Singapore's growing mergers and acquisitions market fueled last year by the privatization of companies such as Inchcape Marketing Services, Delifrance Asia and Acer Computer International. Acer was privatized pursuant to a scheme of arrangement under section 210 of the Singapore Companies Act whereas Inchcape and Delifrance took the route of a takeover.
TAKEOVER OR SCHEME - SOME FACTORS FOR CONSIDERATION
Cooperation of the target
A scheme is a proposal put forward by the target to its shareholders. If the board of directors of the target does not cooperate with the bidder, it would not be possible to propose the scheme. Thus, the scheme cannot be used in a hostile situation. Further, in a scheme, the target and its board of directors control the timing and its implementation.
Competitive bids
Although the Singapore Code on Takeovers and Mergers requires a takeover offer to be first put to the board of the target, this may be satisfied in practice by a telephone call shortly before public announcement. This reduces the possibility of intervention by a third party and limits the ability of the target to mount an effective defence. On the other hand, as the bidder is unable to secure control in advance of the bid, the bidder faces the possibility that any bid it launches may be defeated by a rival bidder who would then free ride on the investigative endeavours of the bidder.
Shareholder profile
To privatize the target via a takeover, the bidder must be able to exercise rights of compulsory acquisition under section 215 of the Singapore Companies Act ie, the bidder must be able to receive acceptances for at least 90% of the shares subject to the offer. Careful consideration should therefore be given to the likely course of action a shareholder with a large shareholding would take.
For a scheme, approval of the majority of the shareholders of the target in number representing 75% in value of the shareholders present and voting is required at the court meeting to approve the scheme. Shareholder apathy can work in favour of the bidder if there is no organized minority against it as only those shareholders who actually vote are taken into account, not those entitled to vote. As the threshold for approval is 75% in value compared to 90% for compulsory acquisition pursuant to a takeover, for companies with diverse shareholdings such as Acer, a scheme is usually preferred.
In the novel case of Delifrance, the offeror, Café Holdings, was in a position to acquire more than 90% of Delifrance shares prior to the voluntary offer thanks to a series of put and call options and undertakings granted by the two independent substantial shareholders of Delifrance who collectively owned more than 90% of Delifrance shares. Upon acceptance by the two shareholders of Café's takeover offer, Café acquired more than 90% of the shares subject to the offer and proceeded with the compulsory acquisition of shares owned by the minority shareholders of Delifrance under section 215.
NEW DEVELOPMENTS
The Singapore Code on Takeovers and Mergers
The Securities Industry Council (SIC) recently advocated a revision of the Code to keep pace with market innovations and ever and fast changing international practices.
Specific proposed changes include:
widening the concert party presumption to include a person's close relatives, related trusts and companies controlled by them, their close relatives or related trusts;
raising the mandatory bid threshold of 25%;
lowering the creeping provision of 3% if the mandatory bid threshold is increased beyond 25%;
shortening the reference period for the bidder's transactions in the target's shares in a mandatory bid from 12 months to six months;
shortening the moratorium on further bids from 12 months to eight months;
allowing partial offers to be conditional upon more than 50% acceptances subject to certain safeguards; and
removing the requirement that offer documents must be posted within two months of conditional share acquisition agreements which would lead to mandatory offers.
The Act and the Stock Exchange of Singapore Listing Manual
In conjunction with the changes proposed to be made to the Code, new rules are proposed to be introduced to the Act and the Stock Exchange of Singapore (SES) Listing Manual to govern, among other things, the conduct of schemes of arrangements.
While the Code technically covers schemes, the SIC has been reluctant in the past to extend its provisions so far as they are already subject to the approval of shareholders as well as the court although there have been questions raised as to whether such schemes are in the interests of minority shareholders.
New rules proposed may include clear guidelines as to when and which parties should abstain from voting on schemes following the approach of the Hong Kong Panel which has introduced new rules recently to curb aggressive schemes to privatize listed companies. The Hong Kong approach includes the requirement that when a shareholder having control of a company seeks to privatize a company via a scheme, the scheme must be approved by either:
majority in number of shareholders representing 90% in value of the shares that are voted (the bidder and his concert parties must abstain from voting); or
not disapproved by shareholders holding more than 2.5% of the total number of shares in issue.
POTENTIAL IMPACT?
The new rules proposed to the Code, the Act and the SES Listing Manual will inevitably affect the dynamics of mergers and acquisitions in Singapore. In the proposed merger between Singapore Telecommunications and Hong Kong's Cable & Wireless HKT, it was contemplated that Temasek Holdings, Singtel's holding company, will reduce its 76% stake in Singtel by half to 38% after the merger. However, under Hong Kong's takeover code, in order that Temasek does not trigger a general offer for the remaining C&W HKT's shares that it does not own, it will have to sell down its stake further to below 35%. By comparison, the proposed increase of the present 25% threshold for mandatory bids in Singapore is overdue and will undoubtedly contribute to the creation of a more conducive environment for mergers and acquisitions in Singapore. Singapore eagerly awaits these changes.