China M&A Review - 2006 Issue 1, Total Issue 13

Author: None
Publisher:
Publish Date: 2006-09-01
Features: A more market-oriented and international acquisition management approach will play a positive role in regulating and encouraging M&A activities of listed companies, especially in the context of the successful reform of the share structure separation. The curtain of A2 M&A is about to rise. Director General of Investment Banking Department, CICC, Teng Weilin
China Securities Regulatory Commission recently promulgated the "Acquisition Management Measures for Listed Companies," which combines the current "Acquisition Management Measures for Listed Companies" and "Management Measures for Information Disclosure of Shareholding Changes by Listed Company Shareholders" into one, making many revisions with a more market-oriented and international flavor.
1. More Market-Oriented Supervision Methods
(1) Transition from complete reliance on pre-supervision by regulatory authorities to a combination of appropriate pre-supervision and enhanced post-supervision.
(2) Shift from fully mandatory tender offers under direct supervision by regulatory authorities to partial or full tender offers supervised by financial advisors.
2. More Scientific and Rational Supervision Framework
(1) Treat holding 5% or more as a pre-acquisition warning point, require detailed information disclosure for holdings of 20% or more, and mandate tender offers or applications for exemption from the China Securities Regulatory Commission (CSRC) for holdings of 30% or more.
(2) Specify corresponding information disclosure and acquisition obligations based on different methods of increasing holdings, including secondary market acquisitions, tender offers, agreements, and indirect acquisitions.
3. More Flexible Acquisition Methods
(1) Allow stock-for-stock acquisitions: Acquirers can use securities as payment to acquire listed companies.
(2) Give acquirers the choice between full and partial tender offers.
(3) Allow acquirers to freely increase holdings by no more than 2% annually within 12 months after completion of the acquisition.
4. Enhanced Role of Financial Advisors
Establish a responsibility system for financial advisors to conduct pre-acquisition screening, mid-process tracking, and post-acquisition continuous supervision, creating market-based constraints.
5. Strengthened Supervision of Acquirers
Clearly regulate and define the legal status of acquirers and the scope of associated parties. Impose stricter requirements, such as continuous supervision, on acquirers.
As the domestic capital market gradually matures, M&A activities of listed companies and their supervision are further market-oriented. For example, regarding the price of tender offers, it is stipulated that the offer price must not be lower than the highest price paid by the acquirer for such shares within the 6 months prior to the announcement of the tender offer, but it may be lower than the arithmetic average of the daily weighted average price of such shares over the 30 trading days prior to the announcement, provided the financial advisor hired by the acquirer analyzes the trading conditions of such shares over the past 6 months to explain whether there is price manipulation, whether the acquirer has undisclosed associated parties, whether there are other payment arrangements for the acquisition of company shares within the past 6 months, and the reasonableness of the offer price.
A more market-oriented and international acquisition management approach will undoubtedly play a positive role in regulating and encouraging M&A activities of listed companies, making China's capital market M&A more efficient and standardized. Especially in the context of the successful reform of the share structure separation, domestic listed companies may begin to enter a true phase of survival of the fittest, and more major M&A and restructuring plays are about to unfold.