The revised Singapore Code on Take-overs and Mergers (Code) will come into effect on 25th March 2016.

Key changes to the Code include, but are not limited to, the following:

1. Competing Offers

(a) Alignment of Offer Timetable for Competing Offers

The final day on which an offer can become or be declared unconditional as to acceptances is normally the 60th day after the posting of the offer document (Day 60)[1]. In the case of competing offers, it was the practice for the Securities Industry Council (SIC) to allow the first offeror to align his offer timetable with the second offeror’s timetable, as established by the posting of the second offeror’s offer document.

For the purposes of clarity, a new Note has been added to Rule 22.9 of the Code, which states, subject to consent from the SIC to “extend on account of a competing offer having been announced”, all existing offers will be bound by the timetable established by the despatch of the offer document of the latest competing offeror. This revision provides greater clarity with respect to timelines in the event of competing offers.

(b) Deadline for clarification by potential competing offerors

Under the existing Code, on the 50th day after the posting of the offer document (Day 50), an offeror has to announce a firm intention to make an offer or declare an intention not to bid, where a potential competing offeror becomes the subject of a possible offer announcement. Day 50 was the mid-point between the 47th day after the posting of the offer document and the 53rd day after the posting of the offer document (Day 53) (to allow offeree company shareholders at least 7 days to consider the first offer before it closes on Day 60, in the event the second offeror decides not to bid).

The deadline has now been extended to Day 53 as the SIC is of the view that an extended deadline may be beneficial to offeree company shareholders as it may increase their prospects of receiving a competing offer[2].

As such, a new Note is included to Rules 3.1 – 3.3 of the Code such that where an offeror has announced a firm intention to make an offer and a potential competing offeror becomes the subject of a possible offer announcement, the potential competing offeror has 53 days from the despatch of the initial offer document to either announce a firm intention to make an offer; or declare their intention not to bid.

(c)  Auction Procedure

Previously, the Code did not contain a prescribed auction procedure to resolve impasses between competing offerors, though the SIC could stipulate an auction procedure to resolve such competitive situations.

A new Rule 20.5 has been introduced to the Code, providing that if a competitive situation continues to exist in the later stages of the offer period, the SIC will normally require revised offers to be announced in accordance with an auction procedure to be determined and announced by the SIC. The Code provides that the procedure will normally follow the auction procedure set out in Appendix 4 of the Code, subject to any other procedure that may be approved between the competing offerors and the company and the SIC.

The objective of the auction procedure is to achieve finality to the competitive situation in an open and transparent manner, eliminating uncertainty as to the auction procedure to be followed in the event parties to the take-over cannot agree on an alternative procedure.

2. Boards of Offeree Companies

(a) Soliciting a Competing Offer

 Rule 5 of the Code provides that in the course of an offer, if an offeree company believes that an offer is imminent, the board must not (except pursuant to an earlier contract) take any action on the affairs of the company, that could result in any offer being frustrated or shareholders being denied an opportunity to decide on its merits, without prior shareholders’ approval.

The SIC was of the view that this was restrictive and open to possible misconstruction by offeree company boards and may prohibit shareholders from deciding on merits of bona fide offers or from soliciting competing offers.

The new Note 8 requires Offeree Boards to consider the feasibility of soliciting a competing offer or running a sale process. These actions will not be construed by the SIC as soliciting a competing offer or running a sale process for the offeree company as actions which frustrate the original offer, as a better offer or an alternative offer is generally in the interest of the offeree company’s shareholders. This revision benefits offeree company shareholders as it improves opportunities for receiving better or alternative offer(s).

(b) Availability of management projections and forecasts

It was mentioned during the consultation process that market participants felt there was a lack of forward-looking management information being supplied to the independent financial adviser (IFA)[3].  It was felt that such information could be incorporated into the IFAs’ valuation process, and provide a potentially better gauge of the true value of the offeree company going forward. As such, a new Note 5 has been introduced to Rule 7.1 of the Code, stating that an Offeree Board may consider sharing available management projections and forecasts with the independent adviser for the purpose of the latter’s advice on an offer.

3. Disclosures

Material changes to information published previously by the relevant company during the offer period were originally required to be included in the next document published[4]. As the next document could be published much later, a gap between the time of the material change in information and its disclosure could occur.

In the interests of keeping shareholders and investors apprised of material information on a timely basis, a new Note was introduced to Rule 8.1 of the Code, requiring the company to promptly announce:

(a) changes in information disclosed in any document or announcement published by it in connection with the offer which are material in the context of that document or announcement; and
(b) material new information which would have been required to have been disclosed in any previous document or announcement published during the offer period, had it been known at the time.

The new Note allows the SIC to further require a document setting out the relevant information to be sent to the shareholders in the offeree company or a paid press notice, amongst others following an announcement that was made.

4. Codifying and Streamlining Existing Practices

The Code has been amended to codify and streamline existing practices, including but not limited to:

(a) Pre-conditional voluntary offer.

Previously, the Code did not prescribe any requirements on the pre-conditions to which a pre-conditional voluntary offer could be subject. In practice, the SIC has required such pre-conditions to meet the standards set out in Note 1 on Rule 14.2 of the Code on conditional agreements and put and call option agreements.

A new Note 5 to Rule 15.1 of the Code clarifies the standards required of pre-conditions in a pre-conditional voluntary offer, including but not limited to the requirement that the pre-conditions should be stated clearly in the announcement of the pre-conditional offer. This codifies and clarifies the standards SIC imposes on pre-conditions in a pre-conditional voluntary offer.

(b) Posting of Offer Document for Pre-Conditional Offers

 Currently, the offer document can only be posted between 14 to 21 days following the date of announcement of a firm intention to make an offer. Where a pre-conditional offer is made, the offeror would only announce a firm intention to make an offer upon the fulfilment of certain pre-conditions. Pre-conditions which may be imposed include shareholders’ approval and regulatory approval, and typically, such conditions would take around 3 months to fulfil.

As such, the SIC noted that by the time the firm intention to make an offer is announced, the Offeree Board would have had notice of the offer and its terms for some time, and would have had sufficient time to react, and was of the view that persisting with the 14-day prohibition on posting the offer document in such cases may unnecessarily prolong the offer period[5].

The revised Code now allows an offeree company, with the SIC’s consent, to post the offer document earlier than 14 day period[6].  The revision allows an offeree company to seek approval for the posting of the offer document at an earlier date in the case of a pre-conditional offer.

[1] Rule 22.9 of the Code
[2] Paragraph 33 of the Consultation Paper on Revision of the Singapore Code on Takeovers and Mergers dated 6 July 2015 (Consultation Paper).
[3] Paragraph 47 of the Consultation Paper.
[4] Note 1 on Rule 8.1 of the Code.
[5] Paragraph 64 – 65 of the Consultation Paper.
[6] Note on Rule 22.1 of the Code.