Corporate M&A 2024 Comparisons

In the corporate market in Macau, M&A are a common way for companies to adjust their business model, financial structure or business. With the passing of the epidemic, the Macau company market has a clear trend of recovery. The number of new companies established in Macau in 2022 was 4,111, compared to 5,011 in 2023, representing an increase of 21.9% over the former. As of February 2024, the number of new companies was 716. The number of companies dissolved in Macau in 2022 was 718, compared with 918 in 2023, representing an increase of 27.9% over the former. As of mid-February 2024, the number of dissolved companies was 145. In contrast, the market for Macau companies continues to expand, and this fact has also led to the expansion of the market for M&A by Macau companies.

The main trend in the M&A market in Macau will be to consolidate the recovery and develop its potential. After the pandemic, Macau's overall economy has recovered rapidly, with GDP growing by 80.5% in 2023 compared to 2022. The number of visitor arrivals in 2023 increased by 394.9% compared to 2022, recovering to about 71.6% of the number of visitor arrivals in 2019. Retail sales in 2023 increased by 49.5% compared to 2022 and 11.7% compared to 2019.

With the promulgation and implementation of the Policy Address, Macau's economy has been greatly boosted and it will continue to be built into a world centre of tourism and leisure, as well as a "City of Performing Arts". In addition to the original leading industry, the gaming industry, the four major industries of traditional Chinese medicine and health, modern finance, high-tech industry, and exhibition quality industry have also been highly promoted. Among them, the transformation and upgrading of traditional industries, the expansion of the scale of companies and the integration of companies have contributed to the positive development trend of the M&A market of Macau companies. In terms of company types, most of the targets of corporate mergers and acquisitions are mainly (both public and private) limited companies.

In 2023, the key industries in which M&A are prevalent in Macau include the hotel industry, tourism, banking, retail, electronic payment service platform, consulting industry.

In Macau, the most common ways to buy a company are:

• purchase of existing shares;
• purchase of capital increase shares; and
• merger of companies.

For the first method, when a potential purchaser wants to acquire a company, it can acquire the status of being a shareholder of the company by negotiating with the shareholders of the company and then acquiring all or part of the shares held by the shareholders through an equity transfer agreement entered between the parties.

As for the second option (purchase of capital increase shares), this method is more common when the company seeks new investors due to business expansion or capital needs, and these companies will increase the company's capital by setting up new shares, thereby recruiting investors to become new shareholders. As a result, potential purchasers can be the shareholder in the company by subscribing these newly added funds.

In the case of the third one (merger), this is more often the case where one company acquires another (or more than one) company. If an investor buys a company in this way, there are two options:

• to transfer all the property of the acquired company to the acquiring company and the combined shares will be allotted to the shareholders; or
• to establish a new company to transfer all the assets of the two (or more) merged companies to the new company, and the shares of the new company will be allotted to the shareholders.

In principle, the merger of general companies is not subject to the regulatory regime but to the registration system. The fact of the merger of a company is a fact that must be registered, and after the parties have legally completed the entire merger plan and the procedures required by the Macau Commercial Code, they must submit to the Commerce and Movable Property Registry of Macau for registration (hereinafter referred to as the "Macau Commerce Registry"), and the Macao Commerce Registry will examine whether the documents submitted are eligible for the registration of the company merger and whether the parties have fulfilled their tax obligations. If so, after the application is accepted, the registration will be completed within 15 days. However, this is limited for general companies. Depending on the applicable law, the companies under the licensing or grant regime may be subject to the supervision or regulation by different regulatory entities.

In a nutshell, the following are some of the most dynamic and regulated industries in the M&A market:

• In the banking industry, credit institutions are required by law to obtain permission from the Macau Chief Executive when carrying out mergers. In addition to the general provisions of the Commercial Code and the Commercial Registration Law, banks are subject to the Financial System Act (FSA), which stipulate that the Monetary Authority of Macau (AMCM) is the entity responsible for supervising banking business. When a bank wishes to carry out a company merger, it should first apply to the AMCM. After hearing the views of the AMCM, the Chief Executive will issue a dispatch to grant the permission.
• In the insurance industry, the law also requires insurers to obtain permission from the Chief Executive when carrying out a merger. Insurance business is also supervised by the AMCM, and when an insurance company undergoes a merger, in addition to the general provisions of the Commercial Code and the requirements of the Commercial Registration Law, it is also subject to special regulations on insurance business. The insurer should first apply to the AMCM, which will give a consolidated opinion on the matter, and the Chief Executive will give permission by way of approval after considering the opinion.

In the case of public concessions, some concession contracts also require the grantee to obtain permission from the Chief Executive when carrying out a merger. In Macau, most of the public utility services are licensed by the government through contracts to operate related services, such as gaming, public works and public services, telecommunications services, broadcasting services. In most concession contracts, it is expressly provided that the grantee must obtain prior permission from the Chief Executive in the event of a company merger.

Macau encourages foreign investors to enter the Macau market. There are no restrictions on investment access for investment operators, so foreign investors can generally enjoy the same rights and protections as local investors in Macau's corporate M&A market without any restrictions. The shareholding model of a company in Macau is relatively free, and there is no restriction on the nationality of the shareholders, and the composition can be:

• fully owned by local investors;
• held by local investors and foreign investors; and
• fully owned by foreign investors.

Macau's Antitrust laws require that competition among all business owners must not harm the economic interests of the region. It is forbidden for a business owner to prevent other competitors from competing in the market for any purpose or effect, or to violate the rules of competition. If an anti-competitive agreement is to be entered between business owners, it must be entered into in writing together with satisfaction of the above requirements. However, the Macau law also stipulates that some of the services in certain public services are monopolised by Macau public entities, such as the production of stamps in postal services.

In a merger, when the merger process is completed, the merged company will be extinguished and all the rights and obligations of the merged company, including all employment contracts and employees, will be transferred to the surviving company or the newly established company. In terms of employment law, we believe that the work of existing employees and new hires should be considered separately.

For Existing Employees

• Modification of employee contract: With the change of the company's structure, scale and business model, the company may need to adjust the work content, position and salary of employees, which depends on the laws and regulations on the modification of labour contracts. However, it should be noted that the requirements of Macau law for the formation and modification of contracts are different for local and non-resident employees.
• Working hours, paid leave, unpaid leave and mandatory leave: Since an employee's output value is based on his or her personal ability and the number of hours he or she is able to work, the investment should also take into account the maximum working hours, the minimum rest time, rest days, annual leave, mandatory holidays, compensation for work on mandatory holidays, the types and differences between reasonable and unreasonable absences, maternity leave for women, maternity leave for men.
• Dismissal of employees: The company may also need to make descriptive adjustments in the number of employees, so it should also consider the provisions on the termination of the employment contract with reasonable or unreasonable reasons, the advance notice period.
• Social Security Fund: If the company enters an employment relationship with any person, it is subject to the mandatory contribution system, and the company must register at the Social Security Fund and pay contributions in accordance with the law.

For New Employees

In addition to the above requirements relating to existing staff, the following shall be considered:

• Recruitment of local staff: The target of recruitment must hold a legal Macau Resident Identity Card.
• Recruitment of non-local employees: If the recruits do not hold a Macau Resident Identity Card, they must apply to the competent authorities in accordance with the law. The contracts entered into, and the applicable regimes are also different from those of local employees. If a company recruits a person who does not hold a Macao Resident Identity Card and does not apply to the relevant authorities, it may violate criminal or administrative laws depending on the situation, so it is advisable that an appropriate compliance assessment should be conducted.

Macau is part of the People's Republic of China, and the Macau SAR attaches great importance to national security, and its laws prohibit any acts of treason, secession, sedition, subversion of the Central Government of the People's Republic of China and theft of state secrets. No entity, within the scope of its high degree of autonomy, shall undermine the principles of national unity, territorial integrity and national security.

The legal framework for M&A is primarily governed by the Commercial Code, with Law no 3/95/M further focusing on the mergers and divisions of financial and insurance institutions. The Commercial Code in Macau provides the general framework for commercial activities, covering various aspects such as the formation of companies, corporate governance, capital increases and M&A.

The economic landscape is currently normalising and gradually recovering, after the termination of the economic and cross-border limitations imposed by the Covid-19 pandemic.

Under the recent case law, the court has not been required to mitigate and intervene in litigations arising from M&A dealings, with no significant changes or legal developments with relevance to M&A legal framework worth highlighting.

Decree-Law no 32/93/M - establishing the legal framework for the operation and exercise of financial activity in Macau - was revoked by Law no 13/2023, which enacted the FSA. The FSA came into force on 1 November 2023, introducing some key changes to the Macau financial system, being applicable to the following institutions:

• Credit institutions, including banks, banks with a restricted scope of activity and Postal Office (Caixa Económica Postal);
• Financial companies;
• Venture capital companies;
• Fast cash delivery companies;
• Currency exchange offices;
• Asset management companies;
• Investment fund management companies;
• Financial leasing companies;
• Insurance companies;
• Reinsurance companies;
• Pension fund management companies;
• Other legally recognised financial institutions; and
• Other financial institutions recognised by the AMCM and authorised by the Chief Executive.

Under Article 17 of the FSA, financial institutions are prohibited from seeking to obtain a controlling position over the financial market or to restrict competition, through agreements or other means.

The FSA further introduced a significant change, taking into consideration the recent technological advances, introducing an entire section on fintech and allowing non-financial institutions to hold a temporary licence to perform activities connected to developing new technologies that will ultimately develop the financial industry (Article 111 and 112 of the FSA). This will allow the AMCM to grant temporary licences for financial technology projects on an experimental basis to qualified entities to carry out fintech projects without a financial licence, but still within controllable risk parameters.

The new FSA also increases the minimum share capital of banks (from 100 million to 300 million of share capital), highlights the need to consider the shareholding structure and corporate governance when assessing licence applications, clarifies aspects that have to be considered for applicants’ suitability and qualification (increase from three to five the number of members to be comprised in the management body of the local credit institution), streamlines procedures about exemption requests for risk exposure calculations and reinforces sanctions applicable to violations.

It is not uncommon for a bidder to build a stake in the target company prior to launching an offer. However, as Macau does not have a stock market, the main stakebuilding strategies are operated under private negotiated deals, with investors negotiating and entering into private agreements with existing shareholders.

Shareholders agreements are often conducted among those capable of constituting a majority, or a blocking minority, within the corporate realm.

Additionally, shareholders may actively seek for changes in the composition of the company's management team or tactfully provoke and align themselves with the voting process in favour of a capital increase. This course of action is particularly pursued when there is a reasonable expectation that the remaining shareholders, or a substantial portion thereof, may encounter impediments to exercise their entitlement to contribute pro rata, thereby resulting in potential dilution of their respective ownership stakes.

Although Macau's corporate and commercial legal framework does not have specific material shareholding disclosure thresholds and filing obligations for the majority of companies, there are regulations and guidelines that apply to certain sectors, such as financial institutions and gaming industry concessionaires (casinos).

On general reporting duties for credit institutions, we note that if an interested party intends to acquire a qualified holding position in a local credit institution – or if the cumulative increase of a holder of a qualified position reaches 5%of the share capital or voting rights – the credit institution must first obtain the approval of the AMCM. In the event AMCM's prior approval is not possible to obtain, the credit institution must notify the AMCM of the acquisition, for the purposes of obtaining subsequent approval, within 30 days of the date on which the acquisition took place. It is considered a qualified holding position a position that, directly or indirectly, represents 10%or more of the share capital or voting rights of a credit institution – or that otherwise confers the possibility of exercising significant influence over its management.

Under the Macau Gaming Law (GL), enacted by Law no 16/2001, with the amendments introduced by Law no 7/2022, setting the general framework for the operation of games of fortune in casinos), applicants for a casino concession, as well as their shareholders holding 5% or more of the share capital, directors and key casino employees, must undergo a suitability assessment conducted by the Gaming Inspection and Coordination Bureau (DICJ).  Similarly, all directors and shareholders holding a minimum of 5% of the gaming operator’s corporate capital, along with key employees, will undergo continuous suitability monitoring by the DICJ.

Furthermore, casino concessionaires and their qualified shareholders (those who hold at least 5% of the corporate capital), are not allowed to directly or indirectly hold 5% or more of the capital of other operators. This restriction aims to prevent the concentration of ownership and maintain a competitive environment within the casino gaming sector. Moreover, qualified shareholders must obtain prior regulatory approval concerning the transfer or encumbrance of the corporate shares and attribution of voting rights.

Under relevant Macau laws, there are no mandatory takeover conditions. Although it is not common practice, companies may introduce specific rulings on its articles of incorporation towards reporting duties, in addition to general obligations imposed by the Macau Commercial Code. However, they may not reduce the general obligations threshold imposed by law.

General rules of the Commercial Code regulate the “pre-emptive rights” and the “agreements held outside the company”.

Regarding the exercise of pre-emptive rights, on the date of the capital increase by subscription of new shares to be paid up in cash, existing shareholders have pre-emptive rights in the subscription of the new shares in proportion to the number of shares they hold, further being granted to shareholders the pre-emptive rights to subscribe to share capital increases.

In the case of a limited liability companies by quotas (sociedades por quotas or LLCQ), if new shares are issued through new contributions, the existing shareholders hold the pre-emptive right to subscribe to these new quotas (as stated in Article 363).

Similarly, in a limited liability companies by shares (sociedades anónimas or LLCS), existing shareholders enjoy the pre-emptive right to subscribe to new shares in proportion to their current shareholding. It is worth noting that this pre-emptive right can be subject to restriction through a resolution passed by the shareholders (as indicated in Article 469).

Regarding transfers of shares in LLCS that were incorporated via public subscription, such transfers are typically unrestricted, except for those shares that have been specifically subscribed to and paid for by an underwriter (as outlined in Article 407).

Transfers of shares in LLCS are generally governed by the limitations expressly outlined in the articles of association. These limitations commonly include provisions such as the pre-emptive right of existing shareholders. It is crucial for these limitations to be explicitly referenced in the share certificates to ensure their enforceability and clarity.

When the shareholders regulate certain aspects of the company relations, not in the articles of association but in a separate agreement, we are dealing with shareholders' “agreements outside the company” (Article 185 of the Commercial Code). These agreements, which, unlike the articles of association, are of purely binding nature, are binding only to  the parties involved and cannot be invoked to challenge acts of the company or of the shareholders towards the company. As a rule, shareholders' agreements can have any content, and may relate to the exercise of voting rights (most common type of agreement), as long as they do not concern the way in which management and supervisory functions are exercised. To that extent, any agreement that aims to regulate aspects of company life that is not covered by the articles of association will be a shareholders' agreement, regardless of whether it is signed only between shareholders or between shareholders and third parties.

Therefore, in order to protect the interests of the company and the so-called minority shareholders, the law deems void the stipulations by which a shareholder undertakes to vote as follows:

• always following the instructions of the company or one of its bodies;
• always approving the proposals made by the latter; or
• exercising the right to vote or abstaining from exercising it in return for special advantages.

Additionally, it is forbidden the use of the power of voting control, either by the dominant shareholder or by a plurality of shareholders linked by shareholders' agreements, with the intention of harming the company or other shareholders. This is why it is common for shareholders' agreements to include clauses forcing the subscribers to only sell their shares to those who are willing to be bound by the shareholders' agreement itself.

Additionally, under Article 1 and 2 of Law no 4/2015 (enacting the elimination of bearer shares further amending the Commercial Code), companies are not allowed to issue bearer shares. Furthermore, the conversion of securities representing registered shares into bearer shares shall also be prohibited, as shall the transfer between living persons of securities representing bearer shares, with the exception of transfers resulting from a court decision or judicial sale.

Regarding credit institutions, pursuant Article 77 of the FSA, a credit institution may not hold, directly or indirectly, more than 15% of the institution's own funds in a company, while that total amount may not exceed 60% of the credit institutions own funds.

Furthermore, a credit institution may not hold a stake in a company that, directly or indirectly, provides it with more than 25% of the share capital or voting rights of the company in which it has a stake (Article 78 of the FSA).

The current legal framework in Macau does not consider dealings in derivatives or provides a definition of derivatives. However, it includes this kind of financial instrument under Section 4, no 2, paragraph 5 of the FSA and of paragraph c) of Article 12.º of the Decree-Law no 25/99/M (Asset Management Companies Law) as regards to the activities that either Banks or Asset Management Companies are allowed to perform.

To that extent, dealings in derivatives are not a common practice in Macau.

It should be noted that, under Article 395, paragraph c) of the Commercial Code, the possibility for bonds to be issued must be included in the articles of association of the LLCS further requiring prior authorisation from the shareholders.

Dealings in derivatives are not a common practice in Macau. See 4.2 Material Shareholding Disclosure Threshold. 

There are no provisions requiring shareholders to disclose the purpose of any acquisitions or their intention regarding the control of the company, prior to entering into negotiations.

Under general rules of the commercial code, the articles of association must state the company's object, which consists of the economic activity that the shareholders intend to carry out, being forbidden to include in the object any expressions that imply that the company is engaged in activities that it cannot carry out. The company's object also defines the legitimacy of the directors' actions, who in the exercise of their duties are limited by the pursuit of that object, being deemed liable when in the exercise of their duties they deviate from the fulfilment of the purpose set out in the company's object (Article 245, no 1 of the Commercial Code).

Macau law only requires that the company must register the merger plan and the resolution passing the merger plan. After the completion of registration, the registered fact and the documents submitted will be deemed as disclosed as the public can apply for the certificate of the registration covering the copies of the foresaid documents. However, if the industry is specifically regulated, it will need to be disclosed separately according to different requirements.

For the situation where the industry is regulated, as noted in 2.2 Primary Regulators, as these industries are regulated and regulated by special legislation, their mergers must be pre-approved by the Chief Executive of Macau, and the applicant should provide relevant documents in the application. Therefore, disclosure should be made to the supervisory entity and the Chief Executive of Macau when the Definitive Agreements are signed, but before the actual merger proceeds.

Market practices for disclosures are generally in line with legal requirements, however, it is also possible for a regulated entity to request additional or additional information as the circumstances require.

In Macau's company market, especially in the case of share transfers, enterprises transfers, mergers and acquisitions, due diligence is a very common measure, which focuses on the disclosure and examination of the target company's assets, profits and losses, licences, tax performance, penalty records, employee status and other compliance-related circumstances. Depending on the size of the company and the needs of the client, the content of the due diligence report will vary according to the situation. For legal due diligence, the most common areas mainly include the following:

• Assets: examine whether the immovable property or registrable movable property held by the target company has been registered in the relevant registry with the relevant registry of ownership, mortgage of liabilities, pledge of liabilities or litigation.
• In terms of civil and commercial contracts: examine the validity of important contracts of the target company, the content of harvest or payment, the validity period and other facts that are important to the company's business, especially bank credit contracts, sales contracts, installment payment contracts, lease contracts, commercial service contracts, supply contracts, various reservation contracts.
• Penalties: review the target company's past administrative penalty records, including whether it has been subject to administrative penalties for violating the law, or whether it is currently facing an investigation of administrative penalty procedures, including taxation, environmental protection, fire safety, site compliance, personal data processing.
• Employment: review the target company's compliance with employment contracts and employment, including employment contracts, contributions to the mandatory social security fund, and employment compliance of non-local employees.
• Intellectual property rights: examine the legal protection procedures for the intellectual property rights held by the target company in Macau, including whether trademark registration, patent registration, intellectual property licensing contract and more have been carried out.
• In terms of concession contracts: review the contents of the concession contracts signed between the target company and the Macau government, including land lease grant contracts, grant contracts for the special operation of a specific business, other concession contracts.
• Litigation: examine whether the target company has filed or been sued in the courts of Macau, including civil and commercial litigation, administrative litigation, criminal litigation, labour litigation or intellectual property litigation.
• Risk assessment: Conduct a legal risk assessment of the target company's current compliance status.

Macau law does not regulate the exclusivity rules for mergers and acquisitions, which depend on the will of the parties. In practice, it is common for the buyer to request an exclusive offer from the seller or for the seller to make an exclusive offer if there is only a single potential buyer. However, if there are multiple potential buyers, the seller may not grant exclusivity to the offer and will open it to all potential buyers.

In addition, Macau law also does not provide for a standstill clause. Its existence also depends on the agreement between the parties. Generally, this is not the case during the negotiation period, but rather during the period between the signing of the merger agreement and the completion of the merger.

In Macau, the law only requires that the company to be merged must make a merger plan, which specifies the manner of the merger, the allocation of capital contributions, the amendment of the articles of association. In the case of a merger contract, the terms and conditions of the offer are not mandatory to be recorded in the contract, so the parties can decide themselves according to the principle of freedom of contract. However, the parties will generally incorporate the terms and conditions of the offer that are mutually acceptable to both parties into the contract. At the same time, the merger plan required by law and the agreement between the parties in relation to the merger shall also be included in the definitive agreement.

Macau law does not stipulate the length of the M&A market, and in principle, it depends on the agreement of the parties and the complexity of the merger. Nevertheless, if the situation is dependent on the Chief Executive's permission, eg, the activity of the company is under concession, the Chief Executive has the power to decide to grant a merger permission only valid for a specific duration, in which case the parties should complete the merger within the validity period of the permit.

Therefore, considering the complexity of a merger can vary depending on the company to be merged, it is important to consider the existence of a regulatory entity, the number of regulated entities, the licences held, the number of enterprises held by the company, the size of the due diligence scope.

In addition, the merger of companies is a fact that must be registered, and the Macau Commercial Registry will register the merger within 15 days after receiving all the documents. Before that, the relevant tax registration shall also be completed.

The measures adopted by the Macau government to prevent the spread of covid-19 are relatively relaxed, so there will be no predictable material impact on the deal-closing process.

There is no mandatory offer threshold under Macau law. The parties can decide for themselves the quantity to be acquired. Nonetheless, if the company is subject to a concession regime, under the terms of the concession contract, the Chief Executive may have the power to set conditions in the prior permission, such as to the number of shares to be acquired.

In Macau, the most important and common instrument of consideration is cash. However, the parties may also decide to use stocks or other valuable objects.

If parties have a dispute about the value of a stock or other thing of value, even though it is not legally mandatory, they may seek a third-party valuation service to assess the value of the stock or thing.

Generally, the law requires that the transaction must not be contrary to good morals or public order. However, for companies subject to the supervision system, there may be clauses in the concession contract requiring the company to ensure that it complies with the obligations and responsibilities under the original concession contract or regulatory system after the merger, that the merger shall not seriously affect or change the performance of such obligations and responsibilities, or that the merger shall not prejudice the interests of the government, the public or the interests of a third interested party.

Macau law does not stipulate a minimum acceptance condition for a tender offer. In practice, this minimum acceptance condition usually corresponds to the number of shares required to effectively control the target company. And this can vary depending on the agreement between the parties, depending on the company's shareholding structure and the purchaser's investment considerations. According to the Macau Commercial Code, the number of votes cast for the following share capital shares can correspondingly control certain matters of the company:

• Holding two thirds or more of the company's share capital: such as amending the articles of association, merger;
• Holding 50% or more of the company's share capital: such as election and dismissal of members of the board of directors;
• Other shareholder voting rights with enough votes: matters that can have a significant impact on the company.

In general, the parties are free to agree on the terms and conditions of the merger of the companies through an agreement, including the clause for the completion of the transaction on the condition that the bidder receives financing. As a condition of the sale, the seller may require the purchaser to provide security to finance the transaction, such as a bank guarantee, guarantor and more. However, in practice, the purpose of a merger is often based on the expansion of the business and corporate structure or the need for financing, and if the purchaser fails to provide financing security, the takeover offer may not be given priority or considered.

In Macau, parties often negotiate with the controlling shareholders of the target company or use exclusivity clauses to ensure that the transaction can proceed as scheduled. In addition, the following options are also designed to increase the transaction yield of the company's M&A:

• Break-up fee;
• No solicitation of employees clause; and
• Non-compete clauses.

As the pandemic subsides, it is not foreseen that the current epidemic prevention measures in Macau will have a significant impact on the above-mentioned transaction security measures.

In Macau, it is difficult for acquirers to obtain additional governance rights beyond those directly related to number of their shares. In such cases, the acquirer may consider negotiating and entering into a shareholders' agreement with the other shareholders of the target company to take collective action on certain matters to exert greater influence.

These agreements typically include, but are not limited to, the following:

• Appointment and dismissal of members of a body corporate;
• Conflict of interest rules that are stricter than those provided for by law; and
• Exercising or abstaining from voting, and others that not contrary to law.

However, such a shareholders' agreement shall not be used as a basis for disputes against the conduct of the company or for the actions of shareholders in relation to the company, shall not involve the conduct of various participants or others in relation to administrative or supervisory functions, nor shall it impose an obligation on the other party to exercise or abstain from voting rights in return for a special benefit.

According to Macau's Commercial Code, shareholders can proxy votes, which is a common practice if the articles of association do not prohibit this practice.

A shareholder may, by signing a letter addressed to the Chairman of the Presidium of the shareholders' meeting, authorise another shareholder, his or her spouse, lineal blood relatives, or, by general authorisation according to law, another person to attend the shareholders' meeting and exercise the right to vote.

There is no squeeze mechanism, short-form mergers or other similar mechanism in law or practice in Macau.

Conversely, if a shareholder who votes against the merger plan may exercise the right of withdrawal and, within 30 days after the announcement of the merger plan, may require the company to obtain its capital contribution or to make a third party to obtain its capital contribution within a certain period.

In Macau, the buyer will often seek to negotiate with the target company's substantial shareholders and obtain certain forms of irrevocable commitments during the acquisition process to increase the certainty of the transaction. This is the more common practice. Substantial shareholders or other shareholders usually sign a binding promissory contract or issue a letter of undertaking to co-operate with the acquisition. In many cases, the agreement will also provide for the exclusivity of the shares of major shareholder to the sale offer, obliging the major shareholder not to transfer its shares or negotiate with competing buyers.

After the merger is approved by the shareholders' meeting of the company participating in the merger, the administrative authority of the company participating in the merger shall register and announce the resolution to approve the merger plan.

For publishing, the publication shall be made in one of the official languages, and the official languages of Macau are Chinese and Portuguese. If the publication is in only one official language, but in the case of an interested person who understands only the other official language, there should be a translation thereof. Such announcements should be made in the newspapers in Chinese, Portuguese or relevant translations of Macau, which have the largest readership in Macau, depending on the language used. If the translation is not published together with the original text, it should be published in a newspaper published within seven days.

In terms of registration, the Registry will complete the registration within 15 working days after the application for registration is made, and the resolution will be made available to the public from the moment the registration is completed.

The laws of Macau only require the registration and publication in relation to the merged company, see 7.1 Making a Bid Public. However, if the issuance of shares is issued during the merger, the issue of new shares should still be registered in accordance with the law.

Macau law requires the proposed merging company to prepare in the merger plan a series of documents that are necessary or appropriate for the merger, including the balance sheets of the companies involved in the merger. The balance sheet must contain the amount of assets and liabilities transferred to the remaining company or the newly incorporated company. The law requires the merger plan to be registered, and once the registration is completed, the merger plan will be made public in the registry.

In the case of assets in a merger plan, the law requires that the valuation standard to be adopted should be indicated, and the merger plan must be reviewed by the supervisory board or the auditors. Generally accepted accounting principles must be used in the audit. According to the accounting standards of Macau, the accounting standards adopted in Macau include General Accepted Accounting Principle (GAAP) and International Financial Reporting Standards (IFRS) (which include the IASB – International Accounting Standards Board and IAS – International Accounting Standards). 

For general companies, GAAP or IFRS may be used in the preparation and presentation of financial statements. However, the IFRS is required for the financial statements of the following entities:

• Concession entities licensed by the Macau Government;
• Financial institutions (eg, banks, finance companies, insurance companies, etc.) within the meaning of Macau Financial System Act;
• Public limited company; and
• Public Collective Name Company.

The laws of Macau only require the registration and publication referred to in 7.1 Making a Bid Public in respect of the merged company. However, if the issuance of shares is issued during merger, the issue of new shares should still be registered in accordance with the law.

In principle, the company's directors should always act in the interests of the company and with the care of a good manager. Throughout the merger process, in addition to the interests of the company, the directors should also consider the interests of shareholders and creditors.

In the procedure of merging companies, the directors of the company to be merged shall jointly prepare a merger plan. Upon completion of the preparation, the directors shall send the merger plan and its annexes to the Supervisory Board, or, in the absence of a Supervisory Board, to the auditors for their opinion. After obtaining the opinion and registering the merger plan, the directors shall submit the merger plan together with the opinion to the shareholders' meeting for resolution.

At the shareholders' meeting, the directors should also declare whether there are any significant changes in the factual elements on which the merger is based, and whether any changes are required to be made to the merger plan. After the merger plan is approved by the resolution of the shareholders' meeting, the relevant merger documents shall be signed by the participated directors. Consequently, they shall proceed the registration of the resolution to approve the plan, the publication of the resolution, and other acts necessary and appropriate for the merger procedure.

Directors of the company involved in the merger shall be jointly and severally liable if they fail to exercise the care of a good manager during the period of checking the company's property status and completing the merger, resulting in damage to the company, its shareholders or creditors.

Macau law does not provide for the establishment of special or ad hoc committees by a company to participate. This is also uncommon in practice. However, this option is feasible and the companies can decide themselves. However, if there is a conflict of interest between the director and the merger, it will generally result in the interested director not being able to participate in the voting at the meeting of the board of directors. If the company, the purchaser or the seller considers that it is inappropriate for the member to participate in the merger proceedings, and taking into account the legal requirement that the board of directors of each company to be merged must be involved in the merger proceedings, a special or ad hoc committee may be established by agreement or arrangement as long as there is at least another member of the board remain able to participate in the merger after the exclusion of the interested member.

The Macau courts have not yet recognised a principle similar to the "business judgment rule" in M&A cases. However, the law requires the directors to act in the interests of the company and with the care of a good manager. In practice, the court will presume that the members of the administrative body acted with such care, unless the other party can provide evidence to the contrary.

Macau law requires that if the company to be merged does not have a supervisory board after the merger plan has been formulated, it must seek an independent auditor to review the merger plan and other relevant documents.

When a shareholder opposes the merger plan and exercises the shareholder's right to withdraw from the company, it may require the company to obtain its capital contribution within a certain period or to allow a third party to obtain its capital contribution. If there is no provision in the articles of association or agreement between the parties, the law requires that the value of the capital contribution should be made by an auditor who has no relationship with the company to be merged.

Besides, in practice, purchasers often need an independent auditor to assess the assets of the company to be merged, including non-property interests (eg, trade marks, patents). In addition, it is very common for purchasers to seek due diligence reports prepared by lawyers.

Conflicts of interest among directors, shareholders, executives, managers and advisors have always been the subject of judicial, regulatory, or same-industry consideration in Macau. In transactions with conflicts of interest, the parties should be in good mores for the impartiality and fairness of the transaction.

In the event of a board meeting or a shareholders' meeting, directors or shareholders shall not vote on matters of interest by themselves or by proxy, otherwise the resolution may be legally flawed and thus produce impacts to its effect.

The legal framework in Macau does not specifically address and/or regulate hostile tender offers (HTO). To that extent, although HTO may occur, they are not a common practice in the local corporate landscape.

See 9.1 Hostile Tender Offers. There are no relevant defence mechanisms against an HTO, with directors being able to dispose of common practices to protect and safeguard the interests of the company in case of a HTO.

There are no relevant defensive measures addressed and/or regulated in Macau in case of a HTO, with directors able to use general measures to protect and safeguard the company from an attempt to takeover, namely, to enforce preferential rights over shares or encourage shareholders to enter into private agreements, see 4.3 Hurdles to Stakebuilding.

No relevant duties apply to directors when enacting defensive measures. See 4.2 Material Shareholding Disclosure Threshold.

The powers and authority of directors of a company are governed by the company's articles of association, shareholders' agreements, and applicable laws stated for each type of company.

Under general rules, the board of directors is responsible for managing the company's activities and representing it, however, there is not such possibility of “just say no”, and Directors shall in their decisions abide by their duties as Directors, see 8.1 Principal Directors’ Duties.

Litigation is uncommon in Macau in connection with M&A deals, as the parties involved in a business combination tend to settle any disputes amicably. To that extent, in recent years, the court and/or other means of dispute resolution have not been required to mitigate or intervene in litigations arising from M&A dealings in Macau.

There are no relevant records of litigation procedures arising from failed business transactions. See 10.1 Frequency of Litigation.

In early 2020, there are no records of significant litigation arising from failed business transactions. See 10.1 Frequency of Litigation.

There are no records of specific industries or areas of activity particularly targeted by shareholder activism.

Under general corporate rules, shareholders have the possibility to intervene in the direction, supervision and control of the economic activity of the company, with the relevant powers and scope of activity to vary according to the company type.

Amongst other specifically granted by law, shareholders have competence to pass resolutions on the following matters (Article 216):

• election and removal of the administration and supervisory board;
• balance sheet, profit and loss account, and the directors' report;
• supervisory board or the sole supervisor's report and opinion;
• apportioning of the results of the accounting period;
• amendment of the articles of association;
• increase and reduction of the company capital;
• division, merger and transformation of the company;
• dissolution of the company; and
• all matters which, in accordance with legal provisions or with the articles of association, do not fall within the scope and competence of other company bodies.

In addition, shareholders of LLCQ are further responsible for resolving on (Article 381):

• exercise of pre-emption rights regarding the transfers of shares;
• extrajudicial exclusion of a shareholder and redemption of the respective shares;
• acquisition of own shares by the company;
• demand for and refund of supplementary payments;
• distribution of profits;
• appointment and dismissal of administrators;
• appointment and dismissal of the single supervisor or members of the supervisory board; and
• acquisition of participations in companies with unlimited liability or with a different social object.

While in LLCQ the shareholders have the right to resolve on matters of management of the company, with the directors having to abide with such resolutions, on LLCS only upon request of the board of administration can shareholders resolve on matters regarding the management of the company. In addition, on LLCS, the board of administration has the authority to pass resolutions on (Article 465, no 2):

• Annual reports and financial statements.
• Acquisition, transfer, and encumbrance of assets.
• Granting personal or real guarantees on behalf of the company.
• Opening or closing of business premises.
• Significant expansions or reductions in the company's operations.
• Changes to the organisational structure of the company.
• Plans for mergers, divisions, and transformations of the company.
• Any other matter for which an administrator seeks a resolution from the board.

Shareholders have the power to elect and remove directors, hence there is some feeling of "jointly exercising" an economic activity – while although not being able to personally exercise or carry out the many different material and legal operations. This means that the shareholders have a certain degree of influence, albeit indirectly, in the management (administration) or supervision or control (inspection) of the economic activity carried out by the company. See 11.1 Shareholder Activism, regarding the differences on the company types towards the resolution of matters pertaining to the management of the company.

For reference, it is noted that in 2022, Air Macau, operating in the territory on an exclusive basis since 1995 and controlled by the Chinese state-owned airline Air China, saw a 26% reduction in operating revenue when compared to 2021, which translated into a decrease of MOP887 million (EUR101.9 million), caused by the “impact of the resurge of the pandemic [in China] and the increase in oil prices” according to the airline, which led to the shareholder’s decision to reduce share capital by MOP1.4 billion (EUR160.8 million), in order to “compensate losses”.

In recent years, there are no records of relevant interference of shareholders on proposed transactions, as shareholder activism is not a regular occurrence in the economic landscape of Macau.