SFC consults on revisions to takeovers and share buy-back rules

The Securities and Futures Commission of Hong Kong, SFC, has launched a public consultation on proposed revisions to the Codes on Takeovers and Mergers and Share Buy-backs. The revisions aim to enhance efficiency during a takeover offer, implement existing practices, and make miscellaneous changes throughout to improve clarity on various issues. Some of the changes are briefly outlined below; for all of them, please refer to the original legal document.
#### Key proposed changes to the Codes on Takeovers and Mergers and Share Buy-backs
(1) Restrictions on the offering period: In view of unintended consequences that may occur for an offeree company following an offeror’s announcement of its „possible“ intentions to take over the offeree firm, the SFC plans to implement new powers that would allow the regulator to restrict the time period during which such possibility is announced and an actual intention statement is disclosed. The SFC also seeks to stipulate those factors it will take into consideration when deciding upon any time limits (e.g. adverse impacts on the offeree company, delays in the offering, etc.).
(2) (Approval for) approach to obtain irrevocable commitments of shareholders: The SFC proposes to no longer require an offeror to consult with the regulator prior to approaching a shareholder of the offeree company for a commitment, regardless of the fact whether or not the shareholder has a material interest in the offeree’s firm. Additionally, the offeror would be restricted to approaching six shareholders in this context.
(3) Shareholder meetings to vote on scheme of arrangements or delisting: The SFC proposes revisions to the Code to clarify that in order to approve such scheme of arrangements or a resolution for delisting, it is necessary to gather at least 75% of all votes during a shareholder meeting. Additionally, such shareholder meetings shall be subject to the rules and regulations of the jurisdiction of incorporation of the firm and its own constitutional document.
(4) Requirement to submit an offer in case of indirect purchases (chain principle): The current Code requires an offeror to make an official public offer to a third company’s shareholders only, if it seeks to take over another firm which itself holds significant interests in a third company. The Code, however, did not mention what significant means and how it is to be determined. Therefore, the SFC would now include a provision to stipulate that in the assessment of significance, it would compare the total assets, net assets, gross profits, net profits and market capitalisations of the two companies (to be acquired).
(5) NO Exclusion of dividends from the offering price:** An offeror may no longer exclude from the offering price for an offeree company any dividends or other income that has accrued and will be subject to shareholder distribution. However, the offeror may deduct any withholding tax that may arise from the future income distribution.