Changes to Merger and Acquisition Rules in Malaysia
Malaysia has amended its merger and acquisition rules in the hope of offering a more flexible and transparent approach to M&As in the country. The amendments include the revised requirements for pre-conditional possible and pre-conditional voluntary offer announcements, restrictions on dealings before an offer is made, and restrictions on favorable deals in relation to whitewash procedures.
On December 28, 2021, the Securities Commission of Malaysia amended the Rules on Take-overs, Mergers and Compulsory Acquisitions (the “Rules”). The updated Rules came into force the next day, on December 29, 2021. The Securities Commission first issued the Rules in 2016 and amended them in December 2017.
The revised Rules introduce relatively minor but substantive changes to Malaysia’s regulation of mergers and acquisitions (M&As) in the country. In 2021, 384 M&A transactions took place in Malaysia, representing a combined value of US$21.1.
Important amendments include revised requirements for pre-conditional possible and pre-conditional voluntary offer announcements, restrictions on dealings before an offer is made, and restrictions on favorable deals in relation to whitewash procedures. Together, the new Rules offer a more flexible approach to M&As in Malaysia, while also increasing regulatory enforcement of insider trading and dealmaking.
Pre-conditional possible and voluntary offer announcements
The updated Rules differentiate between pre-conditional possible and pre-conditional voluntary offer announcements, and give guidance on how they should be managed. A possible offer refers to one that might be made if pre-conditions are met, and a voluntary offer refers to an offer made by a person that does not have an obligation to make a mandatory offer. The Rules delineate stipulations on offers in rule 6 and requirements on offer announcements in rule 9.
In an announcement, if a person proposes to include any pre-condition to which making an offer will be subject, they must first consult the Securities Commission. Further, such an announcement must:
- Clearly state whether or not the pre-conditions must be satisfied before an offer can be made or whether they are waivable; and
- Include a prominent warning to the effect that the announcement does not amount to a firm intention to make an offer and that, accordingly, there can be no certainty that any offer will be made even if the preconditions are satisfied or waived.
If the announcement relates to the price of a possible offer, or a possible securities exchange ratio for a possible securities exchange offer, the potential offeror must make any offer on the same or better terms.
Additionally, both pre-conditional possible offers and pre-conditional voluntary offers can now include an element of subjectivity in their conditions. Subjective conditions include, for example, the availability of requisite financing and regulatory approvals. Potential offerors must consult the Securities Commission if they wish to include a subjective condition.
Restrictions on dealings before an offer is made
One of the key additions to the Rules is a new rule (19.01) on restrictions with dealings before an offer is made. According to rule 19.01, persons with confidential price-sensitive information about an actual, contemplated, or revised offer, who is not an offeror, cannot engage in dealings in the securities of the offeree company. This rule aims to increase the level of restrictions on insider trading, as well as to clarify what types of dealings are acceptable and unacceptable.
Namely, rule 19.01 states: “No dealings of any kind in the securities of the offeree company (including convertible securities, warrants, options and derivatives in respect of such securities) may be transacted by any person, not being the offeror, who has confidential price sensitive information concerning an actual or contemplated offer or revised offer between the time when there is reason to suppose that an approach or an offer or revised offer is contemplated and the announcement of the approach, the offer, the revised offer, or of the termination of the discussions.”
This rule, however, does not apply to persons acting in concert (also known as PACs) with an offeror where the securities involved in dealings are not part of an offer or if there are no-profit arrangements in place. Such persons acting in concert are not required to consult with the Securities Commission before conducting relevant dealings, but may do so to reduce the risk of non-compliance.
Additionally, no dealings involving the securities of the offeror can take place unless an offer or proposed offer is not price-sensitive in relation to such securities. Further, no person who is privy to confidential price-sensitive information may make recommendations to any other person about dealing in relevant securities.
Favorable deals in relation to whitewash procedures
The Rules create a new rule 18.02 that introduces restrictions on favorable deals in relation to whitewash procedures. A whitewash procedure is when a company gives financial assistance to acquire its own shares, which typically includes a statement of solvency, an audit, and a special resolution.
According to rule 18.02, the offeror or persons acting in concert with the offeror shall not acquire shares within a six month period after the shareholders’ meeting from a person who was a director or substantial shareholder of the company at the time of the whitewash proposal, as this would be considered a favorable deal (as described in 18.01).
However, the Securities Commission may grant a waiver to the offeror or persons acting in concert with the offeror if such an acquisition is de minimis, or, in other words, the acquisition is minimal or insignificant. This new restriction on whitewash procedures is another attempt to reduce insider trading.
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