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| Bankers, Analysts Back New M&A Rules |
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Investment bankers and analysts in "The proposed changes have the effect of simplifying acquisition processes, cutting down costs and boosting efficiency," said Yang Liang, deputy general manager of Shenyin & Wanguo Securities' mergers and acquisitions (M&A) division. "That, I believe, is exactly what the CSRC intends to accomplish (with the new rules)," he added. The new draft rules will boost takeovers in terms of both scale and volume, and will attract more foreign investors and intermediaries to a market currently dominated by domestic players, according to bankers and analysts. Competitive acquisition by more than one bidder and anti-acquisition behavior by current controlling shareholders and management, who will now have specific rules to follow, will emerge to make the market more active, they said. A major change proposed by the new draft rules is that the acquiring party is no longer compelled to make a tender offer to the rest of the target company when the acquirer holds a 30 percent stake and seeks to further increase its holding. Under China's current rules enacted in December 2002, if the acquiring company already holds 30 percent of shares in a domestically listed company and wishes to buy more, it has to make an offer for all of the target's outstanding shares unless it gets an exemption from the CSRC. This requirement, common among the mergers and takeovers codes in most other markets, was designed to ensure that small shareholders are not short-changed in a takeover bid. The new draft rules would make the full bid offer voluntary. In addition, the acquiring company will be given another alternative under the draft regulations to make a partial bid to the target's remaining shares with the lower limit capped at 5 percent. Changes are also proposed to the tender offer price, bringing it more in line with the market price. While the current rules allow a 90 percent discount on the weighted-average price of the 30 trading days prior to the offer announcement, the new draft rules have abolished the discount. The draft rules would for the first time allow acquiring companies to offer stock or assets as payment for the target firm where the payment is structured in terms of a stock or asset swap. The new draft rules also propose a change to the role of independent financial advisers and other intermediaries this is highlighted in a new and separate chapter of the draft, which stipulates that it is compulsory to appoint a certified financial adviser when making acquisitions in publicly traded companies. "To strengthen the role of financial advisers is to reduce the involvement of administrative authorities and thereby make the M&A activities more market-oriented," said Chen Mingjian, president of the Beijing-based M&A firm HollyHigh International Capital Co Ltd, who is involved in drafting the new rules. Currently only big domestic brokerages are certified by the CSRC to act as financial advisers. The commission is to issue separate rules soon regarding certification of other institutions including foreign ones, bankers said. (
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