26 February 2019
On 25 January 2019, the Singapore Code on Take-overs and Mergers (“Code”) was amended to clarify its application to companies with a dual class share structure (“DCS companies”) that are primary listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”).
In a DCS company, shares in one class carry multiple votes each (“MV shares”), while shares in another class carry only one vote each (“OV shares”).
The Code was revised to provide for reliefs for a DCS company shareholder when the obligation to make a mandatory offer under the Code is triggered as a result of the conversion of MV shares into OV shares or reduction of voting rights of MV shares. Safeguards for holders of OV shares in a DCS company are addressed in the Code.
The revisions to the Code follow a public consultation conducted by the Securities Industry Council (“SIC”) from 19 July 2018 to 17 August 2018. On 24 January 2019, the SIC issued the “Consultation Conclusions on Revision of the Singapore Code on Take-overs and Mergers” (“SIC Response”) setting out its response to the feedback received from the public consultation.
Duty to make mandatory offer triggered by conversion of MV shares into OV shares or reduction of voting rights of MV shares
Conversion of MV shares
MV shares of a DCS company listed on the SGX-ST may be held by an individual or a group of persons or an entity (“permitted holder group”). The holder of MV shares must be appointed as a director of the listed DCS company (“Responsible Director”), or in the case of a permitted holder group, a Responsible Director must be appointed for the group.
The MV shares may be converted into OV shares:
- voluntarily by the holders of MV shares (“Voluntary Conversion”); or
- automatically, on a one-for-one basis, if a Responsible Director ceases to be a director (or in the case of a permitted holder group, where a new Responsible Director is not appointed), or the MV share is sold or transferred to any person (or in the case of a permitted holder group, to a person who is not in the permitted holder group) (“Automatic Conversion”), unless waiver of such Automatic Conversion is approved by independent shareholders at a general meeting where one MV share is limited to only one vote.
Reduction of voting rights
Holders of MV shares can seek to reduce the number of voting rights attached to each MV share (“Reduction”). For example, 10 votes per MV share may be reduced to five votes per MV share.
Mandatory offer under the Code
Rule 14.1 of the Code provides that, except with SIC’s consent, any person who:
- acquires shares which carry 30% or more of the voting rights of a company; or
- together with persons acting in concert with him holds not less than 30% but not more than 50% of the voting rights, and such person, or any person acting in concert with him, acquires in any period of six months additional shares carrying more than 1% of the voting rights,
is required to make a mandatory offer for the remaining voting rights in the company.
A Voluntary Conversion or an Automatic Conversion (each, a “Conversion”), or a Reduction will lower the total number of voting rights of a DCS company, which may result in an increase in the percentage of voting rights of a shareholder of the DCS company and persons acting in concert with him.
The Code provides that an increase in the percentage of voting rights of such a shareholder or group of shareholders acting in concert (“Triggering Shareholder”) amounts to an acquisition for the purpose of Rule 14.1 of the Code. Therefore, the Triggering Shareholder is required to make a mandatory offer under the Code.
Duty to make mandatory offer waived for shareholder independent of Conversion or Reduction
The obligation to make a mandatory offer under Rule 14 of the Code is waived for a Triggering Shareholder who is independent of a Conversion or a Reduction. In the SIC Response, SIC stated that whether or not a Triggering Shareholder is independent would depend on the specific circumstances of a Conversion or a Reduction. Therefore, the Triggering Shareholder should consult SIC in all relevant cases and explain why he should be regarded as independent.
Duty to make mandatory offer may be waived in certain circumstances for shareholder not independent of Conversion or Reduction
Where a Triggering Shareholder is not independent of a Conversion or a Reduction, he is subject to the following requirements under the Code:
- Making mandatory offer: The Triggering Shareholder is required to make a mandatory offer under Rule 14 within six months after the date of the Conversion or the Reduction;
- SIC waiver subject to Whitewash Resolution: SIC will grant a waiver from the requirement for the Triggering Shareholder to make a mandatory offer under Rule 14, subject to the approval of the independent shareholders of the DCS company for a Whitewash Resolution being obtained either before or within three months after the date of the Conversion or the Reduction. The Whitewash Resolution is a separate resolution that is approved at a general meeting of the DCS company by a majority of the independent shareholders, on a poll, waiving their rights to receive a take-over offer; and
- Disposing shares in lieu of making mandatory offer: In lieu of making a mandatory offer under Rule 14, SIC will allow the Triggering Shareholder to dispose of such number of shares as is necessary to reduce his aggregate voting rights in the DCS company to below the thresholds stipulated in Rule 14.1 within six months of the date of the Conversion or the Reduction (or such longer time period as SIC may allow in exceptional circumstances).
Offer price for MV shares and OV shares in take-over offer should be the same
When making a take-over offer for a DCS company, an offeror may have to make an offer for both MV shares and OV shares. The Code provides that where a company has more than one class of equity share capital, a comparable offer must be made for each class of shares. In the case where traded prices are not available for all the classes of equity shares and those classes of shares differ only in their voting rights (which would be the case for MV shares and OV shares), the offer price for MV shares and OV shares should be the same. In all other cases, the relative offer prices would need to be justified to SIC in advance.
- MAS media release dated 24 January 2019
- The Singapore Code on Take-overs and Mergers issued on 24 January 2019
- SIC Consultation Conclusions on Revision of The Singapore Code on Take-overs and Mergers