SIC proposes takeovers and mergers code changes for better protection of minority interests

SINGAPORE - The Securities Industry Council (SIC) on May 5 issued a consultation paper on amendments to Singapore’s Code on Takeovers and Mergers, with the aim to enhance regulation around such deals.

The proposed changes intend to protect the competitive process of takeover and merger transactions, improve the timeliness of schemes of arrangement, and enhance disclosures to investors and shareholders.

A key proposal to safeguard the competitive process for potential offerors is regulating deal protection measures, except in limited circumstances. These measures – such as break fees that an offeree agrees to pay an initial offeror if this offeror’s deal should not succeed – could deter higher offers from competing parties, said SIC.

The advisory board also proposed the implementation of rules to ensure that schemes of arrangement meant for takeovers are certain and timely.

For example, an offeror should take the necessary steps to make an offer effective “without delay” once shareholders have approved the scheme. The meeting to approve such a scheme to effect a takeover or merger should also be held within six months of the scheme’s announcement, said SIC.

The proposed amendments also aim to prevent a “false market” by holding an offeror to its earlier statement, or requiring clarity on earlier statements.

An offeror which has stated that it will not increase or extend its offer, for instance, should not be permitted to make a subsequent offer within a certain time window. This is because shareholders and investors would have relied on the offeror’s statements to make their investment decisions, said SIC.

Another suggestion is that a potential offeror that has made a holding announcement about a possible offer but has not clarified its intentions for a prolonged period be given a 28-day deadline to announce if it will be making a firm offer. If an indicative offer price is disclosed prior to a firm offer, the firm offer must not be lower than the indicated price, SIC added.

It also proposed enhancing the information provided to shareholders to enable decision-making on frustrating actions.

A frustrating action is a move made by an offeree board which could result in shareholders being denied an opportunity to consider an offer, such as a competing asset offer for all, or materially all, the assets of the offeree company.

In the case of a competing asset offer, the offeree company should be required to issue a statement quantifying the cash sum expected to be paid to shareholders, said SIC. This would allow the shareholders to compare the economic outcomes of the asset offer versus the takeover offer, it added.

In the event that shareholder approval is needed for a proposed frustrating action, the code should require independent advice to be obtained, said SIC.

The proposed amendments take into account market developments and evolving international practices since 2019, when the code was last revised, as well as discussions with practitioners active in the field of mergers and acquisitions.

Mr Robson Lee, partner at Kennedys Legal Solutions, said the proposed changes aim to raise minority investor protections and ensure equal treatment and dissemination of material information or opinions, and to tighten possible loopholes that offerors may use to circumvent the code.

The changes will also allow Singapore to keep pace with other global financial markets, such as the United Kingdom and Hong Kong, which have improved their codes in the years since the Republic’s last update, he said.

These proposals also come amid a rising trend of privatisation offers for Singapore-listed companies in recent years, with several, such as those involving Great Eastern and Sinarmas Land, sparking concerns among minority shareholders about undervaluation.

The deadline to submit views on the consultation paper is June 5.

THE BUSINESS TIMES