Public mergers and acquisitions in Malaysia: overview

A Q&A guide to public mergers and acquisitions law in Malaysia.

The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; transfer taxes; other regulatory requirements and restrictions; as well as any proposals for reform.

To compare answers across multiple jurisdictions, visit the Country Q&A tool.

This Q&A is part of the global guide to public mergers and acquisitions. For a full list of jurisdictional Q&As visit www.practicallaw.com/acquisitions-guide.

Brian Chia and Sue Wan Wong, Wong & Partners, member firm of Baker & McKenzie International
Contents

M&A activity

1. What is the current status of the M&A market in your jurisdiction?

The current M&A market in Malaysia generally appears to be optimistic, driven by inbound investments and ongoing regulatory developments. The weakening Ringgit continues to drive external appetite towards Malaysian target companies, particularly for cash-rich institutional investors. However, despite the appealing outlook, potential investors remain cautious toward a likely reduction of consumer spending given the weaker Malaysian economy triggered by the recent plunge in oil prices.

Regional private equity houses look set to be key drivers of M&As as foreign-currency denominated funds are well placed to take advantage of better valuations against the Ringgit. The risk of a weakening consumer sentiment will likely be a significant factor for target companies considering equity-led capital injection for their growth strategy. This could potentially lead to a more realistic valuation of businesses, creating more attractive opportunities for investors.

The outlook for the financial sector in Malaysia remains positive. There is renewed interest in inbound investments into the insurance industry. There is also strong interest in assets in banking and asset management industries, in particular from investors from the People's Republic of China. The M&A market is also expected to benefit from corporate restructuring exercises and consolidation strategies as companies look to unlock value within their businesses and take advantage of growth within certain industries.

 
2. What are the main means of obtaining control of a public company?

The main methods of acquiring control of a public company are:

  • Takeover offer. The shareholders of the target are asked to accept an offer that has been made by a bidder. This is the most common method of obtaining control. There are two types of offer:

    • mandatory offer. This occurs when an acquirer obtains control or meets certain takeover thresholds (see Question 16). Typically, the bidder signs a share purchase agreement to purchase a block of shares which, in turn, triggers the general requirement for a takeover announcement (see Question 12).

    • voluntary offer. This is where an offer is made voluntarily and simultaneously to all the shareholders of the target to acquire their shares in the target.

      A partial offer may also be used to acquire control, but can only be implemented with the consent of the Securities Commission.

  • Scheme of arrangement. The company collaborates with the bidder for the bidder to take over the target. The target's shareholders will then vote on a takeover proposal put to them by the collaborating parties. The target's assets or shares are transferred to the bidder under a statutory court process (section 176, Companies Act 1965) (Companies Act). The Malaysian Code on Take-Overs and Mergers 2016 (Code) read together with the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 (Rules), both effective as of 15 August 2016, treat schemes of arrangement as a takeover under the Rules.

  • Acquisition of assets and liabilities. The target sells its assets and liabilities to the bidder through an ordinary resolution of the target's shareholders (requiring an approval of over 50%, unless otherwise set out in the company's articles of association or it is a major disposal). This controversial method has led to certain public listed entities being taken over and privatised.

 

Hostile bids

3. Are hostile bids allowed? If so, are they common?

Hostile bids are permitted but are not common practice in Malaysia. This is because the target will not allow the bidder to conduct due diligence on the company. In a hostile bid, the bidder will only have access to information that is in the public domain (see Question 5).

 

Regulation and regulatory bodies

4. How are public takeovers and mergers regulated, and by whom?

Main regulatory bodies

The main regulatory bodies are:

  • Securities Commission Malaysia (SC). The SC has wide rule-making and enforcement powers, including:

    • regulating takeovers and mergers of companies; and

    • ensuring compliance with the provisions of securities laws.

  • Companies Commission of Malaysia (Companies Commission). The Companies Commission administers and enforces the Companies Act (see below, Main regulations).

  • Bursa Malaysia Securities Berhad (Bursa Malaysia). Bursa Malaysia is the principal Malaysian stock exchange and supervises listed companies.

  • Licensing authorities. Most industry sectors are regulated in Malaysia and require a licence to conduct business (see Question 25).

  • Malaysian Central Bank (Bank Negara Malaysia). Takeovers of companies in the financial sector will also involve applications to the Malaysian Central Bank.

See box, The regulatory authorities for further details.

Main regulations

The main regulations are:

  • Code and Rules. The SC administers the Code and Rules. It governs the procedures and conduct of all persons involved in takeover offers, mergers and compulsory acquisitions in Malaysia.

  • Capital Market and Services Act 2007 (CMSA). The CMSA contains provisions that regulate:

    • the activities of markets and intermediaries in the Malaysian capital markets;

    • insider trading (see Question 6).

  • Companies Act. This contains provisions that govern the conduct and affairs of companies, including:

    • directors' duties;

    • declarations on substantial shareholding (see Question 6) and schemes of arrangements.

  • Bursa Malaysia Listing Requirements 2010 (Listing Requirements). A company must comply with the Listing Requirements if it is listed on the Bursa Malaysia stock exchange. The Listing Requirements contain rules governing the conduct of a public listed company, including:

    • disclosure requirements (see Question 5);

    • public spread requirements (a listed company must ensure at least 25% of its total listed shares are in the hands of public shareholders.

 

Pre-bid

Due diligence

5. What due diligence enquiries does a bidder generally make before making a recommended bid and a hostile bid? What information is in the public domain?

Due diligence in a takeover offer, whether hostile or recommended, is limited. This is due to a combination of insider trading laws (see Question 6) and the fact that a takeover offer cannot easily be withdrawn once announced. Due diligence is generally limited to information in the public domain (see below, Public domain).

Where a bidder plans to acquire a controlling block of shares in the target from a controlling shareholder, it can as part of that arrangement conduct due diligence enquiries on information on the target that is in the possession of that shareholder. In practice, the ability of the bidder to conduct due diligence on the target's records can be limited, as the other substantial shareholders of the target can resist. The target must give the same information to another bona fide potential bidder that makes a competing takeover offer, on that bidder's request.

The following information is in the public domain for a public listed company:

  • Information lodged at the Companies Commission, including:

    • the company's memorandum and articles of association; and

    • corporate forms, such as Form 24 (return of allotment of shares) and Form 49 (return giving particulars in register of directors, managers, secretaries and changes of particulars).

  • Information lodged pursuant to the Listing Requirements, including:

    • announcements;

    • annual audited accounts;

    • quarterly financial reports;

    • circulars to shareholders;

    • annual reports; and

    • prospectuses.

  • Analysts research reports, which may include information on the target's:

    • industry sector;

    • potential earnings;

    • future business prospects; and

    • expected price range for its shares.

Secrecy

6. Are there any rules on maintaining secrecy until the bid is made?

The following rules may apply before a formal bid has been made:

  • Insider trading provisions. These are contained in the CMSA and prohibit the misuse of any price-sensitive information that is not generally available to the public, such as knowledge of a contemplated bid. A person in possession of that information is prohibited from trading on it, or communicating it, if that person knows, or ought reasonably to know, that the recipient would trade on the information provided. Dealings in securities or the communication of information are exempted where they are carried out under any written law relating to schemes of arrangements, reconstructions and takeovers relating to companies.

  • Misuse of information. Directors or officers of a company cannot use their knowledge of a contemplated bid to directly or indirectly:

    • benefit themselves;

    • benefit another person; or

    • cause detriment to the company (Companies Act).

  • Listed companies. Directors and officers of a listed company who are in possession of price-sensitive information are prohibited from dealing in the securities of the company (Listing Requirements).

  • Confidentiality. Prior to the announcement of a takeover, information relating to a takeover offer or contemplated takeover offer must be treated as confidential by all persons privy to it (such as directors, officers and advisers of both parties). Clients should be warned not to communicate or divulge confidential information (Rules).

Agreements with shareholders

7. Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?

If a voluntary offer is contemplated, a memorandum of understanding or undertaking should only be obtained, in limited circumstances, from key shareholders before making a takeover offer. This is because the mandatory general offer requirements are triggered by arrangements entered into by a bidder that would result in its holding more than 33% of the voting rights or voting shares in a company. The Rules provide that a voluntary offer becomes a mandatory offer if the bidder or persons acting in concert (PACs) acquire voting shares (other than through acceptances) that trigger an obligation to make a mandatory offer (see Question 16).

Once a takeover offer has been announced, it is common for the bidder to seek undertakings from key shareholders to secure their acceptance of the offer. If any irrevocable commitments are obtained by a bidder, these will have to be disclosed in the initial takeover announcement. These undertakings will also have to be disclosed in the offer document.

However, unless approved by the Securities Commission(SC), the bidder or its PACs are not permitted to make arrangements with selected shareholders, if such arrangements have favourable conditions which are not extended to all the target's shareholders. Such arrangements should not be entered into:

  • During a takeover offer.

  • Six months after the close of an offer.

  • When a takeover offer is reasonably in contemplation. This is a question of fact to be determined by the SC.

Note also that where the takeover offer is successful, there are also restrictions on the ability of an offeror and PACs to acquire further securities on more favourable terms than the previous takeover offer, within six months immediately after the close of the takeover offer.

Stakebuilding

8. If the bidder decides to build a stake in the target (either through a direct shareholding or by using derivatives), before announcing the bid, what disclosure requirements, restrictions or timetables apply?

The bidder can build a stake in the target before announcing a takeover bid, subject to the considerations set out below.

Disclosure requirements

If the bidder acquires 5% or more of the voting shares in the target, it must provide a written notification in the prescribed form, specifying the particulars of the shareholding to the following:

  • The target.

  • The Securities Commission.

This requirement will also apply when the bidder is deemed to have an interest in shares which are legally held by other persons. This includes situations where the:

  • Bidder has entered into a contract to purchase those shares.

  • Shares are held on trust for the bidder.

  • Bidder controls a company that in turn owns the shares.

Aggregated shareholdings

If the bidder acts in concert with another person for the purpose of obtaining or exercising control over the target, shares held in the target by the bidder and its PACs are aggregated. This is for the purposes of determining whether a takeover obligation has been triggered.

Options and derivatives

Under the Rules, if the bidder acquires or writes any derivative which causes it to have a long economic exposure to changes in the price of the shares of the target, the bidder may be treated as having acquired those shares for the purposes of determining whether a takeover obligation has been triggered.

Price

If a bidder acquires voting shares or voting rights prior to the beginning of an offer period, the bidder should note that the offer price may not be less than the highest price paid or agreed to be paid by the bidder and its PACs during the offer period and within six months (for a mandatory general offer) or three months (for a voluntary general offer) prior to the beginning of the offer period.

Agreements in recommended bids

9. If the board of the target company recommends a bid, is it common to have a formal agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement? To what extent can a target board agree not to solicit or recommend other offers?

It is not common to have a formal agreement between the bidder and the target. Instead, the terms of the offer made by the bidder to the shareholders of the target are contained in the "offer document".

The offer document is required to comply with minimum disclosure requirements designed to enable the shareholders of the target to reach an informed decision.

The Code does not specifically address the issue of the target's board agreeing not to solicit or recommend other offers. An agreement to not solicit or recommend other offers must comply with the fiduciary and other duties of the directors under the Companies Act.

Break fees

10. Is it common on a recommended bid for the target, or the bidder, to agree to pay a break fee if the bid is not successful?

It is not common to agree to a break fee in the event of an unsuccessful bid and there is no specific provision addressing break fees in the Code and Rules.

The target is not permitted to pay a break fee under the Companies Act as this would be providing financial assistance for the purpose of, or in connection with, the purchase of its own shares, in breach of the capital maintenance requirements.

Committed funding

11. Is committed funding required before announcing an offer?

Mandatory offers must always include a cash element. If the consideration which triggered the mandatory offer does not consist solely of cash, a cash alternative must also be included.

The requirement to include a cash element for a voluntary offer is only triggered in certain circumstances (see Question 17).

Where an offer is made wholly or partly in cash, the bidder must ensure and its financial adviser must be reasonably satisfied that both:

  • The offer will not fail due to the bidder's insufficient financial capability.

  • Every target shareholder who wishes to accept the takeover offer will be paid in full.

Therefore, the bidder must have committed funding in place before the offer announcement (see also Question 18).The board of the offeree may also make enquiries to satisfy themselves that the bidder will be able to implement the offer.

 

Announcing and making the offer

Making the bid public

12. How (and when) is a bid made public? Is the timetable altered if there is a competing bid?

Bidder's obligations

Approach. A bidder is required to put forward a takeover offer to the board of the target before the offer is announced to the public.

Announcement. A bidder who has a firm intention to make a takeover offer must make an immediate announcement by a press notice, within one hour of incurring an obligation to make a takeover offer. The press notice must be published in at least three main newspapers. One notice must be published in Bahasa Malaysia (the national language of Malaysia) and another must be published in English.

The bidder must also send the written notice of the takeover offer to the:

  • Target's board, or its designated adviser.

  • Securities Commission (SC).

  • Bursa Malaysia (if the bidder or the target is listed in Malaysia).

Triggering circumstances for an announcement. If, prior to the making of the takeover announcement, there is an undue movement in the share price or significant increase in the volume of share turnover of the target, the potential bidder must make a brief announcement as to whether there is a takeover offer or a possible takeover offer. The responsibility for making the brief announcement will normally rest with the potential bidder, before the potential bidder approaches the board of the target. Such announcements are typically necessitated due to:

  • Negotiations or discussions being extended to include more than a very restricted number of people (for example, when the bidder wishes to approach a wider group of people to arrange financing or to seek irrevocable commitments).

  • Negotiations between a controlling shareholder and the bidder and:

    • the target becoming the subject of rumours or speculations about a possible takeover offer before the bidder approaches the target's board;

    • there is an unusual movement in the price of the targets voting shares or voting rights;

    • there is a significant increase in the turnover volume of the voting shares or voting rights of the target; and

    • there are reasonable grounds to conclude that the actions of the controlling shareholder have contributed to the situation.

  • A sale and purchase agreement for the acquisition of voting shares of the target being signed, which will lead to the bidder triggering a mandatory offer obligation.

Following the brief announcement, the bidder must:

  • Announce its firm intention to make a takeover offer (or confirm that it will not be making a takeover offer) within two months from its first preliminary announcement unless the SC has granted an extension of time. Once the bidder has made a takeover announcement, the bidder must proceed with the offer and cannot withdraw unless the prior written consent of the SC is obtained.

  • Submit the offer document to the SC for its comments within four days of the date of the takeover announcement.

  • Post the offer document (after incorporating the SC's comments) within 21 days of the date of the takeover announcement to the target's board shareholders, and holders of convertible securities.

Restrictions. After announcing that it does not intend to make a takeover offer, the bidder (or its PACs) cannot do any of the following for six months:

  • Announce a takeover offer of the target.

  • Acquire voting shares which would trigger a mandatory offer obligation.

  • Procure an irrevocable commitment to acquire shares of the target which would trigger a mandatory offer obligation.

  • Make any statement which raises or confirms the possibility that a takeover offer may be made for the target.

  • Take any steps in connection with a possible takeover offer for the target.

Target's obligations

Triggering circumstances for an announcement. After being approached by the bidder, the main responsibility for making a brief announcement as to whether there is a takeover offer or a possible takeover offer will normally rest with the target’s board (if there is an undue movement in the share price or significant increase in the volume of share turnover of the target).

Such announcements are typically necessitated where:

  • The company is the subject of rumours and speculations, or is subject to unusual price movement or turnover volume of its voting shares or voting rights, and there are reasonable grounds for concluding that the company is a potential target.

  • The target's board approaches the bidder to acquire a controlling stake in the target and:

    • the target becomes the subject or rumours and speculations about a possible takeover offer before the bidder makes an approach to the target's board;

    • there is unusual movement in the price of the target's voting shares;

    • there is a significant increase in the turnover volume of the target's voting shares; and

    • negotiations or discussions between a potential bidder and the target or the controlling shareholders are extended to include more than a very restricted number of people (for example, when the bidder wishes to approach a wider group of people to arrange financing or to seek irrevocable commitments);

    • the target becomes the subject of rumours or speculations about a possible takeover offer;

    • the target's board are seeking potential bidders and more than a very restricted number of potential bidders will be approached.

Announcement. The target's board must, within one hour of receiving the notice of takeover offer from the bidder, make an announcement to the public. A copy of the notice of takeover offer must also be sent to all the target's shareholders within seven days of receiving the notice.

Offer timetable

The offer timetable is set out below. There is no difference in terms of the timeline for a recommended bid and a hostile bid. In the case of a competing bid, both offers are subject to the timeline triggered by the posting of a competing offer document.

  • Announcement day (T). The bidder must immediately announce the proposed takeover offer by press notice, within one hour of incurring an obligation to make a takeover offer. The bidder must also send a written notice of the takeover (see above, Bidder's Obligations: Announcement). The offer period begins on the date of the press notice or notice of takeover offer (whichever is earlier) and expires on either:

    • the closing of the takeover offer; or

    • the date when the offer lapses or is withdrawn;

      The target’s board must announce the receipt of the notice of takeover offer within one hour of receipt (Target's obligations: Announcement).

  • T plus 4. The bidder submits the draft offer document to the SC for comments.

  • T plus 7. The target's board sends copy of the notice of takeover to all of its shareholders.

  • Before T plus 21. Prior to the dispatch of the offer document, the bidder should ensure that all necessary regulatory approvals of other relevant authorities (if applicable) have been obtained.

  • T plus 21. The bidder posts the offer document (after reflecting SC’s comments) to the target's board, shareholders and holders of convertible securities (D).

  • D plus 10. The target's board and the independent adviser issues a circular with comments, opinions and views on the takeover offer to the target's shareholders.

  • D plus 21. This is the earliest date for closing the takeover offer. If the bidder revises his offer, the offer must be kept open for at least another 14 days from the date of the posting of the revised offer to the target's shareholders. The bidder must also announce the revised offer to the public.

  • D plus 46. The last date for revising the takeover offer (if a competing bid is made during the offer period, the posting of the offer document is deemed to be the day on which the competing takeover offer document was posted).

  • D plus 60. The last day to fulfil the acceptance condition (see Question 13). If the acceptance condition is not fulfilled, the offer will lapse. For offers which are conditional only as to acceptances, this is the last day to close the offer where the acceptance condition is fulfilled on or before D plus 46.

  • D plus 74. For offers which are conditional only as to acceptances, this is the last day to close the offer where the acceptance condition is fulfilled after D plus 46.

  • D plus 81. For voluntary offers, this is the last day to fulfil all conditions attached to the offer (other than the acceptance condition).

  • D plus 95. For voluntary offers, this is the last day to close the offer.

Offer conditions

13. What conditions are usually attached to a takeover offer? Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these pre-conditions)?

Once a takeover announcement is made, the bidder can only withdraw the takeover offer with the prior written consent of the Securities Commission (see Question 12).

Voluntary takeover offers

In a voluntary takeover, the offer document must include a condition requiring the bidder to receive acceptances which would result in the bidder holding more than 50% of the target's voting shares (unless this condition is already met prior to making the takeover offer). The bidder can set a higher acceptance threshold (but the threshold must be more than 50%). This is especially significant when the bidder wants to compulsorily acquire the voting shares from minority shareholders during the compulsory acquisition process (see Question 20).

The bidder is also permitted to introduce additional conditions. However, the bidder cannot impose a condition the fulfilment of which depends on:

  • The subjective interpretation or judgement of the bidder.

  • An event which is within the control of the bidder.

Mandatory takeover offers

No condition can be attached to a mandatory offer other than a condition requiring the bidder to receive acceptances which would result in the bidder and its PACs holding in aggregate more than 50% of the target's voting shares (unless this condition is already met prior to making the takeover offer).

Bid documents

14. What documents do the target's shareholders receive on a recommended and hostile bid?

The notices and documents which the target's shareholders usually receive on a recommended or hostile bid are the:

  • Notice of takeover offer, which must contain:

    • the identity of the ultimate bidder, the bidder, and the bidder's PACs;

    • the basis of the offer price;

    • the basis of consideration, if other than cash;

    • the type and total number of voting shares which have been acquired, held or controlled by the bidder or its PACs;

    • the type and total number of voting shares in relation to which the bidder or its PACs have received irrevocable undertakings from the target's shareholders to accept the takeover offer;

    • the type and total number of voting shares in respect of which the bidder or its PACs have an option to acquire;

    • details of any existing or proposed agreement, arrangement or understanding relating to voting shares of the target between the bidder or its PAC with the target's shareholders;

    • the terms and conditions of the takeover offer;

    • a confirmation by the main adviser that the bidder has sufficient financial resources to satisfy full acceptance of the offer.

  • Offer document. This must include the information set out in Schedule 1 of the Rules, including:

    • the terms and conditions of the takeover offer;

    • the identity of the bidder and its PACs;

    • the identity of the directors, substantial shareholders and ultimate controlling shareholders of the bidder and its PACs;

    • the bidder's intentions for the target's business and its employees;

    • whether the bidder will exercise the right of compulsory acquisition (see Question 20);

    • confirmation that the bidder has sufficient financial resources to satisfy full acceptance of the offer (see Question 11).

  • Form of acceptance and transfer.

  • Target’s board circular. This contains comments on the takeover offer and information to enable the shareholders and holders of convertible securities to reach an informed decision and their advisers to make an informed assessment of the offer.

  • Independent advice circular. This includes information set out in Schedule 2 of the Rules and is produced by an independent adviser appointed by the target's board. The adviser recommends either acceptance or rejection of the takeover offer based on the fairness and reasonableness of the offer, and makes comments on the takeover offer, including the bidder's stated plans for the target's business.

Employee consultation

15. Are there any requirements for a target's board to inform or consult its employees about the offer?

Under the Code and Rules, the target's board is not required to inform or consult its employees. However, this is subject to any collective bargaining agreement the company may have entered into with a union, which may contain change of shareholding provisions.

A bidder is required to disclose, in the offer document, its intention as to the continued employment of the employees of the target in the event that the offer is successful and the target’s board is required to provide its comments on this matter.

Mandatory offers

16. Is there a requirement to make a mandatory offer?

The bidder must make a mandatory takeover offer for voting shares when the bidder (together with its PACs):

  • acquires, holds or is entitled to exercise or control the exercise of more than 33% of the target's voting shares;

  • already holds more than 33% but not more than 50% of the voting shares of the target, and acquires more than 2% of the voting shares of the target in any six month period.

An exemption from the mandatory general offer requirements can also be obtained from the Securities Commission, depending on the circumstances of the case.

 

Consideration

17. What form of consideration is commonly offered on a public takeover?

The most common forms of consideration offered on a takeover offer are:

  • Cash.

  • Shares.

  • A combination of cash and shares.

While it is possible to offer other forms of consideration, such as debt instruments, this is not common.

In a mandatory offer, a bidder is always required to provide a cash alternative where other forms of consideration (other than cash) are offered. In a voluntary offer, the consideration must include a cash alternative when the bidder or its PACs have purchased 10% or more of the target's shares for cash during and within the six months prior to the start of the offer period. The consideration must include a share alternative when the bidder or its PACs have purchased 10% or more of the target's shares in exchange for shares during and within the three months prior to the start of the offer period. This applies to all takeover offers, whether mandatory or voluntary.

 
18. Are there any regulations that provide for a minimum level of consideration?

If the bidder has accumulated shares in the target before announcing the bid and the bidder subsequently undertakes a takeover offer, the price of the offer will be affected.

A mandatory offer must be made at a price not less than the highest price paid (or agreed to be paid) by the bidder or its PACs for any voting shares in the target during and within six months before the start of the offer period.

A voluntary offer must be made at a price not less than the highest price paid (or agreed to be paid) by the bidder or its PACs for any voting shares in the target during and within three months before the start of the offer period.

For both mandatory and voluntary offers, when the bidder or its PACs purchases securities at above the offer price during the offer period, the bidder must increase the offer price to at least the same amount paid for the securities purchased. In such case, the bidder must announce the revised offer price and the price paid for the voting shares purchased (as well the number of voting shares purchased) which led to the revision of the offer price.

 
19. Are there additional restrictions or requirements on the consideration that a foreign bidder can offer to shareholders?

There is no distinction in the treatment of a local and foreign bidder under the Code. Therefore, any restrictions on the form of consideration will apply to both local and foreign bidders.

 

Post-bid

Compulsory purchase of minority shareholdings

20. Can a bidder compulsorily purchase the shares of remaining minority shareholders?

Once a takeover offer has been made, the bidder can compulsorily purchase the shares from the remaining minority shareholders if the bidder acquires 90% of the nominal value of the shares of that class for which the offer has been made, within four months of making that offer. This excludes any shares already held by the bidder and its PACs at the date of the takeover offer. The squeeze out can also be exercised in respect of convertible securities.

A minority shareholder can require the bidder to acquire its shares on the terms of the takeover or other terms that may be agreed if both:

  • The bidder or its PACs have acquired not less than 90% in value of all the shares in that class.

  • The offer period has not expired.

Restrictions on new offers

21. If a bidder fails to obtain control of the target, are there any restrictions on it launching a new offer or buying shares in the target?

Where the offer has been withdrawn, lapsed or failed, a bidder and its PACs cannot do any of the following within 12 months of the date of the announcement:

  • Announce a takeover offer of the target.

  • Acquire voting shares which would trigger a mandatory offer obligation.

  • Procure an irrevocable commitment to acquire shares of the target which would trigger a mandatory offer obligation.

  • Make any statement which raises or confirms the possibility that a takeover offer may be made for the target.

  • Take any steps in connection with a possible takeover offer for the target.

In addition, the same restrictions apply to a bidder and its PACs who have announced that they do not intend to make a takeover offer for the target (see Question 12, Bidder's obligations).

De-listing

22. What action is required to de-list a company?

The target is allowed to de-list where a takeover offer has resulted in 90% or more of the listed shares being held by the bidder or its PACs. However, in cases where the bidder and its PACs do not hold 90% or more of the listed shares, the target is only permitted to request de-listing where:

  • The target convenes a general meeting to obtain approval from its shareholders and sends a circular, in the prescribed form, to the shareholders. A separate meeting and circular may be necessary for holders of any other class of listed securities.

  • The resolution for withdrawal is approved by a majority in number representing 75% of the value of the shareholders (and holders of any other class of listed securities) present and voting either in person or by proxy at the meeting. The proportion of shareholders or holders of other classes of listed securities objecting to the withdrawal at the meeting must not be more than 10% in value.

  • The shareholders (and holders of other classes of listed securities) are offered a reasonable cash alternative or other reasonable alternative for their shares (exit offer).

  • An independent adviser has been appointed to advise and make recommendations to the shareholders (and holders of other classes of listed securities) in connection with the de-listing as well as the fairness and reasonableness of the exit offer.

If the bidder has achieved acceptances rendering the offer unconditional, but falls short of the compulsory purchase threshold, the bidder will have to launch a second takeover offer to satisfy the exit offer requirement (see Question 20, Compulsory purchase of minority shareholdings).

 

Target's response

23. What actions can a target's board take to defend a hostile bid (pre- and post-bid)?

Without an ordinary resolution passed in a shareholder meeting, the target's board cannot take any action (other than in the ordinary course of business) to frustrate an offer during the offer period or if it has reason to believe that a bona fide takeover offer is imminent. A shareholder meeting is required to:

  • Issue any authorised but unissued shares.

  • Issue or grant options in relation to any unissued shares.

  • Create, issue or permit the issue or subscription of any shares.

  • Sell, or dispose of the target's assets in a material amount.

  • Enter into contracts, other than in the target's ordinary course of business.

  • Sell treasury shares into the market.

  • Cause the target or any of the target's subsidiaries or associated companies to:

    • purchase or redeem shares in the target;

    • provide any financial assistance for such purchase or redemption; or

    • declare dividends other than in the normal course and in the usual quantum.

The Security Commission's approval is required prior to undertaking any of the foregoing proposals without shareholders' approval.

 

Tax

24. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in the jurisdiction? Can payment of transfer duties be avoided?

Stamp duty is payable on a transfer of shares (Stamp Act 1949).

Private companies

For a transfer of shares in a private company, stamp duty is payable on the instrument of transfer at the rate of 0.3% on the highest of the:

  • Sale consideration.

  • Value per share based on the net tangible assets of the company.

  • Value per share based on the price earning multiple/price earning ratio (that is, the profits after tax multiplied by the specific earnings multiplier prescribed by the Malaysian Inland Revenue Board, which varies depending on the industry sector in which the company operates).

Public listed companies

For a transfer of shares in a public listed company, stamp duty is payable at 0.1% of the value of the shares subject to a cap of MYR200 for each contract note relating to the sale of shares in a public listed company.

Exemptions

An instrument of transfer can be exempted from stamp duty under specific provisions of the Stamp Act 1949 in relation to:

  • Schemes of reconstruction or amalgamation of companies (section 15, Stamp Act 1949).

  • Transfers of property between associated companies (section 15A, Stamp Act 1949).

 

Other regulatory restrictions

25. Are any other regulatory approvals required, such as merger control and banking? If so, what is the effect of obtaining these approvals on the public offer timetable?

Merger control

There are no merger control regulations in Malaysia. The Malaysian Competition Act (Competition Act) came into effect on 1 January 2012. While there is no merger control regime under the Competition Act, it prohibits anti-competitive practices and abuse of dominant market position.

Sectoral regulation

However, Malaysia has a number of sectoral regulators responsible for issuing operating licences across different industry sectors. Approval from such a regulator may be required in connection with a takeover offer. For example, the approval of Bank Negara Malaysia is required if a financial institution changes its shareholding by 5% or more.

If a mandatory offer requires the approval of a sectoral regulator, the bidder must ensure that all the necessary approvals are obtained as soon as practicable before dispatching the offer document. If the necessary approvals cannot be obtained in time, an application can be made to the Securities Commission for an extension of time to dispatch the offer document.

 
26. Are there restrictions on the foreign ownership of shares (generally and/or in specific sectors)? If so, what approvals are required for foreign ownership and from whom are they obtained?

There are no general restrictions on the foreign ownership of shares in Malaysian companies. This follows the Malaysian Government's abolition of the Guidelines on the Acquisition of Interests, Mergers and Take-overs by Local and Foreign Interests in June 2009.

However, as discussed above, a number of sectors are regulated. A sectoral regulator may impose certain conditions on a company's operating licence. The type of approvals required and the party from whom they are to be obtained depends on the laws, regulations and guidelines governing the particular sector (see Question 25).

 
27. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?

The Financial Services Act 2013, read together with the Foreign Exchange Administration Notices, empowers Bank Negara Malaysia to safeguard the balance of payments position and the value of the Ringgit. These provisions do not restrict the repatriation of profits by a foreign shareholder, or prevent a foreign company from disposing its investments in Malaysian companies and thereafter remitting the proceeds (in a foreign currency) from the disposal out of Malaysia.

 
28. Following the announcement of the offer, are there any restrictions or disclosure requirements imposed on persons (whether or not parties to the bid or their associates) who deal in securities of the parties to the bid?

Disclosure of dealings during offer period

Amongst others, the following persons must disclose the total number and price of all voting shares, or convertible securities of the bidder and target which are dealt in for their own account or for discretionary clients:

  • The bidder and its PACs.

  • The target and its PACs.

  • Any substantial shareholders of the bidder or target.

  • Any chief executive officer or director of the bidder or target.

  • Any officer occupying or acting in a senior managerial position in the bidder or target.

  • A bank, stockbroking company, financial or other professional adviser to the bidder or target.

Disclosure is made to the Securities Commission (SC) and must also be announced, no later than noon on the market day following the date of the transaction:

  • By way of press notice, if the securities of the bidder or target are not listed in Malaysia; or

  • Bursa Malaysia, if the securities of the bidder or target are listed in Malaysia.

Restrictions on dealings during offer period

The bidder and its PACs will need to obtain the consent of the SC if they wish to sell any voting shares of the target during the offer period.

There are also restrictions on dealing with the shares of the bidder or its PACs, where such shares form part of the consideration for the takeover offer.

 

Reform

29. Are there any proposals for the reform of takeover regulation in your jurisdiction?

On 15 August 2016, the Malaysian Minister of Finance revoked the Malaysian Code on Take-Overs and Mergers 2010. In its place, the Code and Rules were introduced. The responses in this article reflect the position under the Code and Rules. No further changes to the takeovers regime is anticipated at this juncture. Note also that the Malaysian Parliament has passed the Companies Act 2016, which will supersede the Companies Act 1965. The date for the coming into force of the new Act has not been gazetted.

 

The regulatory authorities

Securities Commission

W www.sc.com.my

Main area of responsibility. Regulating takeovers and mergers (among other things).

Companies Commission of Malaysia

W www.ssm.com.my

Main area of responsibility. Ensuring compliance with company law.

Bursa Malaysia Securities Berhad

W www.bursamalaysia.com

Main area of responsibility. The principal Malaysian stock exchange and supervises listed companies.



Online resources

Capital Markets and Services Act 2007

W www.sc.com.my/capital-markets-and-services-act-2007

Description. The website is maintained by the Securities Commission and the information contained on the website is up-to-date.

Malaysian Code on Take-Overs and Mergers 2016 and the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016

W www.sc.com.my/legislation-guidelines/take-overs-code/

Description. The website is maintained by the Securities Commission and the information contained on the website is up-to-date.

Bursa Malaysia Listing Requirements

W www.bursamalaysia.com/market/regulation/rules/listing-requirements/main-market/listing-requirements

Description. The website is maintained by the Bursa Malaysia Securities Berhad and the information contained on the website is up-to-date.



Contributor profiles

Brian Chia

Wong & Partners, member firm of Baker & McKenzie International

T +603 2298 7999
F +603 2282 2669
E brian.chia@wongpartners.com
W www.wongpartners.com

Professional qualifications. England and Wales, 1990; Singapore, 1997; Malaysia, 1991

Areas of practice. M&A; venture capital; private equity; general corporate and commercial; employment; IT; corporate securities; corporate reorganisations.

Recent transactions

  • Advised Zurich Insurance Company Ltd (Zurich) on its MYR525 million acquisition of 100% of the equity interests in MAA Takaful Berhad from MAA Group Berhad and Solidarity Group Holding BSC (Closed). This transaction represents Zurich's maiden entry into the Malaysian takaful market.
  • Advised KV Asia Capital, a private equity firm focused on investments into South East Asia, in connection with its acquisition, through its subsidiary Peta Sejahtera Sdn. Bhd., of a controlling interest in TF Value-Mart Sdn. Bhd. (TF Value-Mart), a leading hypermarket chain in Malaysia. TF Value-Mart is in the grocery retail business, operating 18 hypermarkets across five states in Malaysia.
  • Represented Generali Asia NV (Generali) on its MYR355.8 million acquisition of 49% of the issued and paid-up share capital of Multi-Purpose Insurans Bhd from Multi-Purpose Capital Holdings Bhd, a wholly-owned subsidiary of MPHB Capital Berhad. This acquisition represents Generali's maiden entrance into the Malaysian insurance industry, placing itself among the top ten property and casualty insurers in the country.
  • Advised a multinational private equity firm on the MYR217 million acquisition of an 80% stake in a group of companies which owns and operates a supermarket retail chain in Malaysia. The deal involved legal due diligence exercise on all 12 subsidiaries owned by the target company, as well as legal advice on the deal structure and regulatory requirements.
  • Advised AIA Group Limited in relation to the US$1.8 billion acquisition of ING Groep NV's Malaysian insurance and takaful business and on the merger between AIA Malaysia's and ING Malaysia's life insurance and takaful businesses. The acquisition combined ING's Malaysian operations and AIA's existing Malaysian business, previously the third and the fourth largest in Malaysia respectively, to create the largest life insurance firm in the country. This transaction was recently awarded "SE Asia M&A Deal of the Year 2013" by ALB in May 2013.
  • Advised AIA AFG Takaful Bhd. (AIA AFG) and AIA PUBLIC Takaful Berhad (AIA PUBLIC) in respect of the transfer of AIA AFG's family takaful assets to AIA PUBLIC under a court sanctioned order pursuant to the Islamic Financial Services Act 2012 for a consideration of MYR47.7 million. This is the first business transfer under the new provisions of the Islamic Financial Services Act 2013.

Sue Wan Wong

Wong & Partners, member firm of Baker & McKenzie International

T + 603 2298 7884
F +603 2282 2669
E suewan.wong@wongpartners.com
W www.wongpartners.com

Professional qualifications. Malaysia, 2003

Recent transactions

Areas of practice. M&A; venture capital; private equity; financial services regulation; corporate reorganisations.

  • Advised Zurich Insurance Company Ltd ("Zurich") on its MYR525 million acquisition of 100% of the equity interests in MAA Takaful Berhad from MAA Group Berhad and Solidarity Group Holding BSC (Closed). This transaction represents Zurich's maiden entry into the Malaysian takaful market.

  • Advised a Japan-based food processing company (Client) in connection with the (a) subscription by the Client of newly issued shares of a leading publicly-listed integrated poultry company (Target Company) representing 10% of the issued and paid-up capital of Target Company; and (b) acquisition of a further 13.8% stake in the Target Company. Following completion of the transactions, the Client and the Target Company had entered into a memorandum of understanding to incorporate a joint venture company to undertake various business activities in the processed foods industry.

  • Advised Morgan Stanley & Co. International PLC in connection with a placement by Seadrill Ltd of approximately 490 million ordinary shares, amounting to 8.2%of the capital of SapuraKencana Petroleum Berhad. Maybank Investment Bank Berhad acted as a co-bookrunner in the placement.

  • Acted for BIMB Holdings Berhad in connection with the acquisition of a 49% stake in Bank Islam Berhad from the Dubai Financial Group LLC and Lembaga Tabung Haji for a total purchase consideration of approximately MYR2.8 billion. Our corporate team advised on the M&A aspects of the transaction as well as the MYR1.8 billion rights issuance, while our finance team advised Bank Islam as lead arranger on the MYR1.7 billion sukuk issuance, therefore valuing the entire deal at approximately MYR6 billion. The deal was named the "Equity Deal of the Year" in 2013 by Islamic Finance News and the "Equity Market Deal of the Year" by the 2014 Asian Legal Business Malaysia Law Awards.

  • Acted as counsel to Kirin Holdings Company, Limited (Kirin) in relation to:

    • Kirin’s SGD2.7 billion offer for the food and beverage (F&B) business of Fraser & Neave, Limited (F&N), a leading real estate and food and beverage conglomerate in Singapore and Malaysia, pursuant to the SGD13.1 billion bid by OUE Baytown Pte Ltd for F&N;

    • the sale of Kirin’s 14.76% stake in F&N to Thai-owned TCC Assets Limited for SGD2.03 billion. The contested takeover of F&N won the 2014 IFLR M&A Deal of the Year Award.


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