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Key Messages:

  • A company is under a takeover if a person makes a general offer to all of the company's shareholders, to buy all or some of their shares.
  • Takeovers of public companies in Hong Kong are governed by the Takeovers Code. All companies with primary listings in Hong Kong are public companies.

What is a takeover?

A takeover is when a company or person (bidder or offeror) makes an offer to acquire the voting shares of a company (target or offeree company) with a view to controlling it.

An offer, which may be for cash, or for securities with or without a cash alternative, may be either mandatory or voluntary.

Mandatory general offer
One of the key rules of the Takeovers Code is that a person or group of persons acting together must make a general offer to buy the remaining shares in a company if:

  • it buys 30% or more of voting shares in the company; or
  • it already holds between 30% and 50% of the voting shares and increases that holding by more than 2% in any 12-month period.

This is known as a mandatory general offer.

Voluntary general offer
A voluntary general offer may also be made (this happens when there is no obligation to make an offer under the Takeovers Code).

How are takeovers regulated?

In Hong Kong, takeover transactions are governed by the SFC's Code on Takeovers and Mergers. The Code's main purpose is to ensure that all shareholders affected by a takeover transaction are treated fairly and equally, and that they are given enough information, advice and time to make an informed decision on an offer. For instance, all shareholders should be treated equally by being given the opportunity to share in any of the benefits of an offer including any premium paid for control. A bidder or target company has to make timely announcements to ensure that shareholders are provided with enough information to make an informed decision.

What happens in a takeover?

The general rule is that the target should announce the offer as soon as the bidder has told it of its intention to make an offer. In some cases, such as where there has been a leak of price sensitive information about the bid, a potential bidder may have to make an announcement before this stage. Trading in the company's shares may be temporarily suspended until an announcement is made.

Following the announcement of its intention to make an offer, a bidder will normally send a formal offer document to all the target company's registered shareholders in accordance with a timetable set down in the Code. The document gives a detailed description of the offer including its terms and conditions and the shareholdings held by the bidder. The document is also accompanied by an acceptance form(s) and, in some cases, other forms such as forms relating to voting. Shareholders should read these carefully.

Usually within 14 days of the offer document being posted, the target company will send shareholders a document in response. This is known as the response document or offeree circular, and contains the views of the target company's independent board committee and an opinion on the offer from an independent financial adviser.

The bidder and target may by agreement issue both documents together as a composite offer document.

Non-registered shareholders should obtain these documents through their brokerage or bank.

You should read the offer document and offeree circular before deciding whether or not to accept the offer or how to vote. Consult your financial adviser if in doubt.