Malaysia

Takeover Guide

Contact
Lee Won Chen

Rahmat Lim & Partners

chen.leewon@rahmatlim.com
Contents Page

THE REGULATION OF TAKEOVERS 1 

THE REGULATORY MAZE – BROAD CONCEPTS 1 

MANDATORY OFFERS 4 

VOLUNTARY OFFERS 6 

PARTIAL OFFER 7 

ELIMINATING THE MINORITY AFTER A TAKEOVER 7 

THE REGULATORY MAZE - IMPORTANT DETAILS 8 

THE LIFECYCLE OF A TAKEOVER 10 

DEFENDING A TAKEOVER - WHAT CAN BE DONE? 11 

HERE COME THE REGULATORS 11 

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THE REGULATION OF TAKEOVERS
Takeovers in Malaysia are primarily regulated under the Capital Markets and Services
Act, 2007 (Act 671) (CMSA) and the Malaysian Code on Take-Overs & Mergers 2010
(Code).

The Code contains principles and rules governing the conduct of all persons or parties
involved in a takeover. The objective of the regulatory regime of the CMSA is to ensure
that the acquisition of voting shares or control of companies takes place in an efficient,
competitive and informed market. This includes the need to ensure that:

 shareholders, directors and the market for the shares are aware of the identity of
the bidder, have reasonable time in which to consider a takeover offer and are
supplied with sufficient information necessary to enable them to assess the
merits of any takeover offer;

 so far as practicable, all shareholders of a target company have equal

opportunities to participate in benefits accruing from the takeover offer, including
in the premium payable for control; and

 fair and equal treatment of all shareholders, in particular, minority shareholders,

in relation to the takeover offer, merger or compulsory acquisition would be
achieved.

The Code is enacted pursuant to the CMSA and is to be read together with a set of
practice notes and the Guidelines on Contents of Applications Relating to Take-Overs
and Mergers issued by the Securities Commission (SC).

THE REGULATORY MAZE – BROAD CONCEPTS

Regulatory map

The SC established under the Securities Commission Act, 1993 is the authority charged
with the function to regulate takeovers and mergers of entities. Hence, it is the SC which
approves offer and other documents issued in connection with the takeover, issues
rulings and grants exemptions from compliance with the Code.

A bidder will have to investigate the rules and legislation specific to the business of the
target company. For example, if the target company is a manufacturing company holding
a manufacturing licence issued under the Industrial Co-ordination Act, 1975 then the
approval from the Ministry of International Trade & Industry is required. An acquisition of
shares in banking and financial institutions and insurance companies require the approval
of the Central Bank and, where relevant, of the Minister of Finance under the Financial
Services Act, 2013.

It is also important to note that for certain sectors in Malaysia, there is a cap on the equity
which may be held by foreign investors. These include banking and financial institutions,
insurance companies and telecommunication companies.

When do takeover rules apply?

The Code applies when the target entity is:

 a public company;

 a company that is incorporated outside Malaysia but listed on the stock exchange
of Malaysia; or

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  a real estate investment trust that is listed on the stock exchange of Malaysia.

What is caught? The regulatory trigger and its key concepts

The CMSA requires that:

 a person who makes a takeover offer, which includes an acquisition via a scheme
of arrangement, shall do so in accordance with the provisions of the Code and
any ruling made by the SC;

 a person who has obtained control in a company shall make a takeover offer in
accordance with the provisions of the Code and any ruling made by the SC; and

 a person who has obtained control in a company shall not acquire any additional
voting shares in that company or voting rights, except in accordance with the
provisions of the Code and any ruling made by the SC.

An understanding of the following concepts is useful:

 offer period

 control

 voting shares

 voting rights

 persons acting in concert

Offer Period

The offer period commences from the date the bidder makes an announcement of a
takeover offer or proposes a possible takeover offer or sends a takeover notice,
whichever is earlier, and ends when the takeover offer becomes or is declared
unconditional as to acceptances, closes, lapses or is withdrawn.

Control

The trigger point for having to extend a mandatory takeover offer is 33% of the voting
shares or voting rights, as this is seen as the threshold where an acquirer obtains control.

Voting shares

Voting shares means an issued share of the body corporate, not being:

 a share to which, under no circumstances, there is attached a right to vote; or

 a share to which there is attached a right to vote only where dividends in respect
of the share are in arrears, on a proposal for reduction of capital, winding up,
affecting the rights attached to the shares or for the disposal of the whole of the
property, business and undertaking of the body corporate.

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Persons acting in concert

Persons acting in concert are persons who, pursuant to an agreement, arrangement or

understanding co-operate to:

 acquire jointly or severally voting shares of a company for the purpose of

obtaining control of that company; or

 act jointly or severally for the purpose of exercising control over a company.

The agreement, arrangement or understanding may be formal or informal, written or oral,

express or implied and may or may not have legal or equitable force.

This is very much a factual test and the Code sets out the criteria the SC will take into
account when deciding whether a person is acting in concert. Notwithstanding the
foregoing, the CMSA and the Code presumes certain persons to be acting in concert
unless the contrary is established. The presumption applies in the case of, inter alia:

 a corporation and its related and associate corporations and a person who owns
or controls 20% or more of the voting shares of such corporation and any parent,
child, brother, sister, spouse, relative or related trust of such person;

 a corporation and any of its directors, parent, child, brother or sister of any of its
directors or the spouse of any such director or any such relative or any related
trusts;

 a corporation and any pension fund established by it;

 a person and any investment company, unit trust or other fund whose
investments such person manages on a discretionary basis;

 a financial adviser and its client which is a corporation, where the financial
adviser manages on a discretionary basis, the corporation's funds and has 10%
or more of the voting shares in that corporation;

 a company, the directors of the company, and the shareholders of the company
where there is an agreement, arrangement or understanding between the
company or directors of the company, and shareholder of the company which
restricts the director or the shareholder from offering or accepting a takeover offer
for the voting shares or voting rights of the company or increasing or reducing his
shareholdings in the company; and

 a person who is a partner of a partnership.

The associate corporation relationship is established if the corporation holds at least 20%
of the voting shares.

Some important percentage thresholds

 5% - substantial shareholding level which requires the holder to disclose its

substantial shareholding to the company, the SC and the stock exchange. Any
change in interest and cessation of substantial shareholding is also required to be
disclosed;

 over 10% - the holder may block compulsory acquisition;

 over 25% - the holder may block special resolutions of the company;

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  33% - threshold for triggering the mandatory offer;

 over 50% - a mandatory offer ceases to be conditional;

 75% - holder can ensure special resolutions are passed;

 over 75% - the minimum public float required for companies listed on the stock
exchange may not be satisfied;

 90% - generally, confers the ability to compulsorily acquire the remaining shares
in the target company;

 90% - trading of the shares may be suspended by the stock exchange. The
shares may also be de-listed by the stock exchange.

Consequences of breach

Non-compliance with the provisions of the Code or any of the rulings made by the SC
may result in, inter alia, any one or more sanctions being imposed:

 penalty, in proportion to the severity or gravity of the breach on the person in

breach, not exceeding RM1,000,000;

 private or public reprimand;

 the person being deprived of the facilities of the stock exchange;

 the person being directed to comply with, observe or give effect to any such
provision or ruling;

 the person being required to take such steps as the SC may direct to remedy the
breach or mitigate the effect of such breach.

It is also imperative that all documents or information required to be submitted to the SC

in relation to, or in connection with, a takeover offer shall not contain any information that
is false or misleading or from which there is a material omission. The bidder, persons
acting in concert and advisers must also not engage in misleading or deceptive conduct.
Non-compliance may result in criminal and civil liability, punishable upon conviction, by a
fine not exceeding RM3,000,000 or imprisonment for a term not exceeding 10 years or
both.

MANDATORY OFFERS
Trigger point

A bidder triggers the obligation to extend a mandatory offer to acquire all the shares of
the target company which he or persons acting in concert with him do not, already own if:

 the bidder, together with persons acting in concert with him, acquires more than
33% of a company; or

 the bidder, together with persons acting in concert with him, holds between 33%
and 50% of the voting shares or voting rights, and acquires more than 2% of the
voting shares or voting rights in any period of 6 months.

There are two other instances where a mandatory offer is required to be made:
acquisition of upstream company and acquisition of between 20% and up to 33%.

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Acquisition of upstream company

This applies where a person acquires control in an upstream company which holds or
controls more than 33% of the voting shares or voting rights of a downstream company
and the upstream company has a significant degree of influence in that downstream
entity if, in the SC's view:

 the acquisition of the upstream entity to which the Code does not apply is a
means to acquire control in the downstream entity to which the Code applies;

 the value in the downstream company constitutes 50% or more of the assets, net
assets, net tangible assets, market capitalisation, shareholders’ funds, sales or
earnings to the upstream entity; or

 one of the main purposes of acquiring control of the upstream entity was to
control the downstream entity.

Acquisition of between 20% and up to 33%

This applies where the person acquires between 20% and up to 33% from a controlling
vendor. In such a situation, the SC may require confirmation that the person has not in
fact obtained control of the target company. In this regard, the following factors are seen
as suggestive of whether control of the target company has been obtained:

 any arrangement, understanding or transaction between the acquirer and the

vendor or between the acquirer and persons acting in concert with the vendor in
relation to the voting shares or voting rights;

 the ability of the acquirer to exercise or control the exercise of the retained voting
shares or voting rights;

 the consideration for the acquisition of the voting shares or voting rights;

 put or call options on the retained voting shares or voting rights; or

 the amount or value of voting shares or voting rights retained by the vendor
compared to the capital or fund size of the company.

Consideration

The offer price must be the highest price paid, or agreed to be paid, by the bidder or any
person acting in concert with the bidder for any voting shares or voting rights in the last
six months prior to the beginning of the offer period. The consideration may be by cash or
by securities exchange. In the case of a mandatory offer, there must be a cash
alternative. The consideration (if in cash) is to be paid within 10 days of the offer
becoming unconditional or, in an unconditional offer, within 10 days of the date of valid
acceptances. For securities exchange, the settlement period is 14 days instead of 10
days.

Conditional bid

The bidder is required to condition the success of its bid to acceptances constituting more
than 50% of the voting shares or voting rights of the target company.

Duration of Offer

The takeover offer must be open for acceptances for a period of at least 21 days.

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 If the condition (as to acceptance) is fulfilled as at the date of the despatch of the offer
document, the closing date of the takeover offer shall not be later than the 60th day from
the date of despatch.

If the condition (as to acceptance) is fulfilled on or before the 46th day from the despatch
of the offer document, the takeover offer shall be open for acceptances for not less than
14 days from the date the takeover becomes or is declared unconditional, but shall not be
later than the 60th day from the date of despatch.

If the condition (as to acceptance) is fulfilled after the 46th day from the despatch of the
offer document, the takeover offer shall be open for acceptances for not less than 14
days from the date the takeover becomes or is declared unconditional, but shall not be
later than the 74th day from the date of despatch.

Variation to the bid terms

The bid terms may be varied, for example, by a revision to the offer price. If the bid terms
are revised, then the bidder is required to despatch the revised terms to the shareholders
and keep the offer open for acceptances for at least another 14 days from the despatch
of the revised terms.

The terms, however, may not be revised after 46 days from the despatch of the offer
document.

The bidder's ability to purchase shares outside the mandatory offer

The bidder may buy shares outside the mandatory offer process. Disclosure of all
acquisitions of the target company’s shares would have to be made to the SC, the stock
exchange and by way of press notice before 12 noon of the following day. If the bidder
were to acquire shares at a price higher than the offer price, then it would be required to
revise the offer price.

Securities exchange offer

In the case of a securities exchange offer, there are additional disclosures to be made in
the offer document. This includes the valuation of the securities, if unlisted, based on a
reasonable estimate by an independent valuer.

The target company’s response

The board of directors of the target company is required to circulate its comments on the
takeover offer to the shareholders within 10 days from the date of despatch of the offer
document. It should contain such comments and information as the shareholders would
reasonably require, and would reasonably expect to find, for the purpose of making an
informed assessment as to the merits of accepting or rejecting the takeover offer and the
extent of the risks involved in doing so.

Independent advice circular

The board of directors of the target company is also required to appoint an independent
adviser and such advice is usually included together as part of a circular accompanying
the board of directors' comments.

VOLUNTARY OFFERS
Voluntary offers must also be made in compliance with the requirements of the CMSA
and the Code.

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 Voluntary offer versus Mandatory offer

As the name suggests, a voluntary offer is not one which the bidder is compelled to make
by law, and as such there is some flexibility.

Whilst a mandatory offer may only be conditional upon the bidder having received
acceptances which would result in the bidder and persons acting in concert with the
bidder holding more than 50% of the voting shares of the target company, in the case of a
voluntary offer, the bidder may specify other conditions in addition to the acceptance
condition (which, in the case of a voluntary offer, can be higher than 50% plus 1 with the
consent of the SC). There are, however, limitations to this right as the conditions may not
be defeating conditions, the fulfilment of which depends on:

 an opinion, belief or other state of mind of the bidder or any person acting in
concert with the bidder; or

 whether or not a particular event happens, being an event that is within the
control of, or is a direct result of an action by, the bidder or any person acting in
concert with the bidder.

The consideration for a voluntary offer must contain a cash sum where: (i) 10% or more
of the voting shares or voting rights have been purchased for cash by the bidder, or
persons acting in concert with the bidder, within 6 months prior to the beginning of the
offer period; (ii) any voting shares or voting rights have been purchased for cash by the
bidder, or persons acting in concert with the bidder during the offer period, or (iii) where
the SC deems that it is necessary.

PARTIAL OFFER
A partial offer can only be made with the prior written consent of the SC. If allowed, the
partial offer must comply with the requirements of the CMSA and the Code. Consent
would normally be granted where a partial offer would not result in the bidder and persons
acting in concert holding more than 33% voting shares or voting rights of the target
company. Where the partial offer would result in the bidder and persons acting in concert
holding more than 33% of voting shares or voting rights, the additional conditions to be
complied with include the requirement to obtain the approval by independent
shareholders of the target company holding in aggregate more than 50% of voting shares
or voting rights.

ELIMINATING THE MINORITY AFTER A TAKEOVER

Sections 222 and 224 of the CMSA set out the situations where a bidder may
compulsorily acquire the shares of the remaining shareholders who had not accepted the
takeover offer.

A bidder may compulsorily acquire the shares if the bidder has received 90%
acceptances (excluding the shares already held by the bidder or persons acting in
concert) within four months after the making of the takeover offer. The right is exercisable
by the bidder giving, within two months after the takeover offer has been so accepted,
notice in the prescribed form to the shareholders.

If the bidder does not receive 90% acceptances, the bidder may apply to the court under
Section 224(5) of the CMSA for authority to compulsory acquire the shares of the
remaining shareholders. The court may only grant an order upon it being satisfied that:

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  the failure of the bidder to obtain such acceptances was due to the inability of the
bidder to trace one or more of the persons holding shares after having made
reasonable enquiries;

 the shares acquired under the bid and shares held by the untraceable persons
meet the 90% threshold; and

 the offer price is fair and reasonable.

The order will not be made unless the Court considers that it is just and equitable to do so
having regard, in particular, to the number of shareholders who have been traced but who
have not accepted the takeover offer.

THE REGULATORY MAZE - IMPORTANT DETAILS

Pre-bid discussions with major shareholders

In a friendly bid, it is common for a bidder to enter into discussions and negotiations with
the major shareholders of the target company. Such discussions and negotiations must
be kept confidential in order to avoid any disturbance in the pricing of the shares where
the shares are listed on the stock exchange.

Pre-bid discussions with target company

Similarly, if the bid is a friendly bid, it is possible to enter into discussions with the target
company. Again secrecy has to be maintained. Discussions with the target company
would be more relevant if the bidder were to propose a scheme of arrangement pursuant
to the Companies Act, 1965 to obtain control of the target company.

Due diligence and insider trading

In a friendly bid, a bidder may wish to conduct a due diligence investigation on the target
company.

There are cases for and against the conduct of a due diligence. Those opposing a due
diligence would mount arguments along the lines that this would amount to disclosure of
confidential information by the target company, that selective or partial disclosure of
information to certain shareholders is not permitted under the listing requirements of the
stock exchange and that the bidder may be in contravention of insider trading laws if
during the course of the due diligence, the bidder is in possession of price sensitive
information. With these concerns in mind, any due diligence would typically be in respect
of information which has already been publicly disclosed by the target company in
compliance with the corporate disclosure requirements and on non-material non-public
information.

Sale and Purchase Agreements and break fees

The Code does not stipulate whether or not such fees are allowed. However, the
Companies Act 1965 prohibits a company from giving financial assistance in connection
with or for the purpose of financing the acquisition of its own shares. There is no specific
exemption for break fees.

A bidder may, prior to the triggering of the bid, enter into a sale and purchase agreement
with the major/selling shareholders. In such an agreement, the bidder may agree on
"break fees" to be paid by the selling shareholder in the event that the selling shareholder
defaults in its obligations to complete the sale of shares. Since this is not paid by the
target company, it is permissible. However, such clauses are enforceable to the extent

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 that the amount is a genuine pre-estimate of damages suffered by the bidder and is not a
penalty.

Announcements and confidentiality

A bidder who intends to or proposes to make a takeover offer must immediately

announce by way of press notice that it wishes to make the offer and serve a takeover
notice to the board of directors of the target company. The board will announce receipt of
the takeover notice within 24 hours and despatch a copy of the takeover notice to the
shareholders within 7 days.

However, if before approaching the board, there is untoward movement or increase in the
volume of share turnover of the target company, the bidder should make an
announcement on whether there is a takeover or possible takeover offer.

A bidder who announces that he does not intend to make a takeover offer is prohibited
from announcing a takeover offer for six months after making such an announcement.

Pre-bid purchases

A bidder may build a stake prior to the bid. However, the bidder will be required to
disclose its substantial shareholding in the company (interest in 5% of the voting shares
of the company). The test is "interest in shares" and the bidder is deemed interested, inter
alia, in the shares held by its related corporations, or in a company in which the bidder
holds not less than 15% of the voting shares. The bidder has to give notice of its
substantial shareholding to the company and the SC within 7 days of the bidder
becoming a substantial shareholder. The company will immediately announce any receipt
of notices of substantial shareholding to the stock exchange.

Purchases during the offer period

A bidder may continue to purchase shares during the offer period. Prompt disclosures are
to be made:

 in respect of changes in substantial shareholding pursuant to the Companies Act,

1965; and

 to the target company, the stock exchange and by way of press notice pursuant
to the Code.

If the acceptance condition (that is, more than 50%) is not fulfilled and the bid fails, the
bidder is unable to "return" the shares since they were acquired outside the takeover
process.

Additional benefits to some shareholders

There are prohibitions in the Code against favourable deals. A bidder may not enter into
any agreement, arrangement or understanding to deal in or make purchases or sales of
voting shares if the benefit of such favourable conditions cannot be extended to all of the
target company's shareholders.

Competing bids

If a competing bid surfaces, the target company must, if requested, provide all information
that it has given to the bidder to the competing bidder. A competing bid also results in the
timeline of the initial bid being varied.

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 Final and best offers

Statements in the bidder's offer document cannot be misleading or deceptive.

Selling down during an offer

In the case of a mandatory offer, a bidder and persons acting in concert with the bidder
are not allowed to sell their voting shares or voting rights in the target company during the
offer period unless the offer document has been despatched and the disposal of the
shares or rights is between the bidder and any person acting in concert with the bidder.

In the case of a voluntary offer, a bidder and persons acting in concert with the bidder are
allowed to sell during the offer period only after the offer document has been despatched
and the acceptance condition has been fulfilled.

THE LIFECYCLE OF A TAKEOVER

Timetable of the key events and documents for a mandatory offer (assumes no revision
of offer price and no competing bid)

DAY ACTION

T Announcement of takeover offer by press notice and to the stock exchange

Serve takeover notice on the board of directors of the target company, the stock
exchange and the SC

T+1 Announcement by board of directors to the stock exchange and by way of press
notice (within 24 hours of receipt of the takeover notice)

T+4 Last day for bidder to submit draft offer document to the SC for its consent

T+7 Last day for board of directors of the target company to post the takeover notice
to the target company's shareholders

T+ 21 Last day to despatch the offer document

(“D”)

D+10 Last day to circulate the target company's board of directors comments on the
takeover offer and the independent advice circular to the shareholders of the
target company

D+21 Earliest date to close the offer

D+60 Takeover offer closes if the acceptance condition is not fulfilled by 5.00 pm

Last day for closing of the takeover offer if the acceptance condition is fulfilled
on or before D+46

D+74 Last day for closing of the takeover offer if the acceptance condition is fulfilled
after D+46

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DEFENDING A TAKEOVER - WHAT CAN BE DONE?
Directors' duties

Directors of the target company owe a duty at common law to act in the best interest of
the company and to exercise their powers for a proper purpose. The Companies Act 1965
also provides that directors shall at all times act honestly and with reasonable diligence in
the discharge of their duties. Hence, the directors must always have regard to this
overriding duty when taking any defensive action.

Frustration of offers

There are strict rules in the Code as to the matters which the board of directors of the
target company cannot do without the approval of the shareholders in a general meeting,
before the date of receipt of the takeover notice if the board of directors of the target
company has reason to believe that a bona fide takeover offer might be imminent and
during the course of a takeover. These are inter alia as follows:

 issue any authorised but unissued shares of the target company;

 issue or grant options in respect of any unissued shares of the target company;

 create or issue or permit the creation or subscription of any shares of the target
company;

 sell, dispose of or acquire or agree to sell, dispose of or acquire assets of the

target company of a material amount; or

 enter into or allow contracts for or on behalf of the target company to be entered
into otherwise than in the ordinary course of business of the target company.

The above restrictions do not apply if they are carried out:

 pursuant to a prior bona fide contract, which is not designed to frustrate a

takeover or change the activity of the target company; or

 pursuant to some other obligation or other special circumstances which the SC

may approve in writing.

Hence, any defensive measure should preferably be pre-bid or long term measures. What
can be done depends on the facts of each case and very much on the breakdown of the
shareholdings.

HERE COME THE REGULATORS

The role of the Securities Commission

As explained above, the SC is the authority regulating takeovers in Malaysia and

administering the CMSA and the Code. All applications for approvals, consents,
exemptions or rulings are to be made to the SC. The SC has issued its guidelines on
content of offer documentation, format and content on applications to the SC and FAQs.

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The role of the Stock Exchange

The listing requirements of the stock exchange set out the continuing disclosure
requirements, public spread requirements and requirements relating to withdrawal of the
listing.

Others

Currently, Malaysia’s Competition Act, 2010 does not regulate merger control, as such,
no prior filings, notifications or approvals are required for takeovers and mergers.

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