TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
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 protec- tion 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 share- holder is also a director of the target company, a fiduciary-out provision will often be included. 6.6 Deal Documentation A transaction agreement is required by law for transactions such as share exchanges, mergers, spin-offs, etc. There is no specific boundary for a target company to undertake certain obligations. It is common practice for a public company to give customary representations and warranties in a combination transaction. 6.7 Minimum Acceptance Conditions Given that under the Taiwanese law, material decisions require the approval from sharehold- ers representing 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 corpo- rate 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 disper- sion of the shareholding of the public company. 6.8 Squeeze-Out Mechanisms A major shareholder may squeeze out minor- ity shareholders through a merger or share exchange for which the consideration should be in the form of cash. In general, affirmative con- sent by holders of two-thirds of the total issued
shares of the public company is required to approve a squeeze-out privatisation transaction. 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 guar- antee for its performance 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, obtaining 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. Additionally, it is common in Taiwan for major shareholders to sign a side agreement covenanting to endorse the deal at the share- holders’ meeting in order to ensure a successful outcome. 6.11 Additional Governance Rights The Taiwan Company Act prescribes a list of matters 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 the shareholders or the board of directors. As a result, as long as the bidder can obtain the controlling voting power at the shareholders’ meeting and the board, the bidder will generally obtain the governance pow- ers in public companies. 6.12 Irrevocable Commitments While the courts in Taiwan do not deem all vot- ing agreements to be valid, the Business Merg- ers and Acquisitions Act (the “M&A Act”) allows
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