CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
6.6 Requirement to Obtain Financing A business combination cannot be conditional on the bidder obtaining financing for public tender offers. Before announcing the offer, the acquirer of a listed company must secure its funding source and provide solid evidence of its payment capacity. For private M&A, parties may agree on financing con - ditions in their definitive agreements, but often with a debt commitment letter from a bank. 6.7 Types of Deal Security Measures For deal security measures, bidders commonly seek the following terms in China: • Break-up fees: These compensate the bidder if the seller terminates the deal. • Match rights: These allow the bidder to match competing offers within a specified period. • Non-solicitation provisions/no-shop provisions: These restrict the seller from actively seeking alter - native bidders after signing a letter of intent. Recent regulatory changes have indirectly impacted interim periods. The revision of the Measures for the Administration of Merger and Acquisition Loans Granted by Commercial Banks enhance financing flexibility with longer tenors and higher ratios, enabling extended payment schedules. The CSRC’s amend - ments to the 2025 Restructuring Measures shorten the approval time but extend share consideration validity to 48 months for listed-company deals where applicable. 6.8 Additional Governance Rights If a bidder does not seek full ownership, it may negoti - ate for additional governance rights beyond its share - holding. Common rights include: • rights to appoint directors; • veto rights over fundamental corporate actions (eg, capital increase and decrease, amendment to the articles of association, acquisitions, asset dispos - als); and • information and inspection rights exceeding statu - tory requirements.
6.9 Voting by Proxy Shareholders in China may vote by proxy. Under Arti - cle 118 of the PRC Company Law, a shareholder una - ble to attend a shareholders’ meeting in person may issue a written proxy form authorising a representative to vote on their behalf. The proxy form must specify the scope of authorisation and be presented to the company before the meeting. For listed companies, proxy voting is standard prac - tice. Proxies may be other shareholders or external persons, and authorisation can be general or specific regarding voting instructions. Electronic proxies are valid if they meet legal evidentiary requirements under In China, no statutory mechanism allows the squeeze- out of the minority shareholders after a successful ten - der offer. Once the tender offer window closes but the transac - tion remains unclosed, if the distribution of shares of the target does not meet the listing conditions, then the remaining shareholders have the right to sell their shares to the acquirer within a reasonable period as set forth in the tender offer. Short-Form Mergers Short-form mergers are not often seen in the China market. the PRC Electronic Signature Law. 6.10 Squeeze-Out Mechanisms Squeeze-Out Mechanism Article 219 of the PRC Company Law permits a short- form merger whereby a company that owns 90% of the shares of a subsidiary may merge with the subsidi - ary without shareholder approval, buying out minori - ties at a fair price, provided that the subsidiary shall notify the minority shareholders and a board resolu- tion shall be adopted. Where the consideration paid for a merger does not exceed 10% of the company’s net assets, a board resolution shall be adopted but a shareholders’ reso - lution is not required, unless otherwise provided in the articles of association.
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