Chasing shadows

Author: | Published: 1 Nov 2007

Recent proposals by the Securities and Futures Commission (SFC) to amend the Code on Takeovers and Mergers (Takeovers Code) aim to prevent the use of asset purchases in take-private transactions to bypass the minority shareholder protections under the Takeovers Code. They also aim to pre-empt abusive securities borrowing and lending practices in takeover transactions. Some of these proposals raise significant policy issues.

Take-private transactions

Offerors have traditionally effected take-private transactions of target companies by share purchase or by scheme of arrangement. However, recent experience, in particular PCCW's acquisition of Sunday, has shown that the asset purchase is a viable alternative which may have lower regulatory hurdles than a share purchase or scheme of arrangement.

Share purchase In Hong Kong, an offeror proceeding by share purchase will offer to buy the shares of the offeree. In so doing, the offeror will normally exercise a statutory right of compulsory acquisition. To do so,...