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Guide to Mergers & Acquisitions Malaysia






1SHARE VERSUS ASSET PURCHASE 1Simplicity 1Stamp duties and other factors


2FOREIGN INVESTMENT RESTRICTIONS 2Non-legal (Administrative) control 2Legal

LAW ISSUES 6Disposal of the whole or substantially the whole of the companys
undertaking or property 6Consideration shares 6Connected transactions 6Specific
Industry Regulation 7



7JURISDICTION TAX 7Income tax 7Carrying forward net operating losses following a
change in ownership 8Capital gains tax 8Withholding Tax System 8TRANSACTIONAL
TAX 9Stamp duty 9






Code 13Mandatory offer obligation 13Announcements 14Compulsory acquisition of
a minority shareholding 15Listing rules 15Timetable 15

Initial Public Offerings by Foreign Corporations 16ACQUISITIONS AND DISCLOSURES

BY PUBLIC COMPANIES 17Types of transaction 17General disclosure obligation
17Specific disclosure obligations 17Other disclosure obligations 18Connected
transactions 18Disclosure Based Regulatory Regime 19AMENDMENTS TO
SECURITIES LAWS 19Enhanced enforcement capabilities 20Whistle blowing
provisions 20


Mergers and Acquisitions: Malaysia

Although the legal framework for merger and acquisition activity in Malaysia
is relatively straightforward, administrative processes complicate matters,
both for prospective acquirers and vendors. In particular, the regulatory
approvals process can often be fairly lengthy and involve several regulatory
bodies. For instance, the Foreign Investment Committee guidelines are
always an issue, especially in transactions involving public companies. There
are also relevant statutes to consider; depending on whether the target
company holds an operating license to carry out its business activities. For
instance, licensed telecommunication company will be regulated under the
Communications and Multimedia Act and will be required to hold one of a
number of licenses thereunder.
Share versus Asset Purchase
In Malaysia, the task of gaining control can be approached from a share
purchase or an asset purchase perspective depending on the rationale for
the acquisition, the resources of the acquirer, the financial health and
viability of the target company and other more technical factors such as tax
and stamp duty considerations. The factors usually taken into consideration
include the following:
Depending on the type and nature of the assets to be acquired, the
complications of acquiring assets are sometimes less than those of acquiring
a company. Generally, if a company is acquired, proper due diligence would
need to be conducted to investigate all its assets and liabilities, including
contracts it may have entered into and other actual or contingent
obligations. It is usually possible to buy an asset such as a property by itself,
without any legal complications, unless the property is charged or subject to
other encumbrances. On the other hand, depending on the type and
business operations of the target company, the purchase of shares may be
simpler and involve less expense as the underlying assets and operational
contracts of the target company will not have to be separately transferred to
or assigned or novated in favour of the purchaser.
Stamp duties and other factors
In practice, stamp duties on the transfer of an asset can be greater than
stamp duties payable on the transfer of shares. Stamp duties are generally
payable by the purchaser but some parties may agree to split the duty
payments equally between the purchaser and the vendor. There is no capital
gains tax in Malaysia other than in respect of the sale and purchase of real
property. In this regard, profits on the sale of shares are tax-free to the
vendors. Please also refer to Taxation Issues: Capital gains tax below, in this

Foreign Versus Domestic Investment Considerations

Malaysia welcomes and actively invites foreign investment. While
compliance with the equity investment guidelines of the National
Development Policy (NDP) (
Discussed more specifically under .Statutory Consents and Approvals, below
) is desirable, conditions imposed on foreign investors can be flexible and are
based on the merits of individual projects. For instance, 100 percent foreign
equity ownership is permitted in respect of certain export-based
manufacturing companies, approved multimedia super corridor companies,
etc. In this regard, the government does not discriminate between foreign
and domestic investors. However, it should be noted that withholding tax at
varying rates does apply to certain payments made to foreigners by
Malaysian residents; the rates may be reduced under certain tax treaties.
Please see .Taxation Issues: Withholding Tax. Exchange control measures
should also be borne in mind following the imposition of selected exchange
control measures in September 1998. Foreign direct investors are generally
given more flexibility under the exchange control laws.
This is more thoroughly discussed under the heading of .Exchange Control,
Foreign Investment Restrictions
While welcoming foreign investment, the Malaysian Government is also keen
to increase Malaysian and Bumiputra (the indigenous people of Malaysia)
ownership of Malaysian incorporated companies. In order to realize these
aims, the Malaysian government has adopted the NDP which has the
objective of ensuring that the ownership of the Malaysian economy
(including property or assets as well as share capital in any Malaysian
company) at least reflects the following equity composition, namely, at least
30 percent ownership by Bumiputras, 40 percent ownership by other
Malaysians and a maximum of 30 percent ownership by foreigners. Foreign
ownership of the Malaysian economy is controlled by legal and non-legal
(or administrative) means.
Non-legal (Administrative) Control
In general, non-legal (or administrative) control is by the Foreign Investment
Committee (FIC) through its guidelines (FIC guidelines). The FIC implements
the National Development Policy through the FIC guidelines. The 1999 FIC
guidelines require approval for, among others:
A proposed acquisition by foreign interests of any substantial fixed assets in
Any proposed acquisition of assets or interests which will result in ownership
or control of a Malaysian company passing to foreign interests;
any proposed acquisition of 15 percent or more of the voting power by
foreign interest or associated group, or by foreign interests in the aggregate
of 30 percent or more of the voting power of a Malaysian company and

Mergers and Acquisitions: Malaysia

Control of Malaysian companies through joint venture agreements or another
agreements or arrangements;
Any takeover or merger of Malaysian companies whether by Malaysian or
foreign interests; or
Any proposed acquisition of assets or interests exceeding in value of RM5
million, whether by Malaysian or foreign interests. The FIC guidelines are not
law or public policy and are usually enforced administratively. Companies
wishing to obtain contracts from various government departments, statutory
bodies and government-owned companies are generally required to have
some local equity participation and, in some cases, majority Bumiputra
ownership. The equity guidelines implemented by the FIC are not inflexible
and often serve as a guide. A higher percentage of foreign ownership in
Malaysian companies or businesses may be allowed on a case-by-case basis.
It should be noted that strictly speaking, there is no legislation prohibiting
100 percent foreign ownership of the share capital of Malaysian companies.
However, this is not encouraged by the Malaysian government.
Consideration must be given to the application of the FIC guidelines in an
acquisition of shares of a Malaysian company or Malaysian assets. In certain
cases, there may be a requirement to seek FIC approval prior to the
acquisition and this should be taken into account in the sale and purchase
agreement. On 21 May 2003, the Malaysian Government announced a
number of measures as part of an economic stimulus package to bolster
competitiveness and counter the effects of a downturn in economic activity.
Among the measures announced was a relaxation of the FIC guidelines.
In respect of acquisitions by Malaysian and foreign interests, the only equity
condition imposed will be to maintain at least 30% Bumiputra equity
The 30% Bumiputra equity requirement would be applied across the board
by all Government departments and ministries except where specific
exemptions had already been granted by the Malaysian Government;
FIC approval is only required to be sought for acquisitions by foreign and
Malaysian interests in excess of RM10 million (USD2.6 million) instead of RM5
million (USD1.3 million) previously. However, the percentage of share
acquisition and voting rights of Malaysian and foreign interests remain
unchanged. In addition, the processing of approvals in relation to acquisitions
by licensed manufacturing companies will be centralized at the Ministry of
International Trade and Industry and corporate proposals at the Securities
Commission. These proposals will no longer require FIC consideration. With
effect from 1 April 2004, the FIC will replace the existing guidelines with two
new sets of guidelines:
Guideline on the Acquisition of Interests, Mergers and Takeovers by Local and
Foreign Interests
; And
Guideline on the Acquisition of Properties by Local and Foreign Interests
Mergers and Acquisitions: Malaysia
The new guidelines are detailed and while encapsulating the spirit of the
Economic Stimulus Package, contain extensive conditions and requirements
for different categories of acquisitions. In a bid to promote participation of
foreign issuers on the local stock exchange (now known as Bursa Securities
following mutualization):
Minimum Bumiputra equity participation in a listed entity has been set
at30% upon listing;
Foreign equity conditions will be .liberalized. To attract more foreign
companies to list on Bursa Securities to facilitate the aims of the Capital
Market Master plan.
Legal control
Legal control is through administrative discretion conferred under statutes
or subsidiary legislation. Equity ownership can be controlled through the
issuance of licenses, permits and employment passes or in the purchase of
real property and acquisition of any interest in real property. Equity
conditions may be imposed on licenses granted by government or statutory
bodies, or by the Malaysian Securities Commission (discussed below) on
initial public offerings. In a share acquisition, the approval of the relevant
licensing body must also be taken into consideration. The licensing
conditions of certain licenses may stipulate that the approval of the
appropriate licensing body must be obtained for any transfer of the shares in
the licensed entity.
Competition Law
There are generally no anti-trust laws in Malaysia. However, the
Communications and Multimedia Act contains provisions prohibiting anti-
competitive conduct in relation to the communications and multimedia
industry. The Government is however in the process of formulating a Fair
Trade Practices Policy (FTPP). The FTPP will seek to promote competition in
the conduct of trade or business, and will be the precursor to a Fair Trade
Practices Act. It is expected to be implemented by the end of 2004.
Exchange Controls
The relevant legislation in Malaysia governing exchange control is the
Exchange Control Act
The Controller has, under Section
Of the Exchange Control Act, issued the
Exchange Control Notices of Malaysia
Which constitutes the Controllers general permissions and directions. In
certain instances, the specific approval of the Controller is still required. As of
late 1998
Funds can no longer be remitted to and from Malaysia as freely as before. On
1 September 1998
The Malaysian government introduced exchange controls to curb speculation
in the Ringgit. Essentially, the measures are designed to force the inflow of
the Ringgit back to Malaysia. However, the Malaysian government has
repeatedly reiterated that the exchange control measures will not affect the
repatriation of profits through the declaration of dividends.

Mergers and Acquisitions: Malaysia

The ECMs have also been significantly eased since their introduction. One
element of the ECMs which impacted Malaysian M&A transactions was that
settlement of consideration for the acquisition of ringgit assets (even
between non-residents) had to be affected in ringgit unless the prior
approval of the Controller was obtained. In December 2002, the Controller
announced that:

Ringgit assets purchased by residents from non-residents may be settled in
ringgit or in foreign currency (other than prohibited currencies);

Non-residents may transfer ringgit securities to another non-resident, where

settlement for such transfers may be made in ringgit (if settled in Malaysia)
or in foreign currency (if settled outside Malaysia).More recently, in April
2004, the exchange control regulations were eased to enable:

Onshore licensed banks to extend overnight overdraft facilities of up to

RM200million to a nonresident stockbroker or custodian bank to facilitate
settlement for the purchase of shares listed on Bursa Securities;

Local unit trust management companies and fund/asset managers may

invest abroad the full amount of the net asset value (NAV) of funds
subscribed by non-residents and up to 10% of the NAV per fund subscribed
by residents;

Insurance companies and takaful operators may also invest abroad up to 5%

of their margin of solvency and up to 5% of their total assets respectively. In
addition, up to 10% of the NAV of investment linked funds marketed by
insurance companies and takaful operators may also be invested abroad.
Malaysias Exchange Control Regime
In summary, some of the exchange controls are as follows:
Residents can pay non-residents in either Ringgit or foreign currency up
toRM50,000, without any prior approval being required, unless the RM
payments are made for the importation of goods or services. Payments in
Ringgit in excess of RM50,000 would require the approval of Bank Negara.
Payments in foreign currency in excess of RM50, 000 would not require Bank
Negaras approval unless the payments are for the purpose of investments
abroad or if it is in respect of a payment under a non-trade guarantee.
Payments for imports of goods and services must be in foreign currency.
Payments for import of goods and services in Ringgit would not be permitted
unless prior approval of Bank Negara is obtained.
For investments abroad, residents are allowed to make payment to non-
residents for purposes of investing abroad up to an amount of RM10, 000 or
its equivalent in foreign currency per transaction. Where the amount
exceedsRM10, 000 or its equivalent in foreign currency, Bank Negara
approval is required.
Limits have also been imposed on the import and export of currency by
residents and non-residents into and out of Malaysia. Residents and non-
residents are allowed to import and export Ringgit notes up to RM1,
000.Residents and non-residents are allowed to import foreign currency of
any amount. However, residents are allowed to export foreign currency only
up toRM10, 000 equivalents. Non-residents are allowed to export foreign
currency up to the amount of foreign currency brought in to Malaysia.
Trading in Ringgit instruments by Labuan offshore banks is now no
longer permitted.
Companies with multimedia super corridor status will continue to be
exempted from all exchange control rules.
Mergers and Acquisitions: Malaysia

A company in Malaysia may maintain inter-company accounts with any non-

resident company (except those established in Israel, Serbia and
Montenegro), but monthly returns must be submitted to Bank Negara. The
resident company may debit and credit inter-company accounts and settles
net balances of accounts arising from the offsetting of payables against
receivables with the non-resident company. However, the prior permission of
Bank Negara is required for offsetting payables against receivables that are
export proceeds or external credit facilities extended to the resident
company and all inter-company settlements must be made in foreign
currency only. Further, where any inter-company settlement exceeds the
equivalent of RM10, 000 in foreign currency, Bank Negara must be informed.
Through inter-company accounts, export proceeds may be offset against
payables to affiliate or parent companies overseas.
Corporate and Securities Law Issues
Disposal of the whole or substantially the whole of the companys
undertaking or property
Section 132C of the
Malaysian Companies Act
Provides that if the target company is disposing of the whole or substantially
the whole of its undertaking or property, the approval of the shareholders at
a general meeting must be obtained. Further, Section 132Calso provides that
where the purchaser is a Malaysian incorporated company the approval of
the shareholders of the purchaser must be obtained for the acquisition of an
undertaking or property of a substantial value. In either case, the approval
would only be required if the disposal or acquisition would materially and
adversely affect the performance or financial position of the target or the
purchaser, as the case may be.
Consideration shares
The approval of the shareholders of the purchaser may be required when the
allotment and issue of shares in the purchaser constitutes part of or all of the
purchase price for the acquisition of shares or assets in the target. Such
approval is necessary if the allotment and issue leads to an increase in
authorized capital of the purchaser (Section 62 of the Malaysian Companies
Act) or exceeds the existing authority of the directors to allot and issue
shares (Section 132D of the Malaysian Companies Act). However, in the
latter case, Section 132D (6A) of the Malaysian Companies Act exempts the
directors from having to obtain the authority or approval of the shareholders
for share issues which are made as consideration for the acquisition of
shares or assets by the issuing company provided that the shareholders have
been notified of the intention to issue the shares at least 14 days before the
date of issue of the shares.
Connected transactions
Section 132E of the Malaysian Companies Act requires approval of the
shareholders of the relevant parties where the transaction is between a
company and its director (or a director of the holding company or a person
connected with such directors) and involves the acquisition or disposal of
non-cash assets (including shares) with a value of either more than RM250,
000 or 10 percent of the companys asset value subject to a
de minimis
Threshold of RM10, 000.

Mergers and Acquisitions: Malaysia

Section 132G of the Malaysian Companies Act also prohibits a company from
entering into any arrangement or transaction to acquire the shares or assets
of another company if shareholder or director of the first company (or person
connected to such substantial shareholder or director) has a substantial
shareholding in the second company, unless the arrangement or transaction
was entered into three years after the connected shareholder or director or
person first held shares in the second company or three years after the
assets were first acquired by the company. Substantial shareholder means a
person holding at least 5 percent of the voting shares of a company.
Specific Industry Regulation
Generally, it is government policy (rather than statute) which would limit
acquisitions, in specific industries, although certain Malaysian legislation
(such as that governing banking)sets caps on foreign equity participation in
Malaysian companies operating in particular industries. Generally, the broad
principles of the NDP are applied and the Malaysian government policy
imposed on foreign participation varies between industries.
Non-regulatory consents and approvals are left to the administrative
discretion of various government bodies. As discussed above, equity
ownership imposed under the NDP can be controlled through, amongst
others, the issuance of licenses, permits and employment passes or in the
purchase of real property and acquisition of any interest in real property.
These requirements are subject to change from time to time.
Jurisdiction Tax
Income tax
In Malaysia, profits derived by the transferor from the disposal of trading
stock would be taxable at the normal corporate income tax rate, currently 28
percent. However, effective from the YA 2004, Malaysian resident companies
with paid up capital of RM2.5 million and less will be subject to income tax at
the rate of 20% on the first RM500, 000 of its chargeable income. The
remaining chargeable income will continue to be taxed at the rate of
28%.When trading stock is sold upon the discontinuance of a trade or
business, the value of the trading stock sold is prescribed by Section 35 of
Malaysian Income Tax Act,
Which provides that the value shall be equal to the purchase price where the
transferee intends to carry on a trade or business in Malaysia and where the
stock would be deductible as an expense in the transferees business.
Otherwise, the transfer and all associated tax consequences are deemed to
occur at market value.

Mergers and Acquisitions: Malaysia

Generally the transfer of depreciable capital assets does not incur income
tax unless capital allowances have been granted and the disposal value
exceeds the written-down value, resulting in a balancing charge in respect of
which the transferor becomes subject to corporate income tax. There is,
however, a provision in the Malaysian Income Tax Act for the transfer of such
assets on a rollover basis between related parties. Disposal value will
normally be the sale price, but for plant and machinery the market price, if
higher, will be used.
Carrying forward net operating losses following a change in ownership
In Malaysia, a company is entitled to carry forward business losses incurred
in one year of assessment for deduction against its statutory income in
future years. However, unlike in Singapore, unabsorbed business losses may
only be offset against future income from business sources. There is also no
continuity of ownership provisions in the Malaysian Income Tax Act in respect
of loss relief. In short, only business losses can be carried forward indefinitely.
There are no carry-back loss relief provisions.
Capital gains tax
Like Singapore, Malaysia does not impose capital gains tax. However, there
is taxation of gains from transactions in real property and real property
companies (RPC). Gains from the disposal of real property and shares in RPC
within five years of the date of acquisition are taxable at specified rates. The
rate of tax depends on the number of years the real property or shares in a
RPC have been held by the disposer of such property or shares. For
individuals, it ranges from a maximum of 30 percent of chargeable gains for
chargeable assets disposed of within two years of their acquisition to 0
percent if disposed of in the sixth year after acquisition or thereafter. For
companies, it ranges from a maximum of 30 percent of chargeable gains
for chargeable assets disposed of within two years of their acquisition to 5
percent if disposed of in the fifth year after acquisition or thereafter. Gains of
non-citizens and non-permanent residents, from the disposal of real property
or shares in a RPC, will be taxed at the rate of 30 percent if disposed of
within five years after acquisition and at 5 percent if disposed of in the sixth
year after acquisition or thereafter. ARPC is defined as a controlled company
which owns land with a defined value of not less than 75 percent of the
RPCs total tangible assets.
Withholding Tax System
Malaysia imposes a withholding tax on certain payments to non-residents
such as royalties, technical fees, installation fees and rental of moveable
property, where the payments are sourced or deemed sourced in (i.e.
accrued in or derived from) Malaysia. Dividends are not subject to
withholding tax in Malaysia. There are provisions in the
Malaysian Income Tax Act
Which deem certain types of income (e.g. interest, royalties, technical fees,
rental of movable properties) to be sourced in Malaysia if they are broadly:

Borne by a Malaysian resident or permanent establishment; or

Deductible against Malaysian taxable income.

Mergers and Acquisitions: Malaysia

However, with effect from 21 September 2002, payments to non-residents
for services performed outside Malaysia will be exempted from withholding
tax. The exemption specifically applies to services rendered in respect of
technical advice, assistance or technical services in relation to the
management or administration of any project, or services rendered in
connection with the use of property or rights belonging to, or the installation
or operation of any plant machinery or apparatus purchased from the non-
resident. The withholding tax rates for the payments of interest, royalties,
rent and technical assistance or management fees to non-residents are as
Type of Payment Withholding Tax Rate
Interest 15%
Royalties 10%
Technical assistance fees (Onshore) 10% (possibly 13% where employees of
the Foreign Service providers are sent to Malaysia to deliver the services)
Rent 10%
Management fees (Onshore) 10%
Withholding taxes may also be reduced by tax treaties.
Transactional Tax
Stamp duty
In general, in a share acquisition the purchaser pays stamp duty of 0.3
percent of the purchase price paid or of the market value, whichever is
higher. However, mutual agreement between the parties to allow the cost to
be borne by either or both of the parties is possible. In an asset acquisition,
depending on the type of assets in question, it may be possible to structure
the acquisition such that legal title to the assets is transferred by delivery.
This would preclude the agreement becoming an instrument of conveyance
and the agreement should therefore be subject to nominal stamp duty.
However, certain assets (e.g. land and shares) may only be transferred
through prescribed instruments of transfers. These instruments will incur
stamp duty levied on an
Ad valorem
Basis. Further, legal assignments of assets will similarly be subject to stamp
duty on an
Ad valorem
Basis. The rate of stamp duty payable for real property is generally, 1
percent on the firstRM100, 000, 2 percent on the next RM400, 000 and 3
percent on the remaining amount exceeding RM500, 000.
Employment Act
governs all matters relating to employment in West Malaysia and(with the
exception of public servants and those employed by statutory entities)
applies to all employees (the .Employees.) whose wages do not exceed
RM1,500 a month and all those engaged in manual labor. All other workers
are governed by their employment contracts and the common law.

The main areas covered by the Employment Act concern termination,

payment of wages, liability of principals and contractors for wages,
employment of women, maternity protection, days and hours of work, annual
leave, sick leave, public holidays, termination and lay-off benefits, inspection
of places of employment and methods of dealing with complaints and
domestic enquiries. There are no statutory minimum wages and actual
conditions of employment can usually be agreed upon between the relevant
parties, subject to the minimum terms set out in the Employment Act where
these are applicable. Termination and lay-off benefits in respect of
Employees are prescribed under the
Employment (Termination and Lay-Off Benefits) Regulations
1980. With regard to other employees, arrangements relating to
retrenchment or redundancy can be addressed in contract of service or
collective agreement. Dismissal of any employee must be for a just cause or
excuse. Even where there is just cause for dismissal, the dismissal must
follow certain inquiry procedures, failing which, the employee may appeal to
the Minister of Human Resources and through him to the Industrial Court for
reinstatement. The employer is also required to notify the Director General of
Labour of the retrenchment of any employees at least one month prior to the
retrenchment exercise.
Preliminary Agreement - Memorandum of Understanding / Letter of Intent
A memorandum of understanding (MOU) / letter of intent is relatively
common in Malaysia, as a precursor to definitive agreements. It is sometimes
entered into to clearly spell out the responsibilities of the parties involved in
the transaction. Further, MOUs containing. Exclusivity clauses may also serve
to prevent the parties from negotiating with other third parties.Depending on
the intention of the parties and the way it is drafted, a MOU or a letter
of intent can be a binding contract between the parties involved. However,
an agreement to agree is generally not enforceable under Malaysian law. If
the intention of the parties is not to be bound by the MOU or the letter of
intent, care must be taken in the drafting of the document to so reflect such
an intention.
Due Diligence
Due diligence is an increasingly common feature of acquisition transactions
in Malaysia. Purchasers are generally encouraged to conduct proper due
diligence on the assets or shares they propose to purchase to avoid
complications in the course of undertaking the acquisition and after the
acquisition. As for acquisitions or take-over of shares in a listed companies,
due diligence on the public documents relating to the offer has become
essential. The
Malaysian Securities Commission Act
requires information given in any document relating to the takeover,
for instance a takeover offer document to be true, accurate and not
misleading and should not contain any material omission.

Mergers and Acquisitions: Malaysia

In the case where misleading information is located in the off er
document, it would be a defense, if, it can be shown that the Offeror has
conducted proper due diligence and has reasonable grounds to believe that
the information was not misleading or untrue at the time of disclosure.
Further, there are also strict insider trading laws which prohibit
parties from providing material non-public, price sensitive
information to a potential purchaser, and a potential purchaser in
possession of such information cannot acquire the shares. A p o t e n t i a l
a c q u i re r o f s h a re s i n a l i s t e d c o m p a n y m a y a l s o s e e k c o m f o r t
f ro m t h e obligation imposed on the listed company to disclose proper
corporate information relating to its business activities etc. The Kuala
Lumpur Stock Exchange has stressed that its corporate disclosure
policy forms part of the continuing listing requirements to which the listed
company is subject. Amongst others, these include rules relating to:

Immediate public disclosure of material information;

Thorough public dissemination of material information;

Clarification or confirmation of rumours and reports;

Unwarranted promotional disclosure; and

Insider trading.
Documentation and Agreements
I n M a l a y s i a , i t i s c o m m o n f o r t h e p u rc h a s e r s l a w y e r s t o
p re p a re t h e fi r s t d r a ft o f t h e acquisition documentation and
agreements. In a takeover off er transaction, off eror / acquirer and the
target company would be obliged the prepare the necessary statutory
documents and other relevant documents to inform, amongst others, the
authorities and the shareholders of the offeree of the proposed takeover
offer. The offeror / acquirer are therefore required to prepare an offer
document and the target company an independent advice circular for its
shareholders. Both documents are required to contain information
which is true, not misleading and devoid of material omissions.
Representations and Warranties
Representations and warranties are commonly found in most
acquisition agreements in Malaysia. Assurances may be obtained that the
purchaser has been properly authorised according to the purchasers
internal rules. Also, the vendor is typically also required to warrant
that it has the authority to sell, for instance, its assets to the purchaser.
Further, the vendor is likely to warrant the condition of the business of the
target company in considerable detail. Warranties will include the
fi nancial position of the vendor, its commitments and contingencies,
records and returns, its title and insurance, etc.
Checklist for Provisions in an Acquisition Agreement
Checklist may vary on a case-by-case basis. A tailor-made checklist
can therefore be prepared for different transactions.

Mergers and Acquisitions: Malaysia

Completion of a transaction is generally eff ected following the
satisfaction of conditions precedent specified in the transaction
agreements. For instance, the acquisition of shares in a manufacturing
company may require the consent of the Ministry of International Trade and
Industry. If the necessary approvals are not obtained in a specifi ed
time period, the parties may either waive the condition or terminate the
Acquisition of a Substantial Shareholding
Insider trading
Section 132A of the Companies Act prohibits an officer, agent or employee of a
corporation from making improper use of any specific confidential information
acquired by virtue of his office to gain an advantage for himself or for any
other person. Section 132B prohibits the u s e o f i n f o r m a t i o n o b t a i n e d
b y a n y p e r s o n b y v i r t u e o f h i s o ffi c i a l c a p a c i t y t o g a i n a n
advantage for himself of for any other person in relation to dealing
in the securities of a corporation. Contravention of either Section is
punishable by a prison term of up to fi ve years or a fine of up to
RM30,000 or both. There are also provisions in the
Malaysian Code on Takeovers and Mergers
Prohibiting insider dealing in the context of takeovers. Under the
Securities Industry (Amendment) Act
1998, new provisions under Section 89(A)- (P) and Section 90 have been
added to the Securities Industry Act which result in more stringent
regulation of insider trading. Eff ectively, under the amendments, an
insider (defined as a person who possesses information that is not generally
available which, on becoming generally available, a reasonable person would
expect to have a material effect on the price or the value of securities), shall

A c q u i re o r d i s p o s e o f , o r e n t e r i n t o a n a g re e m e n t f o r o r w i t h a
v i e w t o t h e acquisition or disposal of such securities; or

Procure an acquisition or disposal of or enter into an agreement for

or with a view to the acquisition or disposal of such securities. Accordingly,
the insider is prohibited from communicating the Information or causing such
Information to be communicated if the insider knows or ought to know that
the person to w h o m t h e I n f o rm a t i o n i s c o m m u n i c a t e d w o u l d
a c q u i re , d i s p o s e o f o r e n t e r i n t o a n a g re e m e n t w i t h a v i e w t o
the acquisition or disposal of any securities to which the
Information relates or procure a third person to do the same. A person who
contravenes or fails to comply with the provisions is liable upon conviction to
a fine of not less than RM1 million and imprisonment for a term not
exceeding 10 years. T h e a m e n d m e n t s a l s o e m p o w e r t h e
S e c u r i t i e s C o m m i s s i o n ( S C ) t o i n s t i t u t e c i v i l proceedings
against the offending person whether or not the person has been charged
for the offence or whether or not a contravention has been proved in a
criminal prosecution. There is also provision to allow for a person who has
suffered loss or damage by reason of relying on the conduct of another
person who has contravened the Section(s) above, to institute civil
proceedings against that person whether or not the person has been charged
f o r t h e o ff e n c e o r w h e t h e r o r n o t a c o n t r a v e n t i o n h a s
b e e n p r o v e d i n a c r i m i n a l prosecution.
Mergers and Acquisitions: Malaysia
Takeovers Code
In Malaysia, the main legal framework governing the conduct of public
company takeovers are Sections 33A and 33B of the Securities
Commission Act, the Malaysian Code, the Listing Requirements of Bursa
Securities (particularly Chapters 10 and 11 of the Listing Requirements) and
the Policies and Guidelines on Issue / Offer of Securities issued by the SC.
The SC and Bursa Securities are the two principal regulatory authorities in
the context of takeovers. The Malaysian Code applies to both listed and
unlisted Malaysian incorporated public companies (where such
companies satisfy certain criteria specified below). The present Malaysian
Code came into force on 1 January 1999 and replaces the old Malaysian Code
on Takeover and Mergers 1987.The Malaysian Code applies not only to the
takeover of a public company, but also to a takeover of a private
company which has shareholders. Funds or a paid-up capital of RM10million
or more and where the purchase consideration for the voting shares
is RM 20million or more. The Malaysian Code can also apply to
.upstream acquisitions. For example, when an acquirer acquires an
upstream company (to which
Per se
The Malaysian Code does not apply) and, as a result of this
acquisition, the acquirer gains a controlling interest in a downstream
company to which the Malaysian Code applies. The Malaysian Codes basic
objectives are to ensure that shareholders of the target company are
treated equally and fairly, and given all the relevant information they need to
assess the offer and to decide whether or not to accept it.Generally, an
acquirer may build its stake in the target company either by acquiring a large
stake from a substantial shareholder or by making direct purchases from the
stock market. However, the requirement to comply with a substantial
shareholder disclosure regime contained in Division 3A of Part IV of
the Malaysian Companies Act and the
Securities Industry (Reporting of Substantial Shareholding) Regulations

Make it difficult for any person to build up a secret stake in a target

company in order to make a .dawn raid. On such company. This regime
is triggered following the acquisition of a five percent interest. It also applies
to a wide variety of indirect interests.
Mandatory offer obligation
In line with the Securities Commission Act, Section 6 of the
Malaysian Code requires a mandatory takeover offer to be made to the
holders of the remaining voting shares where:

Any person acquires (taken together with shares held or acquired by its
concert parties) control in a company, i.e. more than 33 percent of
that companys voting shares; or

Any person, who, together with its concert parties, holds more than 33
percent but less than 50 percent of the voting shares of a company and,
acting alone or in concert, acquires more than 2 percent of the remaining
voting shares in the company in any 6 month period. The off er for such
shares must be not less than the highest price (excluding stamp
duty and commission) paid or agreed to be paid by the off eror (or its
concert parties) for the shares in the target company within the six
months prior to the offer period.

Mergers and Acquisitions: Malaysia

Any mandatory general offer which has to be made to all the shareholders as
a result of the acquisition of control of a Malaysian company shall not be
subject to any condition save for the condition that the offeror must receive
acceptances which would result in the offeror holding more than 50 percent
of the voting shares to which the takeover offer relates.
The Malaysian Code requires a potential offeror to immediately announce the
proposed offer by way of a press notice. Once the offeror has triggered a
mandatory takeover offer, the offeror is required to immediately send a
written notice to the board of directors of the company or its adviser, the
relevant stock exchange on which the voting shares are listed and the SC,
followed by an immediate announcement of the takeover off er by a
press release. Once an announcement of an intention to make a
takeover off er is made, the proposed offeror shall not withdraw the
takeover offer without the prior permission of the SC.The Practice Notes
issued pursuant to the Malaysian Code also state that if the acquisition
which triggers the takeover off er is made through a sale and
purchase agreement, an announcement of a proposed takeover offer must
be made immediately upon the signing of the agreement. Upon the sale and
purchase agreement becoming unconditional, a written notice must be given
and an immediate announcement of the takeover offer must be made. The
board of the offeree company shall, within 24 hours of the receipt of the
notice, inform the relevant stock exchange, publicize the announcement in
the press and post notification to the offices shareholders within seven days
of the receipt of the written notice. The Malaysian Code sets out in detail
the requirements in respect of a takeover off er, including the
information to be provided in press notices, the form and manner of the
offer document, the obligations of the board of the target company, the
terms of the offer, the determination of the offer price, the consideration for
the offer, the timing of the offer and the respective obligations of the offeror
and the offeree.C e r t a i n c h a n g e s t o t h e M a l a y s i a n C o d e w e re
a n n o u n c e d b y t h e M i n i s t e r o f Fi n a n c e recently. These took effect on
1 March 2004. In addition, a number of practice notes to the Malaysian Code
were also published. The changes were intended to enhance clarity and
efficiency in the conduct of takeovers and mergers, without bringing
substantial changes to existing policies. Notable changes included:

clarifi cation that the mandatory off er provisions of the Malaysian

Code only applied to persons who actually acquire the shares of the target
company (as opposed to persons who merely had an intention to acquire the
shares); and

The independent advice circular issued by the board of directors of

the target c o m p a n y t o o ff e r e e n o l o n g e r r e q u i r e s t h e
a p p r o v a l o f t h e S C p r i o r t o circulation.

Mergers and Acquisitions: Malaysia

Compulsory acquisition of a minority shareholding
U n d e r t h e S e c u r i t i e s C o m m i s s i o n Ac t 1 9 9 3 , w h e re a t a ke o v e r
o ff e r b y a c o m p a n y (transferee company) to acquire all the shares or all
the shares in any particular class in another company (transferor company)
has, within four months of the offer being made, been accepted by
holders of at least nineteenth of the nominal value of those shares
or shares of that class, the transferee company may, within two
months after the off er has been so accepted, give notice to any
dissenting shareholder that it desires to acquire his shares. Upon the
expiration of one month from the notice and subject to the transferee
company supplying the dissenting shareholder with a list of the other
dissenting shareholders upon is request, the transferee company will be
bound and entitled to acquire those shares, unless the court makes an order
to the contrary upon the application of the dissenting shareholder. Any such
application by the dissenting shareholder must be made within a period of
one month from the date notice is served on the dissenting shareholder in
Listing rules
Generally, if an offeror has received acceptances that bring the holdings owned by it
and its concert parties to at least 90 percent of the target companys
securities, the announcement that such acceptances have been received
may result in the delisting or suspension of all the securities of the target
company from the Main Board or the Second Board of Bursa
Securities (depending on which Board the company is listed). In
most cases, this is a situation which the offeror may wish to avoid as the
listed status of the target company will usually be of considerable value to it.
In this case, the offeror may seek the SC and Bursa Securities approval for a
placement of some of its shares during the offer period so that its aggregate
holdings will not exceed 90 percent. Even in the case where the level of
acceptance is below 90 percent, the target company is re q u i re d t o
s u b m i t c e r t a i n i n f o r m a t i o n a s t o t h e s p re a d o f i t s
s h a re h o l d i n g s t o B u r s a Securities. Bursa Securities must be
satisfi ed that there is an adequate spread of securities in the publics
hands. If the listed company does not comply with spread requirements, it
could be i n b re a c h o f t h e L i s t i n g Re q u i re m e n t s a n d s u b j e c t t o
s u s p e n s i o n i n t h e t r a d i n g o f i t s securities or ultimately, delisting. Upon
the completion of the takeover offer, the listed company must furnish a
schedule of the companys securities to Bursa Securities in the format set
out in the Bursa Securities L i s t i n g R e q u i r e m e n t s . T h i s s c h e d u l e
g e n e r a l l y r e q u i r e s t h e c o m p a n y t o l i s t t h e shareholdings in the

An offer must initially be kept open for at least 21 days and a maximum of
60 days, starting from the date on which the offer document is posted. If the
offer is revised, it must be kept open for at least 14 days from the date of
posting of the revision to shareholders. No offer may be revised after the
46th day of its posting. After an offer has become unconditional, it must
remain open for acceptance for at least 14d a y s a ft e r t h e d e c l a r a t i o n ,
b u t n o t m o re t h a n 6 0 d a y s f ro m t h e p o s t i n g o f t h e
o ff e r document.

Generally, a takeover offer shall lapse if the offeror has not received
acceptances which would result in the off eror and all persons acting in
concert with the off eror holding, in a g g re g a t e , m o re t h a n 5 0
p e rc e n t o f t h e v o t i n g s h a re s o f t h e c o m p a n y t o w h i c h t h e
takeover off er relates, by 5:00 pm on the 60th day after the date on
which the off er is initially posted. If the securities or voting shares of the
offeror or offeree are listed on a stock exchange, the offeror shall announce
the level of acceptances on the next market day following the day on which
an offer is closed, becomes or is declared unconditional as to acceptances, or
is revised or extended.
S h a re h o l d i n g Re q u i re m e n t s f o r M a i n t a i n i n g o r Re g a i n i n g a
L i s t i n g o n B u r s a Securities Main Board Requirements
O Minimum paid up capital of RM60 million, comprising ordinary shares of at
leastRM0.10 each.
oAt l e a s t 2 5 p e rc e n t o f t h e i s s u e d a n d p a i d - u p c a p i t a l i s i n t h e
h a n d s o f a minimum of 1000 public shareholders each holding not less
than 100 shares each.
Second Board Requirements
Minimum paid-up capital of RM40 million, comprising ordinary shares of at
leastRM0.10 each.
A t l e a s t 2 5 p e rc e n t o f t h e i s s u e d a n d p a i d - u p c a p i t a l i s i n t h e
h a n d s o f a minimum of 1000 public shareholders, each holding not less
than 100 shares each. Under recent guidelines issued by the SC, issued and
paid-up capital of the company held by employees and up to 10 percent of
the issued capital held by Bumiputra investors (for the purposes of the NDP) are
allowed to make up the 25 percent public shareholding spread. Up to 15% of the
issued and paid-up capital of the company held by statutory institutions
managing funds belonging to the public can also make
u p t h e 2 5 p e r c e n t p u b l i c shareholding spread. A company which fails
to comply with the spread requirements is given six months, or such other
period as may be determined by Bursa Securities by notice, to rectify the
situation. In such event, the company must notify its shareholders within 15
market days of receipt of such notice. If the position is not rectified within the
period stated in the notice, action can be taken against the company. T h e
penalties for breach of any requirement under the Bursa
S e c u r i t i e s L i s t i n g Re q u i re m e n t s , i n c l u d i n g t h e s p re a d
re q u i re m e n t s d i s c u s s e d a b o v e , i n c l u d e a p u b l i c reprimand, the
delisting of the company, a fine not exceeding RM100,000, the suspension in t h e
trading of the securities for any period of time or the
re s t r i c t i o n o f d e a l i n g i n t h e securities of the errant company to
immediate or prompt bargains (i.e. the shares of the errant company
can only be traded if cash is paid upon the purchase of those shares). The SC
is also empowered to impose any other conditions or penalties as it may see
Initial Public Offerings by Foreign Corporations
In order to provide a broader variety of offerings on Bursa Malaysia, the SC
has adopted a new policy with respect to initial public offerings (IPO) of
foreign corporations. Under the new policy, foreign controlled corporations
may be listed on Bursa Malaysia, provided that they have substantial
operations in Malaysia.

Mergers and Acquisitions: Malaysia

Previously, foreign controlled entities seeking a listing on the local bourse
were required a l s o re q u i re d t o b e l o c a l l y i n c o r p o r a t e d i n
a d d i t i o n t o h a v i n g s u b s t a n t i a l M a l a y s i a n operations. If an entity is
Malaysian controlled, it can be listed on Bursa Malaysia even if it is foreign
incorporated or has substantial or major foreign operations.
Acquisitions and Disclosures by Public Companies
Types of transaction
A takeover of a listed company can proceed in any one of the following ways:

An investor may participate in a rights issue of a public company, subject to

SC approval;

An investor may participate in the equity of a company

t h ro u g h a p r i v a t e placement of shares in the company, which is regulated by the

Through a takeover scheme or takeover governed by the Malaysian Code; or

An investor may be able to achieve a backdoor listing through

t h e s a l e o f assets, businesses or interests to a listed company and the
issue of shares to the vendor company, resulting in a change of control
in the listed company t h r o u g h t h e i n t r o d u c t i o n o f a n e w
d o m i n a n t s h a r e h o l d e r o r g r o u p o f shareholders.
General disclosure obligation
The Bursa Securities Listing Requirements provide for continuing disclosure
obligations of a public company. These continuing obligations include
the obligation to notify Bursa Securities of any information concerning
the company or any of its subsidiaries necessary to avoid the establishment
of a false market in the companys securities or which would be likely to
materially affect the price of its securities; any change in management; any
notice of substantial shareholdings or changes thereto received by
the company and details thereof, and any acquisition of shares in either a
listed or unlisted company that exceeds a specified limit.
Specific disclosure obligations
Transactions exceeding the value of 5 percent
In a transaction where the relative figures amount to more than 5 percent in
respect of:
The value of the assets which are the subject matter of the transaction,
compared with the net tangible assets of the listed issuer;
N e t p r o fi t s ( a ft e r d e d u c t i n g a l l c h a rg e s a n d t a x a t i o n a n d
e x c l u d i n g extraordinary items) attributable to the assets which are
the subject matter of the transaction, compared with the net profi ts
of the listed issuer;
The aggregate value of the consideration given or received in relation to the
transaction (including any liability to be assumed, where applicable),
compared with the net tangible assets of the listed issuer;
The equity share capital issued by the listed issuer as consideration for an
acquisition, compared with the equity share capital previously in

Mergers and Acquisitions: Malaysia

The aggregate value of the consideration given or received in relation to the
transaction (including any liability to be assumed, where applicable),
compared with the market value of all the ordinary shares of the
listed issuer;
The total assets which are the subject matter of the
t r a n s a c t i o n compared with the total assets of the listed issuer;
in respect of joint ventures, business transactions or arrangements, the total
project cost attributable to the listed issuer compared with the total assets of
the listed issuer or in the case where a joint venture company i s
incorporated as a result of the joint venture, the
t o t a l e q u i t y participation of the listed issuer in the joint venture
company (based on the eventual issued capital of the joint venture
company) compared with the net tangible assets of the listed issuer. The
value of the transaction should include shareholders. Loans and guarantees
to be given by the listed issuer; or
The aggregate cost of investment of the subject matter of the transaction
divided by the net tangible assets of the listed issuer, in the case of
a d i s p o s a l a n d w h e re t h e a c q u i s i t i o n o f t h e s u b j e c t m a t t e r
t o o k p l a c e within the last 5 years. As soon as possible after terms have
been agreed, 300 copies of an announcement should be given to Bursa
Securities (for release to the market and consequently to the press),
detailing the information prescribed by the Bursa Securities Listing
Transactions exceeding 15 percent
For a transaction where the relative figures as set out above amount to more
than15 percent, a circular should be sent to the shareholders for their

Transactions exceeding 25 percent

For a transaction where the relative figures as set out above amount to more
than2 5 p e rc e n t , t h e t r a n s a c t i o n s h o u l d b e m a d e c o n d i t i o n a l
u p o n a p p r o v a l b y t h e shareholders of the company at a general
Other disclosure obligations
There are similar disclosure obligations, for instance, where a
company is involved in transaction involving the interests of
directors or substantial shareholders and where t ransaction might
reasonably be expected to result in either the diversion of 25 percent
or more of the net assets of the company to an operation which
diff ers widely from those operations previously carried on by the company.
Connected transactions
If a company proposes to sell any company, business or asset to a director,
past director, s u b s t a n t i a l s h a re h o l d e r o r p a s t s u b s t a n t i a l
s h a re h o l d e r o f e i t h e r t h e c o m p a n y , i t s subsidiaries, or its parent
company; or to acquire an interest in any company, business or asset in
which such a person is interested, Bursa Securities will normally
require that a c i rc u l a r b e s e n t t o s h a re h o l d e r s ( n o t w i t h s t a n d i n g
t h a t i t m i g h t n o t o t h e r w i s e b e a n acquisition or realization which
would require a circular) and that their prior approval of the transaction be
sought at a general meeting.

Mergers and Acquisitions: Malaysia


It is also likely that the Malaysian Companies Act will impose conditions, such
as obtaining shareholder approval, where there are related party
transactions. The same requirements apply in cases of joint ventures,
business transactions or arrangements which involve the interests of
directors or substantial shareholders, past and present.

Disclosure Based Regulatory Regime

The Malaysian Securities Commission announced on 31 March 2003 that it

was implementing, effective from 1 May 2003, the third and final phase of
the move from a merit based to a disclosure based regulatory regime in
connection with the issue and offer of securities. A disclosure based
regulatory regime is expected to herald a more streamlined regulatory
approach, a quicker approval process and more business friendly and market
based rules. Most importantly, it will also mean that issuers will have greater
freedom and flexibility to price securities offered to the market. The new
regulatory regime would be characterized by a twin track regulatory review
process involving:

A declaratory approach in respect of securities issues such as rights issues,

bonus issues and employee share option schemes;

An assessment approach in relation to IPOs, reverse takeovers, mergers and

acquisitions and proposals relating to financially distressed listed entities.
Pursuant to the declaratory approach, the Commission will grant approvals
for proposals provided that the issuer and its principal adviser declare that
relevant regulations and procedures have been complied with. The
assessment approach will involve more focused review of the suitability of
the proposal. In connection with the new regulatory regime, a set of seven
revised guidelines were published. The guidelines that are relevant to merger
and acquisition activity require enhanced levels of disclosure and afford
greater clarity and flexibility in relation to the issuance of securities. These
measures are expected to place greater importance on the due diligence
process in relation to merger and acquisition activity.

Amendments to Securities Laws

The demutualization of the Kuala Lumpur Stock Exchange required

amendments to the securities laws to accommodate the new structure of the
exchange. The amendments include new definitions, provisions to cater for
the new exchange structure and public policy framework in relation to
composition of the board of the exchange company. In conjunction with the
amendments to facilitate the new structure of the exchange, the legislature
has taken the opportunity to make further amendments to the securities
laws generally for the purpose of enhancing the securities regulatory
framework and powers of the SC, especially in the area of investor

Mergers and Acquisitions: Malaysia


To this end, the amendments seek to:

Streamline and strengthen the framework on investment advice;

Enhance civil and administrative powers;

Introduce whistle blowing provisions; and

Facilitate regulation and development of the securities laws and to ensure

the integrity of the capital markets. These amendments came into force on 5
January 2004.

Enhanced enforcement capabilities

The amendments have clarified and expanded the scope of the powers of the
SC to take civil and administrative actions. In addition to the general
provision that the SC may take actions against any person who fails to
comply, observe, or enforce or give effect to the rules of the exchange,
clearing house, central depository or provisions in any of the securities laws,
the amendments list specific persons who are subject to the SC powers. They
include, among others, the directors, officers and advisers of listed
corporations. Further, the amendments enhance the ability of the SC to
require the person in breach to take any such steps as the SC may direct to
remedy the breach or mitigate the effect of such breach, including making
restitution to the person aggrieved by the breach. The amendments have
also expanded the range of situations where the SC may apply to the High
Court for certain orders.

Whistle blowing provisions

The whistle blowing provisions were intended to complement enforcement

efforts and assist in curbing corporate abuses and promoting better
corporate governance. In general, the amendments provide for the reporting
of breaches of the law to the relevant authorities and incorporate legal
protection to informants for bringing transgressions to light. In respect of
auditors of public listed corporations, the provisions impose a mandatory
obligation to immediately report to the relevant authority, breaches of any
securities law, rules of a stock exchange or any matter which may adversely
affect to a material extent the financial position of the listed corporation. The
SC may also require the auditor to submit any additional material in relation
to the audit as the SC may specify, enlarge, or extend the scope of the audit
and/or carry out any specific examination or establish any procedure in any
particular case. The auditor shall be remunerated for carrying out any orders
required by the SC and shall be protected against any legal action in respect
of such disclosure.


In practice, merger and acquisition laws are an intricate interplay of various

laws and regulations. These laws and regulations are also subject to
Malaysian government policy applicable to the particular area of industry
where the target company may be operating. In short, the regulatory and
legal regime governing merger and acquisition activity in Malaysia is
relatively fluid and it is always advisable to seek proper professional advice
when considering any merger or acquisition in Malaysia.