TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
6.7 Minimum Acceptance Conditions Given that under the Taiwanese law, material deci- sions require the approval from shareholders repre- senting two thirds of the voting shares present at a shareholders’ meeting, in order to gain an absolute control of a public company, an acquirer should aim to acquire or control at least 67% of the shares to secure necessary corporate approval. However, in practice, it may be sufficient for one investor to control 30% to 40% of the voting rights in a public company in order to influence the management or operation. The level of control largely depends on the dispersion of the A major shareholder may squeeze out minority share- holders through a merger or share exchange for which the consideration should be in the form of cash. In general, affirmative consent by holders of two thirds of the total issued shares of the public company is required to approve a squeeze-out privatisation trans- action. shareholding of the public company. 6.8 Squeeze-Out Mechanisms 6.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer The takeover offer should be launched by the acquirer itself and not by the financing banks. However, the acquirer must obtain a bank guarantee for its per- formance of the payment of the offer consideration or a letter of confirmation from a CPA confirming the acquirer’s ability to pay. Since the funds for the completion of the tender offer should be guaranteed before the launch of tender offer are available, obtain- ing financing cannot be a condition of a takeover offer. 6.10 Types of Deal Protection Measures Break-up fees have sometimes been used as a deal protection tool in public deals in recent years. Addi- tionally, it is common in Taiwan for major shareholders to sign a side agreement covenanting to endorse the deal at the shareholders’ meeting in order to ensure a successful outcome. 6.11 Additional Governance Rights The Taiwan Company Act prescribes a list of mat- ters requiring the approval of a majority (a majority vote meeting at least 50% quorum) or supermajority (a majority vote meeting at least two-thirds quorum) of
duties by carefully reviewing and negotiating reason- able terms and conditions. In cases where there are discrepancies between the parties in transactions with high valuation uncertainty, post-closing earn-out pay- ments may be structured as a contingent transaction price in M&A transactions. 6.5 Common Conditions for a Takeover Offer/ Tender Offer Common conditions of a tender offer are (i) the thresh- old for the tender offer and (ii) required regulatory approvals. A tender offer conditioned on the bidder obtaining financing is not permissible. A bidder should dis- close in the offer details of its funding source for the consideration, substantiated by relevant documents. Moreover, a bidder cannot withdraw or cease a tender offer once it has been launched, except with the FSC’s approval in one of the following circumstances: • the bidder has proven a material change in the financial or business conditions of the target com- pany; • the bidder is subject to bankruptcy or reorganisa- tion, death or declaration of incompetency; or • other reasons specified by the FSC. In practice, a bidder will often seek commitment from major shareholders to vote in favour of the deal at the shareholders’ meeting and to tender the shares. Whether to request other deal protection provisions (such as break fees, match rights, force-the-vote provisions, non-solicitation, etc) will be subject to the parties’ negotiation on a case-by-case basis. Where the principal shareholder is also a director of the tar- get company, a fiduciary-out provision will often be included. 6.6 Deal Documentation A transaction agreement is required by law for trans- actions such as share exchanges, mergers, spin-offs, etc. There is no specific boundary for a target com- pany to undertake certain obligations. It is common practice for a public company to give customary rep- resentations and warranties in a combination transac- tion.
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