CHINA Law and Practice Contributed by: Bing Zhai, Commerce & Finance Law Offices
Short-Form Mergers Short-form mergers are less common in China but can be used to simplify the acquisition of minority shares. According to Article 86 of the Company Law, when a company merges with another company in which it holds more than 90% of the shares, the merged company is not required to obtain a resolution from the share - holders’ meeting. However, the other sharehold - ers must be notified, and they have the right to request the company to purchase their equity or shares at a reasonable price. If the pay - ment for the merger does not exceed 10% of the company’s net assets, a resolution from the shareholders’ meeting is not required, unless otherwise stipulated in the company’s articles of association. 6.11 Irrevocable Commitments It is common to obtain irrevocable commitments from principal shareholders to tender or vote in favour of the transaction. Negotiations usually occur before the public announcement of the offer. These commitments often include a fiduci - ary out, allowing shareholders to accept a supe - rior offer if one emerges. 7. Disclosure 7.1 Making a Bid Public Preparation and Announcement of a Tender Offer Report The acquirer must prepare a tender offer report, engage a financial advisor, notify the target com - pany and issue a summary announcement of the report. If the acquisition requires regulatory approval, the acquirer must highlight this in the summary announcement and publicly disclose the full ten - der offer report after obtaining approval.
this provides the bidder with control. However, bidders often aim for 90% or more to facilitate squeeze-out mechanisms. 6.6 Requirement to Obtain Financing A business combination can be conditional on the bidder obtaining financing. However, such conditions must be clearly disclosed, and the bidder must demonstrate a reasonable likeli- hood of securing the funds. 6.7 Types of Deal Security Measures Concerning common deal security measures, bidders can seek break-up fees, non-solicitation provisions and match rights. Recent regulatory changes have streamlined approval processes, reducing the length of interim periods in some cases. 6.8 Additional Governance Rights If a bidder does not seek 100% ownership, they may negotiate for: • board representation – securing seats on the target’s board; • veto rights over key decisions such as merg - ers, asset sales or capital raises; and • information rights – access to financial and operational data. 6.9 Voting by Proxy Shareholders in China can vote by proxy. Proxy voting is commonly used in shareholder meet - ings to facilitate participation by institutional and retail investors. 6.10 Squeeze-Out Mechanisms Squeeze-Out Mechanisms If a bidder acquires 90% or more (the specific proportion can be negotiated) of the target’s shares, they can force the remaining sharehold - ers to sell their shares at the offer price.
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