More and more foreign investors are exploring the opportunities that exist in the undervalued assets of China's enterprises through mergers and acquisitions. Specifically, the takeover of a listed company in China is mainly governed by Section 4 of the Interim Regulations of Shares Issuing and Trading (the Interim Regulations) which was issued by the State Council Securities Committee on April 22 1993. Its major takeover provision is the 30% trigger point such that:
- any legal person (the offeror) directly or indirectly holding 30% of the ordinary shares of a listed company must tender a general offer to the holders of all classes of shares of the company within 45 days of that occurrence;
- the offeror is not allowed to acquire additional shares before the issue of that offer;
- the offeror shall submit a written report to the China Securities Regulatory Commission before issuing a takeover offer;
- the takeover shall remain open for at least 30 working days;
- the takeover will have failed if the offeror acquires less than 50% of the shares;
- if more than 75% of the issued shares is acquired, the listed status of the company shall be cancelled; and
- if more than 90% of the issued shares are acquired, the remaining shareholders will have the right to require the sale of their shares to the offeror on the same terms.
However, there are the following areas of concern in the Interim Regulations;
- its failure to define "indirect" holding of shares is a loophole for parties acting in concert;
- its failure to provide guidelines on how a general offer made under the 30% trigger point is to be structured presents particular problem in China which has five types of ordinary shares listed on various local and overseas stock exchanges that have their own rules governing takeover bids;
- a general offer triggered by the 30% shareholding point may include A shares which foreign investors are legally prohibited from holding; and
- its failure to state a maximum period of the offer seems to have ignored the impracticality to allow a takeover bid to remain open for an unspecified period.
Florence M Li and Elaine Y L Liu