Malaysia revamps code on mergers and takeovers

The Malaysian Minister of Finance has unveiled a new regime for mergers and takeovers. The Rules on Takeovers, Mergers and Compulsory Acquisition accompany The Malaysian Code on Takeovers and Mergers 2016.

While the Code outlines 12 standard principles, the Rules provide the details of how the provisions operate in action. The Securities Commission (SC) Malaysia has the power to amend the Rules, allowing for more flexibility to adapt to the ever-changing mergers and takeovers environment, but any changes to the Code will require the approval of the Ministry of Finance.

In contrast to the old Code, the new one expands to business trusts listed in Malaysia but includes only unlisted public companies with more than 50 shareholders and net assets of RM15 million ($3.6 million) or more.

The Rules also specify a minimum general offer (MGO) price mandatory and voluntary takeover offers. For a MGO, the offer price must not be less than the highest price paid by the offeror or PAC within six months before the offer period. In situations where there is an arrangement to control between PACs, the offer price should be the higher of the MGO minimum offer price or the volume weighted average traded price of the offeree for the last 20 market days before the triggering of the mandatory offer obligation.

 
 Sue Wan Wong

“The takeover regime has now been extended to apply to the acquisition of options and derivatives with a long economic exposure to the changes in the price of the securities. The policy intent for the inclusion of this provision is laudable; since no person should be able to lock away strategic stakes without having to undertake a MGO, and denying the minority shareholders of a potential exit,” says Sue Wan Wong, a partner in the corporate commercial practice group of Wong & Partners. “However this provision has generated debate as to when the obligation to undertake a general offer is triggered, its application to derivative contracts entered into prior to 15 August 2016, and if there are "safe harbours" from having to undertake the general offer. We anticipate that the SC, being a savvy and market sensitive regulator, will likely clarify the position shortly. In the interim, consultation with the SC is possible if there is any doubt as to the application of the Code and Rules.”

Voluntary general offer

 
 Brian Chia

For a voluntary general offer (VGO), the offer price for a VGO must not be less than the highest price paid by the offeror or its PACs during or within three months before the start of the offer period. “This change is significant since there is now a benchmark price established for a VGO whereas previously, there was none. The benefits of an offeror’s efforts in stake building where he acquires a stake in the target incrementally must now be passed on to the minority shareholders,” says Brian Chia, Wong’s fellow partner in the corporate, commercial and securities practice group of Wong & Partners.


Removal of owning 50% of voting shares

Another significant change is the removal of the requirement for an offeror and PACs to initiate a scheme be shareholders owning more than 50% of the voting shares in the offeree. “With the removal, a potential offeror has a broader choice of options, including a general offer, scheme of arrangement or amalgamation, asset and liability sale or acquisition, to privatise a company,” says Wong.

Disclosure requirements

Stricter disclosure requirements are in place in the new Rules to protect offeree shareholders. These include the disclosure of all substantial shareholders of the offer and its PACs and tracing the ultimate controlling shareholders.

“The Code, and the Rules, bring Malaysia in line with Singapore and Hong Kong. These Asian countries, in turn, have modelled their respective take-over regime on the UK Code on Takeovers and Mergers,” says Chia. “The SC has however not copied the provisions of its neighbouring countries blindly and have thoughtfully and strategically taken the time and effort to adopt provisions in a way appropriate for the Malaysian market and take into account the relative depth of the country’s capital markets and level of development.”

Malaysia’s takeover and mergers system is moving closer to one that is more in line with other jurisdictions and has waxed and waned into one that has a more robust disclosure system and rules that facilitate takeovers, accompanied by adaptable operative provisions to allow it flexibly modify to necessary regulatory changes. It will be interesting to keep an eye on how Malaysia’s system works out in the coming months.