At 00:01 this morning,
the SFC released major amendments to the takeover code following the
market consultation earlier this year. The amendments are effective
immediately. Readers of Webb-site.com contributed to this process
by making a substantial number of submissions to the SFC, the vast
majority of which supported our views. And now the first results are out,
and they represent a victory for the public shareowner. |
Takeover Code Amended
19th October 2001
In April this year the SFC announced
a proposed major overhaul of the takeover code to bring it into line with
international standards. A
consultation
paper was published inviting interested parties to submit their views.
Webb-site.com swung into action, and published
on 6-May-01 our own views on the proposals. Many of these were well known from
previous articles. For example, in HK's
Takeunder Code (18-Dec-00) we showed that there are frequent cases in which someone pays a
very high premium over the market price for a 34.9% stake in a company, then
changes the board of directors, demonstrating that control has changed hands,
sneaking under the 35% trigger and avoiding having to make a general offer.
The SFC has responded by cutting the takeover trigger from 35%
to 30%, the same as in the UK, and by reducing the "creeper", the
amount that a controlling shareholder can buy in any 12 months, from 5% to 2%.
That means that it will now take 10 years for a holder to "creep" from
30.1% to 50.1% majority without making a general offer.
Time will tell whether 29.9% is enough to control a company in
Hong Kong, but it will certainly make would-be controllers think twice about the
possibility of 30% out of the remaining 70.1% mobilising against them.
There are transitional provisions for those shareholders who
today are in the "twilight zone" of 30-35%. They will be allowed to
move freely within this zone, as long as they stay inside its borders. If they
go to 35% or more, they must make a general offer. If they go below 30%, they
become subject to the new 30% bid trigger and cannot go back above 30%
without making an offer. The transition lasts for 10 years, and after
18-Oct-2011, they will be free to creep above 35%.
In our submission, we argued that the new 2% creeper should
apply to those people in the twilight zone. This is because they should not be
in any better position than somebody who gets into the zone (either by a general
offer or a "whitewash waiver") after today and would also be subject
to the 2% creeper. We did not want to reward those people who have moved into
the zone since the proposals were first announced in April. In this small
detail, we lost.
By making the changes effective today, the SFC has eliminated
the possibility of any more shareholders who own less than 30% making a final "dash" to get above the new threshold so that they can then wander in
the twilight zone. That was the right thing to do - people have been on notice
since April that this rule change was likely.
The SFC has not released details of the numbers of people who
made submissions, but we can tell you that 32 readers and your humble editor
contributed their views electronically via the Webb-site.com submission
process. The vast majority were in support of our views, and these submissions
would undoubtedly represent a substantial proportion of all submissions in an
exercise of this type, so we thank them for taking the time to make a difference
in Hong Kong.
Next time, we hope the submissions will be even greater! Better
still, maybe the hundreds of thousands of investors who remain unrepresented in
the corporate governance debate will be represented by HAMS.
We live in hope.
We still await the SFC's conclusions on the remaining proposals,
but for now we can declare today a victory day for the public shareowner.
Webb-site.com editor David Webb is a member of the Takeovers
and Mergers Panel and the Takeovers Appeal Committee. The views expressed are
his own.
© Webb-site.com 2001
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