Takeover Rules Changes Lauded

Tuesday February 8, 2011
By RISEN JAYASEELAN
risen@thestar.com.my


They bring certainty and clarity to the market, says banker

PETALING JAYA: The recent changes to takeover rules involving the assets and liabilities method have attracted positive responses from various quarters, including investment bankers.

One banker from a foreign investment house said that the changes had brought about a much needed alignment of the rules governing takeovers. “It brings certainty and clarity to the market, which is always good,” he said.

That view is echoed by AmBank Group corporate and institutional banking managing director Pushpa Rajadurai.

“In the past, there were certain transactions that used a simple majority of shareholders to approve the deals. There was uncertainty in the marketplace as to whether the regulators would sanction or impose certain conditions on such deals.


Pushpa Rajadurai … ‘The regulator should be applauded for making this holistic change.’
“Now that the regulator has stepped in and raised the approval bar, the assets and liabilities route can be used with more certainty by any party whether a foreign party or private equity fund to undertake a buyout of a listed company,” she said.

To recap, two weeks ago, the Securities Commission (SC) and Bursa Malaysia announced that companies seeking to take over a listed firm, by buying its assets, must get at least 75% of the target company's shareholder approval.

Previously, such deals needed the approval of just a simple majority of shareholders and this had been a controversial takeover route as it was deemed to be easier for takeovers to go through.

“The regulator should be applauded for making this holistic change that benefits the capital markets in general,” Pushpa said.

Meanwhile, the chief executive officer of the Minority Shareholder Watchdog Group, Rita Benoy Bushon, who had long been fighting to raise the shareholder approval threshold, also applauded the move by the SC.

“The loophole has been plugged. Regardless of the takeover route, all these corporate exercises are now subject to the same minimum 75% shareholder approval level. It is a really good move for minority investor protection,” Rita said.


AmBank's Pushpa also said that there would not be any significant drop in the number and quantum of mergers and acquisitions (M&As) involving listed companies as a result of the rule change.

“First, it should be noted that the assets and liabilities method of takeovers does not even account for half of the total number of M&A deals last year.

“There are a number of other takeover methods used, including general offers under the Takeover Code, a scheme of arrangement under Section 176 of the Companies Act 1965 and a selective capital repayment under the Companies Act,” she said.

(All other takeover methods require the support of at least 75% of shareholders of the target company. This is why the new rules are seen as a streamlining of takeover regulation.)

Pushpa said what was likely to happen, post the recent rule change, was not so much a drop in the number of deals, but rather, a change in the approach of offerors.

“Offerors using the assets and liabilities method would now have to pay closer attention to the structure, strategy and terms of their takeover offer.

“They now will have to pay closer attention to the list of stakeholders of the target company and look at the timing of their deal and the purpose of the takeover. All these factors will have a bearing on how the majority of shareholders of the target company will vote on the deal,” she said.

Pushpa also said the directors of companies faced with a buyout offer for their assets, needed to be more proactive in ensuring that the offerors and their offers were credible.

“They (directors) must ensure that no uncertainty is created because the shares of companies which are subject to a takeover will usually continue to be traded.

“Directors need to take a holistic view, get proper and specialist advice if necessary and understand the implications of the offers being made. The regulators have done their part in streamlining the regulation of mergers and acquisitions. Now directors have to do their part,” she said.

Aside from the low shareholder approval threshold issue of this takeover method, another problem has been concern that the route creates uncertainty in the market where bidders make an offer for the asset of a company, providing an indicative price, but then walk away from the deal for various reasons.

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