Since the outbreak of the coronavirus (COVID-19) around the world, most businesses, globally and in Malaysia are suffering due to this unprecedented crisis. Hundreds and thousands of businesses have cut back on their operations significantly as a result of their inability to operate as usual. Supply chains have been disrupted severely. Millions of workers have been laid off or have been facing pay cut which result in drastically reduced consumer spending.
In the newspapers, we can see that there are takeover deals that have been aborted due to the outbreak of COVID-19. For instance, Berjaya Corp Bhd (“BCorp”) has aborted its plan to takeover home electronic appliances distributor, Singer (M) Sdn Bhd after announcing the plan to buy Singer Group less than two months ago. Due to business challenges and uncertainty in the recovery of the economy due to the COVID-19 pandemic, BCorp has decided to pull a brake on the deal which cost more than half a billion Ringgit Malaysia (RM536 million to be exact).
On the other hand, people around us and most probably ourselves are actively participating in the stock market to take the opportunity to earn extra income during this difficult time. As can be seen by the data provided by Bursa Malaysia, local and foreign retail investors accounted for 30.8% of the total investors on the local equity market from January to July 2020, up from 20.5% in the same period last year.
The heated-up stock market is leading to a rush for unlisted assets to enter the capital market and for individuals to takeover listed companies. I am sure all of you would have noticed that news on takeover deals have constantly surfaced on the newspaper recently, such as the takeover of Oversea Enterprise Bhd (“Oversea”) and Rubberex Corp (M) Bhd (“Rubberex”).
Oversea, a Chinese restaurant operator was the subject of a takeover from Datuk Chai Woon Chet, its managing director and substantial shareholder of Anzo Holding Bhd. The acquisition of 151.26 million shares (62.37% stake in the company) by Datuk Chai has triggered a mandatory takeover offer, which means that Datuk Chai has to acquire all the remaining shares not held by him. It was considered as a bold move by Datuk Chai as Oversea has been making losses for the past few financial years. We shall keep an eye to see what he will do to turnaround the business of Oversea in the near future.
Some of you may ask, ‘what is a mandatory takeover offer?’. As the name suggests, a mandatory offer is one which a bidder is compelled to make by law and occurs when an acquirer obtains control or meets certain takeover thresholds. In general, takeovers in Malaysia are governed by the Capital Markets and Services Act 2007 (“CMSA”), the Malaysian Code on Take-Overs and Mergers 2016 (“the Code”) and the Rules on Take-Overs, Mergers and Compulsory Acquisitions 2016 (“the Rules”).
So, what are the thresholds to extend a mandatory offer in Malaysia? In Malaysia, a bidder together with its Persons Acting in Concert (“PACs”) trigger the obligation to make a mandatory takeover offer to acquire all the shares of the target company if:
they acquire more than 33% of a company; or they hold between 33% and 50% of the voting shares and acquire more than 2 % of the voting shares in any period of 6 months.
For your information, PACs are persons who pursuant to an agreement, arrangement or understanding co-operate to: acquire jointly or severally voting shares of a company for the purpose of obtaining control of that company; or act jointly or severally for the purpose of exercising control over a company.
The purpose of having a mandatory takeover offer is to protect the minority shareholders and to ensure equal treatment of all shareholders. Mandatory takeover offer allows the remaining shareholders in the target company to exit the company at the price which the bidder paid for upon a change of control of the company. For this reason, the mandatory offer must offer a cash consideration or a cash alternative at no less than the highest price paid by the bidder, or any PACs, for shares of that class in the previous six months.
Earlier in the month of June, Hextar Rubber Sdn Bhd (“Hextar Rubber”) and Hextar Global Bhd executive director Datuk Ong Choo Meng have collectively acquired 57.25 million shares (20.63% stake) in Rubberex, a small-cap glove maker, in addition to their existing 29.55% equity interest in Rubberex, which raised their collective interest to 50.18%. This acquisition triggers the 33% threshold to make mandatory offer for the remainder of shares that they do not own in the company for a cash offer price of RM1.80 per share.
However, minority shareholders of Rubberex have been advised to reject the takeover offer as it is not fair and reasonable, according to the independent adviser, MainStreet Advisers Sdn Bhd (“MainStreet Advisers”). “Since Rubberex shares will remain traded on Bursa Securities, holders of Rubberex shares will therefore have the opportunity to dispose of their offer shares in the open market during the offer period and subsequent to the closing date at a price higher than the offer price, net of transaction cost. Based on the above and our evaluation as a whole, we are of the view that the offer is not fair and not reasonable. Accordingly, we recommend that the holders reject the offer,” said Mainstreet Advisers.
Futhermore, pursuant to Section 222 of the CMSA, once a takeover offer has been made, the bidder can compulsorily acquire the shares from the remaining minority shareholders if the bidder acquires 90% of the nominal value of the shares of that class (excluding the shares already held by the bidder or PACs) for which the offer has been made, within four months of making that offer.
Other than the mandatory takeover offer that we have frequently seen in the news lately, there is also voluntary takeover offer. A voluntary offer is where an offer is made voluntarily and simultaneously by a bidder to purchase all or part of the shares from all current shareholders of a company. Rule 5 of the Rules stated that a voluntary offer should not be made at a price that is substantially below the market price of the shares in the target company. Unlike a mandatory offer which must always include a cash consideration, the requirement to include a cash consideration for a voluntary offer is only triggered in certain circumstances, whereby: a bidder or its PACs have purchased 10% or more of the target’s shares for cash during the offer period and within six months; or the Securities Commission Malaysia determines that it is necessary to give effect to the requirement under the General Principle of the Code. A voluntary offer will become a mandatory offer if the bidder or PACs trigger the 33% threshold as mentioned earlier.
To conclude, proper research and assessment are crucial to make informed investing decisions. Investors should analyse and assess the fundamentals of companies before investing in the stock market to avoid being placed in a vulnerable position.
For more information and legal assistance on takeovers, mergers and acquisition in Malaysia, please email our Malaysia client member firm, Mohamed Ridza & Co at firstname.lastname@example.org