Several changes have been made to the Malaysian Takeovers and Mergers Code, which now requires companies to adopt a higher level of disclosure and makes independent directors more than just rubber stamps.
According to the Securities Commission (SC), key changes incorporated into the Malaysian Takeovers and Mergers Code 2010 benefit shareholders and include protection for investors of foreign companies and real estate investment trusts listed on Bursa Malaysia, shorter settlement periods and enhanced disclosures in offer documents and independent advice circulars.
The new regulations, which come into force today, replace the Malaysian Code on Takeovers and Mergers 1998.
However, the changes do not address the controversial issue of preventing the privatisation of companies via the asset and liability (A&L) route, which is part of the Companies Act.
According to bankers familiar with the regulations, the SC is looking at curtailing the takeover of companies via the A&L route through changes to listing requirements as it would be less cumbersome.
“Changes to the asset-disposal route can’t be done as we can’t touch on the Companies Act (CA),” said one banker.
The controversy surrounding the takeover or privatisation of companies via the A&L route lies in the fact that it requires only the approval of 50% of shareholders plus one share. Other takeover methods require at least 75% shareholder approval.
A few months ago, the SC had issued a consultative paper seeking the opinions of stakeholders on a proposal to raise the level of shareholder approval in privatisations or takeovers of companies via the A&L route, to bring them in line with the rules in other countries. In Hong Kong and New Zealand, for example, the approval of at least 75% of the shareholders of a target company is required.
“But the response we received was mixed. There are groups with totally opposing views so the implementation will not be so soon,” said one banker.
“The new changes reflect some of the measures required to enhance investor protection. The previous regulations are 12 years old,” he added.
Among the more notable changes to the Takeover Code are:
• The requirement to be more transparent in the announcement on potential takeover offers. Under the new rules, potential offerors or offerees are required to make an announcement on possible offers when there are unusual changes in the company’s share price. They cannot hide behind the excuse of being unaware of developments involving major shareholders. This applies particularly to independent directors who would be required to make themselves aware of developments. If the potential offeror or offeree denies a takeover, they cannot undertake such an exercise within a period of six months.
• If material changes occur after the dispatch of documents, such as circular to shareholders, the SC must be notified immediately. For instance, during a takeover or privatisation exercise, if the promoters are undertaking other negotiations pertaining to the asset that is to be privatised, they have to inform the SC. This is to ensure shareholders are well informed of developments. An exmaple of this is when Maxis was privatised in 2007, less than two months later the promoters entered into a deal with Saudi Telekom. Under the new rules the promoters must inform the SC if they are negotiations with external parties.
• The new rules allow a voluntary offer to take over a company to be carried out at a higher threshold as a condition. At the moment, in most cases, a voluntary takeover offer is normally conditional upon the offeror getting 50% of the shares. Now the condition can be increased to 90%. This effectively means that that promoters cannot use excuse of “uncertainty” as a reason to use the A&L route to take over companies, especially financial institutions.
• The conduct of all parties, namely offerors, advisers and the boards of offerees are codified. These parties, especially the independent directors of the board are required to give timely disclosure to shareholders and are prohibited from undertaking actions that could frustrate an offer. This effectively means that independent directors are required to ensure that any offer for the company should be put before shareholders to decide on.
Though many will welcome the new regulations as signs of a maturing market, merchant bankers are likely to heave a sigh of relief that the changes do not plug the loophole for the privatisation of companies via the A&L route.
“Many were of the opinion that the revisions would adversely affect takeovers via the A&L route and bankers were concerned it would slow down corporate deals,” says one banker.
However, others disagree. They cite Hong Kong as an example. When the rules there covering the A&L route were changed and the threshold was increased to 75%, it did not affect deal flows.
According to the proponents who favour changes to the rules to prevent the A&L route from being used to take over or privatise companies, over time the rule was well received in Hong Kong.
“It can’t just be amended and implemented immediately. Hong Kong took a year to implement it [the changes in its Companies Act] ,” says a banker.
Hong Kong made amendments to its Companies Act in 2008 under which parties seeking to buy assets of listed firms are required to secure the approval of at least 75% of shareholders of the target company and not more than 10% of shareholders oppose the deal.
directors who would be required to make themselves aware of developments. If the potential offeror or offeree denies a takeover, they cannot undertake such an exercise within a period of six months.
• If material changes occur after the dispatch of documents, such as circular to shareholders, the SC must be notified immediately. For instance, during a takeover or privatisation exercise, if the promoters are undertaking other negotiations pertaining to the asset that is to be privatised, they have to inform the SC. This is to ensure shareholders are well informed of developments. An example of this was when Maxis was privatised in 2007, and less than two months later the promoters entered into a deal with Saudi Telekom. Under the new rules the promoters must inform the SC if they are negotiations with external parties.
• The new rules allow a voluntary offer to take over a company to be carried out at a higher threshold as a condition. At the moment, in most cases, a voluntary takeover offer is normally conditional upon the offeror getting 50% of the shares. Now the condition can be increased to 90%. This effectively means that promoters cannot use excuse of “uncertainty” as a reason to use the A&L route to take over companies, especially financial institutions.
• The conduct of all parties, namely offerors, advisers and the boards of offerees are codified. These parties, especially the independent directors of the board are required to give timely disclosure to shareholders and are prohibited from undertaking actions that could frustrate an offer. This effectively means that independent directors are required to ensure that any offer for the company should be put before shareholders to decide on.
Though many will welcome the new regulations as signs of a maturing market, merchant bankers are likely to heave a sigh of relief that the changes do not plug the loophole for the privatisation of companies via the A&L route.
“Many were of the opinion that the revisions would adversely affect takeovers via the A&L route and bankers were concerned it would slow down corporate deals,” said one banker.
Others disagree. They cite Hong Kong as an example. When the rules there covering the A&L route were changed and the threshold was increased to 75%, it did not affect deal flows. According to the proponents who favour changes to the rules to prevent the A&L route from being used to take over or privatise companies, over time the rule was well received in Hong Kong.
“It can’t just be amended and implemented immediately. Hong Kong took a year to implement it [the changes in its Companies Act] ,” said a banker.
Hong Kong made amendments to its Companies Act in 2008 under which parties seeking to buy assets of listed firms are required to secure the approval of at least 75% of shareholders of the target company and not more than 10% of shareholders oppose the deal. - by Yantoultra Ngui Yichen
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