As in many other jurisdictions around the world, the M&A market in Macau Special Administrative Region (Macau SAR) has drastically changed since January 2020 due to the COVID-19 outbreak which then became an ongoing global pandemic. As of this date, it is not possible to fully understand the impact of the pandemic in regional and worldwide economies.
It is expected that the People's Republic of China Government will encourage Mainland corporations to increase their presence in Macau SAR through the acquisition of shares in local companies. At the same time, the reinforcement of Mainland presence in local corporations will help in replacing positions previously hold by investors from other jurisdictions. Banking, energy, telecommunications and public transportation have been sectors in which Mainland investors have either entered or increased their shareholding position in the past six months.
The Greater Bay Area plans, as well as the possible creation of a stock exchange in Macau, are two factors to take into consideration when envisaging the future of M&A transactions in the next few years.
Finance and banking, IT and other technology industries are expected to be the most active with regard to M&A transactions in 2020. Furthermore, the COVID-19 crisis has prompted the Macau Government to put in place more actively than ever a plan for the diversification of the local economy as one of the most important points for the future development of Macau.
The transportation industry may also see some changes in the near future, with the possibility of M&A transactions due to the fact that the market is small, having only two bus operators. The same may be considered in relation to sea transportation, with control change being one of the possibilities.
Acquisition of Macau-incorporated companies can be made in the following ways.
However, considering that the shareholding structure of these companies is accessible to the public and subject to registration with the Macau Commercial Registry, the transfer of quota ownership must be reported to the Registry, which will subsequently update the company shareholding public records.
General commercial companies do not have a regulatory authority. As previously mentioned, if the target company is incorporated by quotas, its relevant corporate information (name, address, scope of activity, capital, shareholding structure and directorship) is public and is subject to registration with the Macau Commercial Registry. This means that transactions involving amendments in matters subject to registration, including a transfer of ownership, must be reported to such Registry.
For certain fields of activity such as banking and insurance, gaming, energy, and telecommunications, there are regulators and supervision authorities – eg, the Macau Monetary Authority (AMCM), the Gaming Inspection Bureau (DICJ) and the Macau Economic Department (DSE) – which must either previously approve the transfer of shares or, at least, be informed (depending on the circumstances) of a M&A deal prior to its execution.
There are no restrictions on foreign investments in Macau. Foreign companies/individual investors are therefore free to acquire shares or any other type of corporate positions in companies incorporated under Macau legislation. Foreign companies/individual investors are also free to (solely or jointly) incorporate new Macau SAR companies.
Nonetheless, in some industries, Macau legislation establishes that operation of certain activities, by virtue of their importance and public interest, should be handled directly by the SAR.
However, Macau SAR prefers to assign its operation rights to private entities by means of concessions (eg, transportation, gaming, energy supply, waste management, etc). In these cases, the legal framework requires that the entity entering the concession contract with the SAR is incorporated in accordance with Macau law, regardless of its shareholding structure. This results in a limitation of foreign investments, since overseas investors are not able to directly enter into such a contract, being required to incorporate a local company for such purpose.
There are no special antitrust regulations applicable to Macau companies. Despite this, there are certain industries (eg, gaming) that do not allow operators to hold more than a certain percentage (5%) of share capital of its competitors.
Rules on competition are generally established in the Macau Commercial Code, which regulates the competition conduct of local entrepreneurs.
The relevant labour legislation is as follows:
As for M&A, the acquisition of a business may (or may not) involve taking over its employees.
There is no national security review of acquisitions in Macau SAR.
There are no relevant court decisions to report from an M&A perspective. There are court decisions involving disputes over companies' acquisitions, but such decisions do not reflect any significant issues related to M&As.
No significant changes took place in the last year in relation to takeover laws, and no legislation on the matter is under review in a way that could result in significant changes in the coming 12 months.
The market is free and, therefore, it is not customary for a bidder to build a stake in the target entity prior to launching an offer.
In general, there are no filing obligations in Macau SAR.
In terms of reporting obligations, certain industries require that companies disclose thresholds and filing obligations – eg, gaming concessionaires are required to inform the regulator within 30 days whenever there is a change on the directorship or shareholding structure involving voting rights. The same applies regarding the banking sector.
Direct or indirect changes equivalent to 5%-plus on the shareholding capital of the banks licensed to operate in the Macau SAR require prior authorisation from Macau Monetary authority, except in cases referred to under applicable legislation. This also applies to other licensed companies.
Company shareholders are at liberty to introduce and set higher or lower reporting thresholds in the articles of incorporation or by-laws.
Macau is a free port and freedom of contract prevails unless expressly addressed by laws. In this sense, there are no regulations in place preventing the companies to enter into dealings in derivatives. There are, however, restrictions if such derivatives include provision of guarantees, in which case the company administration body shall declare that the guarantee provided by the company is in its best interests.
Furthermore, although it is not common, there are Macau companies entering into International Swaps and Derivatives Association (ISDA) agreements with foreign entities (normally with banks).
There are no filing obligations. However, in terms of reporting obligations, general standard accounting reporting rules on company operations need to be followed. Also, if such deals involve securities subject to registration or recording under company security books, they will have to be recorded in both the relevant registration and company books.
It is not mandatory for shareholders to disclose the purpose of their acquisition under Macau law.
Apart from previously mentioned regulated industries or activities, there are no mandatory disclosing timings under Macau SAR legislation.
There are no specific legal requirements on disclosure nor any notable market practice.
In Macau, the extent of due diligence will depend on the type of business involved. In addition, as most of the companies are limited liability companies (sociedades por quotas), no public records of annual accounts are available.
Searches to be conducted also depend on the targeted company’s scope of activity.
Nonetheless, certain standard searches (regardless of the company’s scope of activity) will always be conducted by the Macau Finance Department and courts. This will be in addition to examination of the company books and registration and accounting documents, contracts and financing securities and related documents, if any.
No standstills or exclusivity are usually demanded.
Tender offer terms and conditions may be documented in a definitive agreement.
The length of the process depends on the complexity of the operation and eventually on the feedback of the regulatory authority, if it is required.
In principle – ie, in transactions not involving any shareholder disputes or prior authorisations from the regulators – the process is quite straightforward and will not take more than ten to 15 working days to complete the transfer and the registration formalities, if any.
Macau does not have a mandatory offer threshold.
Cash is most commonly used in Macau as consideration, but despite this we have seen deals in which there are payments in specie or in exchange for shares in other companies.
There are no common conditions for a takeover offer. Regulators do not restrict the use of offer conditions.
There are no relevant control thresholds in Macau.
Business combinations can be conditional on the bidder obtaining financing, as a freedom of contract condition.
Parties are free to agree on whatever conditions they deem convenient under the freedom of contract principle.
No additional governance rights with respect to a target exist.
Under the Macau Commercial Code, shareholders can vote by proxy in Macau. Nonetheless, some articles of association may restrict that such representation be confined to the extent that it can only take place through another shareholder.
There are no rules or regulations on squeeze-out mechanisms, short-form mergers or other methods commonly employed to buy out shareholders who have not tendered following a successful tender offer.
It is neither required nor common to obtain irrevocable commitments or to vote by principal shareholders of the target company.
There are no special requirements for how a bid is made public.
There are no special requirements for the disclosure of a bid.
Bidders do not need to produce financial statements (pro forma or otherwise) in its disclosure documents nor financial statements need to be prepared in Macau SAR in any required form (eg, GAAP or IFRS).
It is not required to disclosed any of the transaction documents in full.
The general principle is that directors of a company shall always act in its interest and shall act with the diligence of a systematic and ordered manager. Directors’ duties are owed to company shareholders.
Except in the case of companies with big operations, it is not common for boards of directors of Macau incorporated companies to establish special or ad hoc committees.
Courts in the Macau SAR do not defer to the judgement of the board of directors in takeover situations.
Normally, directors outsource independent advice from legal, audit and accounting entities.
Conflict of interest of directors, managers, shareholders or advisers has on occasion been the subject of judicial or other scrutiny in Macau SAR, despite being rare.
Hostile tender offers are not common in Macau.
Macau SAR legislation does not provide for any defensive measures.
There are no common defensive measures.
There are no duties for the directors to enact defensive measures.
It is possible for directors to "just say no" and take action that prevent a business combination.
Considering the size of the Macau market, litigation is not common in connection with M&A deals.
In case there are litigation, actions are commonly brought once the deal is known by preferential rights-holders.
Shareholder activism is not an important force in Macau, despite certain cases with their origins in foreign jurisdictions, where the shareholders had been previously incorporated.
Activists do not commonly seek to encourage companies to enter into M&A transactions, spin-offs or major divestitures.
Activists do not seek to interfere with the completion of announced transactions in Macau SAR.