What are the key means of effecting the acquisition of a publicly traded company?
Mergers & Acquisitions (3rd edition)
Generally speaking, acquisitions in Belgium usually take the form of a share deal or an asset deal. In a share deal, the shares of the target company are being transferred by means of a share purchase agreement. Through an asset purchase agreement, all or certain (cherry-picking) assets of the target company are being transferred.
Given the larger number of shareholders in a publicly traded company, it might prove difficult to enter into separate share purchase agreements. A controlling interest in publicly traded companies is usually acquired following a mandatory or voluntarily public offer for the shares of the target company.
Alternatively, a publicly traded company can be merged with another Belgian or EU company under the Belgian Companies’ Code. This type of transaction involves a transfer of the company’s assets and liabilities by operation of law. It can be effected through the absorption of a company or through merging into a new entity.
There are essentially four ways of acquiring a publicly traded company; namely merger, amalgamation, scheme of arrangement or the making of an offer to the shareholders of a publicly traded company to acquire their shares.
It is open for a potential acquirer, subject to compliance with rules and regulations of any applicable stock exchange, to present an offer to the shareholders of a Bermuda company which may, or may not, be recommended by the board of that target company. A company (whether incorporated in Bermuda or not) can make an offer to the target company's shareholders to acquire all of their shares in the target company. In the event that the offer reaches certain thresholds of acceptance, an acquirer can find themselves with certain rights and obligations to obtain the remaining shares as discussed further at questions 25, 26 and 27.
A scheme of arrangement is a court sanctioned compromise between a company and its creditors (or any class of them) or its members (or any class of them). In the context of an acquisition, a Bermuda company or any member may apply to the Bermuda Court requesting that the Court order a meeting at which the members (or any class of them) are asked to consider the scheme. If the approval is obtained of a majority in number representing three-fourths in value of members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, the Court may sanction the scheme and if so sanction, it becomes binding (subject to delivery of the requisite order of the Court to the RoC) upon the member (or any class of them, as the case may be).
Whilst any of these means would be open to a potential acquirer, we frequently see the acquisition of high profile publicly traded companies in Bermuda acquired by way of merger or amalgamation. Whilst the processes to complete either and practical effect are similar, from a technical stand point, each produces different results.
A merger between two (or more) Bermuda companies is typically effected pursuant to section 104H of the Companies Act and, upon completion, the undertaking, property and liabilities of each merging company is vested in the surviving company whilst the remaining company or companies cease to exist.
Conversely, an amalgamation between two (or more) Bermuda companies is typically effected pursuant to section 104 of the Companies Act and, upon completion, each of the companies become and continue as a single amalgamated company and the undertaking, property and liabilities of each becomes the property of the amalgamated company.
The Companies Act does not legislate as to whether a transaction should be structured as a merger or an amalgamation. Commercially and optically, companies might proceed by way of an amalgamation if structuring the business combination as a “merger amongst equals”, given that neither company is deemed to be the survivor. However, where one party is the “purchaser”, a merger may be the preferred choice.
In order to effect a merger or an amalgamation, the merger or amalgamation (including its terms) must be approved by the shareholders of the company, whether or not they ordinarily have a right to vote. As such, holders of non-voting preference shares may also vote on a merger or amalgamation.
There are often two agreements in the context of an amalgamation or merger. The main transaction agreement (the “Agreement and Plan of Merger/Amalgamation” (in the case of US transactions) or “Implementation Agreement” (in the case of English law transactions)), which will be subject to the law of the parties’ onshore counsel or the jurisdiction in which the company is listed or where the company conducts the majority of business, which sets out the terms and means of effecting the transaction and which will include comprehensive warranties, indemnities, conditions precedent, deal protection mechanisms (if any). In addition, a statutory merger or amalgamation agreement will also be used, which sets out that which is required to be approved by the shareholders under section 105 of the Companies Act.
Although M&A transactions are significantly higher for private companies rather than for publicly traded companies, the most common way to undertake an acquisition of a publicly traded company is by means of a public tender offer (oferta pública de adquisición). The public tender offer will be required to be directed to all shareholders in the event a person, directly or indirectly, either (i) proposes to become the beneficial owner of 25% or more of the total outstanding voting shares of a publicly traded company or (ii) is already the beneficial owner of 25% or more of the outstanding voting shares of such a company and intends to increase its ownership by more than 5%.
In addition, and although hostile bids are really not applicable in Colombia considering that there is usually a controlling shareholder and that the management of a company does not have a significant role in an acquisition, third parties unrelated to the transaction will be given the opportunity to interfere with a public tender offer and file competing bids.
The Act on Takeovers of Joint Stock Companies provides two options for triggering the takeover procedure: a mandatory tender offer and a voluntary tender offer.
The acquisition of control, whether by a privately negotiated share transaction with one or several major shareholders or by purchasing target shares on the stock exchange, triggers obligation of the purchaser to publish the acquisition of control and to launch a mandatory tender offer. Control is defined as holding of at least 25% of the voting rights of the target company.
- The limited number of companies listed on the stock market in our country is a limitation, in addition to the low liquidity of the listed companies´ shares.
- The securities market legislation establishes the regular mechanisms for the acquisition of shares of listed companies, particularly those mechanisms referred to the public offering of shares (OPA´s).
Public M&A transactions regarding listed joint stock corporations (Aktiengesellschaft) are subject to the supervision of the Austrian Takeover Commission (Übernahmekommission), which monitors compliance with the Austrian takeover regulations and decides on all matters related to the Austrian Takeover Act (“ÜbG”).The key means of acquisition of publicly traded companies in Austria is a takeover pursuant to the Austrian takeover Act. The takeover procedure is a common mean of acquisition, as this Act provides for a fair public tender process for such acquisition. The Takeover Act is applicable when the target company and its shares are listed in Austria.
In line with the Act on Takeover Bids, the key mean of effecting an acquisition of a publicly traded company which has its registered seat in the Czech Republic is by a public offer addressed to the shareholders of the listed company. Besides the aforementioned, also the mergers governed by the Transformations Act are capable of effecting the acquisition and gaining control over the publicly traded company.
British Virgin Islands
There is no stock exchanges in the BVI and, as such, BVI law does not have particular rules governing takeovers of public companies. Where a BVI company is listed on a foreign stock exchange the takeover and listing provisions of the relevant exchange will apply.
The key means of effecting the acquisition of a publicly traded company are set forth below.
5.1 Merger / Consolidation
The term “merger” is defined in the Act as the merging of two or more constituent companies into one constituent company. It should not be confused with a “consolidation” which differs slightly from a merger and occurs when two or more constituent companies are united to form one entirely new company. The procedure for “mergers” and “consolidations” is essentially the same under the Act.
The provisions for effecting a merger are flexible. As part of the process, they allow shares to be cancelled, reclassified or converted into money or other assets, or into shares, debt obligations or other securities in the surviving company. Also, shares of the same class can be treated differently, e.g. some shareholders can be given shares in the surviving company, while others of the same class can be bought out, that is, have their shares converted into cash or other assets.
In order to effect a merger or consolidation,
(a) the directors of each company must approve a plan of merger or consolidation. The companies’ constitutional documents will provide the thresholds required for this to be passed;
(b) a simple majority of each class of shareholders entitled to vote on the merger or consolidation must also approve the merger or consolidation, unless a higher threshold is stipulated in the constitutional documents. A quorum for a meeting will be the shares representing not less than 50% of the issued shares; and
(c) articles of merger must be executed by each company and filed at the Registry of Corporate Affairs in the BVI, at which point the merger is effective assuming the surviving company is a BVI company (unless some later date within 30 days of the filing has been specified in the articles of merger as the effective date). If the surviving company is a non-BVI company, the effective date of the merger will be subject to the laws of the jurisdiction of incorporation of that company.
Dissenting shareholders who do not vote in favour of the merger are entitled to payment in cash of fair value for their shares.
All the non-surviving company’s rights, obligations and liabilities will be transferred to the surviving entity and the non-surviving entity will then be struck off the Register and dissolved.
(a) Merger of a Parent Company with a Subsidiary
The Act sets out an alternative procedure for a merger of a parent company with one or more subsidiary companies, in which members’ approval is not required. Only the directors of the parent company are required to approve the Plan of Merger.
Some or all shares of the same class of shares in each constituent company may be converted into assets of a particular or mixed kind and other shares of the class, or all shares of other classes of shares, may be converted into other assets, but, if the parent company is not the surviving company, shares of each class of shares in the parent company may only be converted into similar shares of the surviving company.
A copy of the Plan of Merger or an outline thereof is to be given to every member of each subsidiary company to be merged unless waived by that member.
Articles of Merger need only be executed by the parent company. Where the parent company does not own all the shares in the subsidiary company or companies to be merged, the Articles of Merger must also include the date on which a copy of the Plan of Merger (or an outline thereof) was either made available to, or delivery thereof was waived by, the members of each subsidiary company to be merged.
(b) Mergers Involving Foreign Companies
Mergers between BVI companies and foreign companies are only permitted under the Act if permitted by the law of the foreign jurisdiction in which one or more of the constituent companies is incorporated. The BVI constituent companies must comply with the provisions of the Act with regard to mergers, whilst any foreign company must comply with the laws of its jurisdiction. If the foreign company will be the surviving company in the merger, the Act requires that the foreign company (a) file an agreement that service of process may be effected on it in the BVI in respect of proceedings for the enforcement of any claim, debt, liability or obligation of a constituent company registered under the Act and (b) irrevocably appoint its registered agent to accept service of such proceedings. The Act also requires the surviving foreign company to enter into an agreement that it will promptly pay dissenting members of a constituent company that is a BVI company the amount, if any, to which such members are entitled under the Act’s dissenting members’ rights. Such appointment and agreement must be filed with the Articles of Merger with the Registrar. A foreign surviving company must also file with the Registrar its Certificate of Merger from its jurisdiction of incorporation, or, if no such certificate is issued by the foreign authority, such evidence of the merger as the Registrar considers acceptable.
The effect of a merger with a foreign company is the same as in the case of a merger between two BVI companies as set out below, but if the surviving company is a foreign company, the effect of the merger is the same as under the Act except in so far as the laws of the other jurisdiction otherwise provide.
(c) Effect of a Merger under BVI Law
A merger takes effect on the date the Articles of Merger are registered by the Registrar (or on such later date as is specified in the Articles of Merger, which date must not be more than 30 days later). Where the surviving company is a company incorporated in a jurisdiction outside the BVI, the merger is effective as provided by the laws of that jurisdiction.
The Act specifies that as soon as the merger takes effect: (a) the surviving company in so far as is consistent with its memorandum and articles, as amended or established by the Articles of Merger, has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; (b) the memorandum and articles of the surviving company are automatically amended to the extent, if any, that changes in its memorandum and articles are contained in the Articles of Merger; (c) assets of every description, including choses in action and the business of each of the constituent companies, immediately vest in the surviving company; and (d) the surviving company is liable for all claims, debts, liabilities and obligations of each of the constituent companies.
The Act further provides that where a merger occurs (a) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing against a constituent company (or against any member, director, officer or agent thereof) is released or impaired by the merger; and (b) no proceedings (whether civil or criminal) by or against a constituent company (or against any member, director, officer or agent thereof) pending at the time of the merger are abated or discontinued by the merger, however (i) such proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or against the member, director, officer or agent thereof, as the case may be, or (ii) the surviving company may be substituted in the proceedings for a constituent company.
5.2 Schemes of Arrangement
A scheme of arrangement can also be used to effect a takeover of a public company.
The steps are as follows:
(a) an application may be made to the court by a member of the target or the target itself (by its directors) proposing an arrangement;
(b) a majority in number representing 75% in value of the shareholders or class of shareholders, as the case may be, present and voting at the meeting must agree to the arrangement; and
(c) if the court then sanctions the arrangement, all the members or class of members, as applicable, and the company, are bound by the scheme and there are no rights to payment of fair value for the shares held by the dissenting members.
Schemes of arrangement provide flexibility in terms of structure and the dissenting shareholder provisions available for plans of arrangement do not apply.
5.3 Plans of Arrangement
Plans of arrangement are similar to schemes of arrangement, but are easier to implement as they have a lower threshold for approval.
(a) The directors of the BVI company/companies involved may approve a plan of arrangement if it is determined that the arrangement is in the best interests of the company, its creditors or its members.
(b) Upon such approval by the directors, the target must then apply to court for approval of the arrangement.
(c) The court has flexibility to, among other things, to determine if notice should be given to any person, whether the approval of any person should be obtained, determine whether the dissenting rights should apply allowing dissenting shareholders to receive fair value and/or approve the plan with amendments. In practice there will often be two hearings: the first where the court sets the conditions, and the second where interested persons may appear. The Court may then approve or reject the arrangement with or without any amendments as it may direct.
(d) The directors must then confirm the plan as approved by the court and must give notice or obtain approval, if directed by the court to do so.
(e) Once these conditions are met, the directors may register the articles of arrangement at the Registry, at which point (or up to 30 days thereafter if the plan so provides) the arrangement takes effect.
An attractive feature of a plan of arrangement is that, unlike under a scheme of arrangement, the Act does not prescribe the threshold in number or value of shareholders/shares or creditors who must approve the arrangement. The plan of arrangement route enables the directors to submit to the Court a threshold for approval which they consider appropriate.
Since the introduction of the regime in the Cayman Islands in 2010, statutory mergers and consolidations have become a popular acquisition structure for acquiring public companies. However, there are certain circumstances in which the statutory merger/consolidation regime may not be suitable and the traditional options remain (such as contractual equity acquisitions).
A merger or consolidation is the process whereby one or more constituent companies are subsumed into another constituent company (or a new company in the case of a consolidation), the latter of which becomes the surviving entity. Provided that the merger is permitted by, or is not contrary to, the laws of the jurisdiction of incorporation of the overseas company, Cayman Islands companies may merge or consolidate with overseas companies where either a Cayman Islands company or an overseas company will be the surviving entity.
The threshold for a statutory merger/consolidation (subject to any higher threshold or additional requirements in the relevant constitutional documents of the company) requires only a special resolution passed in accordance with the articles of association or the LLC agreement - typically, a two-thirds majority of those shareholders attending and voting at the relevant meeting. Court approval is not required (unlike for a scheme of arrangement). However, the consent of any secured creditors of each constituent company must be obtained.
Dissenters in a merger/consolidation usually have the right to be paid the fair value of their shares in cash and may compel the company to institute court proceedings to determine that fair value (but will not be able to block the merger or consolidation arrangements if the relevant approvals and thresholds are satisfied). This can be a factor where the offer involves a share-for-share swap (as opposed to an all cash offer) or where the bidder anticipates issues with minority shareholders.
Schemes of Arrangement
Schemes of arrangement under section 86 or 87 of the Companies Law or section 42 or 43 of the LLC Law may be appropriate in certain circumstances as a mechanism to effect a takeover of a public company. A scheme of arrangement is a court supervised procedure providing flexibility in terms of structure. The Court sanction allows the court to exercise its power to impose conditions to its approval of the scheme. The Court must be satisfied that the scheme is fair and, for example, no attempt to manufacture the outcome through manipulation of voting classes has occurred.
A scheme of arrangement will involve the production of a circular. Typically, this is a detailed disclosure document which must provide stakeholders with all information required to make an informed decision on the merits of the proposed scheme. The principal benefit of a scheme is that, if all the necessary majorities are obtained and hurdles are cleared, and the Court approves the scheme, the terms of the scheme become binding on all members of the relevant class(es) of shareholders or creditors, whether or not they: (i) received notice of the scheme; (ii) voted at the meeting; (iii) voted for or against the scheme; or (iv) changed their minds subsequent to the vote. Dissenting shareholder provisions do not apply.
Tender Offer/Contractual Acquisition (and “squeeze out”)
Often a takeover of a public company will be structured as a tender offer. Such a bid can be used in negotiated or unsolicited transactions.
In a tender offer, contractual acquisition or public takeover, where the removal of a minority is required, the statutory squeeze-out remains available where the relevant statutory thresholds are met. Where a bidder has acquired 90% or more of the shares in a company, it can compel the acquisition of the shares of the remaining minority shareholders and thus become the sole shareholder. Such a squeeze-out requires the acceptance of the offer by holders of not less than 90% in value of the shares to which the offer relates, excluding shares held or contracted to be acquired prior to the date of the offer. Shares held by the bidder or its affiliates are typically not counted for purposes of the 90% threshold. Dissenters have limited rights to object to the acquisition and, in the case of a tender offer which is not on an all cash-basis, dissenters have no right to compel a cash alternative.
The key means of effecting the acquisition of a publicly traded company are cash or share deals. For a cash deal, it must be structured as a tender offer, often preceded by an acquisition of share blocks, when friendly, to secure the transaction. For a share deal, the acquirer may structure its acquisition either as a public exchange offer or a merger. Merging is a way to squeeze out minority shareholders at the level of the target. However, mergers with a non-French company may raise difficulties.
Stocks of publicly traded companies are acquired freely, unless the potential acquirer initiates a takeover bid, thus triggering the application of Law 3461/2006, as recently amended by Law 4514/2018. Said law enables potential buyers of publicly traded companies to issue bids on a voluntary or mandatory basis to acquire stocks of Greek publicly traded companies.
Under a voluntary bid, the buyer must acquire all offered stocks, unless it has designated a maximum acceptable amount of stocks. A public bid is mandatory for: a) any person acquiring, directly or indirectly, on its own account or through or in concert with third parties acting on its behalf or in concert with it, stocks representing voting rights in excess of 1/3 of the total voting rights, b) any person holding more than 1/3 but less than ½ of the total voting rights and c) any person acquiring stocks that represent more than 3% of the voting rights of the target company within six months. In these cases, the acquirer must address within twenty (20) days (οr within thirty (30) days, when a valuation report is required for the calculation of the minimum cash consideration - see below question 18) from the date of acquisition a mandatory and unconditional bid for the total outstanding shares of the target company.
These thresholds, which are calculated on the basis of the voting rights that the offeror, or any other party acting on its behalf or in concert with it, acquires or holds, also include any voting rights that are acquired or held by such persons on the basis of an agreement, a right of pledge or usufruct, a safekeeping or administration arrangement, provided that the beneficiaries are entitled to exercise such rights at their discretion. Any public bid must be notified to the Hellenic Capital Markets Commission (HCMC) immediately after the decision to launch such a bid is taken, and prior to any other public announcement, together with a draft information document.
The acquisition of control of a publicly traded company is most commonly achieved through a tender offer. If the acquirer desires to obtain complete control of the target company, a two-step process is commonly undertaken, consisting of a tender offer followed by a squeeze out, which is described in more detail in our response to Question 27 below.
- Takeover offer – an offer made by a bidder to a target’s shareholders. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the share to which the offer relates.
- Scheme of arrangement –a statutory procedure pursuant to Part 18A of Article 125 of the Companies (Jersey) Law 1991 (Companies Law) whereby a company may make a compromise or arrangement with its members or creditors (or any class of them). Where an arrangement or compromise is proposed by the company with its members (or creditors), the court may sanction that compromise or arrangement with the effect that it becomes binding on all the members (or creditors). There are also separate statutory transfer schemes for insurance and banking business.
- Legal merger – Part 18B of the Companies Law makes provision for mergers between Jersey companies and foundations and companies and other bodies incorporated both in and outside Jersey (provided that the foreign incorporated body is not prohibited under its relevant foreign law to merge).
- Sale and purchase agreements (shares or asset) – a private contract between buyer and seller.
Control of a Mauritius company can be acquired by:
- a takeover offer made by the offeror to the target company’s shareholders. In this regard, Mauritius has recently introduced the Securities (Takeover) Rules 2010 which has replaced previous legislation on takeovers. It is to be noted that the term “effective control” is defined as “the holding of securities by any person, either individually or together with a person acting in concert, which will result in that person, either individually or together with a person acting in concert, having the right to exercise, or control the exercise of, more than 30% of the rights attached to the voting shares of the company”;
- a scheme of arrangement duly approved by the Supreme Court of Mauritius;
- a legal merger which involves two or more companies being merged by an order of the Supreme Court of Mauritius (but in practice this approach is rarely used). The procedures for mergers involve fairly straightforward corporate actions and shareholder resolutions;
- an amalgamation of two companies to become one company (being one of the original companies or an entirely new company). The procedures for amalgamations involve fairly straightforward corporate actions and shareholder resolutions; or
- stock exchange transactions by which the control of public listed companies can be obtained principally through the purchase of shares on the securities exchange through normal market operations or through cross-trade.
As noted in question 1 above, it is currently not possible for a foreign company to acquire shares in a company listed on the YSX. Whether, and the terms on which, such acquisitions are permitted in future will be the subject to a forthcoming instrument of the YSX and SECM. In terms of share acquisitions more broadly, under Notification No 1/2016 of SECM, an extraordinary report would be required in connection with share acquisitions that result in a change in the parent company or major shareholder (defined as a shareholder with greater than 20 per cent shareholding), or a transfer of the company’s material undertaking.
Unsolicited, hostile transactions are in practice not possible in Myanmar. In relation to listed companies, there are currently no takeover regulations in Myanmar and there is no history of unsolicited transactions involving YSX-listed companies.
In addition to share acquisitions, as with all companies, it is possible to acquire the business or assets of a publicly listed company.
Schemes of arrangement are also possible under the MCL and permit the acquisition of a company subject to court supervision where 75 per cent of the shareholders’ vote has been obtained, however these have not historically been used in Myanmar.
The three most common methods to acquire all shares in a Norwegian publicly traded company are stakebuilding with an ensuing voluntary or mandatory tender offer; voluntary or mandatory tender offer (with or without a preceding stakebuilding); and statutory mergers. It is also, of course, possible to structure a takeover as an asset transaction by which the purchaser acquires the business assets of the target instead of the shares in the target.
Stakebuilding is the process of gradually purchasing shares in a publicly traded company in order to gain leverage and thereby increase the chances of a successful subsequent bid for the entire company (i.e. the remaining outstanding shares). It is possible (and fairly common) in a stakebuilding process to seek irrevocable undertakings (pre-acceptances) from key shareholders prior to announcing a subsequent voluntary bid.
However, the most common approach when acquiring a company listed on a Norwegian regulated market is through a voluntary tender offer with a subsequent squeeze-out of minority shareholders. A voluntary offer can be subject to various forms of conditions precedents such as satisfactory due diligence, no material adverse change, governmental approvals, and minimum acceptance requirements (typically acceptance from 90% or two-thirds of the shares and votes). There are no statutory provisions regarding minimum consideration in a voluntary offer. Nonetheless, and in order to make the offer attractive, it is common to add a 20% to 40% premium on the current share trading price. If a voluntary offer entails that the mandatory bid obligation is triggered (i.e. more than one third of the voting rights) if the bid is accepted by those able to make use of it, a voluntary offer in accordance with the rules on voluntary offers shall be made. In this case certain requirements related to mandatory offers (e.g. offer document, equal treatment of shareholders) will likewise apply for the voluntary offer.
A bidder which directly, indirectly or through consolidation of ownership (following one or more voluntary offers) has acquired more than one-third of the votes in a Norwegian target company listed on a Norwegian regulated market (or in a foreign company listed in Norway but not in its home country), must make a mandatory offer for the remaining outstanding shares. Certain exceptions do apply, the most practical being when shares are acquired as consideration in mergers and demergers. After passing the initial one-third threshold, the bidder’s obligation to make a mandatory offer for the remaining shares is repeated when he passes (first) 40% and (then) 50% of the voting rights (consolidation rules apply). Certain derivative arrangements (e.g. total return swaps) may be considered as controlling votes in relation to the mandatory offer rules.
A statutory merger, the shareholders of the surrendering company have to be compensation by way of shares in the acquiring company, or alternatively by a combination of cash and shares, provided the amount of cash does not exceed 20% of the aggregate compensation. If the acquiring company is part of a group, and if one or more of the group companies hold more than 90% of the shares and votes of the acquiring company, the compensation to the shareholders of the surrendering company may consist of shares in the parent company or in another member of the acquiring company’s group. It is also possible to effect a merger by combining two or more companies into a new company established for the purpose of such merger.
One of the key means is the use of information that publicly traded companies provide to the market, the regulatory entities and investors. This information contains data that could be of great interest to potential buyers. Additionally, the positive evolution of the Peruvian securities market and the current state of the economy sector to which the target company belongs, are key factors for potential buyers when making a buying decision or put on hold the whole operation. Finally, it should be taken into consideration that foreign investments are not restricted in Peru. Accordingly, the purchase of a controlling stake in a Peruvian public company would not trigger any requirement to obtain a government authorization (except for specific sectors, such as air transport or local tv channels).
On the other hand, under Peruvian law, if someone intends to buy a public company, the tender offer rules will apply if the potential buyer intends to acquire, or has acquired, substantial interest in a target company. The obligation to launch a tender offer will be triggered when the potential buyer reaches or surpasses any of the three thresholds: 25%, 50% and 60%. For instance, if the buyer already owns 26% of the target company and then acquires shares that increases its ownership to 51%, the obligation to launch a tender offer will be triggered.
There are three general means of acquiring a publicly traded company: (a) share purchase, (b) asset purchase, and (c) statutory mergers and consolidations.
Generally, acquisitions are structured as share purchases for tax efficiency and simplicity. Contracting parties may also choose to utilize an asset purchase when the acquirer seeks to obtain only a portion of the assets of the target company or when there are risks, obligations and accountabilities of the target company which the acquirer does not want to assume.
A publicly traded company can likewise be acquired through statutory mergers and consolidations. A merger involves a business combination whereby two or more corporations merge into a single corporation which shall be one of the constituent corporations. A consolidation, on the other hand, involves a business combination whereby two or more corporations consolidate into a new single corporation which shall be the consolidated corporation.
If a person or group of persons intends to acquire at least 35% of the voting shares of a public company in one or more transactions within a 12-month period, the acquirer is required to disclose such intention and make a tender offer. Further, if a person or group of persons which already holds at least 35% of the voting shares intend to acquire more than 50% of the voting shares of a public company, a similar tender offer requirement is imposed. Under the 2015 SRC Implementing Rules and Regulations, which the SEC began enforcing in March 2016, the acquisition of at least 15% of the equity shares of a public company triggers a disclosure action.
Isle of Man
An acquisition of a publicly traded Isle of Man company will usually be effected by way of scheme of arrangement or takeover offer.
The acquisition of control over a publicly traded company always requires the launching of a public takeover offer (PTO) over the target company. This may occur as a result of a voluntary PTO or a mandatory PTO.
History shows us that completely voluntary, unsolicited PTOs have a low chance of success. This is especially true in Portugal. The approach that has proven to be more successful has been to establish oneself as a strategic and long-term investor of the target company and leverage that position to present a PTO that further expands the current management’s plans for the company in a way that the PTO is not viewed as hostile. Unsolicited, spontaneous PTOs are more likely to be branded hostile, putting too much pressure on the consideration offered by the bidder.
Within the “negotiated PTO” strategy, the best solution has been to get other relevant shareholders to irrevocably agree to sell on a PTO prior to the formal issue of the offering. These arrangements will trigger the obligation to launch a mandatory PTO whenever certain thresholds are crossed (see 25 below). This means that the bidder may put itself voluntarily in a position to issue a mandatory PTO but this is a scenario where it has the comfort that it will acquire the shares allowing it to control the target.
Publicly traded companies are acquired either by public offers (of various types, in line with EU directives and practice) or by special sale orders.
The main and most widespread structure of an M&A transaction involves transacting with shares (participation interests) in a target company in a privately negotiated deal. Public acquisitions (through tender offers or otherwise) are practically absent – few Russian companies are listed, and those that are listed float the number of shares that is not sufficient to gain control of the company. However, application of squeeze-out procedures is becoming more common in complex acquisitions of major public companies.
Asset deal are rather rare, as they are usually associated with considerable formalities, including transfer of real estate, assignment of operational agreements, obtaining of required operational permits, certificates and authorisations and transfer of personnel. These formalities may be rather complex and time consuming.
Effecting corporate reorganisations (mergers and amalgamations) requires passing through a lengthy and formalistic process and registration formalities as well. In addition, reorganisation procedures may trigger creditors’ rights to request early performance under, or termination of, obligations of entities under reorganisation. Such reorganisations may or may not follow M&A deals in Russia but are very rarely an M&A vehicle.
This involves an individual offer to every shareholder (no meeting takes place to approve the offer). Where the offer is accepted by shareholders holding at least 90% of the shares which are subject to the offer, the bidder is entitled, and may be obliged, to acquire the remaining shareholder class. This is known as a “squeeze-out”. Partial offers are also permitted where control is acquired but the amount is less than 100%. A key advantage of a general offer is that it does not trigger an appraisal right for dissenting shareholders (which is particularly useful when all or part of the consideration is not cash).
Scheme of arrangement
The board of the target company proposes a scheme of arrangement and it is voted on by a special resolution of the target company. The Companies Act prescribes the documentation and information which the target company must provide to shareholders, in order for the shareholders to have the requisite information to vote on the scheme of arrangement.
Despite the special resolution having been passed by the target company, a company may not proceed to implement the special resolution without court approval if dissenting shareholders successfully petition a court in accordance with their rights as prescribed under the Companies Act.
In this regard, a company may not proceed to implement the resolution without the approval of a court if the resolution was opposed by at least 15% of the voting rights that were exercised on that resolution; or the court, on application within the prescribed time periods by any person who voted against the resolution, grants that person leave to apply to a court for a review of the transaction.
An acquirer may also make an offer for the greater part of the assets or undertaking (i.e. business) of the target company, the disposal of which would require a special resolution of shareholders adopted in a similar manner to the resolution required for the scheme of arrangement as set out above.
An Amalgamation or Merger
An amalgamation or merger is a transaction which results in the formation of one or more new companies which together hold the assets and liabilities that were held by the amalgamating or merging companies before implementation of the transaction.
An acquisition of a publicly listed company is normally effected by means of a takeover offer to the shareholders of the target company. The consideration of such offer normally consists of cash or shares in the offeror company, or a combination thereof. A transaction can however also for example be effected through a merger where the receiving entity gives own shares and/or cash as merger consideration, in which case more than 50 per cent of the value of the consideration must consist of shares.
The primary means to acquire a publicly traded company is the launch of a public tender offer. A statutory merger is the transaction structure of choice for mergers of equals of two Swiss companies. Reverse triangular mergers or schemes of arrangement under applicable foreign laws are used to implement mergers of equals between Swiss and foreign companies if the top holding company is to be domiciled in Switzerland after closing.
The most common method of effecting a merger, in the broadest sense, is the acquisition of shares in the target company. Asset or business transfers of assets (e.g. through asset acquisitions, entire business transfers and partial business transfers) are also common but are cumbersome. In certain cases, the transfer can be carried out on a tax-free basis (e.g. entire business transfer), provided that certain conditions are satisfied. However, asset acquisitions made directly by foreigners are not common and in most cases a foreigner will form a company in Thailand in order to acquire the assets.
A procedure for mergers in the strict sense does exist for public companies under the PLC Act, involving a new company being created from at least two existing companies which are automatically dissolved upon the merger (amalgamation) becoming effective (A+B = C). However, this is not commonly used as it is time-consuming and creditors who object to such amalgamation have the right to be paid out or have their debts secured.
There are currently no UAE laws in place which regulate the takeover of public companies, and acquisitions of interests in public companies tend to be effected by block purchases of listed securities. Acquisitions in the DIFC of NASDAQ listed companies would fall under the regulatory regime of the DFSA, but with very few listings on NASDAQ, this regime is little used.
The key means of effecting the acquisition of a public traded company are to (i) to enter into a negotiated transaction with the key equity shareholders of the company for purchase of their shares, (ii) investing into the target company by way of a preferential allotment of equity shares, (iii) court approved merger or amalgamations, and/or (iv) acquiring shares from the open market, and (v) making a voluntary or a mandatory open offer for acquisition of additional shares as per the provisions of the Take Over Code.
5.1 In Vietnam there are two stock exchanges on which public companies may list their securities for trading, namely the Ho Chi Minh City Stock Exchange (the HOSE or the HSX) and the Hanoi Stock Exchange (the HNX).
5.2 Investors wishing to acquire securities of Vietnam-domiciled public companies which are listed for trading on the HOSE or the HNX (Listed Securities) may do so by way of normal “on-market” acquisitions from unidentified vendors (On-Market Acquisitions), implemented using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the Vietnam Securities Depository (the VSD) and “custodian banks” being members of the VSD (Custodian Banks).
5.3 Investors may also acquire Listed Securities by way of sale and purchase agreements entered into directly with identified vendors (Direct Agreement Acquisitions). Direct Acquisition Transactions are, however, subject to “trading band” restrictions, pursuant to which any transaction implemented at a purchase price per share being >7% (in the case of the HOSE) or >10% (in the case of the HNX) above or below the closing price of the relevant securities on the HOSE or the HNX (as applicable) on the trading day immediately prior to the completion of the Direct Agreement Acquisition, requires the specific case-by-case approval of the State Securities Commission.
5.4 Direct Agreement Acquisitions must also be implemented using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the VSD and Custodian Banks.
5.5 In the case of securities of unlisted public companies, acquisitions must be implemented via the Unlisted Public Company Market (the UPCOM), also using the services of Vietnam-licensed securities brokers and via the electronic trading and clearance systems maintained and operated by the VSD and Custodian Banks. Acquisitions of UPCOM-registered securities are implemented in manners being broadly similar (but not identical) to the On-Market Acquisitions and Direct Agreement Acquisitions described above in relation to Listed Securities.
5.6 Any acquisition of voting shares in any Vietnam-domiciled public company (whether listed or unlisted) resulting in the acquirer (aggregated with its related persons and entities) holding ≥25% of issued and paid-up voting share capital must be implemented by way of a “mandatory public offer”, approved by the State Securities Commission and implemented in accordance with specifically legislated rules and procedures (an MPO).
5.7 Once any shareholder (aggregated with its related persons and entities) holds ≥25% of issued and paid-up voting share capital, then the following types of further acquisitions must also be implemented by way of an MPO:
(i) any acquisition by that shareholder (aggregated with its related persons and entities) of between ≥5% and <10% of issued and paid-up voting share capital, implemented within 12 months of any previous MPO transaction; and/or (ii) any acquisition by that shareholder (aggregated with its related persons and entities) of ≥10% of issued and paid-up voting share capital, implemented at any time. 5.8 MPO exemptions can, however, be obtained by way of ordinary resolutions of the General Meeting of Shareholders of the target company (which usually require the affirmative votes of ≥51% of the issued and paid-up voting share capital represented at the relevant Annual General Meeting of Shareholders (AGM) or Extraordinary General Meeting of Shareholders (EGM) and being eligible to vote on the proposed resolution).
5.9 Investors may also acquire shares of a public company by way of subscription pursuant to private placement transactions, subject to approval by the General Meeting of Shareholders of the relevant target company (requiring super-majority affirmative voting, usually necessitating ≥65%) and approval by the State Securities Commission, which must be implemented in accordance with specifically legislated rules and procedures.
For public companies, there are two primary transaction structures—a single-step merger and a two-step transaction consisting of a tender offer followed by a merger.
One-step mergers are effected under state law, and the consideration in a merger can be cash, securities (including stock of the buyer) or a combination of both. Once the parties reach an agreement which is approved by the boards of directors of both companies, the target company submits the deal to its shareholders for approval. A vote of the shareholders of the acquirer may also be required in a transaction involving stock consideration depending on the amount of acquirer stock to be issued and will be required if the acquirer is itself merging (such as in a “merger of equals” transaction). In acquisitions, if shareholders approve the merger, the target company typically merges with a wholly owned subsidiary of the buyer, with the target company as the surviving corporation. The result is that the target company becomes a wholly owned subsidiary of the buyer. Merger transactions may use a similar structure or may involve each party merging with a merger subsidiary of a newly formed holding company with the shareholders of each merger party receiving shares of the holding company. Single-step mergers are most common in deals in which the consideration includes stock or there is expected to be a lengthy regulatory delay.
In a two-step transaction, the buyer makes a tender offer to acquire not less than a majority of the target company’s stock directly from its shareholders followed by a “back-end” merger through which the buyer acquires any remaining outstanding shares. A shareholder vote on the back-end merger may be required (depending on applicable state law), but the buyer will be able to ensure that it passes since it will own a majority of the outstanding stock as a result of the tender offer. Two-step transactions are most common in all-cash acquisitions.
In addition, acquisitions of private companies can also be effected through stock purchases and asset purchases.
The most commonly used deal structures for acquisition of PRC public companies include share transfers by agreement, voting trusts, block trades and tender offers. Hybrid structures employing a combination of these are common too.
Acquisition of shares of a listed company or a company that has offered its shares to the public (“Publicly Traded Company”) are effected through the EGX as follows:
- Acquisition of less than one third of the shares or voting rights of a Publicly Traded Company may be effected in the open market or as a protected transaction, subject to the prevailing rules of EGX or through launching a voluntary tender offer.
- The CML provides specific cases, which trigger an obligation to launch a mandatory tender offer on 100% of the issued shares or voting rights (“MTO”) of a Publicly Traded Company. Such scenarios and possible exemptions are included in more detail under our response to question No. (25).
In practice, prior to launching an MTO, the acquirer often enters into a sale and purchase agreement with the majority shareholders. This provides the acquirer with more deal certainty, an opportunity to conduct due diligence, the classic contractual protections through representations and warranties as well as specific indemnities and acquiring control over the company. The CML and the Listing Rules regulate disclosures and obligations of all parties during the pre-launch process.
The Guernsey Companies Law does not differentiate between a public and private company, as such the key means of effecting an acquisition are as follows:
- a takeover offer under which an offer is proposed to the board and shareholders;
- a scheme of arrangement as set out in Part VIII of the Guernsey Companies Law. In a scheme of arrangement the acquisition of the entire share capital of the target may be approved by 75% of the shareholders providing that it is also sanctioned by the Royal Court of Guernsey;
- an amalgamation whereby two or more companies merge to form one company. This company can either be one of the merging companies or a new company. The shareholders of each of the amalgamating companies are required to approve the amalgamation by special resolution and if any of the companies are regulated or are yet to be incorporated then consent will also be required from the GFSC;
- a legal merger in which two or more companies are merged by order of the Royal Court. The process for this is similar to that of a scheme of arrangement with the same shareholder consent required.
It is important to note that if the target is regulated then an application will need to be made to the GFSC for consent to the change in control. Consent is normally deemed to be automatically granted 60 days after the application is made unless the parties are informed to the contrary. The transfer in ownership is unable to occur before this consent is received.
Schemes of arrangement are still the preferred mean for taking private companies listed on the SEHK, which are typically listed through an Offshore Listing Vehicle, though this mechanism brings certain challenges.
The Takeover Code in Hong Kong requires that a scheme of arrangement used to effect a privatisation must be (among other requirements) approved by at least 75% of the votes of disinterested shareholders voting in a general meeting, with no more than 10% of the total disinterested shares being voted against. Further, where any person seeks to use a scheme of arrangement to privatise a company and the proposal is either not recommended by the independent committee of the offeree company’s board, or is not recommended as fair and reasonable by the financial adviser to the independent committee, all expenses incurred by the offeree company in connection with the proposal must be borne by the person seeking to privatise the offeree company where the scheme of arrangement is not approved.
We saw Bluestone Global Holdings Limited’s privatization of Portico International Holdings Limited by way of scheme of arrangement which we have acted for. We also saw both GuoLine Overseas Limited’s proposed HK$12.5 billion privatization of Guoco Group Limited (SEHK: 0053) and Pou Chen Corporation’s proposed HK$11 billion privatization of Pou Sheng International (Holdings) Limited (SEHK: 3813) both fail as the required shareholder approval threshold required couldn’t be reached.
There are two main means of effecting the acquisition of a UK publicly traded company: by way of a takeover offer or by way of a court approved scheme of arrangement. Both of these are governed by the Code as well as certain provisions of the Companies Act 2006.
A takeover offer is a contractual offer to all the shareholders of a target company to acquire their shares. The Code governs the making of a takeover offer (including any conditions which the offer is subject to), when an announcement is required to be made by either the target company or the bidder, the timetable of such offer and A takeover offer can be used in both a recommended situation (where the target company’s directors recommend to the target shareholders that they accept an offer) and a hostile situation.
A scheme of arrangement (a “Scheme”) is a statutory procedure and requires the scheme to be approved by the court. The provisions of the Code apply to an offer by way of a Scheme (there is a specific Appendix (Appendix 7) to the Code that covers Schemes). A Scheme must be approved by (i) a majority in number of target shareholders who actually vote (whether in person or by proxy) at the court meeting, with such majority also representing at least 75% of the target company’s issued share capital and (ii) the High Court. Once approved, the Scheme will be binding on the target company and all of its shareholders. In contrast, an offer which is only binding on those shareholders who accept the offer and the bidder will only be able to compulsorily “squeeze out” the minority shareholders once it has acquired 90% of the shares to which the offer relates. The documentation provided to the target shareholders in a Scheme is effectively prepared by the target company as it is the target company’s scheme of arrangement and, therefore, a Scheme is usually used only in a recommended offer situation.
The usual mechanisms for effecting the acquisition of a publicly traded company is either through a public offer for the shares under the regulations of the Stock Exchange or outside the market of the Stock Exchange, subject to specific restrictions and the provisions of the Companies Law.
In particular, the Cyprus Stock Exchange Law provides that an acquisition of a publicly traded company executed outside the market of the Stock Exchange is only permitted in the following cases:-
a) In the case of public bonds listed on the Stock Exchange, issued by the Government of the Republic of Cyprus;
b) In the case of securities listed on the Stock Exchange of legal persons or group of persons incorporated under a law abroad, as long as the transaction is executed abroad in accordance with the law; and
c) In the case of securities listed on the Stock Exchange of legal persons or group of persons incorporated in accordance with the Law in the Republic of Cyprus, which have also listed the same securities in another Stock Exchange abroad, as long as the transaction is executed through this other stock exchange and in accordance with the legislation which governs it.
Furthermore, the Cyprus Stock Exchange Law also provides that the following transactions are permitted to be executed outside the Stock Exchange, provided they are announced to it within the time limit provided to this effect by decision of the Council issued as provided in the Stock Exchange Regulations:
a) The issue and purchase of securities by the issuer;
b) Transactions among members of the same family;
c) Gift transactions or other transactions which do not involve monetary consideration;
d) Transfer of securities due to death;
e) Transactions executed following Court order;
f) Transaction of securities listed on the Stock Exchange of a company registered in the Republic, which fulfils the prerequisites of section 28A of the Income Tax Law, wherever this is executed, in the Republic or abroad;
g) Transactions which have as their object movable securities of the same category of a Stock Exchange value of at least one hundred thousand pounds;
h) Transactions executed following direct invitation to all owners of the same category of movable securities of one issuer, which concern at least ten per cent of the total of these securities; and
i) Transactions which are specifically exempted by Stock Exchange Regulations and may be executed outside the Stock Exchange.
Acquisition of shares in a publicly traded company can be effectuated under any title allowed by the Civil Code including sale and purchase, swap, donation or contribution to the acquiring entity’s registered capital. However, in case of publicly traded companies, the specific rules of the Capital Market Act must also be complied with. If 33 or under certain circumstances 25 per cent of the voting rights in a publicly traded company would be acquired, the acquisition can be made only via a public takeover bid pursuant to the Capital Market Act.
Under the Commercial Companies Law, where a company seeks to acquire shares that will result in it holding 51% of the capital of the target company or will result in it holding 40% of the shares of the target company (where that makes it the largest shareholder) then the same will need to be completed by way of resolution of the shareholders of both companies in a meeting in which at least 75% of shareholders must be in attendance.
The QFMA Mergers & Acquisitions Rules provide that any person who owns 10 percent of the shares (either on its own or in concert) must notify the QFMA if he or she will acquire more shares and any person or group that acquires 20 percent of the shares must be notified to the QFMA. Any acquisition up to 30 percent is to be made through the market or by formal offer to the shareholders (Article 2).
The key means of effecting the acquisition of a publicly traded company is through a takeover in accordance with the provisions of the Takeovers Act (ZPre-1), which regulate the takeover bid procedure. There are two types of possible takeover bids, namely the voluntary takeover bid and the mandatory takeover bid, which is applicable when the acquirer reaches the threshold of a 1/3 share of all voting rights in the company.