SFC outlaws 'one-cent' takeover bids

PUBLISHED : Tuesday, 23 August, 2005, 12:00am
UPDATED : Tuesday, 23 August, 2005, 12:00am

The securities watchdog will ban 'one-cent' or 'low-ball' offers in takeover bids from October 1.

The Securities and Futures Commission yesterday announced that the takeover code would be amended, forcing bidders to offer at least 50 per cent of the market price of the target company.

SFC chief operating officer Peter Au-Yang Cheong-yan said the commission also was keen to introduce Britain's 'put up or shut up' policy, which allows the regulator to impose a deadline by which a potential buyer must declare a firm intention to make a takeover offer or withdraw.

'In principle, the SFC agrees with the put up or shut up provisions and as a matter of practice we will apply those principles to appropriate live transactions,' Mr Au-Yang said.

However, as the policy was introduced in London only after the SFC had launched its consultation paper, the commission will have to wait until its next review of the code to add it to the provisions.

Like the put up or shut up provision, the ban on the one-cent takeover is aimed at preventing hostile bidders from frustrating the target company's business.

The recent consultation results showed that the market supported the SFC proposals to impose the ban after complaints from a number of companies subject to takeover offers substantially below the market price.

In each case the takeovers failed but the one-cent offers were seen as a tactic to frustrate the target firm rather than a genuine attempt to acquire control of the business.

The most notorious low-ball offer came from Yu Ming Investments during its hostile takeover bid for China Motor Bus in July 2002, when it offered one cent per share to shareholders when the company was trading at $70 with the promise it would liquidate the firm's assets and pay $90.60 a share after gaining control.

However, Mr Au-Yang said the new code might not prevent such a situation from arising, as Yu Ming's total offer, including the $90.60 payout, would have exceeded the market price.

'The China Motor Bus case was not really a one-cent takeover,' he said.

Other changes to come into effect in October include one involving the takeover of telecommunications companies, with the commission extending the offer period to allow concerned parties to wait for the results of any review by the Telecommunications Authority.