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Key Messages:

  • When a bidder or offeror announces a possible offer, it means that there is only a possibility an offer will be made to shareholders. Whether an offer will actually be made depends on whether the specified conditions are met.
  • Alternatively, a bidder or offeror may make a conditional contractual offer by posting an offer document to shareholders. A conditional contractual offer will only complete if the specified conditions are met. Shareholders can choose to accept the contractual offer but will only receive payment for their shares if the offer succeeds.

Offers with conditions

All offers by a bidder who holds 50% or less of the voting shares must be conditional on the bidder obtaining more than 50% of the voting shares.

An offeror or bidder may choose to structure an offer as a 'possible offer' or a conditional offer. A possible offer is one that will only be made upon the satisfaction of certain specified conditions. A conditional offer is a contractual offer that will only complete upon the satisfaction of certain specified conditions.

Possible offers

A bidder or offeror may announce a possible offer which will only be made upon the satisfaction of certain conditions. The announced offer is only a possibility and the making of the offer depends on whether the specified conditions are fulfilled. At this stage, the bidder has not made a contractual offer and shareholders may not therefore accept the offer.

Typical scenarios include:

  • Where a bidder or offeror enters into a sale and purchase agreement to acquire shares which, if completed, will trigger a general offer, his obligation to make the offer will not arise until and unless the acquisition takes place. Quite often, the sale and purchase agreement contains various conditions which must be satisfied before the acquisition can be completed. Therefore, although the entering into the sale and purchase agreement might trigger the bidder to announce a possible offer the bidder will not be under any obligation to make the offer unless the acquisition goes ahead.
  • Where a change in control of the target company is subject to regulatory consent(s) such as merger control clearance or approval by a relevant industry oversight authority, a bidder may announce his firm intention to make an offer subject to obtaining all the necessary consents. The announced offer will be a possibility only and the obtaining of the necessary regulatory consents will be a pre-condition to the making of the offer. It follows that if the bidder ultimately fails to obtain the necessary regulatory approvals there will be no offer.

The time it takes to satisfy a condition depends on the nature of the condition. Some conditions, such as obtaining the necessary regulatory consents, can take many months to fulfil.

Conditional offers

The offeror or bidder may make a conditional offer by posting an offer document to shareholders. This conditional offer will only complete if the specified conditions it is subject to are met. Given this is a conditional contractual offer, shareholders who choose to accept the offer will not receive payment for their shares until all the offer conditions have been met. A shareholder should also note that he can only withdraw his acceptance in the circumstances specified in the Code. These circumstances are set out in the offer document which shareholders should read carefully.

What do the following warnings mean?

Depending on how the offer is structured by the bidder, you may find warnings like these in the offer document:

For possible offer:
"Shareholders and/or potential investors should note that the making of the offer is subject to satisfaction of pre-conditions and the offer may not be made."

For conditional offer:
"The Offer is subject to the conditions described in the paragraph headed 'Conditions of the Offer' below and accordingly the Offer may or may not become unconditional. The Shareholders and potential investors of the Company are advised to exercise extreme caution when dealing in the securities of the Company."

These warnings mean that there is no guarantee that the offer will be made (if it is a possible offer) or complete (if it is a conditional offer) as it depends on whether the specified conditions are met. In these circumstances shareholders and potential investors should exercise extreme caution when trading in the shares of the company or accepting a conditional offer.