Corporate M&A 2019 Comparisons

Last Updated April 16, 2019

Contributed By Drew & Napier LLC

Law and Practice

Author



Drew & Napier LLC houses one of Singapore’s leading M&A practices, advising on public and private mergers, acquisitions, takeovers and reverse takeovers, schemes of arrangement, amalgamations, privatisations, joint ventures and disposals as well as complex restructurings and reorganisations, with a particular focus on public M&A transactions. With its cross-border experience in the region and beyond, the Drew & Napier team is well equipped to handle multi-jurisdictional transactions, particularly in Southeast Asia, and to service the needs of its clients’ increasingly global business interests. The team advises sellers and buyers as well as investors, management and financial advisers on all aspects and stages of transactions, from planning and structuring to negotiating, documenting and implementing. Close links with the firm’s other practices in Tax, Competition, Real Estate and Intellectual Property permit the provision of specialist expertise tailored to clients’ particular needs.

M&A activity in Singapore in the first quarter of 2019 grew 89.2% from the same period last year, reaching USD24.2 billion, according to data from Refinitiv (an arm of Thomson Reuters). Singapore-targeted M&A activity in this quarter was the highest on record, having increased by 240.4% year on year to USD15.8 billion in proceeds. On the whole, cross-border deal activity, inbound M&A activity and outbound M&A activity for this quarter were higher than those for the same period in 2018.

Privatisation trends observed in previous years have continued, with information technology retailer Challenger Technologies being a recent instance of a company seeking to delist from the Singapore Exchange (SGX). Total securities market turnover saw a 13% increase month-on-month in March 2019 to SGD21.6 billion. Initial public offerings (IPOs) by local companies raised USD75.6 million in the first quarter of this year, a 79.5% decrease from the same period in 2018.

M&A deals in the property sector dominated in 2018, accounting for 31% of the total market share at SGD28.14 billion. Major deals included CapitaLand’s venture into the US multi-family asset class, amounting to SGD1.14 billion. Following closely behind were the high technology and materials sectors. Deals targeting the high technology sector accounted for 10.9% of market share, at SGD9.90 billion, while deals targeting the materials sector accounted for 10.8% of market share, at SGD9.84 billion. The latter was driven mainly by Temasek Holding’s pending agreement to increase its stake to 4% in Germany-based Bayer, in a deal valued at SGD4.9 billion.

Asset or Share Acquisition

Generally, the acquisition of a company in Singapore can be effected by way of a share acquisition or the acquisition of the business or assets of the company.

An asset or share acquisition is commonly effected by entering into a sale and purchase agreement. Before executing the agreement, parties may enter into a letter of intent or term sheet, which will typically set out agreed key terms of the transaction. Such a preliminary document may be expressed as non-legally binding, except for certain obligations such as confidentiality. In addition, the parties may enter into exclusivity agreements at this preliminary stage to assure the buyer that the seller will not consider alternative offers from third parties during negotiations.

The primary techniques to acquire a company’s shares in Singapore include:

  • making a general offer for a company’s shares pursuant to the Singapore Code on Takeovers and Mergers (Takeover Code);
  • entering into a scheme of arrangement under of the Companies Act (Cap 50), Section 210; and
  • entering into a scheme of amalgamation under the Companies Act, Section 215A-J.

General Offer

General offers for shares in a Singapore public company are regulated under the Takeover Code. General offers take the form of mandatory offers, voluntary offers or partial offers.

Mandatory Offer

Under the Takeover Code, a bidder is required to make a mandatory offer for all the shares in a Singapore public company where the acquisition of shares by the bidder results in the shareholdings of the bidder and any parties acting in concert with it exceeding certain thresholds. The mandatory offer rules under the Takeover Code apply when:

  • the bidder acquires shares, and this results in the shareholdings of the bidder and its concert parties owning 30% or more of the target company’s voting rights; or
  • where the bidder and any parties acting in concert with it hold between 30% and 50% of the target company’s voting rights, the bidder acquires more than 1% of the target company’s voting rights in any six-month period.

Voluntary and Partial Offers

Under the Takeover Code, an offer that does not trigger the mandatory rules under the Takeover Code is called a voluntary offer, and is governed by the rules set out in Rule 15 of the Takeover Code. A voluntary offer must be conditional on the bidder and any parties acting in concert with it acquiring more than 50% of the target company. A higher percentage acceptance threshold may be stipulated, subject to the consent of the Securities Industry Council (SIC).

A bidder is considered as making a partial offer where a voluntary offer is made for a portion of the target company’s shares. All partial offers must be approved by the SIC, and it will generally grant consent for partial offers that do not result in the bidder and any parties acting in concert with it holding more than 30% of the target company’s voting rights.

Scheme of Arrangement

A scheme of arrangement under the Companies Act, Section 210 is a legislative procedure that allows a company to be restructured. A scheme is typically organised as a transfer of shares from the shareholders of the target company to the acquirer, and in consideration of the share transfer the acquirer pays cash or issues new shares in the acquiring company to the shareholders of the target company. An alternative scheme is where the target company cancels its existing shares and issues new shares in the target company to the acquirer.

To pass a scheme of arrangement, the scheme must be approved by the requisite statutorily prescribed majority at the scheme meeting and must be sanctioned by the High Court. A scheme that has been successfully passed will be binding on all shareholders of the target company.

Amalgamation

A scheme of amalgamation under the Companies Act, Section 215A-J is a legislative procedure that allows two or more Singapore-incorporated companies to amalgamate and continue as one company. The amalgamated company may be one of the amalgamating companies or a new company, and all property, rights, privileges, liabilities and obligations of each of the amalgamating companies will be transferred to the amalgamated company. The amalgamation may be carried out without a court order, subject to certain conditions being satisfied, including obtaining the requisite shareholder approvals and the provision of insolvency statements by the directors of the amalgamating companies.

The primary regulators of M&A activity in Singapore are:

  • the SIC, which administers the Takeover Code;
  • the Singapore Exchange Securities Trading Limited (SGX), which administers the listing rules applicable to companies listed on the SGX;
  • the Monetary Authority of Singapore, which administers the Securities and Futures Act (Cap 289);
  • the Accounting and Corporate Regulatory Authority (ACRA), which administers the Companies Act; and
  • the Competition and Consumer Commission of Singapore (CCCS), which administers the Competition Act (Cap 50B).

There is no general restriction on the amount of shares that a foreign entity may own in a company incorporated in Singapore. However, there may be restrictions that limit or require prior regulatory approval for control or share ownership in companies in certain regulated industries that are perceived to be critical to national interests, such as banking, insurance, broadcasting, defence and newspaper publishing.

Business combinations in Singapore are subject to the Competition Act, which contains, among others, the following provisions:

  • Section 34, which prohibits agreements which have as their object or effect the prevention, restriction or distortion of competition within Singapore;
  • Section 47, which prohibits conduct that amounts to the abuse of a dominant position in any Singapore market; and
  • Section 54, which prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore for goods or services.

As the merger notification regime in Singapore under the Competition Act is voluntary, parties to a merger are not obliged to notify the CCCS of their proposed or completed business combinations. However, parties to a merger situation may do so where, following a self-assessment, they have concerns that the merger or anticipated merger has led to or may lead to a substantial lessening of competition in a Singapore market.

Whereas the CCCS can investigate mergers on its own initiative, it is unlikely to intervene in a merger situation that only involves small companies, ie, where the turnover in Singapore in the financial year preceding the transaction of each of the parties is below SGD5 million and the combined worldwide turnover in the financial year preceding the transaction of all of the parties is below SGD50 million.

Generally, the CCCS is also unlikely to investigate in a merger situation, unless the merged entity will have a market share of:

  • 40% or more; or
  • between 20% and 40% and the post-merger combined market share of the three largest firms is 70% or more.

Where the acquisition is structured as a transfer of the business undertaking of the target company, the automatic employment transfer provisions under of the Employment Act (Cap 91), Section 18A may be applicable in respect of employees who are covered under the Employment Act at the time of the business transfer (EA employees). In particular, the Employment Act, Section 18A provides for:

  • an automatic transfer of the EA employees on the same terms as their existing employment contract, unless the acquirer and the EA employee agree to different terms;
  • a continuation of the EA employee’s period of employment;
  • a transfer of existing rights, powers, duties and liabilities of the target company in respect of the EA employees to the acquirer; and
  • a requirement to notify the EA employees of the proposed business transfer.

Where the business transfer involves a transfer of foreign employees, the acquirer should consider if new work-pass applications would be required for the incoming foreign employees. In addition, where the acquirer’s business is in a different sector or industry from the target company, the acquirer should also consider if the transfer of foreign employees would be affect work-pass quotas.

Where the acquisition is structured as a transfer of shares, the employees of the target company will continue to be employed by the target company and will be unlikely to be affected by the transfer of shares per se.

There is currently no regulatory body in Singapore that undertakes a national security review of acquisitions. However, regulatory approvals may be required for control or share ownership in companies in certain regulated industries that are perceived to be critical to national interests, eg, banking, insurance, broadcasting, defence and newspaper publishing.

One of the more significant legal developments relating to M&A is the amendment of the SGX Mainboard Listing Rules (Listing Manual) in June 2018 to permit the listing of companies with dual-class share structures on the SGX Mainboard. The Takeover Code was subsequently amended with effect from 25 January 2019 to clarify its application to companies with dual-class share structures.

Two of the key amendments to the Takeover Code are (as amended with effect from 25 January 2019):

  • the requirement for a shareholder who crosses the mandatory offer thresholds under the Code to make a mandatory offer is waived if the threshold is crossed due to a conversion or reduction of multiple voting shares and the shareholder was independent of the conversion or reduction event; and
  • any offer made for a dual-class share structure company must have the same offer price for both classes of shares.

It is not uncommon for bidders to build up some shareholding stake in a company prior to launching an offer. A 10% ownership stake in the target company could be used to prevent a rival bidder from a compulsory acquisition of the minority stake in the company. A bidder may also seek to obtain a 25% ownership stake to effectively veto a rival scheme of arrangement or amalgamation.

Bidders seeking to build a significant stake in a target company generally need to comply with the following:

  • rules relating to mandatory offers (see 2.1 Acquiring a Company, above) and minimum offer prices under the Takeover Code;
  • substantial shareholding disclosure requirements (see the relevant thresholds set out at 4.2 Material Shareholding Disclosure Threshold, below); and
  • insider trading prohibitions, in particular where the bidder comes into possession of confidential and price-sensitive information relating to the listed company, eg, after commencing due diligence on the company.

A bidder may concurrently seek to obtain contractual undertakings from existing shareholders to accept its proposed offers or to vote in favour of their scheme. Note that such irrevocable undertakings may potentially be aggregated as part of the bidder’s ownership stake in the target company, which may potentially trigger the mandatory offer rules under the Takeover Code (among other requirements).

Under the Securities and Futures Act, a party who acquires an interest in 5% or more of the voting shares (referred to as a ‘substantial shareholder’) in a company incorporated and listed in Singapore is required to notify the company of its interest within two working days of becoming aware that it is or had been (if it ceased to be one) a substantial shareholder.

In addition, the substantial shareholder is required to notify the company if there are subsequent discrete 1% changes in the substantial shareholder’s interests, and if he or she ceases to be a substantial shareholder. The substantial shareholder disclosure requirements also apply to corporations that are incorporated overseas, but with a primary listing on approved exchanges in Singapore.

From a competition law perspective, merger parties may voluntarily notify CCCS of their merger or anticipated merger if, after conducting a self-assessment, they have concerns that the merger or anticipated merger has led to or may lead to a substantial lessening of competition in a Singapore market.

It is open to a company to introduce more (but not less) stringent reporting thresholds, eg, in its constitution. Apart from the general restrictions that may be applicable to stakebuilding (as discussed previously), the acquirer should be mindful of statutory limits or regulatory approvals required for control or share ownership in companies in certain regulated industries, such as banking, insurance, broadcasting, defence and newspaper publishing.

Dealings in derivatives are allowed, and are generally subject to the same restrictions as dealings in capital markets products (which include shares) under the Securities and Futures Act.

Under the Takeover Code, a person who has acquired or written any option or derivative that causes him or her to have a long economic exposure, whether absolute or conditional, to changes in the price of securities, will normally be treated as having acquired those securities for the purposes of the mandatory offer rules.

Where the acquirer triggers the mandatory offer requirement under the Takeover Code as a result of acquiring such options or derivatives (among others), the acquirer must consult the SIC to determine if a mandatory offer is required, and, if so, the terms of the offer to be made.

Under the Takeover Code, dealings in derivatives in respect of certain securities of the target company during the offer period must be publicly disclosed. Full details of the dealings in derivatives should be provided so that the nature of the dealings can be fully understood. This should include, at the minimum, the number of reference securities to which they relate (where relevant), the maturity date or if applicable, the closing-out date and the reference price.

Separately, under the Securities and Futures Act, a specified person who is a party to a specified derivatives contract (which includes a derivatives contract the value of which is determined by reference to the value of underlying stock or shares, among others) is required to report certain prescribed information to a licensed trade repository or licensed foreign trade repository in respect of the derivatives contract.

There are no specific filing/reporting obligations for derivatives under competition laws in Singapore.

Under the Takeover Code, an offer document, which should be despatched no later than 21 days after the offer announcement, should disclose the bidder’s plans relating to the target company and its employees, including:

  • its intentions regarding the business of the target company;
  • its intentions regarding any major changes to be introduced in the business, including any redeployment of the fixed assets of the target company;
  • the long-term commercial justification for the proposed offer; and
  • its intentions with regard to the continued employment of the employees of the target company and of its subsidiaries.

Pursuant to the Takeover Code, before the board of the offeree (or target) company is approached, the responsibility for making an announcement will normally rest with the bidder or potential bidder. However, once an approach has been made to the board of the target company, the primary responsibility for making an announcement will typically rest with the board.

The target company’s board is required to make an announcement in any of the following circumstances:

  • it receives notification of a firm intention to make an offer from a serious source;
  • if, after the bidder has approached the target company, the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in its share price or a significant increase in the volume of share turnover;
  • negotiations or discussions between the bidder or the target company are about to be extended to include more than a very restricted number of people; or
  • the board of the target company is aware of negotiations or discussions between a potential bidder and the shareholders holding 30% or more of the voting rights of the target company or when the target company’s board is seeking potential bidders, and:

a) the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in its share price or a significant increase in the volume of share turnover; or

b) more than a very restricted number of potential bidders are about to be approached.

As mentioned in 5.1 Requirement to Disclose a Deal, above, for public M&A transactions that are subject to the Takeover Code, the responsibility for making an announcement on the potential deal will normally rest with the bidder or potential bidder, before the board of the target company is approached.

In terms of timing, the bidder or potential bidder must make an announcement:

  • when the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in its share price or a significant increase in the volume of share turnover, and there are reasonable grounds for concluding that it is the potential bidder’s actions which have directly contributed to the situation; or
  • immediately upon an acquisition of shares which triggers the mandatory offer thresholds under the Takeover Code. In particular, within 30 minutes of incurring an obligation to make a mandatory offer under the Takeover Code, the bidder must either make the announcement or request the securities exchange for a temporary halt in the trading of the target company’s shares and make an announcement before such a trading suspension is lifted.

Where an approach has been made to the board of the target company, the board must make an announcement following the occurrence of any of the circumstances as set out in 5.1 Requirement to Disclose a Deal.

Market practice on the timing of making such announcements generally follows the Takeover Code requirements, as set out above.

There is no standard process on carrying out due diligence under Singapore laws, and the level of information and documents provided will depend on the nature of the transaction and the relevant parties. In general, for public M&A transactions, the scope of the legal due diligence process is likely to be limited due to the following legal restrictions:

  • where the target company is listed on an exchange, the company will be subject to continuing disclosure requirements under the Listing Manual, which would require the company to keep its shareholders informed of material information relating to the company. The listed company also cannot selectively provide any information to any person which would put the person in a privileged dealing position;
  • under the Takeover Code, any information given to one bidder must, on request, be furnished equally and promptly to any other bidder;
  • where a bidder comes to possess confidential and materially price-sensitive information, any further dealings with the shares of the target company may give rise to insider dealing concerns; and
  • in the context of negotiations on mergers, an exchange of commercially sensitive information which has the object or effect of restricting competition may potentially infringe the Competition Act.

In view of the above legal restrictions, the bidder often will have to rely on publicly available information. This includes:

  • information available on public registers, such as lodgements with the Accounting and Corporate Regulatory Authority (ACRA), and the register of directors and shareholders;
  • the target company’s constitutional documents;
  • where the target company is listed, on-going disclosures of material information or events relating to the listed company;
  • any prospectuses or shareholder circulars;
  • financial information such as annual financial reports; and
  • research reports published by financial analysts.

For private M&A transactions, the scope of due diligence tends to be broader as the target company would not be subject to restrictions that apply to public companies. Depending on time or budgetary constraints, the due diligence may include the following relating to the target company:

  • corporate organisational documents and records;
  • shareholder agreements;
  • banking and finance documents;
  • material contracts with suppliers and customers;
  • employee matters;
  • litigation;
  • the company’s assets and properties;
  • insurance; and
  • regulatory matters (eg, licences, permits, registrations and approvals).

In general, exclusivity agreements and similar arrangements are often requested, but standstill agreements are not as common. However, in negotiating for exclusivity arrangements, the target company should note its duty under the Takeover Code not to take any action that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on its merits.

The terms and conditions of any public takeover will be contained in the bidder’s offer announcement and offer document or in the target company’s scheme document (where a scheme of arrangement or amalgamation is used). Under the Takeover Code, the offer document must set out clearly:

  • details as to the price or other consideration to be paid for the securities;
  • all conditions attached to acceptances, in particular whether the offer is conditional upon acceptances being received in respect of a minimum number and the last day on which the offer can become unconditional as to acceptances; and
  • a statement whether or not the bidder intends to avail itself of powers of acquisition.

Assuming there is no competing offer, the acquisition of a public company would typically take around six months from the public announcement of the offer by the bidder to the completion of the acquisition of the target company’s shares under the Takeover Code.

For share acquisitions of a private company, the transaction process may take around three-six months to complete, although the time required would ultimately depend on a multitude of factors, such as whether there are any competing proposals, the size of the target company, the transaction structure, the complexity of the transaction and the extent of due diligence conducted on the target company. For the acquisition of assets, the transaction process could be longer, owing to the need for additional third party consents to be obtained for the assets transfer.

The mandatory offer thresholds under the Takeover Code apply to public companies, and these are triggered when:

  • the bidder acquires shares which results in the shareholdings of the bidder and its concert parties owning 30% or more of the target company’s voting rights; or
  • where the bidder and its concert parties hold between 30% and 50% of the target company’s voting rights, the bidder acquires more than 1% of the target company’s voting rights in any six-month period.

For takeovers and mergers involving private companies, consideration more commonly takes the form of cash. Selection of the form of consideration depends on factors such as the availability of financing to the buyer and the tax implications of the payment method.

For public companies, consideration for a general offer can take the form of cash or securities (typically the bidder’s shares) or a combination of the two. However, where the mandatory offer thresholds are triggered, the consideration will generally need to be in cash.

For public takeovers all general offers are subject to a minimum level of acceptance. For mandatory and voluntary offers, the bidder must receive acceptances in respect of voting rights in the target company, which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in the bidder and any party acting in concert with it holding more than 50% of the voting rights. Separate approval thresholds apply for partial offers.

In relation to mandatory offers, bidders generally cannot impose any other condition. In relation to voluntary offers, bidders may impose other conditions, provided that fulfilment of such conditions does not depend on the bidder’s subjective interpretation or judgement, or lie in the bidder’s hands. Normal conditions such as shareholder approval for the issue of new shares and the SGX’s approval for listing may be attached without reference to the SIC. The SIC should be consulted on other conditions to be attached. A condition requiring a level of acceptance higher than 50% needs to be approved by the SIC, and the bidder would need to demonstrate that it is acting in good faith in imposing such higher level of acceptance.

See 6.4 Common Conditions for a Takeover Offer, above. All general offers are subject to a minimum acceptance condition that the bidder receives acceptances in respect of voting rights in the target company, which, together with voting rights acquired or agreed to be acquired before or during the offer, will result in the bidder and any party acting in concert with it holding more than 50% of the voting rights.

Voluntary offers that are conditional on a level of acceptance higher than 50% must be approved by the SIC, and the bidder would need to demonstrate that it is acting in good faith in imposing the higher level of acceptance. Where the bidder is seeking to privatise the target company, a 90% minimum acceptance condition is common, and this allows the bidder to avail himself or herself of the compulsory acquisition procedure under the Companies Act.

In relation to partial offers, the SIC will normally consent to a partial offer that does not result in the bidder and persons acting in concert with it holding shares with 30% or more of the voting rights in the target company, and provided that the bidder complies with the conditions set out under the Takeover Code. The SIC will not consent to any partial offer that results in the bidder and persons acting in concert with the bidder, holding shares with not less than 30% but not more than 50% of the voting rights of the target company.

For private takeovers and mergers, it is common for business combinations to be conditional on the bidder obtaining financing where cash consideration is involved.

For public takeovers and mergers, it is generally not permitted for business combinations to be conditional on the bidder obtaining financing. Rather, where the offer is for cash or involves an element of cash, the offer announcement as well as the offer document should include an unconditional confirmation by the financial adviser or by another appropriate third party that the bidder has sufficient resources available to satisfy full acceptance of the offer.

It is generally open to bidders to propose deal security measures. Where the Takeover Code applies, the target company should note its duty under the Code not to undertake any deal security measures that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on its merits.

Two commonly used measures are exclusivity agreements and break-up fees. Exclusivity agreements hinder the target company’s board from proposing alternative bids to shareholders, by precluding it from actively shopping for or responding to other bidders during a certain period of time.

A bidder may negotiate break-up fees (imposed on the target company) or reverse break-up fees (imposed on a bidder), although these are less commonly used in acquisitions involving private companies. Break-up fees may not be enforceable if they constitute a penalty, as opposed to liquidated damages (ie, a genuine pre-estimate of loss). Further, directors would need to ensure that agreeing to break-up fees would be in line with the fiduciary duties they owe to the company (eg, to act in a bona fide manner in the company’s best interests).

In acquisitions involving a target company to which the Takeover Code applies, the SIC should be consulted at the earliest opportunity in all cases where a break-up fee or any similar arrangement is proposed. Further, the rules under the Takeover Code governing break-up fees must be complied with, eg:

  • the break-up fee must be minimal, normally no more than 1% of the value of the target company calculated by reference to the offer price;
  • the target company’s board and its financial adviser must provide, in writing, to the SIC:
  • confirmations that the break fee arrangements were agreed as a result of normal commercial negotiations, all other agreements or understandings in relation to the break-up fee arrangements have been fully disclosed, and they each believe the fee to be in the best interests of target company’s shareholders;
  • an explanation of the basis (including appropriateness) and the circumstances in which the break-up fee becomes payable;
  • any relevant information concerning possible competing bidders, eg, the status of any discussions, the possible terms, any pre-conditions to the making of an offer, the timing of any such offer, etc; and
  • any break-up fee arrangement must be fully disclosed in the offer announcement as well as the offer document. Relevant documents must be made available for inspection.

Apart from its shareholding, additional governance rights such as board seats that a bidder may seek in respect of a target company generally need to be set out in the target company’s constitution.

Shareholders are generally allowed to vote by proxy, subject to the restrictions under the Companies Act and the provisions under the company’s constitution.

The Companies Act, Section 215 provides a mechanism for the compulsory acquisition of shares. Where a bidder makes an offer that is approved within four months by shareholders holding not less than 90% of the shares that are the subject of the offer (excluding shares issued after the date of the offer and treasury shares), the bidder may within two months thereafter give notice in the prescribed manner to dissenting shareholders to acquire their shares.

Additionally, where the target company’s constitution provides for drag-along rights, minority shareholders may be required to accept the offer along with the exiting shareholders.

Bidders may request for irrevocable undertakings from principal shareholders of the target company to accept the offer. These undertakings are usually given immediately before the offer is made, and it is common for them to provide an out for shareholders if a better offer is made.

For acquisitions of a target company to which the Takeover Code applies, information about the commitments (including in what circumstances, if any, they will cease to be binding, eg, if a higher offer is made) must be set out in the offer announcement and offer document. Relevant documents evidencing such commitments must also be made available for inspection.

For acquisitions of a target company to which the Takeover Code applies, once an approach has been made to the board, the primary responsibility for making an announcement typically rests with the board.

The target company’s board is required to make an announcement in any of the following circumstances:

  • it receives notification of a firm intention to make an offer from a serious source;
  • if, after the bidder has approached the target company, the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in its share price or a significant increase in the volume of share turnover;
  • negotiations or discussions between the bidder or the target company are about to be extended to include more than a very restricted number of people; or
  • it is aware of negotiations or discussions between a potential bidder and the shareholders holding 30% or more of the voting rights of the target company or when the target company’s board is seeking potential bidders, and:

a)the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in its share price or a significant increase in the volume of share turnover; or

b) more than a very restricted number of potential bidders are about to be approached.

In some cases, the bidder will be required to make an announcement of his or her intention to make an offer, before approaching the target company’s board, eg, where the target company is the subject of rumour or speculation about a possible offer, or there is undue movement in the target company’s share price or a significant increase in the volume of share turnover.

For transactions to which the Takeover Code applies, the relevant disclosures under the Takeover Code must be made if the mandatory offer thresholds are triggered as a result of the issue of shares. Where the issue of shares is made to a company listed on the SGX, its Listing Rules mandates disclosures to the shareholders.

The offer document must contain financial information about the bidder, including the following:

  • details, for the last three financial years, of turnover, exceptional items, net profit or loss before and after tax, minority interests, net earnings per share and net dividends per share;
  • a statement of the assets and liabilities shown in the last published audited accounts;
  • particulars of all known material changes in the financial position of the company subsequent to the last published audited accounts or a statement that there are no such known material changes;
  • significant accounting policies together with any points from the notes of the accounts which are of major relevance for the interpretation of the accounts; and
  • where, because of a change in accounting policy, figures are not comparable to a material extent, this should be disclosed and the approximate amount of the resultant variation should be stated.

The offer document should also state whether or not there has been, within the bidder’s knowledge, any material change in the target company’s financial position or prospects since the date of the last balance sheet laid before the target company in a general meeting, and, if so, the particulars of any such change.

For transactions to which the Takeover Code applies, all offer announcements and offer documents must be made available publicly.

The offer document must include information such as:

  • the offer consideration;
  • all conditions attached to acceptances;
  • a statement whether or not the bidder intends to avail itself of powers of compulsory acquisition;
  • a statement as to whether or not any agreement, arrangement or understanding exists between the bidder or any person acting in concert with it and any of the directors, or recent directors, shareholders or recent shareholders of the target company having any connection with or dependence upon the offer, and full particulars of any such agreement, arrangement or understanding; and
  • a statement as to whether or not any securities acquired pursuant to the offer will be transferred to any other person, together with the names of the parties to any such agreement, arrangement or understanding, particulars of all securities in the target company held by such persons, or a statement that no such securities are held, and particulars of all securities that will, or may, be transferred.

Directors have certain duties both at common law and under statute. These duties are generally owed to the company, and not to its shareholders or other stakeholders. The duties of directors include the fiduciary duties to act in a bona fide manner in the best interests of the company, to avoid a conflict of interest, to act for proper purposes and to act with care, skill and diligence.

In the case of M&A transactions to which the Takeover Code applies, the board has certain responsibilities under the Code, including:

  • giving shareholders sufficient information, advice and time to enable them to reach an informed decision on an offer, and not to withhold any relevant information from them;
  • not taking any action that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on its merits; and
  • to ensure that proper arrangements are in place to enable the board (as a whole) to monitor the day-to-day conduct of an offer so that each director may fulfil his or her responsibilities under the Code.

For companies listed on the SGX, the constitution of the company would provide that directors may not vote on matters in which they have a personal material interest.

It is increasingly common, especially in the case of management buyouts, for boards of directors to establish special or ad-hoc committees of independent directors so as to address issues of potential conflicts of interests and to ensure that the interests of shareholders are addressed fairly.

Whilst the board of directors may delegate the day-to-day conduct of an offer to a committee of directors or individual directors, the board as a whole remains responsible for ensuring that proper arrangements are in place to enable it to monitor the conduct so that each director may fulfil his or her responsibilities under the Takeover Code.

The Singapore courts are generally slow to interfere in commercial decisions taken by directors and generally acknowledge that they should not, with the advantage of hindsight, substitute those decisions with their own, where those decisions were made by directors in the honest and reasonable belief that they were taken in the company’s best interests.

Legal, financial and tax advisers are typically engaged to advise on the transaction structure and valuation, and more generally to manage the transaction.

For takeovers and mergers to which the Takeover Code applies, the target company’s board must obtain competent independent advice on all offers, except partial offers that could not result in the bidder and persons acting in concert with it holding shares carrying 30% or more of the voting rights of the target company.

The substance of the advice must be made known to its shareholders and this is typically done as part of the target company’s board’s circular to shareholders indicating its recommendation for or against acceptance of the offer. Where the offer is a management buy-out or similar transaction, or is being made by or with the co-operation of the existing controlling shareholder or group of shareholders, the target company’s board should appoint an independent adviser as soon as possible after it becomes aware that an offer may be made.

Where the offer being made is a reverse takeover and the bidder is incorporated in Singapore, its board must obtain competent independent advice on the offer, or when it faces a material conflict of interests. Again, the substance of the advice must be made known to its shareholders.

There are reported cases in recent years involving conflicts of interests in the context of takeovers and mergers. For instance, in 2017, the SGX reprimanded Singapore Post Limited (SingPost) for its non-compliance with the SGX Listing Rules, including its failure to accurately disclose that its then director had an interest in SingPost’s subsidiary, which had entered into an agreement to purchase all the shares in FS Mackenzie Limited (FSM Acquisition). The then director was the non-executive chairman and a 34.5% shareholder of the arranger for the FSM Acquisition.

The clarification announcement released by SingPost attributing the inaccuracy to an administrative oversight led to public commentaries questioning its corporate governance, including regarding the then director’s independence, as well as whether the then director should have  disclosed his interest to SingPost’s board, abstained from voting and recused himself from the discussions on the FSM Acquisition.

Hostile tender offers are permitted in Singapore. However, they are relatively uncommon due to the concentrated shareholding structure of many Singapore-listed companies.

Directors are prohibited under the Takeover Code from taking any action on the affairs of the offeree company that could effectively result in any bona fide offer being frustrated or the shareholders being denied an opportunity to decide on its merits. This is unless they have shareholder approval to do so, or they do so pursuant to a contract entered into earlier during the negotiation process.

Some of the actions that may constitute frustration are:

  • the issue of any authorised but unissued shares;
  • the issue or grant of options in respect of any unissued shares;
  • the creation, issue or permitting of the creation or issue of any securities carrying rights of conversion into or subscription for shares of the company;
  • the sale, disposition or acquisition or the agreement to sell, dispose, or acquire assets of a material amount;
  • the entry into contracts, including service contracts, otherwise than in the ordinary course of business; and
  • the causing of the offeree company or any subsidiary or associated company to purchase or redeem any shares in the offeree company or to provide financial assistance for any such purchase.

However, soliciting a competing offer and running a sale process for the company are not considered to be frustrating actions.

As frustrating actions are not permitted (see 9.2 Directors' Use of Defensive Mechanisms, above), the defensive measures that the board of an offeree company may take are generally limited to soliciting competing offers or running a sale process for the company. The board may also choose to attempt to convince the shareholders not to agree to the offer in its circular(s) to the shareholders.

Directors continue to owe fiduciary duties to the company and its shareholders as a whole, pursuant to the Companies Act. As such, they should have regard to what is best for the interests of the company or its shareholders, and not their own monetary, personal, familial, or other interests.

The board of an offeree company is also usually obliged under the Takeover Code to obtain competent independent advice on any offer and the substance of the advice must be made known to its shareholders. This is especially so if the offer is a management buyout or other similar transaction being made with the co-operation of the existing controlling shareholder(s), due to the very real risk of a divergence of interests within the company.

While directors may recommend, strongly even, that shareholders reject a takeover offer, and while they are permitted to take defensive measures, they are not permitted to frustrate a bona fide offer outright. See 9.2 Directors' Use of Defensive Mechanisms, above.

Litigation in connection with M&A deals is not common in Singapore. One notable case involved the Noble Group, where Goldilocks Investment, an 8% minority investor, engaged in legal action as part of its strategy to obtain a better deal for investors.

In connection with the protection of minority rights, the Securities Investors’ Association (Singapore) (SIAS), an advocacy charity for investors and active since 1999, has expressly stated that its preferred approach to resolving investors’ rights issues is in the boardroom and not in the courtroom. This is compounded by the fact that many minority investors tend to be ‘persons-in-the-street’ without the resources necessary to finance litigation against relatively well-funded companies. They may also lack access to means such as class action lawsuits or litigation funding.

As litigation concerning M&A transactions is not common in Singapore, there is no established pattern as to the stage of a transaction at which a lawsuit is commonly brought. See 10.1 Frequency of Litigation, above.

In Singapore, the focus of shareholder activists tends to be on improving corporate governance and the protection of minority investors’ rights. The SIAS is also involved in this field by conducting investor education workshops and helping to monitor the corporate governance of companies.

Some recent notable instances of shareholder activism include:

  • the YuuZoo Shareholders Association, which called for a special general meeting over concerns about the continuing suspension from trading of YuuZoo shares; and
  • investors Jerry Low and Manohar Sabnani, who recently separately challenged the boards of two listed companies, Asiatic Group and Stamford Land respectively, on their corporate governance.

There are also activist funds active in Singapore that seek to unlock greater value in target companies via shareholder activism. Judah Value Activist Fund, based in Singapore, announced in August 2018 that it was in the process of building a position in a local bank before crafting an open letter suggesting operational improvements.

Another activist fund, Quarz Capital Management, has made open requests to several firms, such as CSE Global and Sunningdale Tech, requesting a range of actions from cash discipline to dividend distribution.

There have been reported instances of shareholder activists seeking to encourage companies to enter into M&A transactions as a means to unlocking shareholder value. Eg, in May 2017, activist fund Quarz Capital Management requested HG Metal Manufacturing to divest its stake in a competitor, BRC Asia. While HG Metal did not acquiesce on that occasion, it did subsequently divest its stake later that year.

Activists may be more likely to act when they think that there will be positive effects on the company's bottom-line. Retail shareholder activists seem to be more interested in encouraging better corporate governance to protect their investments.

It is fairly uncommon for activists to seek to interfere with the completion of announced transactions in Singapore. However, there has been at least one reported instance of activist intervention in an announced deal, when Goldilocks Investment sought injunctions to prevent the Noble Group AGM from approving a deal (see 10.1 Frequency of Litigation, above).

In other cases, activists have sought board explanations for transactions that they believe to be questionable, eg, the board of Datapulse Technology was strongly challenged by shareholders on the company’s acquisitions of other firms at a recent AGM.

Drew & Napier LLC

10 Collyer Quay
10th Floor Ocean Financial Centre
Singapore 049315

+65 6535 0733

+65 6535 4906

mail@drewnapier.com www.drewnapier.com
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Drew & Napier LLC houses one of Singapore’s leading M&A practices, advising on public and private mergers, acquisitions, takeovers and reverse takeovers, schemes of arrangement, amalgamations, privatisations, joint ventures and disposals as well as complex restructurings and reorganisations, with a particular focus on public M&A transactions. With its cross-border experience in the region and beyond, the Drew & Napier team is well equipped to handle multi-jurisdictional transactions, particularly in Southeast Asia, and to service the needs of its clients’ increasingly global business interests. The team advises sellers and buyers as well as investors, management and financial advisers on all aspects and stages of transactions, from planning and structuring to negotiating, documenting and implementing. Close links with the firm’s other practices in Tax, Competition, Real Estate and Intellectual Property permit the provision of specialist expertise tailored to clients’ particular needs.

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