MALAYSIAN CODE ON TAKEOVERS AND MERGERS 2010 PDF

The Code on Take-overs and Mergers was the first codified law on takeover and merger in Malaysia. The Code was heavily influenced by the English takeover law. Due to the tremendous development on takeovers and mergers exercise, the Code was revised and later replaced by the Malaysian Code on Take-overs and Mergers , deriving its power from section of the Capital Market and Services Act CMSA. The key objectives of the Code are to strengthen investor protection, institute higher standards of governance in takeovers and mergers activities, enhance transparency and improve efficiency. Takeovers and mergers in Malaysia have largely been friendly in nature.

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The new Code was made effective on the same date. The Code is broadly similar to the Code but introduces improved protection for investors, enhances transparency of information through greater disclosure and also puts a heavier onus on independent directors of the target company offeree. Notably, the new Code does not address the controversial issue of preventing the takeover or privatization of public listed entities through a sale of their assets and liabilities.

Currently, the sale of assets and liabilities is regulated under the Companies Act , where the approval of 50 percent of shareholders plus one share is required for the sale.

Following broad public debate and a consultative paper from the Securities Commission which sought to raise the level of shareholder approval of the privatization or takeover of public companies via the asset and liabilities route, there was wide speculation that the new Code would address this issue and align the position with other jurisdictions, such as Hong Kong and New Zealand, by increasing shareholder approval to 75 percent.

According to certain commentators, it is expected that the shareholder approval threshold for such transactions will be increased to 75 percent by way of amendments to the listing requirements of Bursa Malaysia, the national stock exchange. A number of changes have been introduced by the new Code, and this article highlights some of the key differences under the new Code. Accordingly, unit holders of Malaysian listed REITs and shareholders of foreign incorporated companies are now given the same protection as shareholders of listed Malaysian companies, under the Code.

This extension is consistent with market reality, with the advent of REITs as well as numerous Chinese companies listed on Bursa Malaysia. The Code now obligates a potential offeror to make an announcement as to whether there is a takeover or possible takeover, if there is untoward movement or increase in the volume of share turnover of an offeree.

The board of directors of an offeree shall, after being approached by the potential offeror, make an announcement as to whether there is a takeover offer or possible takeover offer and is obligated to keep a close watch on its share price and volume of share turnover. Until a firm announcement of the takeover exercise is made, both the potential offeror and the offeree are required to make brief announcements that negotiations are taking place. If an announcement of a takeover offer is premature or inappropriate and no further announcement following the initial announcement of the existence of negotiations occurs within one month, a potential offeror or offeree is required to make a monthly announcement setting out the progress of negotiations until a takeover announcement is made or the negotiations are terminated.

A potential offeror who announces that he does not intend to make a takeover offer is prohibited from announcing a takeover offer for six months after making such an announcement. An offeror is now also required to announce his firm intention to make a takeover offer within two months from his first preliminary announcement unless an extension of time is granted by the Securities Commission.

In supplementing the standard of conduct expected by the Securities Commission in the conduct of a takeover under the Act, the Code now spells out the principles of conduct required by offerors, advisers, and the board of directors of the offeree involved in a takeover offer. These include the requirement for all stakeholders to observe good standards of commercial behavior so that minority shareholders are given a fair and equal opportunity to consider the merits and demerits of a takeover offer, to provide fair and equal treatment to all shareholders and, in particular, minority shareholders, and to ensure that there is full, frank and complete disclosure of information.

The Code also expressly prohibits the creation of false markets and behavior which distorts transparency, as well as provides further details on the prohibited actions which could frustrate an offer. In light of these impending changes as well as personal liability exposure, employers in Malaysia must be mindful of the requirements and of the need to properly implement and follow through with appropriate policies and practices. The Code also introduces a set of criteria to rebut the PAC presumptions under the Act, including the pattern, volume, timing and price of shares purchased by such persons, the voting pattern of the shares and the financial dependence between such persons.

Persons who are not acting in concert can present evidence to rebut the legal presumptions. Previously, although not expressly permitted in the old Code, as a matter of practice, an offeror had the discretion and flexibility to impose a level of percentage of acceptances for the offer to become unconditional under a voluntary general offer that was higher than 50 percent plus one share.

Under the new Code, it is expressly provided that an offeror can only impose a higher level of acceptances than 50 percent plus one share for the takeover offer to become unconditional, provided that the consent of the Securities Commission is obtained for such purpose. The offeror will be required to prove to the Securities Commission that he is acting in good faith, in imposing such higher level of acceptances.

While guidelines had been introduced under the old Code via the enactment of the Act in , the new Code now makes clear that a mandatory general offer is now triggered where control or acquisition of the target company is obtained through a Scheme.

In this regard, the Code imposes a higher standard than that ordinarily required for schemes of arrangement or reconstructions, under the Companies Act In addition to the Scheme needing to be approved by at least 50 percent in number and 75 percent of value of the shareholders, the number of votes cast against the resolution to approve the scheme at such meeting cannot be more than 10 percent.

The offeror and advisers are also required under the new Code to consult with the Securities Commission before undertaking a Scheme. It is not clear how a Scheme which involves a statutory court process and the shareholders of a target being asked to vote on a takeover proposal put to them by the company in collaboration with the offeror will be implemented under the Code, other than that waivers from the requirements of a number of the provisions of the Code may be sought from the Securities Commission.

Crucially, the grant of such waivers is subject to fulfillment of certain requirements, including that the offeror and the persons acting in concert with the offeror collectively hold more than 50 percent of the voting shares of the offeree and the consent of the Securities Commission is obtained in connection with any circular or explanatory statement in respect of the Scheme.

Given the provisions of the new Code, Schemes will now likely be much less attractive or feasible compared to a mandatory or voluntary general offer.

While the Code contained provisions for the triggering of a mandatory offer through the acquisition of an upstream entity, the new Code now clarifies the pricing of the offer for the shares of the downstream entity. The Code states that where the downstream entity is listed, the offer price will be based on the highest of: 1 the volume weighted average traded price of the downstream entity for the prior 20 market days leading up to the announcement of the takeover offer; 2 the proportion of the price paid for the upstream entity over the interest of the downstream entity; or 3 the highest price paid for the voting shares of the downstream entity by the offeror or any person acting in concert with the offeror, in the six-month period prior to the commencement of the takeover offer for the upstream entity.

Where the downstream entity is not listed, the offer price may be based on the net tangible asset value, net asset value or any method which is fair to the shareholders of the offeree. The offeror has the ability to provide the basis for the offer price of the downstream entity to the Securities Commission. The new Code imposes more onerous disclosure obligations, particularly on the board of the offeree and the independent adviser.

However, the timeframe for the issuance of such circular has not changed. It is still required to be issued within 10 days of the dispatch of the offer document of the offeror. In rendering a view as to the reasonableness of the takeover offer, the independent adviser is also required to comment and advise on profit forecasts of the offeree and their accuracy as stated in the offer document.

If the offeror includes within the offer document a valuation of the assets of the offeree, the independent adviser is required to comment and advise on such asset valuation. While the new Code does not introduce drastically new principles, it does develop further detail on existing provisions, establishes new parameters for greater investor protection and enhances transparency of takeover offers to minority shareholders and the investing public.

In general, it appears that the Securities Commission is keen to expand its regulatory role to encompass areas where it previously did not regulate. It also seeks to play a much more involved role in takeover transactions by requiring parties to seek consultation with it in a number of circumstances. The Securities Commission may also have to answer to the market if participants determine that the new Code will impede the ability to undertake public company mergers and acquisitions, being a critical feature of any well-functioning market economy and efficient market.

He may be contacted at brian. Log in to access all of your Bloomberg Law products. Single Sign-On. Securities Law News Jan. Announcements The Code now obligates a potential offeror to make an announcement as to whether there is a takeover or possible takeover, if there is untoward movement or increase in the volume of share turnover of an offeree. Prescription of Conduct In supplementing the standard of conduct expected by the Securities Commission in the conduct of a takeover under the Act, the Code now spells out the principles of conduct required by offerors, advisers, and the board of directors of the offeree involved in a takeover offer.

Voluntary General Offers Previously, although not expressly permitted in the old Code, as a matter of practice, an offeror had the discretion and flexibility to impose a level of percentage of acceptances for the offer to become unconditional under a voluntary general offer that was higher than 50 percent plus one share.

Chain Principle While the Code contained provisions for the triggering of a mandatory offer through the acquisition of an upstream entity, the new Code now clarifies the pricing of the offer for the shares of the downstream entity. Enhanced Disclosure Requirements The new Code imposes more onerous disclosure obligations, particularly on the board of the offeree and the independent adviser. Conclusion While the new Code does not introduce drastically new principles, it does develop further detail on existing provisions, establishes new parameters for greater investor protection and enhances transparency of takeover offers to minority shareholders and the investing public.

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The Takeover Code 2010

The new Code was made effective on the same date. The Code is broadly similar to the Code but introduces improved protection for investors, enhances transparency of information through greater disclosure and also puts a heavier onus on independent directors of the target company offeree. Notably, the new Code does not address the controversial issue of preventing the takeover or privatization of public listed entities through a sale of their assets and liabilities. Currently, the sale of assets and liabilities is regulated under the Companies Act , where the approval of 50 percent of shareholders plus one share is required for the sale. Following broad public debate and a consultative paper from the Securities Commission which sought to raise the level of shareholder approval of the privatization or takeover of public companies via the asset and liabilities route, there was wide speculation that the new Code would address this issue and align the position with other jurisdictions, such as Hong Kong and New Zealand, by increasing shareholder approval to 75 percent. According to certain commentators, it is expected that the shareholder approval threshold for such transactions will be increased to 75 percent by way of amendments to the listing requirements of Bursa Malaysia, the national stock exchange.

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Public mergers and acquisitions in Malaysia: overview | Practical Law

Please enter a maximum of 5 recipients. Use ; to separate more than one email address. They came into force on December 15 and replaced the Code on Takeovers and Mergers along with the practice notes that interpreted it and the Guidelines on Offer Documentation and the Format and Contents of Applications, respectively. The Code widens its jurisdiction to encompass foreign incorporated companies and real estate investment trusts Reits which are listed on a Malaysian stock exchange. With this change, Malaysian-listed Reits' unit-holders and foreign incorporated companies' shareholders are given the same protection as shareholders of Malaysian public companies. Two additional categories of persons acting in concert PACs are introduced. The first category covers a company, its directors and shareholders as PACs where there is an agreement, arrangement or understanding between them which restricts the director or shareholder from offering or accepting a takeover offer, or from changing its shareholdings in the company.

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Key Changes To The Take-Overs Framework In Malaysia.

We would like to ensure that you are still receiving content that you find useful — please confirm that you would like to continue to receive ILO newsletters. Introduction Extended application Mandatory offer Unusual market activity Higher threshold for voluntary offers Representation on offeree board Persons acting in concert Settlement of consideration Voting rights Partial offers Independent adviser Takeover via assets and liabilities route. The long-awaited new Code on Takeovers and Mergers came into force on December 15 , replacing the Code on Takeovers and Mergers At the same time, pursuant to Section of the Capital Markets and Services Act , the Securities Commission issued the practice notes for the code and the Guidelines on Contents of Applications relating to Takeovers and Mergers to replace the practice notes for the code and the Guidelines on Offer Documentation and the Format and Contents of Applications, respectively. The code applied only to companies incorporated under the Companies Act

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