What are the key means of effecting the acquisition of a publicly traded company?
Mergers & Acquisitions (2nd edition)
Privatisations of Offshore Listing Vehicles by way of schemes of arrangement continue to enjoy a significant degree of popularity in Hong Kong, for example, Bloomage BioTechnology Corporation Limited’s HK$3 billion privatisation by Grand Full Development Limited by way of a scheme of arrangement and subsequent delisting from the SEHK, and Bracell Limited’s US$1.1 billion privatisation by BHL Limited similarly by way of a scheme of arrangement and the subsequent delisting from the SEHK.
The Takeover Code requires that a scheme of arrangement used to effect a privatisation must be, amongst others, 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 shall be borne by the person seeking to privatise the offeree company by way of the scheme of arrangement if the scheme of arrangement is not approved.
The key means of acquisition of publicly traded companies in Austria is a takeover pursuant to the Austrian takeover Act (“ÜbG”). 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.
There are two main means of effecting the acquisition of a UK publicly traded company: by way of a takeover offer and 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 and sets out how an offer is required to be made and the information that must be delivered to the target company’s shareholders. The offer must comply with the timetable set out in the Code and the Code regulates the behaviour of the bidding entity and the target entity during an offer period and provides, among other things, when an announcement of an offer is required, the contents of the offer document to target shareholders and what conditions to an offer are permitted (with the minimum acceptance condition being a simple majority of the shares of the target company). 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 court sanctioned procedure governed by specific provisions set out in the Companies Act 2006. 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 a majority in number of the target shareholders holding in aggregate at least 75% of the target company’s shares and the Scheme must be approved by the High Court. The thresholds in each case are calculated by reference to those shareholders who actually vote (whether in person or by proxy) on the Scheme rather than the target’s shareholders as a whole. Once approved, the Scheme will be binding on the target company and all of its shareholders. 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.
In addition, UK companies (including UK public companies) formed and registered under the Companies Act 2006 can merge with companies governed by the law of an EEA state other than the UK under the Companies (Cross-Border Mergers) Regulations 2007. There are three types of cross-border merger: merger by absorption (where an existing company absorbs one or more other merging companies), merger by absorption of a wholly-owned subsidiary and merger by formation of a new company (where two or more companies merge to form a new company). The Panel’s Practice Statement No.18 sets out when a cross-border merger will be subject to the Code.
Acquisition of a publicly traded company is effected by way of a tender offer. Rules for tender offers are governed by the Public Offering of Securities Act and the relevant EU legislation. A mandatory tender offer should be launched by any prospective shareholder upon acquisition of more than (i) one third (only where no single shareholder holds a majority of the voting power), (ii) half) or (iii) two thirds of the voting power in the general shareholders’ meeting of a publically traded company. Shareholders cannot exercise their voting rights prior to publication of such mandatory tender offer.
The law also provides the right to launch a tender offer to a new shareholder, who acquires more than 90% of the voting power, or an existing shareholder with at least 5% voting power, who acquires more than a third of the voting power in the publically traded company. Tender offers are registered with the Financial Supervision Commission and may be published if the Financial Supervision Commission has not issued a temporary ban.
Most M&A transactions involving the acquisition of a publicly traded company are stock deals, considering the mechanisms established in the relevant laws for this purpose. Asset deals are less common, since they trigger some burdensome formalities (registration of the transfer of the property of certain type of assets, assignment of agreements, etc.).
As to the procedure to implement the acquisition of a publicly traded company, the buyer may have to launch a tender offer (Oferta Pública de Adquisición - OPA), by means of which any person or group of persons which can be considered as one single beneficiary can only become beneficiary of an interest exceeding 25% in the voting capital of a listed company by means of a tender offer (Oferta Pública de Adquisición - OPA).
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.
The key means of effecting the acquisition of a publicly traded company are:
- through a court approved scheme of arrangement under the Companies Act; or
- by way of a takeover under the Takeovers Code.
Acquisition of a publicly traded company are effected through the EGX, whether as:
- acquiring up to 1/3 of the share capital or voting rights through open market transactions by applying the normal trading rules applicable at the Egyptian Exchange (EGX);
- protected transactions, which are consummated as block-trades exempted from the normal trading rules applicable at the EGX after obtaining the approval of the Financial Regulatory Authority and the EGX. Protected transactions are customary in the event of group restructuring and are usually coupled with an exemption from the obligation to launch a mandatory tender offer;
- launching mandatory tender offer in case of acquisition of 1/3 or more of the issued share capital or voting rights of the company; or
- launching a voluntary tender offer to acquire any stake less than 1/3 of the issued share capital or voting rights of the company.
Since the introduction of the regime in the Cayman Islands in 2010, mergers have become by far the most common acquisition structure. However, there are certain circumstances in which the merger regime may not be suitable and the traditional options remain (such as contractual equity acquisitions).
The threshold for a merger (subject to 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. Dissenters in a merger 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. 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. 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.
Tender Offer/Contractual Acquisition
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.
Most public M&A transactions take the form of an acquisition of shares for cash preceded or followed by a public tender offer. Alternatively, acquisitions can take place through mergers or exchanges of shares that, depending on the circumstances, can be followed by a public tender offer.
Public company takeovers/acquisitions in Ireland are most frequently effected by scheme of arrangement under the Companies Act. This well-established framework has the advantage of acquiring 100% of the shares in the target on completion, including from any minority dissenting shareholders. A scheme of arrangement can also be structured so that stamp duty is not payable.
A tender offer which is made by a buyer to the target’s shareholders is more commonly used in hostile or competitive situations. As part of this structure, provided certain minimum acceptance conditions are met, a buyer can use a statutory “squeeze-out” procedure to compulsorily acquire the shares of dissenting shareholders either under the Companies Act or the Takeover Board’s Directive.
Under the European Communities (Cross-Border Mergers) Regulations 2008 (as amended) it is possible to acquire an Irish publicly traded company by way of a legal merger (where the merger involves at least one Irish company and at least one EEA company).
A reverse takeover under the Rules may also be used to acquire control of publicly listed Irish companies.
From a technical and literal perspectives there are very few actual mergers (or amalgamations - defined as the merger of two companies to create a new one) in Brazil. Tax issues usually prevent this from happening, as the tax loss carry forwards of both companies involved may be lost, which is a relevant impact. Companies usually combine their activities by merging another company or being merged in another company. This is valid both for listed and non-listed companies. In very particular cases, however, amalgamations have occurred. Such amalgamations were driven by capital market issues, and target at neutralizing poison pills, shark repellents, etc. In a nutshell, amalgamations may neutralize poison pills because the CVM understood in some cases in the past that poison pills may not apply as a result of amalgamations because there is a new company arising from such type of corporate restructuring (and hence the old bylaws which contain the poison pills do not apply). Finally, it is extremely important to consider the provisions of CVM’s opinion No. 35 (parecer de orientação CVM No. 35) when considering a merger between related parties. Special rules apply in this case, such as the formation of special committees of the board must be formed to consider the appraisal of the companies being merged. A merger between related parties in Brazil can get very complicated.
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.
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.
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. However, following the implementation of the MCL, it is anticipated that up to 35 per cent foreign investment in listed companies will be possible. 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 in publicly listed companies, 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. While schemes of arrangement may theoretically also be possible under the MCA, they have not historically been used in Myanmar.
Stocks of publicly traded companies are acquired freely, unless the potential acquirer initiates a takeover bid, thus triggering the application of Law 3461/2006. 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 any person acquiring stocks representing voting rights in excess of 1/3 of the total voting rights, as well as for any person holding more than 1/3 but less than ½ of the total voting rights and subsequently acquiring stocks that represent more than 3% of the voting rights of the target company within six months.
Any public bid must be notified to the 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 a listed company can be effected by virtue of a public offer addressed to the shareholders of such listed company for the acquisition of their shares in exchange for cash, securities, or a combination of the two.
The German Takeover Act provides for two options with respect to the takeover procedures 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 the obligation of the purchaser to publish the acquisition of control and to launch a mandatory tender offer. “Control” is defined as the holding of at least 30% of the voting rights in the target. For purposes of calculating the percentage of the voting rights in the target, voting rights attached to target shares held by a third party may under certain circumstances be attributed to the bidder (pls. see question 25 for more details).
Statutory mergers pursuant to the German Transformation Act (including cross-border mergers) are also possible to gain control, but rare. The implementation of a merger requires, among other things, the conclusion of a merger agreement by the management board of both companies. Thus a merger is only possible in a solicited/negotiated scenario.
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.
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:
- 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
- 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.
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 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. Such reorganisations may or may not follow M&A deals in Russia but are very rarely an M&A vehicle.
Publicly traded companies are acquired either by public offers (of various types, in line with EU directives and practice) or by special sale orders.
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 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).
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.
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.
Acquisitions of publicly traded companies are typically effected through a stock purchase, with the consideration being in cash. Acquisition through a statutory merger is also possible, but this is subject to a higher degree of regulatory control, as mergers have to be approved by the SEC.
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.
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.
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.
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.
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.
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.
- 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.
For a publicly traded target, the primary means of acquisition would be a share transfer.
Share transfers are commonly preferred over mergers due to the complicated merger process overseen by the CMB; and over asset transfers due to the fact that under Turkish law, the transferee and the transferor remain exposed to joint liability for obligations in relation to the transferred business for a period of two years following the closing of an asset transfer transaction.
Share transfers exceeding certain shareholding thresholds may trigger a mandatory tender offer requirement for the purchase of the remaining shares (detailed under question 25 below) and may also be subject to strict disclosure requirements (detailed under question 15 below).
A publicly traded company can be acquired in different ways thus:
- By strategic acquisition of the shares of the target company on the floor of the NSE through a stock broker (subject to resultant shareholding of the acquirer pursuant to acquiring such shares, a mandatory take-over may be triggered).
- By means of a Scheme of Arrangement eﬀected under the Companies and Allied Matters Act. This frequently used framework has the advantage of acquiring 100% of the shares in the target on completion, including from any minority dissenting shareholders.
- Through a Voluntary Tender Offer (“VTO”) whereby the acquirer makes an offer to all the shareholders of the target.
- Section 129 of the ISA also provides a mechanism, though not often relied upon, for acquiring the shares of a company through a Scheme or Contract (not being a take-over bid). As part of this structure, provided the statutory minimum acceptance conditions are met, a buyer can use a statutory "squeeze-out" procedure to compulsorily acquire the shares of dissenting shareholders.