The CSRC is to issue new administrative rules on the merger and acquisition of listed companies. The draft of the new rules completed a routine public review on May 31 2006 and is expected to be issued very soon. As a participant in the drafting of the new rules, we believe it will have significant influence on the Chinese market.
Highlights of the new rules:
- A supplement to the new partial offer scheme is introduced by the amended securities law, which represents a middle way between the practices in the US and the UK. In short, a direct acquisition can be made both by a partial offer and by allowing shares as a consideration, which makes acquisitions more flexible. An indirect acquisition still has to use the mandatory tender offer scheme.
- A supplement to the early warning scheme.
- Financial advisers have to be consulted when an acquirer acquires 20% or more of the outstanding shares of a target company.
- Chinese courts and arbitration commissions have jurisdiction over acquisitions by foreign investors of listed companies.
- Restrictions on the exercise of voting rights for the regulatory incompliance of acquirers.
- No fundamental changes with regard to anti-takeover provisions.
M&A activity will increase in the next few years due to globalization, increased concentration, consolidation of competitive industries, and the emergence of leading companies. Thus, the coming of the new rules is timely. The rules not only encourage economic development but also provide a better legal environment in which to nourish it.