CHINA Law and Practice Contributed by: Wei Chen, Yue Zhang, Hao Peng and Yi Sun, JunHe LLP
a combination of cash and stocks are usually adopted in the mergers of public companies. Cash payments must be offered if: • a general offer is made for the purpose of delisting the target company; and • a general offer is made, as conditions for exemption of tender offer are not satisfied. Where the buyer elects to pay the transaction price in transferable securities or securities not listed and traded at a stock exchange, it is required to offer cash payment as an option for the shareholders of the target company to choose. In the case of the tender offer, the offer price will not be lower than the highest price paid by the buyer for the shares within the six months prior to the indicative announcement of the summary of the tender offer. In a stock-for-stock transac- tion, the price of the shares to be issued by the buyer will not be lower than 80% of the average trading price of the shares of the buyer in 20, 60 or 120 trading days prior to the announcement of the resolution of the buyer’s board in respect of the transaction. In practice, in order to bridge value gaps, the transferring shareholders (usually the controlling or substantive shareholders) may agree to com- pensate the buyer and/or the target company, if the target company fails to achieve pre-agreed financial indicators (usually net profits). 6.5 Common Conditions for a Takeover Offer/Tender Offer The buyer is generally permitted to set its condi- tions for a tender offer, provided that the manda- tory requirements are satisfied. This is particu- larly the case in a voluntary tender offer.
These mandatory requirements include the peri- od of the tender offer; the minimum number of shares to be acquired; the minimum price to be offered; and provision of required guarantee for the payment of the purchase price. All share- holders of the target company will be treated fairly. Shareholders holding the same class of shares will be treated equally. The regulator will not generally restrict the use of offer conditions but supervise the process to ensure that the laws and regulations are com- plied with. 6.6 Deal Documentation As discussed under 6.3 Transaction Structures , the acquisition is typically effected through share transfer by agreement, or in combination with other methods. Accordingly, it is customary for the parties to enter into related transaction agreements. The target company may undertake to refrain from certain acts during the period from signing to closing and co-operate in the obtaining of the relevant regulatory approvals. The parties to the transaction agreement are more likely to be the shareholder of the target company, rather than the target company, in addition to the buyer. The representations and warranties are more likely to be made by the transferring shareholder. In the case of a tender offer, no separate trans- action agreement will usually be entered into, other than those required by laws and the rel- evant stock exchange. 6.7 Minimum Acceptance Conditions The minimum acceptance conditions of a tender offer are usually set based on the purpose of the
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