CMS Expert Guide to Public Takeovers in China

Yes, takeovers of listed companies are highly regulated in China. The takeover of a listed company in China is governed by a set of laws and regulations, including the Securities Law, the Measures on the Administration of Takeover of Listed Companies, and other relevant rules issued by the China Securities Regulatory Commission ("CSRC"). 

• Tender offers; 
• Takeover by agreement; 
• Indirect takeover. 

Yes, both the offeror and the target company must engage financial advisers. 

• the financial adviser engaged by the offeror shall issue an opinion, which includes, inter alia, the ability of the offeror to complete the takeover. 
• the financial adviser engaged by the board of directors or independent directors of the target company shall issue an opinion, which includes, inter alia, an analysis of the strength of the offeror and the possible impact of the takeover offer on the independence of the target company and ongoing development of the target company as well as the fairness of the takeover offer. 

Yes, where the shares held by an offeror (together with persons acting in concert with the offeror) in the target company represent 30% of the issued shares of the target company and the offeror continues to increase its shareholding, or where offeror’s indirect shareholding in the target company exceeds 30%, or where the offeror intends to acquire more than 30% of the issued shares by agreement, it must make an offer. Depending on the means by which the offeror has acquired its current shareholdings or intends to acquire the shares, the offeror may choose to make a general offer to acquire all the shares held by all the other shareholders or a partial offer to acquire part of the shares held by all the other shareholders, or it must make a general offer. 

Yes, there are certain exceptions to this requirement, e.g. if the acquisition does not lead to change of control in the target company, the acquisition is to rescue a financially troubled listed company, the offeror commits to a so-called "creeping increase" commitment afterwards ( i.e. not to increase its shareholding by more than 2% of the issued shares of the said company within each 12-month period), and other circumstances which may be stipulated by the CSRC. 

Takeover offers for listed companies are most commonly implemented through a public tender offer. This involves the offeror making a public announcement of its intention to acquire the shares of the target company, and then making an offer to purchase shares from the target company's shareholders at a specified price.  

No, it is not possible to ensure that the offeror acquires 100% of the issued shares of the target company.

Yes, the parties involved in a takeover offer can maintain confidentiality regarding a potential offer. Once the parties have entered into material discussions regarding a potential offer, and it appears that an agreement may be reached, the parties must comply with the disclosure requirements set out by the CSRC and the relevant stock exchange, which require prompt disclosure of any material information to protect the interests of investors.  

The offeror shall first prepare a tender offer document report and engage a financial consultant, notify the target company, and make an indicative announcement of a summary of the tender offer simultaneously. 
Where the takeover offer requires approval from the relevant authorities pursuant to the law, e.g. approvals/clearances from the merger control authority, the foreign investment approval authority, the state-owned assets administration authority, if applicable, the offeror shall include a special note in the summary of the tender offer, and announce the tender offer upon obtaining the approval.  

Where the takeover offer requires approval from the relevant authorities, e.g., approvals/clearances from the merger control authority, the foreign investment approval authority, the state-owned assets administration authority, if applicable, the offeror shall include a special note in the summary of the tender offer, and announce the tender offer upon obtaining the approval. Where the approval is not granted, the offeror shall announce the cancellation of the takeover offer within two working days of the date of receipt of notification, and notify the target company. 

There are no specific requirements as to the financing of an offer.  

However, the offeror must disclose in the offer document the source of funding and funding assurance. The financial adviser engaged by the offeror must issue an opinion, which includes, inter alia, the source of the takeover offer funding of the offeror and its legitimacy, and whether the offeror has pledged the acquired shares with banks and other financial institutions to obtain financing. 

In general, the offer price for shares of the same class shall not be less than the highest price paid by the offeror for such shares within a six-month period prior to the date of the indicative announcement of the tender offer.

Shareholders holding the same class of shares must be treated equally. 

If a listed company issues different classes of shares, the offeror may offer different consideration for different classes of shares. 

No. 

In general, confidentiality agreements in respect of confidential information relating to the target company and/or offeror (but not the offer itself) and cooperation agreements as to how regulatory approvals may be sought are permitted. 

The target company’s directors are not required to engage with a potential offeror. However, they have a legal duty to act in the best interests of the target company and its shareholders. If the target company’s directors do not support an offer, they may deploy some defensive measures to protect the target company, such as finding a “white knight” competing offeror. 

There are certain restrictions, e.g., the offeror shall not, during the period from making the announcement of the intention to make a takeover offer to the expiry of the offer period, sell the shares of the target company and shall not purchase shares of the target company on terms other than those set out in the offer or on the terms more favourable than the offer.  

The target company’s shareholders can give commitments to accept the offer.  

The offeror shall not, during the period from making the announcement to the expiry of the takeover offer period, purchase shares of the target company on terms other than those set out in the offer and or on the terms more favourable than the offer.  

Any investor who, through any securities trading on a stock exchange, comes to hold or, through any agreement or other arrangement, holds together with any other person, 5% of the voting shares issued by the target company shall, within three days of the date on which such shareholding is acquired, submit a written report both to the CSRC and to the stock exchange, notify the relevant target company of the same, and make a public announcement. 

 
Afterwards, for each 5% increase or decrease it must pursuant to the provisions of the preceding paragraph, report and announce such change, and for each 1% increase or decrease it must report to the target company and make a public announcement only.  

D announcement 

D+45: Last date on which an offeror shall make changes to a takeover offer. 

D+56: Last date on which shareholders can withdraw acceptances. 

D+60: Last day for acceptance of the offer. 

D+63: Takeover completes. 

D+75: Last date for an offer or to submit a written report to the stock exchange.  

The following key documents are typically required:  

• offer document; 
• statement from the target company’s board of directors or independent directors in response to the offer;  
• public announcements;  
• regulatory approvals.  

The CSRC encourages transparency and fairness in competitive offer situations. In addition, the CSRC may monitor and supervise the offer process to ensure compliance with relevant rules and detect and deter any anti-competitive practices or market manipulation.  

No offeror may revoke its tender offer within the acceptance term prescribed in such tender offer.  

Any offeror who seeks to alter the terms of a tender offer shall make a timely announcement which explicitly states the specific alterations and shall not: 

• Reduce the acquisition price; 
• Reduce the number of shares that the offeror plans to acquire; or 
• Shorten the offer period.  

There may be other circumstances prescribed by the CSRC in the particular case. 

No. 

Yes. Where an offeror intends to cancel the takeover offer after making the indicative announcement of the tender offer and before announcing the tender offer, it shall announce the reason. The offeror may not make a takeover offer for the same listed company again within 12 months as of the date of announcement. 

To delist a company from, e.g. the Shanghai Stock Exchange, shareholders must pass a special resolution (requiring at least (i) two-thirds of the voting rights represented by the shareholders present and (ii) at least two-thirds of the voting rights represented by the shareholders present (excluding shareholders who are concurrently directors, supervisors and/or senior management and/or who hold more than 5% of the shares) approving the cancellation of the admission of the company’s shares to the Shanghai Stock Exchange. Additional procedural requirements in the Listing Rules must also be followed. Where more than 75% of a listed company’s shares are acquired pursuant to a takeover offer, delisting will not normally require a further shareholder vote.