CHINA Law and Practice Contributed by: Wei Chen, Yue Zhang, Hao Peng and Yi Sun, JunHe LLP
acquisition, the distribution of the shareholding of the target company, transaction costs, etc. In the case of a voluntary tender offer or a man- datory tender offer (where a general tender offer is not triggered), the shares to be acquired will not be less than 5% of the issued shares of the target company. 6.8 Squeeze-Out Mechanisms If, upon the expiry of the acquisition period, the distribution of the shareholding of the target company does not satisfy the listing require- ments of the relevant stock exchange, the listing and trading of the stocks of the target company will be terminated. Before completion of the takeover, the shareholders that have not ten - dered will have the rights to sell their stocks to the buyer, on equal terms offered in the tender offer, within a reasonable period and the buyer is obliged to purchase. There is no squeeze-out mechanism under the laws to buy out shareholders that have not ten - dered following a successful tender offer. 6.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer Certain funds are required to launch a tender offer. The buyer is required to engage a financial adviser, who will conduct a due diligence inves- tigation on the capability of the buyer to pay the consideration and its funding sources and issue an opinion. The buyer is required to provide one of the fol- lowing as guarantee for its performance of the tender offer. • A deposit of not less than 20% of the total consideration in the designated bank (if con- sideration is payable in the form of cash).
• Custody by the securities registration and clearance institution of all stocks to be used for payment (if consideration is payable in the form of stocks listed and traded at the relevant stock exchange). • A bank guarantee for the consideration. • Joint and several undertaking of the financial adviser in respect of the payment of consid- eration. In its tender offer report, the buyer will disclose its funding sources and the guarantee it has pro- vided. If the funds are borrowed, material terms of the loan agreement will also be disclosed. 6.10 Types of Deal Protection Measures Deal protection measures are more likely to be granted by transferring shareholders (rather than the target company) in transactions by way of share transfer by agreement, acquiring the voting rights through investment relation- ship, agreement or other arrangement. These measures may include confidentiality, exclusiv- ity, break-up fees, or deposit/earnest money. 6.11 Additional Governance Rights Where the listing of the target is terminated as a result of the tender offer, the bidder could nego- tiate and agree with other shareholders on the governance rights with respect to the target. Where the target remains listed after comple- tion of the tender offer, typical governance rights the bidder can obtain are the rights to nominate or recommend candidates for an agreed num- ber of directors or certain senior management posts. As required under the laws and regula- tions, a listed company will be separated from its controlling shareholders in such aspects as personnel, assets and financial affairs, and will be independent in operational terms.
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