CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
6.11 Irrevocable Commitments Obtaining irrevocable commitments from principal shareholders is common in China. These undertak - ings are legally binding contractual obligations typi - cally secured during pre-bid negotiations before the formal offer announcement. Such commitments gen - erally require shareholders to tender their shares into the offer or vote in favour of related resolutions at shareholders’ meetings. Market practice shows that these irrevocable commitments contain limited or no fiduciary outs. In the case of an acquisition of a listed company by offer, the bidder shall prepare a report on the acqui - sition by offer, notify the target company, and make an indicative announcement summarising the report on the acquisition by offer simultaneously. Where the acquisition requires approval of the relevant authori - ties pursuant to the law, the bidder shall include a spe - cial note in the summary of the report specifying that the offer is conditional upon obtaining such approval. The formal tender offer report often includes details such as information on the bidder, purposes of the acquisition, name of the target, intended quantity and price, funding sources, etc. 7.2 Type of Disclosure Required 7. Disclosure 7.1 Making a Bid Public In China, when an acquirer subscribes for newly issued shares as consideration in a business com - bination, the disclosure is governed by the CSRC’s Standards for the Contents and Formats of Informa - tion Disclosure by Companies Offering Securities to the Public No. 15. The acquirer must prepare a simpli - fied or detailed equity change report. The report must be disclosed within three days of either: • if subscribers are identified, the board resolution approving the issuance; or • if not, the announcement of issuance results.
Required disclosures include: • type, number and percentage of shares sub - scribed; • issuance price, pricing basis, payment terms and conditions; • approval status (eg, shareholder approval, CSRC registration); • lock-up arrangements and commitments; • material transactions with the listed company in the past year; and • future arrangements with the company. Furthermore, if the acquirer subscribes for new shares with non-cash assets, additional disclosure of audited financial statements of those assets for the last two years or a valid valuation report issued by a qualified appraiser is required. 7.3 Producing Financial Statements In China M&A, when the acquirer is a juristic person or other organisation seeking to obtain control of a listed company, it must produce financial statements under the CSRC Standards for the Contents and For- mats of Information Disclosure by Companies Offering Securities to the Public No. 16. Specific requirements include the following: • Financial statements for the most recent three years must be provided, with the most recent fiscal year audited by a CSRC-qualified firm. The audit opinion, accounting policies, and notes on key items must be disclosed. • If material changes occur after the latest audited report, a more recent interim financial report must be provided. • If the acquirer has been established for less than one year or was specifically set up for the acquisi - tion, the financial information of its actual controller or holding company must be disclosed. • If the acquirer is a domestic listed company, it may be exempted from providing three-year statements by referencing its published annual reports. • Foreign acquirers must provide financial reports prepared in accordance with CAS or IFRS. • For acquirers with complex structures that are unable to provide the information above, financial advisers must verify the acquirer’s specific cir -
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