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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ »  What is a mandatory offer? What are the scenarios that trigger TM code.

What is a mandatory offer? What are the scenarios that trigger TM code.

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hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
TM code : Take overs and mergers code

I have open this thread as most investors doesn't aware even the simple rules and regulations that govern securities(share) trade and protection mechanisms already established to protect minority investors and to establish a level playing field which is fair by every body, Big or Small. How many times they slip off from the rules since we are not aware of it?

This is some thing similar to that vast majority of the people in the country does not aware what are their fundamental rights are. They do not know why supreme court is there and what kind of redress they can get from there. 

People expect "Yahapalanya" or Good Governance to happen automatically. Will it ? Unless we know what it is?

Getting back to share investments, will the big players always play it fair, unless we know the rules? Is the referee or the whistle-blower (in our case SEC) monitoring the game well?  

I think these valuable forums do have a duty to educate average investors by discussing these subjects.

Invite all Experts and Veterans to share their knowledge with others!

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
This is a simple description :

The Takeovers and Merges code requires that if a shareholder or a concert party acquires more than 30% of a company it must offer to buy the remaining shares on terms as good as its most recent purchases.

The reason for this is that 30%, although not giving a shareholder formal control, is sufficient to give effective control.

When a change of control takes place it may adversely affect the share price. This is because minority shareholders are likely to worry that the company will be run to suit the controlling shareholder, and the interests of minorities may be affected. Therefore, it is only fair to allow them to sell out at the price that the new controlling shareholder paid before the change of control.

Extracted from - http://moneyterms.co.uk/mandatory-offer/ 

Note : Our code also designed in line of UK code.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
In Sri Lanka :

The Company Takeovers and Mergers Code (“the Code”) was published in Government Gazette No. 875/9 dated 16th June, 1995 in terms of section 53 of the Securities and Exchange Commission of Sri Lanka Act.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Some definitions on the code :

“takeover” means a transaction or series of transactions whereby an individual or a company acquires control over the assets of a company either directly by becoming the owner of those assets, or indirectly by obtaining control of the management of the company;

“offer” means an offer in a takeover or merger transaction, howsoever effected, and includes a reverse takeover, a partial offer and an offer by a parent company
for shares in its subsidiary;

“merger” means a transaction whereby the assets of two companies become vested or under the control of one company (which may or may not be one of the original two companies) which has as its shareholders all or substantially all, the shareholders of the two companies;

“partial offer” means an offer for less than 100% of the voting rights of an offeree company.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Common takeover/merger scenarios

In the Sri Lankan context a common takeover/merger scenario which arises is where a person who acquires shares in excess of the ceiling stipulated by Rule 31 of the Code becomes liable to make a mandatory offer.
Another common scenario is where an offerer makes an offer for the shares of a target company for cash.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
What are the Rule 31 Scenarios :

Rule 31 of the Code provides that where any person:

* acquires (whether by a series of transactions over a period of time or otherwise) shares which, taken together with shares held or acquired by persons acting in concert with such person, carry 30% or more of the voting rights of a company; or

* together with persons acting in concert with such person, holds not less than 30% and not more than 50% of the voting rights of a company and such person or any persons acting in concert with such person acquires additional shares carrying more than 2% of the voting rights,

such person shall extend within 35 days, an offer to the holders of any class of equity shares carrying voting rights and in which such person or persons acting in concert with such person hold shares.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
After acquiring 30% of a company that particular investor has to make a mandatory offer for other shareholders. This is the most common scenario.

But the second scenario is rare, and most of the time it goes unnoticed.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
The offer price : 

Highest price paid by the offerer and persons acting in concert with the offerer for shares of that class within the preceding twelve months.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
When a change of control takes place it may adversely affect the share price. This is because minority shareholders are likely to worry that the company will be run to suit the controlling shareholder, and the interests of minorities may be affected. Therefore, it is only fair to allow them to sell out at the price that the new controlling shareholder paid before the change of control.

What if this right is declined? 

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics

Acting in Concert - CSE Definition



any person acting in concert? means an individual or a company and their nominees who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them of shares in a company, to obtain or consolidate control of that company, and include the following:
 
(a)       a company, its parent company, any subsidiary company and any subsidiary of any such subsidiary company, and any company in which such parent or subsidiary company owns or controls 20% or more of the equity shares of that company, and any company in which 20% or more of the equity shares are owned by the last mentioned company, each with the other
 
(b)                a company with any of its directors (together with their close relations and trusts established to hold the interests of such directors or close relations)
 
 
(d)        a company with any of its pension funds.
 
"close relation? means the spouse, child or spouse of a child, grandchild or spouse of a grandchild, any parent, brother or sister, and their spouses

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Triggering takeovers and mergers code under rule 31(1)(a) is common. 

But mandatory offers under rule 31(1)(b) is bit rare. 

I think last time it happened with LMF. But it was an eventful one. 

Melstarcorp has triggered the mandatory offer twice within a year, as I can remember. In the first instance it went unnoticed. But when they triggered the code for the second time PWC notified SEC.

There was some confusion about the offer price and Harry J and directors initially refused to accept the SEC ruling. They went to courts and after some drama, they bowed down to SEC ruling.

http://www.cse.lk/announcements.do

http://www.cse.lk/cmt/uploadAnnounceFiles/961331277604_486.pdf

Some News Articles on the case

http://www.lankanewspapers.com/news/2012/7/77424.html

http://www.dailymirror.lk/20002/harry-j-released-on-personal-bail

http://www.thesundayleader.lk/2012/07/01/sec-charges-melstacorp-for-non-compliance/

I think it was when TK hold the office @ SEC last time.

geesura

geesura
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Facts

Zm


Stock Trader
@hariesha wrote:When a change of control takes place it may adversely affect the share price. This is because minority shareholders are likely to worry that the company will be run to suit the controlling shareholder, and the interests of minorities may be affected. Therefore, it is only fair to allow them to sell out at the price that the new controlling shareholder paid before the change of control.

What if this right is declined? 
What is the remedy an ordinary shareholder could seek if the secretaries have failed to present the acceptance form which was handed over prior to the deadline at a Mandatory offer under the Takeovers and Mergers Code 1995?

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