Step-by-Step Process on Legal Takeover
Introduction
Takeover refers to a transaction or a series of transactions hereby a person (individual, group of individuals or company) acquires control over the assets of a company either directly by becoming the owner of those assets or indirectly by obtaining control of the management of the company.1
As the name suggests, it is one of the various ways of acquiring control over a company, other than, among others, scheme of arrangement, acquisition of assets and liabilities2, schemes of reconstruction or amalgamations, and joint ventures3.
Basically, takeover is exercised by way of takeover bid or takeover offer (“Offer”) initiated by a bidder or acquirer (“Offeror”) to acquire control over a company (“Offeree”) from the existing shareholders of the Offeree to acquire their shares for a consideration in cash or securities, or for a consideration involving a combination of both.4
Governing Laws and Regulations
Takeovers in Malaysia are primarily governed by the Capital Markets and Services Act 2007 (“CMSA”), the Malaysian Code on Take-Overs and Mergers 2016 (“Code”) and the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 (“Rules”).
The Code is issued by the Minister of Finance, upon the recommendation of the Securities Commission of Malaysia (“SC”), pursuant to Section 217 of the CMSA, whereas the Rules are issued by the SC, pursuant to Section 377 of the CMSA.
However, it should be remembered that the Code and the Rules are not applicable to takeovers of private companies. This is because, pursuant to paragraph 1.06 of the Rules, the Code and the Rules are applicable to take-overs of any listed company and any company/entity specified under paragraph 1.08 of the Rules.
Paragraph 1.06 states:
“These Rules and the Code apply to take-overs and mergers of any listed corporation and any company or entity specified under paragraph 1.08, howsoever effected, including by means of a trust scheme, a scheme of arrangement, compromise, amalgamation or selective capital reduction and repayment (see notes above).”
Referring to the specified company or entity, paragraph 1.08 of the Rules states:
“The following are specified as a “company” for the purposes of Division 2 Part VI of the CMSA:
a) An unlisted public company with more than 50 shareholders and net assets of RM15 million or more;
b) A business trust listed in Malaysia; and
c) A real estate investment trust (REIT) listed in Malaysia.
Process and Procedures
| No. | Event | Description |
| 1 | Presentation of Offer by the Offeror (Rules 9.01 of the Rules) | The Offer must be put forward by the Offeror to the board of directors of the offeree (“Offeree’s Board”) before the Offer is announced to the public.
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| 2 | Enquiry on the Offer by the Offeree’s Board (Rule 9.03 of the Rules)
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The Offeree’s Board is entitled, in good faith, to make enquiries to satisfy themselves that the Offeror will be able to implement the Offer. |
| 3 | Announcement of Offer by the Offeror (Rule 9.10(1) of the Rules) | An Offeror who makes the Offer is required to make a public announcement of the Offer or by way of a press notice.
The Offeror must also send a written notice of the same subject matter to the: a) Offeree’s Board or adviser designated by the Offeree’s Board; b) SC; and c) Bursa, if the securities of the Offeree or the Offeror are Bursa-listed. |
| 4 | Announcement of receipt of the Offer by the Offeree’s Board (Rule 9.10(5) of the Rules) | The Offeree’s Board shall, within twenty-four (24) hours of the receipt of the written notice:
a) make an immediate announcement of the receipt of the written notice; b) and dispatch a copy of the written notice to all offeree’s shareholders (“Offeree’s Shareholders”) within seven (7) days of such receipt. to: a) the public by way of a press notice (for non-Bursa-listed Offeree); or b) Bursa (for Bursa-listed Offeree). |
| 5 | Submission of Offer document | The Offeror is required to submit the Offer document to the SC for its consent. |
| 6 | Dispatch of announcement | The Offeree’s Board is required to dispatch the announcement to all Offeree’s Shareholders. |
| 7 | Dispatch of Offer document by the Offeror (Rule 11.02 of the Rules) | The Offeror is required to dispatch to the Offeree’s Board and Offeree’s Shareholders the Offer document, within twenty (21) days from the date of the written notice, provided that the SC has notified that it has no further comments thereon. |
| The SC’s consent is required if the making of an offer is subject to the prior fulfillment of a pre-condition and the pre-condition cannot be fulfilled within the stipulated period.
In such a situation, the Offeror shall dispatch the Offer document within seven (7) days from the fulfillment of the pre-condition. |
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| 8 | Issuance of board circular by the Offeree’s Board (Rule 11.03 of the Rules) | The Offeree’s Board is required to issue a board circular with comments, opinions and information (including any other forms of consideration offered by the Offeror) on the Offer to its shareholders within ten (10) days from the dispatch of the Offer document, provided that the SC has notified that it has no further comments thereon. |
| If the revised Offer results in a change in the board circular, the independent adviser is required to circulate the revised board circular within seven (7) days from the notice of the revised Offer. | ||
| 9 | Issuance of an independent advice circular by the independent adviser (Rule 11.04 of the Rules) | The independent adviser shall issue an independent advice circular with its comments, opinions, information and recommendation on the take-over offer to the Offeree’s Board and Offeree’s Shareholders within ten (10) days from the dispatch of the Offer document, provided that the SC has notified that it has no further comments thereon. |
| If the revised Offer results in a change in the independent advice circular, the independent adviser is required to circulate the revised independent advice circular within seven (7) days from the notice of the revised Offer. | ||
| 10 | Duration and Acceptance of Offer (Rule 12 of the Rules) | The Offeror is required to keep the take-over offer open for acceptance for a period of at least twenty (21) days from the date the Offer document is first posted. |
| If the Offer is voluntary, the Offer may be accepted by the Offeree at any day after the dispatch of the Offer document until the closing of the Offer, but in any case shall not be more than ninety-five (95) days from the dispatch date of the Offer document. | ||
| If the Offer is conditional only as to acceptance, the Offer may be accepted by the Offeree at any day from the dispatch date of the Offer document, but in any case shall not be more than seventy-four (74) days from the dispatch date of the Offer document. | ||
| However, if the Offeror revises the Offer, the Offeror shall:
a) announce such revision by way of a press notice (for listed Bursa-listed Offeree), or in writing to Bursa (for non-Bursa-listed Offeree); b) post the written notification of the revised Offer to all Offeree’s Shareholders within fourty-six (46) from the date of the Offer document; and c) keep the Offer open for acceptance for at least another fourteen (14) days from the date of the written notification. The Offeree’s Board and the independent adviser are required to announce whether their earlier comments, opinions and recommendations in relation to the original Offer to the Offeree’s Shareholders have changed by way of: a) by way of press notice; or b) Bursa, if the securities of the Offeree or the Offeror are Bursa-listed. |
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| 11 | Closing of Offer (Rule 12.05 of the Rules) | Where a conditional Offer becomes unconditional, the Offeror must:
a) keep the Offer open for acceptance for not less than fourteen (14) days thereafter; and b) announce that the Offer is still open for acceptance: i. by way of press notice; or ii. Bursa, if the securities of the Offeree or the Offeror are Bursa-listed. |
| 12 | Announcement of results of the Offer by the Offeror (Rule 13 of the Rules) | Before 9.00 a.m. on the market day following the day on which the Offer is due to close or unconditional, the Offeror must make an announcement:
a) in accordance with the listing requirements; or b) by way of press notice, where relevant; and inform the SC in writing on the nature of the announcement regarding the details and status of the Offer. |
| If the Offeror fails to comply with any of the requirements of the announcement:
a) if the Offeror or the Offeree is Bursa-listed, by the close of trading at the relevant stock exchange in Malaysia on the market day referred above; or b) if the Offeror or the Offeree is not Bursa-listed, by 5.00 p.m. on the market day referred above; the acceptance of the Offer may be withdrawn immediately |
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| 13 | Settlement of consideration by the Offeror (Rule 14 of the Rules) | If the consideration:
a) involves only cash, the Offeror shall pay the cash consideration within ten (10) days; or b) involves only securities or a combination of cash and securities, the Offeror shall post or credit the consideration within fourteen (14) days; from: a) the unconditional date of the Offer, if the valid acceptances are received during the period when the Offer is still conditional; or b) the acceptance date of the Offer, if the valid acceptances are received during the period after the Offer is unconditional. |
Conclusion
To conclude, the abovementioned steps are generally for standard and normal take-over. However, in cases where additional actions are required, such as obtaining consent or approval from certain government department, the steps required shall increase accordingly depending on the policies and practices adopted by the respective governmental department or other organizations/institutions.
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- Chandrasegar Chidambaram in his book ‘Take-Overs and Mergers’ citing and concurring with the definition provided by Weinberg and Blank.
- Public mergers and acquisitions in Malaysia: overview, Brian Chian and Stephanie Phua, Wong & Partners, 2017.
- Malaysia M&A Handbook, Clifford Chance, Global M&A Series, Chooi & Company, 2015, p. 13-15.
- Take-Overs and Mergers, Chandrasegar Chidambaram, Second Edition, LexisNexis, 2010, p. 1.
Written by:
Syed Zomael Hussain (Director) zomael@azmilaw.com
Mohammad Ashraf Mohamed Sopiee (Senior Associate) ashraf.sopiee@azmilaw.com
