- No obligation to extend an offer the conditions of which are not met by the first or subsequent closing
date.

(6) Offer to remain open for 14 days after unconditional as to acceptances.

- Requirement does not apply if before offer becomes or is declared unconditional, the offeror has given
notice in writing to shareholders of the offeree company at lease 14 days before closing.

(7) Offeree company announcements after Day 39

- Offeree company should not announce trading results, profit or dividend forecasts, asset valuation or
major transactions after the 39th day following the posting of the initial offer.

(8) Final day rule

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 - No offer will be capable of becoming of being declared unconditional as to acceptances after 3.30pm
on the 60th day after the date of the offer is initially posted.

(9) Time for fulfilment of other conditions

- All conditions must be fulfilled or the offer must lapse witin 21 days of the first closing date or the
date the offer becomes or is declared unconditional as to acceptances whichever is the later.

Frustration of Offer

Rule 5 of the Take-over Code

- After bona fide offer communicated to Offeree Board or after Offeree Board has reason to believe that bona
fide offer is imminent, Offeree Board shall not take any action, without approval of shareholders of Offeree,
which could effectively result in a bona fide offer being frustrated or shareholders of Offeree being denied
opportunity to decide offer on its merits
- Eg of acts Offeree cannot do:
- 1. Buy shares at a higher price
- 2. Pay back dividend to lower value of the company.
- Board of target cannot take action that will be regarded as frustrating in nature. Shld not without approval of
shrs or SIC take any actin tt will deny shrs abiblity to decide on offer.
o Eg amend shrs contract to include golden handshakes.
o Eg poison pill defences
- Go to SIC and complain and SIC will then take action.

Unsuccessful Offers

Mandatory: 50%
Vol: 50+1 = successful

Rule 33.1 of the Take-over Code

• Except with consent of SIC, where an offer other than a partial offer does not become unconditional in all
respects, Offeror and its concert parties may not, within 12 months from the date on which such offer is
withdrawn or lapses either:
(a) announce an offer or possible offer for the Offeree; or
(b) acquire shares in Offeree if Offeror or its concert parties would thereby become obliged to make another
mandatory offer for Offeree
- ie cannot even put themselves in position where they can make mandaoty offer
- finality principle. If a failed offeror could immediately start offering again, there would be little point in the
time limit set out in rule 22. if management of the target had to endure prolonged siege by the same offeror
after a failed bid, it would also be distracted from the conduct of its business which would be to the
detriment to the interests of the shareholders.

Rule 33.2 of the Take-over Code

• Except with consent of SIC, where Offeror and its concert parties hold more than 50% of shares in Offeree,
Offeror or its concert parties cannot make a second offer for Offeree or acquire shares from any shareholder at a
price higher than the offer price of first offer within 6 months of close of first offer

Financing a Take-over

– Usually act for banks

– To est early tat offeror has finaicial capability and resources to fulfil its oblig in takeoever offer
– To mke statement in offer docs that offeror has suff financial resources
– SIC may in fact ask bank to make takeover offer if it was neg enough to allow statement even when no
resources in actual fact

Rule 23.8 of the Take-over Code

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• Where the offer is for cash or includes an element of cash, Offeror’s banker or financial adviser must make an
unconditional confirmation that Offeror has sufficient financial resources to satisfy full acceptance of the offer

Section 76 of the Companies Act (Cap 50)

– unlawful financial assistance
- In sg cannot have sitn where financing for takeover is supported by the target. if he wants to give security
for financing needs shr approval
- • Offeree cannot, directly or indirectly, give financial assistance to the Offeror for the purpose of acquiring
shares in the Offeree unless “white-wash” procedures complied with. – takes up to mth to complete. In
takeoever timetable, takeover offer only for 28 days max 60 days => not enough time! - (not practical from a
timing point of view because cannot complete whitewash procedure on time).
- Also board of target comp wont go out of its way to help offeror. May not be in interst of target comp to do
so.
- So in course of public takeover financial assistance not practical.

Compulsory Acquisition (Section 215 of the Companies Act) IMPT!!!

- Offeror wants to privatize company. When want to do so, to do vol offer. Not bound by 50+1 condition. So
can go to SIC and impose cond that 90% acceptances before offer goes unconditional. 90 percent –
under section 215, allows you to have comp acquisition rights and squeeze out min shrs. This is way to get
100% control of company
- Note – only when no shares of comp. but if u have say ten percent, then compul acquisition threshold is 90
percent of what you don’t own ie (90 percent of 90 percent). – 81%
- Example:
Offeree – holds 90% of shares
Offeror – holds 10% of shares
To make a compulsory acquisition, you have to obtain 90% of the shares in the Offeree = 90/100 x 90 =
81%
∴ you are required to acquire 81% of the share in order to launch a compulsory acquisition.

Section 215(1) of the Companies Act

• If the Offeror acquires not less than 90% of shares in the Offeree (excluding shares already held at the date
of the offer by, or by a nominee for, the Offeror and/or its related corporations), the Offeror may
compulsorily acquire the remaining shareholders’ shares

Section 215(3) of the Companies Act

• If the Offeror acquires shares in the Offeree which (including shares held by, or by a nominee for, the Offeror
and/or its related corporations) comprise or include 90% of shares in the Offeree, the remaining shareholders of
the Offeree may require the Offeree to compulsorily acquire their shares
of capital
: - note the distinction bet both

Example: (figures as above)

In order for the Offerees to compel you to buy them out, you need to own 90% of the shares.
∴ you are required to purchase a further 80% of the shares in order for the Offeree to compel the Offeror to
compulsorily acquire their shares.

Power to acquire shares of shareholders dissenting from scheme or contract approved by 90% majority.
215. —(1) Where a scheme or contract involving the transfer of all of the shares or all of the shares in any
particular class in a company (referred to in this section as the transferor company) to another company or
corporation (referred to in this section as the transferee company) has, within 4 months after the making of the
offer in that behalf by the transferee company, been approved as to the shares or as to each class of shares whose
transfer is involved by the holders of not less than 90% of the total number of those shares (excluding treasury
shares) or of the shares of that class (other than shares already held at the date of the offer by the transferee
company, and excluding any shares in the company held as treasury shares), the transferee company may at any
time within two months, after the offer has been so approved, give notice in the prescribed manner to any
dissenting shareholder that it desires to acquire his shares; and when such a notice is given the transferee

20
company shall, unless on an application made by the dissenting shareholder within one month from the date on
which the notice was given or within 14 days of a statement being supplied to a dissenting shareholder pursuant
to subsection (2) (whichever is the later) the Court thinks fit to order otherwise, be entitled and bound to acquire
those shares on the terms which, under the scheme or contract the shares of the approving shareholders are to be
transferred to the transferee company or if the offer contained two or more alternative sets of terms upon the
terms which were specified in the offer as being applicable to dissenting shareholders.
(2) Where a transferee company has given notice to any dissenting shareholder that it desires to acquire his
shares, the dissenting shareholder shall be entitled to require the company by a demand in writing served on that
company, within one month from the date on which the notice was 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 transferee company shall not be entitled or bound to acquire the shares of the dissenting shareholders until 14
days after the posting of the statement of such names and addresses to the dissenting shareholder.
(3) Where, in pursuance of any such scheme or contract, shares in a company are transferred to another company
or its nominee and those shares together with any other shares in the first-mentioned company held by the
transferee company at the date of the transfer comprise or include 90% of the total number of the shares
(excluding treasury shares) in the first-mentioned company or of any class of those shares, then —
(a) the transferee company shall within one month from the date of the transfer (unless on a previous transfer in
pursuance of the scheme or contract it has already complied with this requirement) give notice of that fact in the
prescribed manner to the holders of the remaining shares or of the remaining shares of that class who have not
assented to the scheme or contract; and
(b) any such holder may within 3 months from the giving of the notice to him require the transferee company to
acquire the shares in question,
and where a shareholder gives notice under paragraph (b) with respect to any shares, the transferee company
shall be entitled and bound to acquire those shares on the terms on which under the scheme or contract the shares
of the approving shareholders were transferred to it, or on such other terms as are agreed or as the Court on the
application of either the transferee company or the shareholder thinks fit to order.
(4) Where a notice has been given by the transferee company under subsection (1) and the Court has not, on an
application made by the dissenting shareholder, ordered to the contrary, the transferee company shall, after the
expiration of one month after the date on which the notice has been given or, after 14 days after a statement has
been supplied to a dissenting shareholder pursuant to subsection (2) or if an application to the Court by the
dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice
to the transferor company together with an instrument of transfer executed, on behalf of the shareholder by any
person appointed by the transferee company, and on its own behalf by the transferee company, and pay, allot or
transfer to the transferor company the amount or other consideration representing the price payable by the
transferee company for the shares which by virtue of this section that company is entitled to acquire, and the
transferor company shall thereupon register the transferee company as the holder of those shares.
(5) Any sums received by the transferor company under this section shall be paid into a separate bank account,
and any such sums and any other consideration so received shall be held by that company in trust for the several
persons entitled to the shares in respect of which they were respectively received.
(6) 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 two years and shall before the expiration of 10 years from the date on which such
consideration was allotted or transferred to it, transfer such consideration to the Official Receiver.
(7) The Official Receiver shall sell or dispose of any consideration so received in such manner as he thinks fit
and shall deal with the proceeds of such sale or disposal as if it were moneys paid to him in pursuance of section
322.
(8) In this section, dissenting shareholder includes a shareholder who has not assented to the scheme or contract
and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with
the scheme or contract.
(9) For the purposes of this section, shares held or acquired —
(a) by a nominee on behalf of the transferee company; or
(b) by a related corporation of the transferee company or by a nominee of that related corporation,
shall be treated as held or acquired by the transferee company.
(10) The reference in subsection (1) to shares already held by the transferee company includes a reference to
shares which the transferee company has contracted to acquire but that shall not be construed as including shares
which are the subject of a contract binding the holder thereof to accept the offer when it is made, being a contract
entered into by the holder for no consideration and under seal or for no consideration other than a promise by the
transferee company to make the offer.

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(11) Where, during the period within which an offer for the transfer of shares to the transferee company can be
approved, the transferee company acquires or contracts to acquire any of the shares whose transfer is involved
but otherwise than by virtue of the approval of the offer, then, if —
(a) the consideration for which the shares are acquired or contracted to be acquired (referred to in this subsection
as the acquisition consideration) does not at that time exceed the consideration specified in the terms of the offer;
or
(b) those terms are subsequently revised so that when the revision is announced the acquisition consideration, at
the time referred to in paragraph (a), no longer exceeds the consideration specified in those terms,
the transferee company shall be treated for the purposes of this section as having acquired or contracted to
acquire those shares by virtue of the approval of the offer.

Suspension of Listing

Rule 1303(1) of the New Listing Manual of the SGXST

• If Offeror and its concert parties should, as a result of the offer or otherwise, own or control above 90% of the
issued share capital of Offeree, the SGX-ST may suspend the listing of the shares until such time when the SGX-
ST is satisfied that at least 10% of the shares are held by shareholders who are members of the public

De-listing (privatising a company) – 75% of shareholders must approve de-listing. Not > 10% at the meeting
must vote against.

section 210 CA – for restructing amalgamations, restructing company etc, scheme of arrangement – shrs can
vote at court convened meeting to agree that offeror can acq all their shares. Once requisite maj for voting is
achieved, all shrs whether agree or not are bound and their shares will be acquired. Scheme only used in compul
type acquisitions when want to acq 100 per cent of company

ACQUISITIONS OF CORPORATE BUSINESS

– Corporate business – business carried on by a company, instead of an individual
– “Merger” 2 consenting parties – jointly agree to carry out operations
– “Acquisition”1 party taking over – to control company on his own

METHODS OF ACQUISITION
- Acquisition of shares
 acquiring the shares of the company that carries on the business
- Acquisition of assets
 acquisition of assets that are used in the running of the business, so that you are in effect acquiring
the company
- Different method leads to different results – see later factors on how to decide which method of M&A to
adopt

Acquisition of Shares – see chart

Acquisition of Shares
Before After

Company A Shares Company B

(Seller) (Buyer)

T Co T Co

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Acquisition by Shares:
 Shares move from Seller  Buyer
 Target company is not a party to the transaction
• When existing shares are acquired, the other party to the transaction is the shareholder of the company.
Shares are owned by the SH (duh!)
• Target Co (T Co) continues to hold all the assets.
• At completion, there is change of SHs.
• Result = T Co moves from being subsidiary of seller (Co a) to becoming subsidiary of buyer (Co B)

Acquisition of Assets – see chart

Corp structure does not change

Acquisition of Assets
Before After

Company B
Company A Buyer
(Owner of Assets)

T Co
Seller
(Owner of Asset

Acquisition of Assets:
 Seller = Target company
 Transaction between T Co. & Co. B (Buyer)
 After transaction, T Co. remains with Co. A, since shareholding still with Co. A

• Assets are actually owned by T Co, so the other party to the transaction is the company itself.
• When company B acquires assets, B does not buy the target company (the shares do not go over), it is only
the assets that go over.
• T Co remains the subsidiary of Co A.
• Result = Buyer merely owns the assets of the co, not the co.

SHARES OR ASSETS
- Ultimately depends on client’s objectives

Factors which influence Method of Acquisition:

(1) More than one business

Before – company A – target company owns ship owning and ship repair businesses

After – 1. for shares acquisition, company now owns target company with ship owning and ship repairs. 2. for
assets acquisition, company A may retain ship owning business in target company whereby B gets ship repair
business,

 If acting for Co. A, in decision whether to sell shares or assets, should ask if want to retain both businesses
or to keep 1
 If objective is to sell only 1 business, then should be asset acquisition

• E.g. T Co has 2 businesses – a ship owning business and a ship repair business, and T Co is owned by
company A (shareholder company)

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• Where client is interested to acquire both businesses, there is choice of acquisition by shares or assets.
o For shares acquisition, because A sells those shares to B, T Co is held by B after the sale. So B
has both the ship-owning and ship-repair business after the sale
• However, if B is only interested one of the businesses, then the share acquisition mode does not further his
interest. Therefore, you will do an asset acquisition; so that A continues to hold the ship-owning business,
and the ship repair business is sold to company B

 If client interested in only one of the many businesses T Co has  asset acquisition more approrpiate

After
Shares Acquisition Assets Acquisition

Company B Company A
Company A Company B

T Co T Co Ship Repair

Ship Owning
Ship Repair Ship Owning

(2) How Client Intends to Hold Acquired Biz – Merger of operations

 Merger operations to enjoy economies of scale

 Asset acquisition preferred where Buyer (company) wishes to enlarge particular business operations
 Share acquisition involves taking over all of the Target company’s business operations – thus, involves a
higher price

• Client wants acquisition to merge with existing biz or carried on under separate entity?
o Merger intended – assets acquisition from the biz that client is interested in
o Separate Entity – shares acquisition

• E.g. T Co is both a land owner and a land developer (2 businesses) owned by Company A. Client (Co B)
who is in the property developer business wants only the land developing biz so that he can merge the 2 biz.
o Share acquisition  company B will have both the land owning business and property developer
business. T Co will continue to carry on with acquired biz.
o However, B may want to merge both operations together
o In such a situation, B can just buy the assets from the land developing business, so that B can
merge the business of target company with its own property developing business
• NB: Only assets required to run the business

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 After
Shares Acquisition Assets Acquisition

Shares
Company A Company B Company A

Assets
Company B
T Co T Co
Property
Developer
- Land Owner
- Property Developer Land Owner

NB: In practice, do NOT acquire both shares & assets – either, or

(3) Joint venture

 If Co. A, the existing shareholder of T Co. is to be the joint venture partner, Co. B would acquire shares
instead of assets – Co. B acquire part, not 100% of the shares, as remaining balance would continue to be
held by Co. A
 2 options of Buyer (Co. B) – different implications
i. Acquire some of the existing shares held by Co. A
- Co. B pays purchase price to Co. A
ii. Acquire new shares to be issued by T Co.
- Co. B makes payment direct to T Co. itself

• Does client want to carry on the business in a joint venture? What happens if client only want to acquire part
of T Co cos he wants to do a JV with existing shareholders of T Co?
o Shares Acquisition

• Option 1 – acquire existing shares held by Co A (JV partner)

o Purchase price paid to Co A
o If equal JV, then company A will sell 50% shares to Company B… so that the end result is that
both A and B hold 50% of the shares in the target company
o NB: “existing shares” only shares that are already issued, and note also that cash flows from
company B to A
• Option 2 – acquire new shares from T Co
o Purchase price paid to T Co.

• Note: In 2nd option, the JV company does not get the $$$, so that if you want a JV where you want the JV
company to get the $$$, have to rely on 1st option

(4) Preservation of status quo

- If client tells you that he wants to acquire the operation of the shipyard i.e. tools, employees, contracts with
shipowners to repair the ship.

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– whether status qu will be disturbed by one method more than another

• Too troublesome logistically to acquire the assets because have to assign all the contracts (there may even be
contracts which prevents assignments.)
o Transfer of assets relating to a going concern business would be a major exercise if it involves
 assignment of numerous partly performed KT, obtaining consent for transfer (some KT
may prohibit), re-establishing operation systems e.g. direct-debit arrangement or taking
possession of assets in various jurisdiction.
 employment by the old company will be terminated; and if the new owners want to re-
employ the staff, they have to re-issue contracts of employment
o Acquisition of assets is not an option; should acquire the shares of the company

• Acquisition by Shares:
o Continuity – there is continuity in acquiring shares in that T Co remains the owner of all the assets
and all contracts entered into by T Co with 3rd parties remain intact. Only change is its SH.
o Acquisition of shares does not affect contracts with 3rd parties; change of shareholders does not
change the relationship vis-à-vis 3rd parties.
o Client assumes ownership of assets indirectly through acquiring shares of T Co without need to
transfer title in assets.

Preservation of Status Quo – likely to preserve if shares rather than assets being acquired.
 Especially in situation where operations are very large
 Problems:
i. Assignment of contracts
 land transferred –
 movement of employees – termination? Offer of new employment?
 Ongoing contracts - need to get consent of contract of counterparty for transfer or get assignment
without consent of counterparty but will need to transfer all rights etc
 Business licenses- transfer as well
 Need to see each and everything for smooth transfer
ii. Ownership of assets – in many jurisdictions
iii. Change of Employer

 Shares acquisition in this situation – although shareholders may change, no change in entities employing
people, or contracting parties
 Employment Act, section 18A – exception – Acquiror of business as a “going concern” takes over all
employees involved in the business, including all liabilities outstanding in respect of their employment
contracts
Section 18A
(1) If an undertaking (whether or not it is an undertaking established by or under any written law) or part
thereof is transferred from one person to another —
(a) such transfer shall not operate to terminate the contract of service of any person employed by the
transferor in the undertaking or part transferred but such contract of service shall have effect after the
transfer as if originally made between the person so employed and the transferee; and
(b) the period of employment of an employee in the undertaking or part transferred at the time of transfer
shall count as a period of employment with the transferee, and the transfer shall not break the continuity
of the period of employment.
(3) On the completion of a transfer referred to in subsection (1), it is hereby declared for the avoidance of
doubt that the terms and conditions of service of an employee whose contract of service is preserved under that
subsection shall be the same as those enjoyed by him immediately prior to the transfer.

(5) PARTIES

• Important: Transfer of Good Title

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• Where not convenient to contract with certain parties due to certain issues, may decide to acquire shares >
assets (or vice versa)

- Incapacity of Sellers – usu buying business/shares – indiv or corp shrs

 issues arising depending on nature of aprties
- Many Shareholders

- Note: Shares acquisition  seller is the shareholder. Asset acquisition  seller is the target company.
- Where T Co has more than 1 shareholder, consider following factors… …

i) Incapacity of Sellers
- Sellers must be able to pass good title in shares to client
- Factors affecting ability to transfer good title
 shareholdes are Individual
• Minors?
• Bankrupt? - Bankrupt – arrange for title to come from Official Assignee
• infants / bankrupts – no capacity to transfer shares.
• deceased persons – has the estate been administered?
• Foreigners? – limitations based on domicile
- Look at Register of Members
• May acquire assets > shares
 Shrs are corporation
• Requirement of Board approval?
• Complex situation where Board is split
• May acquire assets > shares
• SH of these corporations shld be united in their decision to sell the shares of T Co.
• Wld there be problem with obtaining majority decision at Board or SH level to authorise
sale of shares of T Co?
• Constit documents to see whether have capacity to sell
• Foreign corpn – get advice on foreign juris whether reqts satisfied
• Searches to ensure tt company not winding up
• If there are doubts / difficulties as to ability of seller to pass good title above, asset transfer may be more
viable option.

ii) Many Shareholders/ Public holding shares

• Some companies have large number of shareholders (e.g. public listed company). It may be impractical to
negotiate with all of the SH for the purchase of their shares.
• Law recognises difficulty in contracting with all these shareholders and there are provisions in the Act to
deal with these

 In this situation, ostensibly problematic to have share acquisition and asset acquisition is preferred.
 However, where company still wants share acquisition, can do so primarily in 2 ways –

i. Take-over Offer
- Make offers to all shareholders
- Will never acquire 100% of the Target company, since some shareholders may not consent to sell/ some
deceased/ not bother with offer/ etc
- vol takeover offer – 90 percent reqt – then can ex compul acquisition – section 215 CA
- so two main choices (see below) - easiest is to make takeoever offer with lower threshold of 90 percent –
more likely to succeed

ii. Scheme of Arrangement– s210 – 212 CA

- Not required to make offer to all shareholders individually

27
- Advantage: if with approvals obtained at each stage, and proper process is followed, then will get 100%
shares of the Target company
- scheme approved by requisite maj:
- to acq whole of company or just part
• scheme is sth that target comp – dir will propose so controlling process more in hands of target comp than
offeror – can also apply to court; once order, then diff to change or adjust

- “2-step Approval”
a) Shareholders – 75/50 – decision on whether they approve of the scheme, a requirement of 50% of
shareholders (in numbers) with a total holding of 75% in value of the shares
 S210 and s211 provide for scheme of arrangement to be present by T Co. Scheme put in place
when acquiror wishes to take over all the shares and privatise the T Co.
 Provisions deal with going to court and applying for a Court Order; once court gives an order, then
it binds all the shareholders
 Before going to court, T Co must have a shareholders meeting. Requisite approval – 75% of the
shareholders who own 50% of shares [super majority]
 i.e. those who are present at the meeting must hold 50% of the shares!
 This majority will bind those who abstain or decide not to vote
 Note: S212 CA facilitates the vesting of assets where the arrangement involves the acquisition of
assets of a co.

b) Court – effect of Court order: binding on all shareholders, whether objected at the shareholders meeting
or turned up for the meeting in the first place
(Important where objective is to privatise/ to acquire whole company)

- Sections 210 –212, Companies Act – subject to the scheme being approved at a shareholders’ meeting and
by the court, these provisions may be usefully employed for the acquisition of shares held by a large number
of shareholders (including dissenting shareholders)

Section 210
(1) Where… [an] arrangement is proposed between … the company and its members or any class of them,
the Court may, on the application in a summary way of the company or… member of the company, or in
the case of a company being wound up, of the liquidator, order a meeting… of the members of the
company or class of members to be summoned in such manner as the Court directs.
(2) A meeting held pursuant to an order of the Court made under subsection (1) may be adjourned from time
to time if the resolution for adjournment is apporved by a majority in number representing three-fourths
in value of the… members or class of members present and voting either in person or by proxy at the
meeting.

(11) In this section –

“arrangement” includes a reorganisation of the share capital of a company by the consolidation of shares of
different classes or by the division of shares into shares of different classes or by both these methods;

Section 211 provides for procedure (notices etc.) where meeting is summoned under section 210.
Information as to compromise with creditors and members.
211. —(1) Where a meeting is summoned under section 210, there shall —
(a) with every notice summoning the meeting which is sent to a creditor or member, be sent also a statement
explaining the effect of the compromise or arrangement and in particular stating any material interests of the
directors, whether as directors or as members or as creditors of the company or otherwise, and the effect
thereon of the compromise or arrangement in so far as it is different from the effect on the like interests of
other persons; and
(b) in every notice summoning the meeting which is given by advertisement, be included either such a
statement or a notification of the place at which and the manner in which creditors or members entitled to
attend the meeting may obtain copies of such a statement.
(2) Where the compromise or arrangement affects the rights of debenture holders, the statement shall give the
like explanation with respect to the trustee for the debenture holders as, under subsection (1), a statement is
required to give with respect to the directors.

28
(3) Where a notice given by advertisement includes a notification that copies of such a statement can be
obtained, every creditor or member entitled to attend the meeting shall on making application in the manner
indicated by the notice be furnished by the company free of charge with a copy of the statement.
(4) Each director and each trustee for debenture holders shall give notice to the company of such matters
relating to himself as may be necessary for the purposes of this section within 7 days of the receipt of a request
in writing for information as to such matters.
(5) Where default is made in complying with any requirement of this section, the company and every officer of
the company who is in default shall be guilty of an offence and shall be liable on conviction to a fine not
exceeding $5,000 or to imprisonment for a term not exceeding 12 months.
(6) For the purpose of subsection (5), the liquidator of the company and any trustee for debenture holders shall
be deemed to be an officer of the company.
(7) Notwithstanding subsection (5), a person shall not be liable under that subsection if he shows that the
default was due to the refusal of any other person, being a director or trustee for debenture holders, to supply
the necessary particulars as to his interests.

Section 212 provides for the vesting of assets where the arrangement involves the acquisition of assets of a
company (facilitates reconstruction and amalgamation of companies).
Approval of compromise or arrangement by Court
212. —(1) Where an application is made to the Court under this Part for the approval of a compromise or
arrangement and it is shown to the Court that the compromise or arrangement has been proposed for the
purposes of or in connection with a scheme for the reconstruction of any company or companies or the
amalgamation of any two or more companies and that under the scheme the whole or any part of the
undertaking or the property of any company concerned in the scheme (referred to in this section as the
transferor company) is to be transferred to another company (referred to in this section as the transferee
company), the Court may either by the order approving the compromise or arrangement or by any subsequent
order provide for all or any of the following matters:
(a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or
liabilities of the transferor company;
(b) the allotting or appropriation by the transferee company of any shares, debentures, policies or other like
interests in that company which under the compromise or arrangement are to be allotted or appropriated by
that company to or for any person;
(c) the continuation by or against the transferee company of any legal proceedings pending by or against the
transferor company;
(d) the dissolution, without winding up, of the transferor company;
(e) the provision to be made for any persons who, within such time and in such manner as the Court directs,
dissent from the compromise or arrangement;
(f) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction
or amalgamation shall be fully and effectively carried out.
(2) Where an order made under this section provides for the transfer of property or liabilities, then by virtue of
the order that property shall be transferred to and vest in, and those liabilities shall be transferred to and
become the liabilities of, the transferee company, free in the case of any particular property if the order so
directs, from any charge which is by virtue of the compromise or arrangement to cease to have effect.
(3) Where an order is made under this section, every company in relation to which the order is made shall
lodge within 7 days of the making of the order —
(a) a copy of the order with the Registrar; and
(b) where the order relates to land, an office copy of the order with the appropriate authority concerned with
the registration or recording of dealings in that land,
and every company which makes default in complying with this section and every officer of the company who
is in default shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $2,000 and
also to a default penalty.
(4) No vesting order, referred to in this section, shall have any effect or operation in transferring or otherwise
vesting land until the appropriate entries are made with respect to the vesting of that land by the appropriate
authority.
(5) In this section —
"liabilities" includes duties;
"property" includes property, rights and powers of every description.
(6) Notwithstanding section 210 (11), “company” in this section does not include any company other than a
company as defined in section 4.

29
Power to acquire shares of shareholders dissenting from scheme or contract approved by 90% majority.
215. —(1) Where a scheme or contract involving the transfer of all of the shares or all of the shares in any
particular class in a company (referred to in this section as the transferor company) to another company or
corporation (referred to in this section as the transferee company) has, within 4 months after the making of the
offer in that behalf by the transferee company, been approved as to the shares or as to each class of shares
whose transfer is involved by the holders of not less than 90% of the total number of those shares (excluding
treasury shares) or of the shares of that class (other than shares already held at the date of the offer by the
transferee company, and excluding any shares in the company held as treasury shares), the transferee company
may at any time within two months, after the offer has been so approved, give notice in the prescribed manner
to any dissenting shareholder that it desires to acquire his shares; and when such a notice is given the
transferee company shall, unless on an application made by the dissenting shareholder within one month from
the date on which the notice was given or within 14 days of a statement being supplied to a dissenting
shareholder pursuant to subsection (2) (whichever is the later) the Court thinks fit to order otherwise, be
entitled and bound to acquire those shares on the terms which, under the scheme or contract the shares of the
approving shareholders are to be transferred to the transferee company or if the offer contained two or more
alternative sets of terms upon the terms which were specified in the offer as being applicable to dissenting
shareholders.
(2) Where a transferee company has given notice to any dissenting shareholder that it desires to acquire his
shares, the dissenting shareholder shall be entitled to require the company by a demand in writing served on
that company, within one month from the date on which the notice was 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 transferee company shall not be entitled or bound to acquire the shares of the dissenting shareholders
until 14 days after the posting of the statement of such names and addresses to the dissenting shareholder.
(3) Where, in pursuance of any such scheme or contract, shares in a company are transferred to another
company or its nominee and those shares together with any other shares in the first-mentioned company held
by the transferee company at the date of the transfer comprise or include 90% of the total number of the shares
(excluding treasury shares) in the first-mentioned company or of any class of those shares, then —
(a) the transferee company shall within one month from the date of the transfer (unless on a previous transfer
in pursuance of the scheme or contract it has already complied with this requirement) give notice of that fact in
the prescribed manner to the holders of the remaining shares or of the remaining shares of that class who have
not assented to the scheme or contract; and
(b) any such holder may within 3 months from the giving of the notice to him require the transferee company
to acquire the shares in question,
and where a shareholder gives notice under paragraph (b) with respect to any shares, the transferee company
shall be entitled and bound to acquire those shares on the terms on which under the scheme or contract the
shares of the approving shareholders were transferred to it, or on such other terms as are agreed or as the Court
on the application of either the transferee company or the shareholder thinks fit to order.
(4) Where a notice has been given by the transferee company under subsection (1) and the Court has not, on an
application made by the dissenting shareholder, ordered to the contrary, the transferee company shall, after the
expiration of one month after the date on which the notice has been given or, after 14 days after a statement
has been supplied to a dissenting shareholder pursuant to subsection (2) or if an application to the Court by the
dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the
notice to the transferor company together with an instrument of transfer executed, on behalf of the shareholder
by any person appointed by the transferee company, and on its own behalf by the transferee company, and pay,
allot or transfer to the transferor company the amount or other consideration representing the price payable by
the transferee company for the shares which by virtue of this section that company is entitled to acquire, and
the transferor company shall thereupon register the transferee company as the holder of those shares.
(5) Any sums received by the transferor company under this section shall be paid into a separate bank account,
and any such sums and any other consideration so received shall be held by that company in trust for the
several persons entitled to the shares in respect of which they were respectively received.
(6) 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 two years and shall before the expiration of 10 years from the date on which such
consideration was allotted or transferred to it, transfer such consideration to the Official Receiver.
(7) The Official Receiver shall sell or dispose of any consideration so received in such manner as he thinks fit
and shall deal with the proceeds of such sale or disposal as if it were moneys paid to him in pursuance of
section 322.

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 (8) In this section, dissenting shareholder includes a shareholder who has not assented to the scheme or
contract and any shareholder who has failed or refused to transfer his shares to the transferee company in
accordance with the scheme or contract.
(9) For the purposes of this section, shares held or acquired —
(a) by a nominee on behalf of the transferee company; or
(b) by a related corporation of the transferee company or by a nominee of that related corporation,
shall be treated as held or acquired by the transferee company.
(10) The reference in subsection (1) to shares already held by the transferee company includes a reference to
shares which the transferee company has contracted to acquire but that shall not be construed as including
shares which are the subject of a contract binding the holder thereof to accept the offer when it is made, being
a contract entered into by the holder for no consideration and under seal or for no consideration other than a
promise by the transferee company to make the offer.
(11) Where, during the period within which an offer for the transfer of shares to the transferee company can
be approved, the transferee company acquires or contracts to acquire any of the shares whose transfer is
involved but otherwise than by virtue of the approval of the offer, then, if —
(a) the consideration for which the shares are acquired or contracted to be acquired (referred to in this
subsection as the acquisition consideration) does not at that time exceed the consideration specified in the
terms of the offer; or
(b) those terms are subsequently revised so that when the revision is announced the acquisition consideration,
at the time referred to in paragraph (a), no longer exceeds the consideration specified in those terms,
the transferee company shall be treated for the purposes of this section as having acquired or contracted to
acquire those shares by virtue of the approval of the offer.

iii. New Amalgamation Process without Court Order (Sections 215A to 215J)
• dirs of cboth comp to make declaration of solvency
• new in sg
• courts treading sympathetically – signif liab on directors

- Take-over Offer – is this nec? Will code on takeover and merger apply?

• 1. S’pore Code on Takeovers & Mergers (wef. 1 January 2002) – ensures that the offer document to
shareholders for the purchase of their shares is
a) sent out within a specified time;
b) contains prescribed information; and
c) clearly sets out the procedures for acceptance and completion of the transaction

 2. s139 and s140 Securities & Futures Act

o Where intending acquirer wishes to take over control of 30% or more of the shares BUT does
not intend to privatise it – s139 and s140 of Securities and Futures Act and Takeover Code
rules have to be complied to ensure all SH are fairly treated.
o E.g. Mandatory offer is triggered when client (who has less then 30%) acquires 30 % of the
shares of the T Co.
o Requirements / Rules:
• Code requires offer doc to SH for the prescribed info to be sent out within certain time,
contain certain info and clearly set out procedures for acceptance & completion of
transaction.
• See Takeover and Mergers Notes for more.
 Note: Some protection for the public shareholders by the Code – the target company’s directors
are also to give advice to their existing shareholders whether or not to accept the proposal; the
directors are to be advised by independent financial advisers
 Note: “takeovers” only applies to public companies, listed or not listed

ACQUISITION OF SHARES - ADDITIONAL ISSUES

- Granting Financial Assistance – be alert to this

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- Validity of Issue of Shares – otherewise may be defect in title or nullity
- liabilities inherited

1. Granting Financial Assistance - prohibition

Company financing dealings in its shares, etc.
76. —(1) Except as otherwise expressly provided by this Act, a company shall not —
(a) whether directly or indirectly, give any financial assistance for the purpose of, or in connection with —
(i) the acquisition by any person, whether before or at the same time as the giving of financial assistance, of —
(A) shares or units of shares in the company; or
(B) shares or units of shares in a holding company of the company; or
(ii) the proposed acquisition by any person of —
(A) shares or units of shares in the company; or
(B) shares or units of shares in a holding company of the company;

(b) whether directly or indirectly, in any way —

(i) acquire shares or units of shares in the company; or
(ii) purport to acquire shares or units of shares in a holding company of the company; or

(c) whether directly or indirectly, in any way, lend money on the security of —
(i) shares or units of shares in the company; or
(ii) shares or units of shares in a holding company of the company.

(2) A reference in this section to the giving of financial assistance includes a reference to the giving of
financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the
release of an obligation or the release of a debt or otherwise.

(3) For the purposes of this section, a company shall be taken to have given financial assistance for the purpose
of an acquisition or proposed acquisition referred to in subsection (1) (a) (referred to in this subsection as the
relevant purpose) if —
(a) the company gave the financial assistance for purposes that included the relevant purpose; and
(b) the relevant purpose was a substantial purpose of the giving of the financial assistance.

(4) For the purposes of this section, a company shall be taken to have given financial assistance in connection
with an acquisition or proposed acquisition referred to in subsection (1) (a) if, when the financial assistance
was given to a person, the company was aware that the financial assistance would financially assist —
(a) the acquisition by a person of shares or units of shares in the company; or
(b) where shares in the company had already been acquired — the payment by a person of any unpaid amount
of the subscription payable for the shares or of any premium payable in respect of the shares, or the payment of
any calls on the shares.

• S76 CA does not allow company to directly or indirectly grant any financial assistance for the acquisition of
its own shares
o Client cannot borrow money from T Co to pay purchase price to seller
o Client cannot get T Co to guarantee a bank to lend money to client to be used for payment for
shares of T Co
- Note: Criminal offence if s76 violated.
o S76 of Companies Act
o “A company shall not … give any financial assistance for the purpose of, or in connection with the
acquisition …. of shares”
 “Whitewash” procedures provided under Sections 76(9A), 76(9B) and 76(10) (the orig way)
o White Wash [s76(10)]: If there is financial assistance issue, can get SH to whitewash the transaction
according to the provision (special resolution)

S76 – (10) Nothing in subsection (1) prohibits the giving by a company of financial assistance for the purpose
of, or in connection with, an acquisition or proposed acquisition by a person of shares or units of shares in the
company or in a holding company of the company if —

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 (a) the company, by special resolution, resolves to give financial assistance for the purpose of or in connection
with, that acquisition;

 two new ways – also declaration of solvency by directors first

 but reservations about new methods for the time being

(9A) Nothing in subsection (1) prohibits the giving by a company of financial assistance for the purpose of, or
in connection with, an acquisition or proposed acquisition by a person of shares or units of shares in the company
or in a holding company of the company if —
(a) the amount of the financial assistance, together with any other financial assistance given by the company
under this subsection repayment of which remains outstanding, would not exceed 10% of the aggregate of —
(i) the total paid-up capital of the company; and
(ii) the reserves of the company,
as disclosed in the most recent financial statements of the company that comply with section 201;
(b) the company receives fair value in connection with the financial assistance;
(c) the board of directors of the company passes a resolution that —
(i) the company should give the assistance;
(ii) giving the assistance is in the best interests of the company; and
(iii) the terms and conditions under which the assistance is given are fair and reasonable to the company;
(d) the resolution sets out in full the grounds for the directors’ conclusions;
(e) all the directors of the company make a solvency statement in relation to the giving of the financial
assistance;
(f) within 10 business days of providing the financial assistance, the company sends to each member a notice
containing particulars of —
(i) the class and number of shares or units of shares in respect of which the financial assistance was or is to be
given;
(ii) the consideration paid or payable for those shares or units of shares;
(iii) the identity of the person receiving the financial assistance and, if that person is not the beneficial owner of
those shares or units of shares, the identity of the beneficial owner; and
(iv) the nature and, if quantifiable, the amount of the financial assistance; and
(g) not later than the business day next following the day when the notice referred to in paragraph (f) is sent to
members of the company, the company lodges with the Registrar a copy of that notice and a copy of the solvency
statement referred to in paragraph (e).
(9B) Nothing in subsection (1) prohibits the giving by a company of financial assistance for the purpose of, or
in connection with, an acquisition or proposed acquisition by a person of shares or units of shares in the company
or in a holding company of the company if —
(a) the board of directors of the company passes a resolution that —
(i) the company should give the assistance;
(ii) giving the assistance is in the best interests of the company; and
(iii) the terms and conditions under which the assistance is given are fair and reasonable to the company;
(b) the resolution sets out in full the grounds for the directors’ conclusions;
(c) all the directors of the company make a solvency statement in relation to the giving of the financial
assistance;
(d) not later than the business day next following the day when the resolution referred to in paragraph (a) is
passed, the company sends to each member having the right to vote on the resolution referred to in paragraph (e)
a notice containing particulars of —
(i) the directors’ resolution referred to in paragraph (a);
(ii) the class and number of shares or units of shares in respect of which the financial assistance is to be given;
(iii) the consideration payable for those shares or units of shares;
(iv) the identity of the person receiving the financial assistance and, if that person is not the beneficial owner of
those shares or units of shares, the identity of the beneficial owner;
(v) the nature and, if quantifiable, the amount of the financial assistance; and
(vi) such further information and explanation as may be necessary to enable a reasonable member to understand
the nature and implications for the company and its members of the proposed transaction;
(e) a resolution is passed —
(i) by all the members of the company present and voting either in person or by proxy at the relevant meeting; or
(ii) if the resolution is proposed to be passed by written means under section 184A, by all the members of the
company,

33
to give that assistance;
(f) not later than the business day next following the day when the resolution referred to in paragraph (e) is
passed, the company lodges with the Registrar a copy of that resolution and a copy of the solvency statement
referred to in paragraph (c); and
(g) the financial assistance is given not more than 12 months after the resolution referred to in paragraph (e) is
passed.

2. Validity of Issue of Shares

• If client is acquiring shares that already have been issued (existing shares), have to ensure that those shares
have been properly acquired in the 1st place
• S161 CA – company cannot issue shares without the prior approval of its SH in general meeting
o Without s161 approval, issue of shares is void, no valid transfer and client will not get good title to
shares. And you will get sued!
• Have to go to court to get a rectification
• Court order – can validate issue: section 161, Companies Act
• Court looks if any party prejudiced when validation is given
• Requirement: must have prior approval of its shareholders in general meeting – the issue of shares in breach
of this requirement is void
• Especially important to check validity of issued shares of IPOs

161 – (1) Notwithstanding anything in a company’s memorandum or articles, the directors shall not, without
the prior approval of the company in general meeting, exercise any power of the company to issue shares.
 S161 of Companies Act
o “… the directors shall not, without the prior approval of the company in general meeting,
exercise any power of the company to issue shares”
 check when shares issued and check secretarial records to show that auth given so that shares were validly
issued
 ensure that auth given and proper transfer and person selling has proper title

3. Liabilities

• For shares acquisition, client is in fact acquiring the company – i.e. co’s assets and liabilities. Transfer of
shares of co does NOT extinguish co’s liabilities.
o Check with the client to see whether they really want to incur all the liabilities of the company

• For assets acquisition, however, liabilities remain with T Co (unless they are specifically contracted to be
taken over).
o Only exception is under S18A of Employment Act, acquirer of biz as going concern takes over
all employees involved in the biz, including all liab outstanding in respect of their
employment

• Take-over of a company results not only in the indirect acquisition of all the assets of the company, also of
all its liabilities. Transfer of shares of a company does not extinguish its liabilities.
- Where only the assets are acquired, the liabilities remain with T Co., unless they are specifically contracted
to be taken over.
- *Exception – section 18A Employment Act: acquiror of business as a going concern takes over all
employees involved in the business, including all liabilities outstanding in respect of their employment
contracts. (see above)

4. Consents From Third Parties

 3rd parties consent may be required on certain matters and likelihood of consent being denied may influence
course of action

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(1) Right of 1st refusal (Pre-Condition for Acq of Shares)
 Entrenched in the Articles of Association of private companies
 Mandatory provision: must have built-in right of pre-emption; restriction of transfer of shares
 Must 1st offer shares to fellow-shareholders before offering to Third Party (outsider)
 Failure to do so will give existing shareholders the right to set aside the sale
 When acting for Third Party Buyer,
a) ensure that existing shareholders have been first offered; or
b) obtain waiver from existing shareholders before purchase shares
(Pre-condition for shares acquisition; not arise in assets acquisition)
 Right of First Refusal – must first be offered to existing memvers of company. To ensure that proced goen
through, or have them waive their rights of first refusal
• For private companies, there are always provisions in articles of association that provide for restrictions
on transfer of shares
o Existing SH have first right to buy shares held by another SH intending ot sell them i.e. have to
offer the shares to existing shareholders first; only if they decline, can you offer to 3rd parties
• Failure to do so will give existing SH right to set aside sale. So if client is not existing SH, ensure that
existing SH have been first offered to buy the shares.
• Waiver: Alternatively, they may be approached to waive their right of first refusal.
• No such pre-condition for acq of assets.

(2) Foreign Parties / Assets

 Cross-border acquisitions
 If dealing with foreign parties or co with assets in foreign jurisdiction, check with foreign lawyers to see if
there are restrictions or regulations to be complied with.
 Foreign Parties/Assets – comp itself if foreigner or assets in foreign juris – then investigate whether any
foreign approval needed for transactin.
 Exchange Control Restrictions may be imposed by foreign gov such that repatriation of funds upon any
subsequent sale of assets in the foreign juris may be problem if exchange control requirements have not been
observed.
 if any money paid or asset transferred – this may apply like in Malaysia, india etc – ex control restrictins
changed. Early 1970s, suspended in Singapore
o Eg. Where Buyer acquired foreign assets, problems involving repatriation of funds upon any subsequent sale
of such assets, if any exchange control requirements have not been observed
o Foreign Investment Approvals eg in Malaysia, indonesiam Thailand, stimes australia

(3) Acquisition or disposal of Substantial Assets

• S160 CA – where you are disposing substantial part of assets of the company, have to get shareholders’
approval

160. --(1) Notwithstanding anything in a company’s memorandum or articles, the directors shall not carry into
effect any proposals for disposing of the whole or substantially the whole of the company’s undertaking or
property unless those proposals have been approved by the company in general meeting.

 Acquisition of Substantial Assets – might be nec for selling comp to get approval under s160 CA which
prov tt comp selling subst whole undetakintg needs shr approval
o see chapter 10 listing manual of sg exchange securities trading limited – SGX-ST reqg tt maj
transactions be apopoved by shrs
 Buyer will have to ensure that shareholders’ approval has been obtained where assets comprise all or
substantial portion of the Seller’s undertaking and property – section 160, Companies Act
 Eg. If a company has only 1 asset – a large piece of land; A wants to purchase it

(4) Other 3rd party approvals

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 Other Third Party Approvals – may be neded for partr contracts eg banks; also depends on partr nature of
comp business
• Approval from mortgagee bank
o Cannot acquire w/o bank’s approval and release of property from mortgage at completion of
transaction.
 requires Bank’s consent to sell asset; ensure the Seller obtained consent
a) Mortgagee’s approval; and b) Release of property from the mortgage at the completion of the
transaction
• Jurong Town Corporation lease
o Acq of prop on JTC lease req approval of JTC
o where company owns JTC land (especially many manufacturing companies operating from
leasehold properties leased from JTC
• Monetary Authority of Singapore
o Acq of > 5% of shares in banks and finance companies req approval of MAS – Banking Act and
Finance Companies Act
o eg stockbroking industry related business
 Specific legislation precluding acquisition of shares or assets of certain businesses without the
prior approval of the regulatory authority
o Eg. MAS approval – required where acquisition of more than 5% shares of banks and finance
companies (including Insurance companies
 Public Listed company – cannot enter into a major transaction with interested persons without approval of
its shareholders in general meeting
- Approvals required as per SGX Listing Manual (eg. consents from “interested persons”)
- Usually consents entrenched in Agreement as “conditions precedent”

TAX SAVINGS

(1) Stamp Duty on Shares / Assets

 Change of law – 1998

 Pre-1998: Each time move assets, stamp duty is payable
 Post-1998: Only pay stamp duty where interest in shares or property are involved (the rest have
been abolished)
 For shares traded on SGX, moving from 1 account to another requires no stamp duty (exemption)

Stamp Duty payable

Land 3%
Shares 0.2%

 Thus, may consider shares > assets acquisitions

• Landed property:
o 3% stamp duty (above specified value)
• Shares – 0.2%
o 0.2% based on the higher of consideration paid and market val of shares.
 For listed securities, ascertained by ref to stock market indices.
 For shares of private co, IRAS would normally use the net asset value (based on the latest
available audited accounts) as benchmark for calculating stamp duty.
 If co owns landed prop, IRAS may req valuation of prop.
o Scriptless trading
 Only instrument of transfer of shares attracts stamp duty; NO stamp duty payable on
Agreement for transfer of shares.

36
  Thus no stamp duty on electronic transfers effected on the course of stock market
transaction of shares of co listed on SGX.
o Scripless Trading on SGX – exemption. Most shares now are traded scripless
o easy to make shres scripless and transferrewd scriplessly so as to exempt stamp duty
• Except for stamp duty for transfer of shares and landed prop, stamp duty on other assets abolished in 1998.
o Stamp Duty – whether buying shares or assets will have this –

Relief from Stamp Duty

 Reconstruction and Amalgamation – transferring business to comp so that comp becomes subsidiary in
return for assets
 Transfer between Associated Companies – transfers bet companies in same grp

 Special Exemption from ad valorem stamp duty under s15 of Stamp Duties Act 2000

Section 15
(1) If it is shown to the satisfaction of the Commissioner that the prescribed conditions have been fulfilled,
ad valorem stamp duty… shall not be chargeable on any instrument made on or after 1st July 2000 for
the purposes of or in connection with —
(a) the transfer of the undertaking or shares in respect of a scheme for the reconstruction of any company or
companies, or the amalgamation of companies; or
(b) the transfer, conveyance or assignment of any beneficial interest in any asset between associated
companies.

• For transfer of shares or undertaking of a co in connection with a scheme for its reconstruction or
amalgamation.
• Exemption when:
o (i) > 90% of shares are being transferred in exchange for shares of the acquirer OR
o (ii) business of co is acquired as going concern in exchange for issue of shares by acquiror.
o involves either “share-to-share” or “asset-to-share” swap
o Relief on Reconstruction and Amalgamation - 90% of consideration in the form of shares

• Transfers between associate co are also exempted under Stamp Duties Rules, 2000.
o “Asset transfer situation “
o “Associated Company” – must be 75% owned by one of the other
o Relief on Transfer of Assets between
- (i) Associated Companies;
• - consideration either in cash or shares
- (ii) Associated Companies or Registered Business Trusts
 Note: S15 and Rules complicated and according to manual, all we need to know is that these tax
exemptions are available and shld be considered.

(2) Income tax (implications is > 50% change in SH)

• Basis of calculation of Income Tax

o Net income after deduction of allowable expenses, capital allowances and losses.
• Capital allowances and losses may be accumulated and carried forward to subsequent years if there is
insufficient. income in particular year to fully absorb them.
• HOWEVER, right to carry forward accumulated capital allowance and losses is lost if there is more > 50%
change of SH of co.
o s23(2) Income Tax Act: carry forward of capital allowances
o s37(5) Income Tax Act: carry forward losses

37
  – whether transactions give rise to Income tax chage where sellers tading in assets sold, then
profits on sale subj to income tax
 whether accumulated losses can be carried forward after prucahse or lost – if change of more
htan 50 percent of shrs
 same applies to capital allowances

 Capital allowances – Section 23(2) Income Tax Act (carry forward capital allowances)

Section 23(2)
(2) No balance shall be added to and be deemed to form part of the corresponding allowance, if any, to be
given to a company under subsection (1) unless the Comptroller is satisfied that the shareholders of the
company on the last day of the year in which the allowances arose were substantially the same as the
shareholders of the company on the first day of the year of assessment in which such allowances would
otherwise be available under this section and such a balance shall not be allowed in any subsequent year
of assessment.

 E.g. Company with profits & bought machinery;

a) Can set-off allowance against profits so as to reduce or negate tax; or
b) Can also carry over losses– till sufficient profits are obtained to set-off – section 37(5) Income Tax Act

Section 37(5)
(5) Notwithstanding anything in subsection (2), the amount of any loss incurred by a company in any trade or
business shall be disregarded unless the Comptroller is satisfied that the shareholders of the company on
the last day of the year in which the loss was incurred were substantially the same as the shareholders of
the company on the first day of the year of assessment in which such loss would otherwise be deductible
under subsection (2).

 But once 50% shares are transferred, lose right to carry over (50% change in shareholding)
Date being the last day of the financial year the capital allowance accrued, and the 1st day of the financial
year where the shares were acquired

(3) Goods & Services Tax

• GST = 5%
• Sale of shares – no GST, not goods/ services
• Sale of Assets – no GST payable upon any transaction if it is a sale of assets as a going concern. Otherwise,
sale of assets (not as going concern), 5% GST payable.
 Goods & Services Tax – GST x apply to purchase of shares but to most acquisitions of assets
o some exceptions – reconsturciotn – grp relief for GST purposes

DOCUMENTATION
 Upon review of above issues and obtaining instructions from clients, ready to proceed with documentation

 Private sale/ by assets and shares will have agreement ->

 Where by shares – need to deal with fact that acqg all liab – want to have more extensive repn and
warranties and possibly indemnities to cover potential liab esp where unknown

(1) Sale and Purchase Agreement

 Documentation takes form of S&P Agreement of either shares or assets.
o Representations and warranties: Common for seller to give representations and warranties
relating to biz (most heavily negotiated part of agreement)
- – both in shares and assets but for assets – don’t acq all liab so not that impt
o Indemnity: Seller may also give indemnity for losses that buyer may suffer as result of breach of
representations and warranties. Seller will try to limit scope of indemnity by imposing limited life
or y capping exposure.

38
 if business is fairly risky or likely that issues of liab tt might not be known till many yrs later then might
want ot buy assets than shares
o can prxt though reps and war but always limitaitn of scope
- greatly negotiated area
- time – how long can make claim for breach?

(2) Stages of agreement

 stage 01: signing
 stage 02: completion of sale
o Completion will not take place until fulfilment of conditions precedent (e.g. approvals from 3rd
parties)
o At completion, parties sign and exchange doc req for transfer of shares/assets to buyer against
payment of purchase price.
o Completion - No later than 2 or 3 yrs after date of comp
 Refer to sample agreements for acq of shares / assets in lecture.

 General takeover – different – governed by takeover code instead

o Contractual document
o Reqts of code
 Scheme of arrangement – documentation reqd – approval by shrs etc; also documentation nec for courts to
approve; operative by comp rathr than by contract

CASE STUDY: ACQUISITION OF CORPORATE BUSINESS

Sembawang Corporation Limited Transaction

Transfer of Shipyard Operations of SembCorp Group to Jurong Shipyard Limited

Sembawang Corporation Limited

- listed on the Stock Exchange of Singapore
- diversified group with following principal activities:-
 shipyard operations
 engineering and construction
 transportation
 real estate development

Singapore Shipyard Operations

- carried out under Shipyard Division of SembCorp (not a separate entity)
- operated on foreshore leased property
- ship repair and conversion contracts
- shipyard employees

Decision for JSL

Which to acquire
Shares or Assets (business)
Issues???
Complex – to acq assets wld be complex with many long term contracts with many employees vs shares
but not business alkso x make sense since shipyard business

The Deal
- SembCorp hives down shipyard operations to Sembawang Marine (SM) (100% subsidiary)
- JSL acquires shares of SM
- JSL issues its own shares (15% of JSL) as consideration
- SembCorp sub-leases foreshore site

The Hive Down to SM 0 see chart

Why?
Sembcorp – 100 per cent - SM

39
- transfer of shipyard operations to SM
- issue by SM of shares as consideration for transfer
 => Stamp Duty exemption under Section 15 of Stamp Duties Act (where transaction done within
grp)

Jurong Shipyard Limited

- Approvals
 Shareholders’ Approval
- Acquisition of Substantial Assets (SGX)
- Issue of New Shares under S.161 – shr approval – leasing foreshore land –
- also SGX rules. Any large transaction will need to be approved by shareholders
- Sublease - Interested Party Transaction (SGX)
o Substantial shareholder
o Chapter 9 Transaction
 Stock Exchange Approval – in addition to shr approval
- Listing of New Shares- Listing Manual

See cover page of jurong shipyard circular to shareholders

Safeguard mandated by listing rules to ensure that transaction done on fair terms

Sembawang Corporation Limited

- Approvals
 Shareholders’ Approval
• Disposal of Substantial Assets (S.160) – may or may not be relevant here. SGX listing
manual?
• Takeover Offer
o Sembcorp already 24 pecent interest in jurong shipyward – cross threshold of
manaotyr takeover offer so need to make takeover offer
o Threshold is 30 percent to 50 percent
• Issue of New Shares -
 Land Office Approval
• Sub-Lease
• Foreshore land

See Sembawang corp circular to shrs

Offer of cash – no choice

Epilogue
- Transaction completed on 31 July 1997
- JSL issued 27.5 million shares ($187.4 million) to SembCorp
- SembCorp’s holding in JSL increased from 23.4% to 39%
- SembCorp issued Takeover Offer - 15 August 1997

See eg of takeover conitinak offer by standard chartered on behalf of sembcorp

See jurong circular to shrs relating to conditionalk offer
- not earlier than 14 days and not later than 21 days after announcement
- then to issue shrs circular containing advice of indep financial advisor
- gives advice to indep dirs to give recomendaitons to shrs as to whether shld accept the offer

Before – see chart

Restructuring by Seller – see chart

Sembawang Marine (S M) (Seller’s 100% subsidiary)
Transfer of shipyard operations business
100% shares

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Position before sale of SM shares - chart
Seller Buyer - SM

Position after Transaction - chart

Seller Buyer
SM
100%

Takeover Offer
Minority of shareholders
of JSL
Offeree
Offeror
39%
(inclusive concert parties)

Position after Takeover

SembCorp – 71 per cent JSL – 100 percent - SM
Ie merger effectively bet jurong shipyard and sembcorp marine

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