HONG KONG: SFC Publish Takeover Bulletin

Tuesday May 21 2019

The Securities and Futures Commission (SFC) has published the March edition of the Takeover Bulletin. Key highlights of the bulletin include:

• Disclosure of special deals in Rule 3.5 announcements
• Presumption of acting in concert

Disclosure of special deals in Rule 3.5 announcements

The Executive have issued a reminder that market practitioners and listed companies must fully comply with Rule 25 of the Takeovers Code. Rule 25 is an extension of General Principle 1 which provides that all shareholders are to be treated even-handedly.

To assist compliance with Rule 25, the SFC has requesting certain additional disclosures to be made in Rule 3.5 announcements. Going forward, as a matter of course the Executive will require the disclosure of the following matters in all Rule 3.5 announcements and documents:

• apart from the consideration for the sale shares, details of any other consideration, compensation or benefit in whatever form paid or to be paid by the offeror or any parties acting in concert with it to the vendor of sale shares or any party acting in concert with such vendor in connection with the sale and purchase of the sale shares;
• details of any understanding, arrangement, agreement or special deal between the offeror or any party acting in concert with it on the one hand, and the vendor of the sale shares and any party acting in concert with it on the other hand; and
• details of any understanding, arrangement or agreement or special deal between (1) any shareholder of the offeree company; and (2)(a) the offeror and any party acting in concert with it, or (b) the offeree company, its subsidiaries or associated companies.

Where no such matter or arrangement exists, a negative statement to this effect must be made. Practice Note 17 also provides guidance on the Executive’s approach to special deals. As always, if there is any doubt, parties and their advisers should consult the SFC at the earliest opportunity.

Application of presumption of acting in concert – class (9)

Class (9) of the presumption of acting in concert presumes a person who provides finance or financial assistance (directly or indirectly) to another in connection with an acquisition of voting rights (including any direct or indirect refinancing of the funding of the acquisition) to be acting in concert. Authorised institutions within the meaning of the Banking Ordinance lending money in the ordinary course of business are expressly carved out from this presumption.

An individual, private company, licensed money lender, licensed broker or person licensed by the SFC to carry out securities margin financing would therefore normally be caught under the presumption. The seller of a controlling stake (ie, the original controlling shareholder) who is prepared to receive deferred payment of consideration for the sale shares from the offeror would also be caught.

When caught under the presumption, implications of concert party status under the Codes will apply to the lender. The Executive has once again issued a reminder to parties to check carefully whether the lender has dealt in any relevant securities of the offeree company in the six months prior to (i) the date of the submission of the first draft of the Rule 3.5 announcement or (ii) the commencement of the offer period, whichever is earlier.

This should help parties to ensure that the relevant requirements of the Codes are met including those that arise under Rules 23, 24 and 26.3, or in the case of a whitewash transaction, to ensure that there is no disqualifying transaction that may prevent the Executive from granting a whitewash waiver or invalidate any whitewash waiver. See also paragraphs 16 and 17 of Practice Note 20. If in doubt, the Executive should be consulted at the earliest opportunity.

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