A takeover offer is often welcomed by shareholders as a catalyst to unlock value. Such offers can take many forms, each subjected to differing conditions. It can be confusing, so here is a short guide to help you navigate those corporate actions. Some nitty-gritties have been omitted in the interest of succinctness and digestibility.
Mandatory Offers
Mandatory offers are mandatory once certain conditions are met and are an offer for all outstanding shares in the target company.
There are 2 conditions which trigger mandatory offers:
- Any person acquires more than 30% voting rights of a company
- Any person who holds between 30% to 50% voting rights and acquires more than 1% of additional voting rights within any 6-month period
The offer price cannot be lower than the highest price paid by the offerer for any shares during the offer period and within the six months leading up to the beginning of the offer period.
For it go through:
The offerer needs to obtain enough acceptances to result in it holding more than 50% of the voting rights of the target company.
Voluntary Offers
A voluntary offer occurs when an offerer makes an offer for all outstanding shares of a target company and does not trigger the conditions for a mandatory offer.
The offer price cannot be lower than the highest price paid by the offerer for any shares during the offer period and within the three months leading up to the beginning of the offer period.
For it go through:
The offerer needs to obtain enough acceptances to result in it holding more than 50% of the voting rights of the target company.
However, the offerer may stipulate other conditions, such as a level of acceptances or regulatory approvals.
Partial Offers
Partial offers are voluntary offers for less than 100% of all outstanding shares in a target company. All partial offers must be approved by the Securities Industry Council.
Offers for less than 30% of voting rights, or when it could not result in the offerer holding 30% or more voting rights, are normally approved by the Council.
Offers which could result in the offerer holding between 30% to 50% voting rights will not be approved.
Offers which could result in the offering holding more than 50% of voting rights are normally not approved unless select conditions are met. This includes receiving at least 50% shareholders approval. Even if the offerer holds more than 50% of voting rights prior to the offer, shareholder approval is still required if the offer could result in the offerer holding more than 90% voting rights (SGX’s minimum free float limit). In this case, the offerer and associates are not allowed to vote on the partial offering.
Scheme of Arrangement
Instead of pursuing a takeover under the various offers above which are governed by the Takeover Code, an acquisition may also be effected through a scheme of arrangement provided for under the Companies Act.
Only a target company can initiate a scheme of arrangement with an offerer. The scheme is therefore not an option for hostile acquisition. All schemes of arrangement have to comply with the Takeover Code, with exemptions provided under certain conditions.
For it to go through:
A scheme of arrangement requires the approval of at least 75 percent in value of the shares voted at a scheme meeting. SGX may impose an additional requirement that not more than 10 percent in value of the shares should have voted against the proposed scheme. The acquirer and its related parties are not allowed to vote.
Delisting
Though not strictly a takeover offer, being one of the most common forms of corporate action undertaken, I have nevertheless decided to include it.
There are 2 types of delisting:
Compulsory delisting occurs when SGX removes a listed company. This is usually because the company has contravened listing rules. A reasonable exit offer should be offered to shareholders.
An example worth highlighting would be the minimum free float requirement. Free float refer to shares held by public and all SGX listings are required to maintain at least 10% free float. When free float falls below 10%, the company has 3 months to raise the free float above the 10% mark. Otherwise, the company may be delisted and a reasonable offer to shareholders is required.
Voluntary delisting occurs if a company obtains the necessary shareholder approval to delist the company. This requires at least 75% of shareholder approval and for it to be not voted against by more than 10% of shareholders. Directors and controlling shareholders are allowed to vote.
