Takeover Tactics | Singapore | Global Public M&A Guide

6. Takeover Tactics

[Last updated: 1 June 2022, unless otherwise noted]

6.1 Inside information

A person who is in possession of "inside information" that relates to any securities listed on the SGX-ST is prohibited from (a) dealing in those securities and (b) communicating (directly or indirectly) the inside information to another person if it knows or ought reasonably to know that the other person would or would be likely to deal in those securities or procure a third person to deal in those securities.

"Inside information" means information that is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of securities.
"Dealing" in securities means subscribing for, purchasing or selling, or entering into an agreement to subscribe for, purchase or sell, the securities, or procuring another person to do any of the foregoing.

This difficulty generally arises when a bidder is given the opportunity to conduct due diligence on the target company before a (potential) takeover bid is made (see 3.8 above for further details). In the event that inside information is unearthed during due diligence, the same inside information should be disclosed to the public before a takeover bid is made. This will often be a difficult exercise, and a large gray area will exist as to whether or not certain information constitutes inside information.

6.2 In the event of a public takeover bid

In the event of a (potential) public takeover bid, the Singapore takeover bid rules provide that there must be absolute secrecy before an announcement of a takeover bid. For a partial takeover bid, no announcement can be made unless it is made with the prior approval of the SIC. In addition, before an approach has been made to the target company, if the target company is the subject of rumour or speculation about a possible bid, or if there is undue movement in its share price or a significant increase in the volume of share turnover, and there are reasonable grounds for concluding that it is the potential bidder's actions (whether through purchase of the offeree company's shares or otherwise) which have directly contributed to the situation, the potential bidder must make an announcement. Following an approach to the target company, if the target company is the subject of rumour or speculation about a possible bid, or if there is undue movement in its share price or a significant increase in the volume of share turnover, the target company must make an announcement, whether or not there is a firm intention to make an offer.

6.3 Insider dealing and market abuse

The basic legal framework regarding insider dealing and market abuse under Singapore law is set forth in the Securities and Futures Act.

In principle, the rules on insider dealing and market abuse remain applicable before, during and after a public takeover bid, albeit that during a takeover bid additional disclosures and restrictions apply in relation to trading in listed securities. See 3.3 and 6.1 for more information.

6.4 Stakebuilding

Although stakebuilding is possible, a potential bidder should be aware that it will incur an obligation to publicly disclose its interests in the target when it holds 5% or more of the voting shares (and each change in percentage level thereafter). In addition, a mandatory general offer is triggered if a potential bidder acquires 30% or more of the voting rights of the target company. This obliges the potential bidder to make an offer for all the remaining securities at the highest price paid by it within six months of a mandatory general offer. Conversely, for a voluntary general offer, the potential bidder's minimum bid price is the highest price paid by it within three months of a voluntary general offer. In addition, a stakebuilding exercise will make it more difficult for a potential bidder to invoke the squeeze-out mechanism of minority shareholders, as shares acquired during stakebuilding before the launch of the takeover bid cannot be taken into account when determining if the squeeze-out threshold of 90% is met.

6.5 Irrevocable undertakings

Arrangements by way of irrevocable undertakings to sell shares are not uncommon in Singapore. Under this arrangement, a potential bidder is assured that it will receive a certain level of acceptances for its bid. Typically, a potential bidder will seek to receive undertakings in respect of just over 50% of the total voting rights of the target company.

6.6 Break fees

Break fee arrangements are uncommon in Singapore. Nonetheless, as a general rule under the Code, the break fee must be minimal (normally no more than 1% of the value of the target company, calculated by reference to the bid price). Furthermore, the target company and its financial adviser are required to make full disclosures to the SIC. In this regard, certain capital maintenance issues will have to be addressed, as a Singapore public company is prohibited from giving any financial assistance for the purpose of, or in connection with, the acquisition by any person of shares in the public company.

6.7 Common anti-takeover defence mechanisms

The table below contains a summarized overview of the mechanisms that can be used by a target company as a defence against a takeover bid. These take into account the restrictions that apply to the board and general shareholders' meeting of the target company pending a takeover bid.

Mechanism	Assessment and considerations
1. Capital increase (poison pill) Capital increase by the board without preferential subscription rights of the shareholders.	In the course of a takeover bid, or even before the date of the takeover bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board of the target company may not issue any shares, grant any options in respect of unissued shares or create, issue or permit the creation or issuance of any securities carrying rights of conversion into or subscription for shares of the target company. Exceptions: Pursuant to a contract entered into earlier; or Approval of shareholders holding more than 50% of the total voting rights at a general meeting is obtained. The notice convening such meeting must include information about the bid or anticipated bid.
2. Share buyback Share buyback "with a view to avoiding imminent and serious harm" to the company.	In the course of a takeover bid, or even before the date of the takeover bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board of the target company may not cause the target company or any subsidiary or associated company to purchase or redeem any shares in the target company or provide financial assistance for any such purchase. Exceptions: Pursuant to a contract entered into earlier; or Approval of shareholders holding more than 50% of the total voting rights at a general meeting is obtained. The notice convening such meeting must include information about the bid or anticipated bid.
3. Sale of crown jewels An arrangement affecting the assets of, or creating a liability for, the company, which is triggered by a change in control or the launch of a takeover bid.	In the course of takeover bid, or even before the date of the bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board of the target company may not sell, dispose of or acquire, or agree to sell, dispose of or acquire, assets of a material amount. Exceptions: Pursuant to a contract entered into earlier; or Approval of shareholders holding more than 50% of the total voting rights at a general meeting is obtained. The notice convening such meeting must include information about the bid or anticipated bid.
4. Warrants on new shares Warrants are issued prior to the takeover bid in favor of "friendly person(s)" (without preferential subscription rights of the shareholders) who can exercise the warrants at their option and subscribe for new shares.	See item 1 above.
5. Cross shareholdings Acquisition of more than 10% of voting rights in the potential bidder (or its subsidiaries) prohibits a bidder from acquiring more than 10% of shares in a target.	Subject to the Rule 5 general prohibition under the Code, which provides that in the course of a takeover bid, or even before the date of the takeover bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board must not take any action on the affairs of the target company that could effectively result in any bona fide bid being frustrated or the shareholders being denied an opportunity to decide on its merits. Exceptions: Pursuant to a contract entered into earlier; or Approval of shareholders holding more than 50% of the total voting rights at a general meeting is obtained. The notice convening such meeting must include information about the bid or anticipated bid.
6. Frustrating actions Actions such as significant acquisitions, disposals, changes in indebtedness, etc.	Only pursuant to a contract entered into before the date of the takeover bid and before the board of the target company has reason to believe that a bona fide takeover bid is imminent. Other transactions require the approval of shareholders holding more than 50% of the total voting rights at a general meeting. The notice convening such meeting must include information about the bid or anticipated bid.
7. Shareholders' agreements Shareholders undertake to (consult with a view to) vote their shares in accordance with terms agreed among them.	The shareholders could be considered as "acting in concert". If so, disclosure obligations apply and (a) if they hold less than 30% of voting rights, an obligation to make a takeover bid would arise if any member of that group acquired further shares so that the group's aggregate holdings of voting rights reached 30% or more, or (b) if they hold between 30% to 50% of voting rights, an obligation to make a takeover bid would arise if any member of that group acquired shares which would result in aggregate acquisitions by the group amounting to more than 1% of the voting rights in any six-month period.
8. Limitation of voting rights Clause in the articles of association providing for a proportional restriction of voting rights (applying to all shareholders equally).	Subject to the Rule 5 general prohibition under the Code, which provides that in the course of a takeover bid, or even before the date of the takeover bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board must not take any action on the affairs of the target company that could effectively result in any bona fide takeover bid being frustrated or the shareholders being denied an opportunity to decide on its merits. A possible exception is if the approval of shareholders holding more than 75% of the total voting rights at a general meeting is obtained for the amendment to the constitution of the target company, with the notice convening such meeting to include information about the bid or anticipated bid. However, the curtailment of voting rights could be in contravention of paragraph 8(a) of Appendix 2.2 of the Listing Manual.
9. Veto rights for certain shareholders Clauses providing for nomination rights by a reference shareholder or similar governance mechanisms.	Subject to the Rule 5 general prohibition under the Code, which provides that in the course of a takeover bid, or even before the date of the takeover bid, if the board of the target company has reason to believe that a bona fide takeover bid is imminent, the board must not take any action on the affairs of the target company that could effectively result in any bona fide takeover bid being frustrated or the shareholders being denied an opportunity to decide on its merits. Exceptions: Pursuant to a contract entered into earlier; or Approval of shareholders holding more than 75% of the total voting rights at a general meeting is obtained for the amendment to the constitution of the target company. The notice convening such meeting must include information about the bid or anticipated bid.
10. Limitations on share transfers Board approval or pre-emptive restriction clauses in the articles of association or in agreements between shareholders.	A listed target company must ensure that, in its constitution, there shall be no restriction on the transfer of fully paid securities except where required by law or the Listing Manual. Private arrangements between shareholders to limit share transfers are still possible. Shareholders could be considered as "acting in concert". If so, see "Shareholders' agreements" above.

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