MA 3: Singapore Take-over Regulations

Scope of Take-over Regulations

• The regulations include The Take-over Code, types of take-over transactions, required approvals, rules for concert parties, and merger control.

The Take-over Code

• It is a non-statutory set of rules administered by the Securities Industry Council (SIC).
• It applies to take-overs of corporations with a primary listing on the SGX-ST, including foreign-incorporated entities and registered business trusts.
• The Takeover Code applies to takeovers of corporations and registered business trusts with a primary listing on the Singapore Exchange, as well as certain unlisted companies and business trusts.
• It extends to unlisted Singapore companies with over 50 shareholders and at least S$5 million in net tangible assets, as well as real estate investment trusts (REITs).
• It applies to a takeover of real estate investment trusts which are constituted under the Securities and Futures Act.
• The SIC may waive the Take-over Code for foreign-incorporated companies or business trusts primarily listed on the SGX-ST, or for Singapore-incorporated entities listed overseas.
• It is possible to seek a waiver of the Code for Singapore Incorporated Companies or Registered Business Trusts with a primary listing overseas or unlisted Singapore Incorporated Public Companies or unlisted Registered Business Trusts which will otherwise be subject to the Takeover Code.
• When considering applications, the SIC assesses the number of shareholders or unit holders in Singapore, the extent of trading activities there, and the protection afforded by statutes or codes regulating take-overs outside Singapore.
• Demonstrating few affected shareholders/unit holders in Singapore, limited trading of the target entity's shares in Singapore, and protection of shareholders/unit holders by other jurisdictions is important for the SIC.
• The code applies to all offerors, regardless of their residency, and to all actions related to the take-over, whether inside or outside Singapore.
• All offerors, whether individual or company, Singapore resident or not, must comply with the takeover code, irrespective of whether the acquisition is structured or implemented within or outside.
• Example Scenario: Imagine a UK-based company attempting to take over a REIT listed on the SGX. Regardless of the company's location or where the deal is structured, the Takeover Code applies.

Consequences for Breaching the Take-over Code

• The SIC can impose private reprimands, public censure, or further actions deemed appropriate, potentially restricting securities market access.
• Sanctions can include barring a person from dealing in securities which are listed under the Singapore Exchange.
• Advisers may face restrictions from Code-related work for a specific period.
• The SIC can refer matters to appropriate authorities if there's been any criminal offence.
• The SIC may require the breaching party to compensate security holders of the target company to ensure they receive what they would have been entitled to if the code had been followed.
• The SIC may order simple or compound interest to be paid on any compensation, covering both the period until the ruling and until full payment is made.
• Scenario: A company prematurely announces a takeover offer without securing adequate funding. The SIC might then mandate a public censure or even bar the company from participating in future takeover endeavors.

Other Sources of Law and Regulation

• Companies Act: Section 210 covers schemes of arrangements, Section 215 addresses compulsory acquisition, and Sections 215A to 215J concern amalgamations.
• Securities and Futures Act: Part VIII contains legislative provisions on take-overs, Section 139 grants the SIC authority to administer and enforce the code, and Section 140 makes it an offence to make a false take-over offer without reasonable grounds for payment.
• SFA: Section 295A addresses compulsory acquisition for REITs, and Part VII contains provisions on insider trading.
• Business Trusts Act: Section 40A covers compulsory acquisition for business trusts.
• SGX-ST Listing Manual: Chapter 7 includes Rule 723 for a 10% free float requirement, Chapter 11 includes Rule 1105 for trading suspension when offeror and concert parties obtain 90% of listed company shares, and Chapter 13 includes Rules 1307 and 1309 for voluntary delisting.

General Offers in Take-over Transactions

• Involves the offeror making an offer directly to the target company shareholders, to acquire a controlling stake.
• The board of directors of the target company must review the offer and recommend whether shareholders should accept or reject it.
• The offeror can proceed whether or not the target board supports the offer.

Types of Take-over Offers

• Mandatory Offer: The offeror must extend an offer for all shares of the target company when certain thresholds specified in the Take-over Code are met.
• Voluntary Offer: The offeror makes an offer for all shares of the target company on a voluntary basis, not triggered by mandatory offer rules.
• Partial Offer: The offeror makes an offer for a specific number of shares (not all) in the target company on a voluntary basis.

Mandatory Offer Trigger Thresholds

• Occurs when the offeror, along with “Concert Parties”, acquires shares amounting to 30% or more of the target company's voting rights.
• A mandatory offer is also triggered when the offeror and concert parties hold between 30% and 50% of the company's shares and acquire more than 1% of shares carrying voting rights within a 6-month period.
• Shareholding thresholds for a mandatory offer are determined with reference to the total shareholding of the Offeror and its concert parties, not just the shareholding of the Offeror.

Mandatory Offers: Conditions

• The offer must result in the offeror and concert parties holding more than 50% of the target company's voting rights.
• No conditions are permitted unless the offeror and associates already hold 50% or greater.
• A merger control condition is permitted.

Mandatory Offers: Offer Price (Rule 14.3)

• It must be in cash or with a cash alternative.
• The offer price should not be less than the highest price paid by the offeror or any concert party for voting shares.
• This accounts the period of the offer and the 6 months before the offer announcement ("Relevant MGO Period").
• Example: If a company launches a mandatory offer, the offer price must not be lower than the highest price it paid for the shares in the six months leading up to the offer.
• The Offer Period starts on the date of the offer announcement and concludes with the close, withdrawal, or lapsing of the offer.

Mandatory Offer Price Considerations

• Prices paid for voting shares acquired through the exercise of convertible instruments and/or rights to subscribe for, and options in respect of, voting shares.
• The minimum offer price factored in is the highest price paid by the offeror and concert parties during the Offer Period or Relevant MGO Period through convertible instruments and/or rights/options.

Voluntary Offers: Conditions

• Must be Conditional: Dependent on the offeror and concert parties acquiring more than 50% of the target company.
• The higher acceptance level conditions may be stipulated. For example 75 to 90%.
• Must not be subjective: e.g., shareholder or regulatory approvals must be applicable. Conditions must not rely on subjective interpretation or discretion of the offeror.
• The SIC will not accept a voluntary offer which is subject to due diligence being conducted on the target company to the satisfaction of the Offeror. As such a condition will be dependent entirely on the discretion of the Offeror.

Voluntary Offers: Offer Price

• Mandatory in cash, securities, or a combination. The purchase price should at least be the highest price paid by the offeror. This accounts for any concert party for voting shares during the offer and 3 months up to when the offer was announced.

Voluntary Offers: Determining Price Paid For Voting Shares

• Methods for determining the price for voting shares through Convertible Instruments/Rights/Options same as Mandatory Offer, except Relevant VGO Period used.

Partial Offers: SIC Approval

• SIC's Consent Required: To make the partial offer, the SIC's consent must be received.
• Offers < 30%: SIC generally permits offers that do not make the offeror and concert parties hold 30% + voting shares.
• Offers between 30-50%: The SIC will not give consent.
• Offers > 50%: For shareholder and party to possess > 50% + Shares the SIC often only consents to partial offers.
• Conditions for partial offers > 50% are; no voting shares acquired by the parties involved during submission of application for consent + announcement of offer and in the 6 months before.
• Additionally, no voting shares will be permitted for offer, apart from the approved Partial Share Offer.
• Approvals require a shareholder vote and approval from more than 50% of Target company shareholders. A partial offer does not mean statutory control is taken over the Target Company.
• Example scenario: A company aims to acquire an additional 20% stake in a target company through a partial offer, which would result in it holding 60% of the target company’s shares. It must seek and receive SIC approval beforehand.

Partial offers : Rule 16.4 conditions

• Shareholder approval remains necessary if the existing stake of the Offeror and Concert Parties exceeds 50% in the Target Company and the Partial Offer could lead to them holding over 90% of the Voting Shares or cause the Target Company to breach free float regulations.
• Abstaining stipulations include the Offeror, concert parties, and their associates must abstain from voting.
• Obtainable acceptance form approval or poll approval needs to happen in general meeting, or “tick the box.”
• A disclosure must state how the actor can use legal authority, including statutory control, regarding Target Company, if the Offer is successful,. Offeror and parties may get shares without creating a general offer. This happens 6 months after.
• View Rule 16.4 for offer conditions if over 50 present shares are involved.

Partial Offers: Rule 16.5 Offer Price

• All partial offer money payments must be in cash, security options, or a mix of the two payment options.

General Offer Timetable

• Day D: Offeror announces intention to make offer.
• Day D+1: Target company announces holding and appoints independent financial advisor (IFR).
• Day D+ 14 - 21= T: Offeror mails documents stating offer to Target shareholders.
• Day 14 + T: The target company will issue offeree circular.
• Day 5 T+5: The possible date of closing, unless given a longer closing time.
• Day T+ 60: Lastly to agree and declare the offer conditions from when agreed.
• The offeror usually must settle within 7 business days when offer becomes unconditional in respect.

Offers: General Points

• An offer maker/ offeror can remove obligations with a Target company, which gives its shareholders the chance to accept its offerings.
• All participants must be treated equal, without exceptions.
• Cash, where used as payment, must be with the parties involved offering cash during offer closing, while those concert parties who received offers bought in the past 6 months, who make up greater than at least 10% of the group.
• Security trades with 10% or more voting shares must share those with shareholders from 3 months prior.
• An offeror can seek irrevocable undertakings from shareholders of the target company to accept its offer, whether before or during the offer period.
• An irrevocable undertaking is essentially a binding agreement by the shareholder to accept the offer and gives the offeror the assurance that he will be able to obtain at least a certain level of acceptances for his offer.
• There must not be any special deals and all shareholders must be treated equally.

Scheme of Arrangement Approvals

• Must be approved from Target company shareholders and in High Court on Singapore.
• General meeting is essentially a court meeting which has been convened with the permission of the High Court of Singapore.
• Usually, a 75% Majority votes or more of shareholder's presence are mandatory to show their voting interest. Other stakeholders such as parties and concert folks must remove themselves when voting during meeting.
• The scheme arrangement will only become effective when the order of court sanctioning the scheme is lodged with ACRA.
• The target company proposing the scheme of arrangement will need to obtain court approval to convene the court meeting, and to sanction the scheme of arrangement subsequently after it's been approved by shareholders at the court meeting.

Delisting: Voluntary Process

• Rule 1309, alongside rule 1307, process lists codes prescribed within manuals of SGX-ST, which list companies by their SGX-ST official title/trade name for delisting of company.
• Approval/acceptance of company's shareholders are needed for delisting approval.
• The target company proposes to its shareholders at a general meeting to delist the company from the SGXST.
• Approval from most third party or shareholders must have exit agreed, which provides its existing Target company shareholders to not participate.
• However, without exit approval and completion and the closing of its Target from, the company still will get trade name delisted- where applicable. Trade, delisting applications, and Target must apply for offer and removal.
• An exit offer, conditional upon the delisting proposal being approved by the shareholders of the target company, must be made.

Delisting: Rules & Approvals, Shareholder Voting

• All rules, regulations, and code practices require an exits approval with minimum 75% of the voting bodies signing off treasury shares (not inclusive), and/or votes cast during meetings within this manual from bodies related to parties within resolution (i.e -SGX-ST 1307).
• The off -road and parties acting in concert with the off -road, as defined in the takeover code, must abstain from voting on the resolution. Example: Management of the company wanting to delist has to abstain.

Delisting Through SGX-ST Approval

• Requirements include publishing a clear document, with fair exit opportunities, open for 21 business weeks, when Target has trading shares agreed with a fair amount, when approved.
• A voluntary delisting is also subject to the approval of the SGXST.

Amalgamation as a Merger

• It is a statutory merger made to follow Sections 215K from 215A from current companies. To merge and follow this path, those involved must be from Singapore.
• In an amalgamation, both entities will merge to become a single legal entity
• There is no requirement for court approval when making general offers, while instead this is for plans only open to a number of people. All of these mergers must ensure they are solvent statements too.
• Directors of the amalgamating companies have to give a sovereignty statement which exposes them to certain personal liability.

Approvals Required For Take-overs

• Includes Shareholder, Court, and / or SIC Approvals as processes.
• It is necessary to consult the SIC for all of the takeover structures discussed.

Roles of Concert Parties In Take-overs

• Parties by name refers to its parties from agreement who help merge through share trades, or help maintain power for trade parties. This can involve individuals and companies. The SIC and Take-over code are crucial.
• The definition of a concert party is set out in the takeover code.
• An agreement, arrangement or understanding, whether formal or informal, between two parties to cooperate through the acquisition by any of them of shares in the company to obtain or consolidate effective control of the target company will result in these two parties being regarded as parties acting in concert with each other.
• It is a question of fact whether an act is a 'concert party' activity.
• Example: Company A is in talks with Company B to acquire its shares in Target Company to consolidate control. Company A and B are therefore seen as engaging in activities "in concert".

Individuals/Bodies Identified for Concert Role

• Any director/leader associated to a company listed with closed group ties.
• Pensioners or bodies running worker welfare causes.
• One or more individuals managing funds on a discretionary approach.
• Money lender entities whose investors are tied to shareholder groups. Must make up 10% of funds, capital etc. -Partners, with parties such as executives in bodies, who think the takeover is a great option to better the listed company. Has related entities, too, such as parties from groups working in the shareholder cause (excluding any assistance provided).
  • The takeover code also sets up a comprehensive list of parties who are automatically presumed to be acting in concert.
• It is important to note that these presumptions will apply unless the Offeror applies to the SIC to rebut the presumption.
• The web of parties who will be presumed to be acting in concert is very wide, which offerors need to be aware of, as presumptions that Offeror needs to be aware.
• Scenario: An offeror believes parties may be wrongly presumed to be 'acting in concert'. They may then apply to SIC to have this presumption rebutted.