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The Mergers & Acquisitions Review Law Business Research Eighth Edition Editor Mark Zerdin

Transcript of The Mergers & Acquisitions Review - Slaughter and May · PDF fileThe Mergers & Acquisitions...

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The Mergers & Acquisitions

Review

Law Business Research

Eighth Edition

Editor

Mark Zerdin

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The Mergers & Acquisitions Review

The Mergers & Acquisitions Review

Reproduced with permission from Law Business Research Ltd.This article was first published in The Mergers & Acquisitions Review - Edition 8

(published in August 2014 – editor Mark Zerdin).

For further information please [email protected]

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The Mergers & Acquisitions

Review

Eighth Edition

EditorMark Zerdin

Law Business Research Ltd

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THE MERGERS AND ACQUISITIONS REVIEW

THE RESTRUCTURING REVIEW

THE PRIVATE COMPETITION ENFORCEMENT REVIEW

THE DISPUTE RESOLUTION REVIEW

THE EMPLOYMENT LAW REVIEW

THE PUBLIC COMPETITION ENFORCEMENT REVIEW

THE BANKING REGULATION REVIEW

THE INTERNATIONAL ARBITRATION REVIEW

THE MERGER CONTROL REVIEW

THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW

THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW

THE CORPORATE GOVERNANCE REVIEW

THE CORPORATE IMMIGRATION REVIEW

THE INTERNATIONAL INVESTIGATIONS REVIEW

THE PROJECTS AND CONSTRUCTION REVIEW

THE INTERNATIONAL CAPITAL MARKETS REVIEW

THE REAL ESTATE LAW REVIEW

THE PRIVATE EQUITY REVIEW

THE ENERGY REGULATION AND MARKETS REVIEW

THE INTELLECTUAL PROPERTY REVIEW

THE LAW REVIEWS

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www.TheLawReviews.co.uk

THE ASSET MANAGEMENT REVIEW

THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW

THE MINING LAW REVIEW

THE EXECUTIVE REMUNERATION REVIEW

THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW

THE CARTELS AND LENIENCY REVIEW

THE TAX DISPUTES AND LITIGATION REVIEW

THE LIFE SCIENCES LAW REVIEW

THE INSURANCE AND REINSURANCE LAW REVIEW

THE GOVERNMENT PROCUREMENT REVIEW

THE DOMINANCE AND MONOPOLIES REVIEW

THE AVIATION LAW REVIEW

THE FOREIGN INVESTMENT REGULATION REVIEW

THE ASSET TRACING AND RECOVERY REVIEW

THE INTERNATIONAL INSOLVENCY REVIEW

THE OIL AND GAS LAW REVIEW

THE FRANCHISE LAW REVIEW

THE PRODUCT REGULATION AND LIABILITY REVIEW

THE SHIPPING LAW REVIEW

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PUBLISHER Gideon Roberton

BUSINESS DEVELOPMENT MANAGERS Adam Sargent, Nick Barette

SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee, James Spearing

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The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients.

Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of August 2014, be

advised that this is a developing area.Enquiries concerning reproduction should be sent to Law Business Research, at the

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The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

AABØ-EVENSEN & CO ADVOKATFIRMA

ÆLEX

AGUILAR CASTILLO LOVE

AKD N.V.

ALLEN & GLEDHILL LLP

ANDERSON MŌRI & TOMOTSUNE

ARIAS, FÁBREGA & FÁBREGA

ARIAS & MUÑOZ

BEITEN BURKHARDT RECHTANSWALTSGESELLSCHAFT MBH

BHARUCHA & PARTNERS

BNT ATTORNEYS-AT-LAW

BOWMAN GILFILLAN

BREDIN PRAT

BRIGARD & URRUTIA

CAMPOS FERREIRA, SÁ CARNEIRO & ASSOCIADOS

CLEARY GOTTLIEB STEEN & HAMILTON LLC

COULSON HARNEY

CRAVATH, SWAINE & MOORE LLP

DEGUARA FARRUGIA ADVOCATES

ACKNOWLEDGEMENTS

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Acknowledgements

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DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP

DENTONS

DITTMAR & INDRENIUS

DRYLLERAKIS & ASSOCIATES

ELİG ATTORNEYS-AT-LAW

FENXUN PARTNERS

HARNEYS

HENGELER MUELLER

HEUKING KÜHN LÜER WOJTEK

ISOLAS

KBH KAANUUN

KEMPHOOGSTAD, S.R.O.

KIM & CHANG

KING & WOOD MALLESONS

KINSTELLAR, S.R.O., ADVOKÁTNÍ KANCELÁŘ

MAKES & PARTNERS LAW FIRM

MANNHEIMER SWARTLING ADVOKATBYRÅ

MATHESON

MNKS

MORAVČEVIĆ VOJNOVIĆ I PARTNERI IN COOPERATION WITH SCHÖNHERR

MOTIEKA & AUDZEVIČIUS

NISHIMURA & ASAHI

OSLER, HOSKIN & HARCOURT LLP

PÉREZ BUSTAMANTE & PONCE

PINHEIRO NETO ADVOGADOS

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Acknowledgements

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POPOVICI NIȚU & ASOCIAȚII

RAIDLA LEJINS & NORCOUS

ROJS, PELJHAN, PRELESNIK & PARTNERS

RUBIO LEGUÍA NORMAND

RUSSIN, VECCHI & HEREDIA BONETTI

S HOROWITZ & CO

SANTAMARINA Y STETA, SC

SCHELLENBERG WITTMER LTD

SCHÖNHERR RECHTSANWÄLTE GMBH

SELVAM & PARTNERS

SEYFARTH SHAW LLP

SKRINE

SLAUGHTER AND MAY

STRELIA

SYCIP SALAZAR HERNANDEZ & GATMAITAN

TORRES, PLAZ & ARAUJO

URÍA MENÉNDEZ

UTEEM CHAMBERS

WEERAWONG, CHINNAVAT & PEANGPANOR LTD

WILSON SONSINI GOODRICH & ROSATI

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Editor’s Preface .................................................................................................xiiiMark Zerdin

Chapter 1 EUROPEAN OVERVIEW .........................................................1Mark Zerdin

Chapter 2 EUROPEAN COMPETITION ................................................13Götz Drauz and Michael Rosenthal

Chapter 3 EUROPEAN PRIVATE EQUITY .............................................20Thomas Sacher, Steffen Schniepp and Guido Ruegenberg

Chapter 4 US ANTITRUST ......................................................................33Scott A Sher, Christopher A Williams and Bradley T Tennis

Chapter 5 CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A .......................................................51

Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart

Chapter 6 AUSTRALIA .............................................................................64Lee Horan and Greg Golding

Chapter 7 AUSTRIA ..................................................................................79Christian Herbst

Chapter 8 BAHRAIN ................................................................................91Haifa Khunji and Maryia Abdul Rahman

Chapter 9 BELGIUM ..............................................................................106Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas

CONTENTS

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Contents

Chapter 10 BRAZIL...................................................................................117Fernando Alves Meira and Gustavo Paiva Cercilli Crêdo

Chapter 11 BRITISH VIRGIN ISLANDS ................................................128Jacqueline Daley-Aspinall and Murray Roberts

Chapter 12 CANADA ................................................................................144Robert Yalden and Emmanuel Pressman

Chapter 13 CAYMAN ISLANDS ..............................................................160Marco Martins

Chapter 14 CHINA ...................................................................................177Fred Chang, Wang Xiaoxiao and Huang Jiansi

Chapter 15 COLOMBIA ...........................................................................191Sergio Michelsen Jaramillo

Chapter 16 COSTA RICA .........................................................................207John Aguilar Jr and Alvaro Quesada

Chapter 17 CYPRUS .................................................................................217Nancy Ch Erotocritou

Chapter 18 CZECH REPUBLIC ...............................................................224Lukáš Ševčík, Jitka Logesová and Bohdana Pražská

Chapter 19 DOMINICAN REPUBLIC ....................................................233María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez

Chapter 20 ECUADOR .............................................................................243Diego Pérez-Ordóñez

Chapter 21 ESTONIA ...............................................................................253Sven Papp and Karl-Erich Trisberg

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Contents

Chapter 22 FINLAND...............................................................................266Jan Ollila, Anders Carlberg and Wilhelm Eklund

Chapter 23 FRANCE .................................................................................277Didier Martin and Raphaël Darmon

Chapter 24 GERMANY .............................................................................292Heinrich Knepper

Chapter 25 GIBRALTAR ...........................................................................304Steven Caetano

Chapter 26 GREECE .................................................................................317Cleomenis G Yannikas, Sophia K Grigoriadou and Anna S Damilaki

Chapter 27 GUATEMALA ........................................................................330Jorge Luis Arenales de la Roca and Luis Pedro Del Valle

Chapter 28 HONG KONG .......................................................................338Jason Webber

Chapter 29 HUNGARY .............................................................................347Levente Szabó and Réka Vízi-Magyarosi

Chapter 30 ICELAND ...............................................................................363Hans Henning Hoff

Chapter 31 INDIA .....................................................................................371Justin Bharucha

Chapter 32 INDONESIA ..........................................................................390Yozua Makes

Chapter 33 IRELAND ...............................................................................404Éanna Mellett and Robert Dickson

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Chapter 34 ISRAEL ...................................................................................413Clifford Davis and Keith Shaw

Chapter 35 ITALY ......................................................................................424Maurizio Delfino

Chapter 36 JAPAN .....................................................................................437Hiroki Kodate and Junya Ishii

Chapter 37 KENYA ...................................................................................447Joyce Karanja-Ng’ang’a and Felicia Solomon Ndale

Chapter 38 KOREA ...................................................................................458Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee

Chapter 39 LITHUANIA ..........................................................................473Giedrius Kolesnikovas and Michail Parchimovič

Chapter 40 LUXEMBOURG ....................................................................479Marie-Béatrice Noble and Stéphanie Antoine

Chapter 41 MALAYSIA .............................................................................493Janet Looi Lai Heng and Fariz Abdul Aziz

Chapter 42 MALTA ...................................................................................505Jean C Farrugia and Bradley Gatt

Chapter 43 MAURITIUS ..........................................................................515Muhammad Reza Cassam Uteem and Basheema Farreedun

Chapter 44 MEXICO ................................................................................525Aarón Levet V and Isaac Zatarain V

Chapter 45 MONTENEGRO ...................................................................534Slaven Moravčević and Nikola Babić

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Chapter 46 MYANMAR ............................................................................544Krishna Ramachandra and Benjamin Kheng

Chapter 47 NETHERLANDS ...................................................................554Carlos Pita Cao and François Koppenol

Chapter 48 NIGERIA ................................................................................566Lawrence Fubara Anga

Chapter 49 NORWAY ...............................................................................571Ole K Aabø-Evensen

Chapter 50 PANAMA ................................................................................608Julianne Canavaggio

Chapter 51 PERU ......................................................................................618Emil Ruppert and Sergio Amiel

Chapter 52 PHILIPPINES .........................................................................628Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Catherine D Dela Rosa

Chapter 53 POLAND ................................................................................637Paweł Grabowski, Rafał Celej and Agata Sokołowska

Chapter 54 PORTUGAL ...........................................................................650Martim Morgado and João Galvão

Chapter 55 ROMANIA .............................................................................662Andreea Hulub, Alexandra Niculae and Vlad Ambrozie

Chapter 56 RUSSIA ...................................................................................677Scott Senecal, Yulia Solomakhina, Polina Tulupova,Yury Babichev and Alexander Mandzhiev

Chapter 57 SERBIA ...................................................................................696Matija Vojnović and Luka Lopičić

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Chapter 58 SINGAPORE ..........................................................................706Lim Mei and Lee Kee Yeng

Chapter 59 SLOVENIA .............................................................................716David Premelč, Bojan Šporar and Jakob Ivančič

Chapter 60 SOUTH AFRICA ...................................................................727Ezra Davids and Ashleigh Hale

Chapter 61 SPAIN .....................................................................................739Christian Hoedl and Javier Ruiz-Cámara

Chapter 62 SWEDEN ...............................................................................755Biörn Riese, Eva Hägg and Anna Brannemark

Chapter 63 SWITZERLAND ....................................................................763Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane

Chapter 64 THAILAND ...........................................................................774Troy Schooneman and Jeffrey Sok

Chapter 65 TURKEY .................................................................................781Tunç Lokmanhekim and Nazlı Nil Yukaruç

Chapter 66 UNITED ARAB EMIRATES..................................................790DK Singh and Stincy Mary Joseph

Chapter 67 UNITED KINGDOM ...........................................................802Mark Zerdin

Chapter 68 UNITED STATES ..................................................................829Richard Hall and Mark Greene

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Chapter 69 VENEZUELA .........................................................................869Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M

Chapter 70 VIETNAM ..............................................................................882Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc

Appendix 1 ABOUT THE AUTHORS .....................................................893

Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .....943

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EDITOR’S PREFACE

There is cause for optimism and caution in light of the past year’s events. First, we can be tentatively optimistic about Europe. The possibility of a euro

breakup appears to have faded, and European equities markets performed, on the whole, exceptionally well in 2013. Indeed, the euro/dollar basis swap has moved sufficiently to open up euro capital markets to borrowers wishing to swap proceeds to dollars; the World Bank sold its first euro benchmark bond for more than four years in November 2013, and non-European companies like Sinopec and Korea Natural Gas have issued large euro bonds in recent months. If the European economy continues to grow (and analysts are expecting growth to quicken), it is hoped that the prospect of crisis will continue to fade.

Second, though 2013 was a comparatively languid year for global M&A, the buoyancy of the credit and equity markets cannot be ignored. In terms of financing, the seeming willingness of banks to allow for looser borrower constraints, to underwrite jumbo facilities in small syndicates, and to offer flexible and fast bridge-financing for high-value acquisitions, presents a financing climate that should be particularly amenable to corporate M&A. It is also notable that continued political and economic instability did not impede the completion of some standout deals in 2013, including the Glencore/Xstrata tie-up and Vodafone’s disposal of its shareholding in Verizon Wireless. These deals show that market participants are able, for the right deal, to pull out all the stops. After a period of introspection and careful balance sheet management, corporates may be increasingly tempted to put cash to work through M&A.

There remains, however, cause for prudence. There is considerable uncertainty as to how markets will process the tapering of quantitative easing (QE) by the US Federal Reserve. The merest half-mention by Ben Bernanke, in May 2013, of a possible end to QE was enough to shake the markets, and to nearly double the 10-year US Treasury yield in a matter of months. Emerging markets are particularly sensitive to these shocks. The oncoming end of QE may already have been priced into the markets, but there is a possibility that its occurrence will cause further, severe market disruption. In addition, there are concerns around how the funding gap left by huge bank deleveraging will be

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filled, and centrifugal pressures continue to trouble European legislators. Finally, there are broader concerns as to the depth of the global economic recovery as growth in the BRIC economies seems to slow. Optimism should, therefore, be tempered with caution.

I would like to thank the contributors for their support in producing the eighth edition of The Mergers & Acquisitions Review. I hope that the commentary in the following chapters will provide a richer understanding of the shape of the global markets, together with the challenges and opportunities facing market participants.

Mark ZerdinSlaughter and MayLondonAugust 2014

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Chapter 28

HONG KONG

Jason Webber1

I OVERVIEW OF M&A ACTIVITY2

M&A activity in Hong Kong showed signs of acceleration in 2013. Hong Kong saw a 63.53 per cent increase in the value of M&A deals announced in 2013 compared to 2012, with a total value of US$28,366 million compared with US$17,346 million in 2012.3

The Hong Kong securities markets showed healthy signs of growth in 2013 in terms of market capitalisation and trading activity. The total market capitalisation of the securities market at the end of 2013 was HK$24,042.8 billion, 10 per cent higher than the year-end total market capitalisation in 2012. Total securities market turnover in 2013 was HK$15,264.6 billion, an increase of 15 per cent compared with 2012. A total of 110 companies were newly listed on The Stock Exchange of Hong Kong Limited (HKSE) in 2013, and the total equity funds raised on HKSE in 2013 was HK$374.3 billion.4

For 2013 as a whole, the Hong Kong economy saw a 2.9 per cent expansion, down from an average annual growth rate of 4.5 per cent over the decade. The fourth quarter of 2013 saw growth year-on-year. The Hong Kong government has forecast that the Hong Kong economy will post growth of between 3 per cent and 4 per cent in 2014.5

1 Jason Webber is a partner at Slaughter and May. The author would like to thank Christine Yu for her assistance in preparing this chapter, and to acknowledge the contribution of George Goulding, the co-author of the first edition of this chapter.

2 Statistics on mergers and acquisitions involving Hong Kong companies differ significantly among various sources. This summary covers all Hong Kong M&A activity from 1 January 2013 to 31 December 2013.

3 Source: Bloomberg Asia Pacific Legal Advisory M&A Rankings FY 2013.4 Source: HKSE Fact Book 2013.5 Source: Hong Kong Census and Statistics Department.

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II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

The law governing mergers and acquisitions in Hong Kong comprises primary legislation, regulatory rules, the law of contract and case law.

The primary legislation, which applies principally to Hong Kong-incorporated companies in general, is the Companies Ordinance (CO), and includes provisions relating to financial assistance for the acquisition of a company’s own shares, merger relief, transfers of shares and schemes of arrangement affecting mergers. The Securities and Futures Ordinance (SFO) is also relevant, covering the regulation of offers of securities and the communication of invitations and inducements to engage in securities transactions. For companies in certain industries, there is also specific legislation that may be relevant, for example:a the Banking Ordinance for banking, restricted licence banking and deposit-

taking companies;b the SFO for securities, financial advisory and asset management companies;c the Broadcasting Ordinance (BO) and the Telecommunications Ordinance (TO)

for radio, television broadcasting and telecommunications companies; andd the Insurance Companies Ordinance for insurance companies.

Prior approval of ownership changes from relevant regulatory bodies may be required under the legislation listed above.

If an M&A transaction involves a company whose shares are listed on the HKSE, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules) will also apply. In addition, the Securities and Futures Commission (SFC), in consultation with the Takeovers and Mergers Panel (the Panel) – a committee formed by the SFC pursuant to the SFO – has issued the Code on Takeovers and Mergers (the Takeovers Code), which applies to takeovers, mergers and share buy-backs affecting public companies6 in Hong Kong and companies with a primary listing of their equity securities in Hong Kong. The Takeovers Code is not statutory and does not have the force of law, but the Listing Rules expressly require compliance with the Takeovers Code. As a non-governmental statutory body, the SFC regulates the securities and futures markets in Hong Kong and oversees the development of these markets. Its decisions apply to mergers and acquisitions of public companies.

6 The Takeovers Code states that all circumstances are to be considered, and an economic or commercial test is to be applied (taking into account primarily the number of Hong Kong shareholders and the extent of share trading in Hong Kong), in deciding whether a company is a ‘public company’. For the purposes of the CO, a private company is a company incorporated in Hong Kong that, by its articles of association: (1) restricts the right to transfer its shares; (2) limits the number of its members to 50, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the termination of that employment to be, members of the company; and (3) prohibits any invitation to the public to subscribe for any shares or debentures of the company (Section 11 of the CO).

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Since Hong Kong is a common law jurisdiction,7 the law of contract (which is largely derived from English law) and case law8 also form an important part of the law governing mergers and acquisitions in Hong Kong.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

i Takeovers Code

To ensure that the Takeovers Code takes account of market developments and developing international practice, it is kept under regular review by the Executive of the SFC (the Executive), in consultation with the Panel.

In March 2012, the SFC amended the Takeovers Code in three significant respects: (1) in relation to the requirements for property valuations; (2) in relation to confirmations of independence in placing and top-up transactions; and (3) in relation to the timing of payment for acceptances.

In March 2014, the SFC further amended the Takeovers Code in two main respects: (1) changing the terminology used in the Takeovers Code from share ‘repurchases’ to share ‘buy-backs’ to bring it in line with the new Companies Ordinance; (2) making housekeeping amendments including changing references to the Telecommunications Authority to the Communications Authority to reflect changes to the Telecommunications Ordinance; reducing the number of copies of a document that must be filed with the Executive under Rule 12.1 of the Takeovers Code from six to two to promote environmentally friendly practices; and deleting Rule 26.6 and Note to Rule 26.6 as they are no longer applicable.

ii Listing Rules

The Listing Rules reflect currently acceptable standards in the market place and are designed to ensure that investors have, and can maintain, confidence in the market. To ensure that the Listing Rules take account of market developments and developing international practice, the HKSE regularly reviews the Listing Rules and may, subject to the approval of the Securities and Futures Commission under Section 24 of the SFO, make amendments to the Listing Rules.

The Listing Rules were amended on 1 January 2012 in relation to issuers, including: (1) in relation to an acquisition or disposal of a company listed on the HKSE, the requirement to prepare a property valuation has been removed; (2) in relation to an acquisition or disposal of an unlisted company, a property valuation is not required if the carrying amount of the property interest in the company being acquired or disposed of is below 1 per cent of the issuer’s total assets, and the total carrying amount of property

7 Under the ‘one country, two systems’ approach, implemented after the transfer of sovereignty over Hong Kong to the People’s Republic of China (China) on 1 July 1997, Hong Kong remains a common law jurisdiction.

8 English case law has only persuasive authority and is subject to interpretation by the Hong Kong courts.

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interests not valued must not exceed 10 per cent of the issuer’s total assets; and (3) in relation to mining activities, a separate valuation of property interests ancillary to mining activities is not required if the mining activities and ancillary property interests have been valued as a business or an operating entity.

The Listing Rules were amended on 1 October 2013 in order to introduce the new sponsor regulation for initial public offerings.

iii The new Companies Ordinance

The Companies Bill was passed by the Legislative Council on 12 July 2012 and the new Companies Ordinance was gazetted on 10 August 2012. It came into effect on 3 March 2014. Under the new Companies Ordinance, the requirements for approving a scheme of arrangement differ depending on the type of scheme. For privatisation schemes and members’ schemes involving a takeover offer or a general offer, the headcount test (which requires a majority of the shareholders of the ‘target’ company voting on a scheme of arrangement (either in person or by proxy) must vote in favour of it) has been replaced by a requirement that ‘not more than 10 per cent of the total voting rights attached to all disinterested shares are voted against the proposal’. This new ‘disinterested shares test’ is aligned with the requirement under the Takeovers Code in the context of a takeover. In addition, the headcount test has been retained for creditors’ schemes and members’ schemes not involving a takeover offer or a general offer. In the latter case, the court would be given discretion to dispense with the test in appropriate circumstances.

In addition to the revision to the headcount test, the most significant changes under the new Companies Ordinance, which are relevant in the context of M&A, are set out below:a a company and its wholly-owned subsidiaries may amalgamate and continue as

one company without sanction of the court provided that:• each amalgamating company is a Hong Kong incorporated company limited

by shares; • each amalgamating company is part of the same wholly-owned group of

companies; • each amalgamating company’s board of directors votes in favour of making a

specified solvency statement;• each amalgamating company is solvent, and the amalgamated company will

be able to pay its debts for the next 12 months after the amalgamation takes place;

• if any amalgamating company has created a floating charge (or in unusual circumstances, any other security which has not ‘attached’), each person entitled to that security gives written consent to the amalgamation proposal;

• no creditor of an amalgamating company will be prejudiced by the amalgamation;

• secured creditors are notified in writing of the proposed amalgamation, each amalgamating company’s board of directors publishes a notice of the proposed amalgamation in an English-language newspaper and in a Chinese-language newspaper; and

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• the amalgamation is approved under a process that is in accordance with the articles of association of each amalgamating company;

b while the general prohibition on a company providing financial assistance for an acquisition of shares in itself would continue to apply to private companies as well as public companies, the ‘whitewash’ procedures have been streamlined and extended to listed companies. In addition, it is now expressly provided that a company is not prohibited from giving financial assistance for the purpose of an acquisition of shares in its holding company if the holding company is incorporated outside Hong Kong; and

c certain concepts relating to share capital have been updated (par value (or nominal value), share premium and the requirement for authorised capital, have been abolished), giving companies more flexibility in structuring and organising their share capital. Despite the absence of share premium, merger relief will continue to be available. The amount required to be recorded as share capital in respect of the consideration shares issued by the acquiring company will be the subscribed capital attributable to the acquired shares.

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

Given Hong Kong’s position as a hub for investment into China, its status as a major regional financial centre and the widespread use of offshore companies for investment into and out of China, a substantial number of transactions have foreign involvement, including in the form of acquisitions by offshore companies. An analysis by reference to foreign involvement in transactions is therefore not particularly meaningful.

V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

As a significant number of companies whose shares are listed on the HKSE have controlling shareholders, there is not a large number of unsolicited merger or acquisition offers.

As described above, there was an increase in M&A activity in Hong Kong in 2013 compared to 2012. In 2013, the largest M&A transaction by value with a Hong Kong element9 was the acquisition of PetroChina United Pipelines Company Limited by multiple acquirers (US$9.786 billion).

VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

In common with many other jurisdictions, Hong Kong’s Takeovers Code requires an offeror to have certainty of funds in order to make an offer for a public company. Under the Takeovers Code, in an announcement of a firm intention to make an offer, that announcement should include a confirmation by the financial adviser (or another

9 Source: Bloomberg Asia Pacific Legal Advisory M&A Rankings FY 2013.

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appropriate third party) that resources are available to the offeror sufficient to satisfy full acceptance of the offer (a sufficiency statement). Such confirmation is not only required when the consideration is cash, or includes an element of cash, but is also required when the consideration consists of, or includes, any other assets except new securities to be issued by the offeror. The executive may also require (1) evidence to support the sufficiency statement; and (2) evidence that the offeror has sufficient resources to complete the purchase of shares which gives rise to the offer obligation.

Depending on how the acquisition is structured, M&A transactions in Hong Kong are usually financed by:a internal resources;b shareholders’ loans;c equity issues;d debt issues;e loan facilities from banks and financial institutions; orf a combination of two or more of the above.

VII PENSIONS AND EMPLOYMENT LAW

Under Hong Kong law, there is no specific regulation that provides for the transfer of employment contracts when there is a change of ownership of a business, as opposed to an employing company. Employment contracts would therefore be terminated in the case of an acquisition of a business and the new employer would have the freedom to decide whether to enter into new employment contracts with existing employees. However, generally speaking, where termination of an employment contract takes place due to a transfer of business, this would constitute redundancy and employees previously employed may be entitled to severance payments and long-service awards, for which the old employer would be liable. However, under Sections 31J and 31C of the Employment Ordinance (EO), severance payments and long-service awards are not payable in the case of a business transfer if, not less than seven days before the end date of the employee’s previous contract, the new employer has offered to renew the employee’s contract, or to re-engage him under a new contract, on no less favourable terms and conditions, and the employee has unreasonably refused that offer. If an offer of renewal or re-engagement is accepted by the employee, the new contract has effect as if the renewal or re-engagement had been a renewal or re-engagement by the old employer without any substitution of the new employer10 and, therefore, the employment relationship will be regarded as being ‘continuous’ for the purposes of the EO.11 Any redundancy issues that may arise in future disposals of the business would therefore be passed to the new employer after the renewal or re-engagement.

10 Section 31J of the EO.11 Section 3 of and Paragraph 5 of Schedule 1 to the EO.

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Generally speaking, under the Mandatory Provident Funds Schemes Ordinance (MPFO), an employer12 must enrol its employees as members of one of the registered MPF schemes (as defined in the MPFO) available in the market in Hong Kong. An employer may enrol different employees in different registered schemes. During the contribution period (as defined in the MPFO), the employer must contribute to the registered scheme, from its own funds, an amount determined in accordance with the MPFO and deduct, from the employee’s relevant income for that period, as a contribution by the employee to the scheme, a further amount determined in accordance with the MPFO. Employees and employers may make additional voluntary contributions to the employee’s scheme.

Where there is a proposed disposal of a business, the existing employer and the proposed new employer should consider the implications of the MPFO and arrangements to deal with the accrued benefits of employees under the applicable MPF scheme. If a merger or acquisition is to be effected by way of a share sale, it is not likely that there will be any MPF implications (unless the relevant target company is spun out from a group of companies that operates a group-based scheme), as the merger or acquisition will not involve a change of employer. The surviving party or acquirer would nevertheless be well advised to carry out due diligence to ensure that all target employees are employed by the target company on terms that comply with the MPFO.

However, if the merger or acquisition is to be effected by way of a business transfer involving a change of employer, the employee must, in accordance with Section 14 of the MPFO, elect to:a transfer the accrued benefits to a contribution account13 under the new employer’s

MPF scheme;b retain the accrued benefits in the previous MPF scheme under a preserved

account;14 orc transfer the accrued benefits to a preserved account of another MPF scheme.

Both the seller and the buyer must observe and comply with the requirements of the MPFO with respect to the transfer of the accrued benefits of the employees.

On 1 May 2011, the Minimum Wage Ordinance came into effect in Hong Kong and introduced a statutory minimum wage.

VIII TAX LAW

Hong Kong’s competitive economy is reflected in the transparency, predictability and simplicity of its low-rate tax system. These attractive qualities mean that, unlike many

12 Under the MPFO, an ‘employer’ means any person who has entered into a contract of employment to employ another person as his or her employee.

13 A contribution account is an account mainly used to accumulate MPF contributions in respect of current employment and investment returns.

14 A preserved account is an account in which accrued MPF benefits in respect of former employment are held.

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other jurisdictions, Hong Kong tax is generally not the determining factor of the way in which a transaction is structured in Hong Kong. There is no capital gains tax on the disposal of assets, including the disposal of shares and property. In addition, dividends are not classified as taxable income and there is no withholding tax on dividends.

Stamp duty on the transfer of Hong Kong shares is currently 0.2 per cent of the consideration paid (or market value) and is generally payable in equal shares of 0.1 per cent by both the seller and the buyer. Transactions that are structured as schemes of arrangement do not attract stamp duty. With effect from 1 April 2010, stamp duty on the transfer of immoveable property in Hong Kong ranges from a HK$100 flat charge (for transactions up to HK$2 million) to 4.25 per cent of the amount or value of the consideration (for transactions over HK$21,739,120), and is usually paid by the purchaser. The Stamp Duty Ordinance is the principal source of legislation governing this area.

The Inland Revenue Ordinance sets out three separate and distinct taxes on income: profits tax, salaries tax and property tax. Liability to tax under these three heads, as a general rule, is limited to persons or entities carrying on a trade, profession or business in Hong Kong, and to income which ‘arises in or is derived from’ Hong Kong. To this extent, the residence status of persons and companies is irrelevant to income tax assessment. Profits tax for 2013/2014 was 16.5 per cent for corporations and 15 per cent for unincorporated businesses.

In respect of loan repayments, as a general rule a borrower’s interest expenses will be deductible where the lender is subject to Hong Kong profits tax on its receipt of the interest. In addition, where a financial institution (whether onshore or offshore) makes a genuine loan, interest expenses will generally be deductible.

IX COMPETITION LAW

Before the passing of the Competition Bill on 14 June 2012, there was no general competition law and no cross-sector merger control regime in Hong Kong (although the latter remains the case under the Competition Ordinance). Until now, only the broadcasting and telecommunications industries were subject to certain competition law provisions, as provided in the BO and the TO. The TO further provides a regulatory framework for mergers and acquisitions in the telecommunications industry, but it applies only to carrier licensees. Under the TO, thresholds have been set for consent to be obtained from the Telecommunications Authority (known as the Communications Authority since 1 April 2012) before a change in carrier licensee may take place. The TO further provides power to the Communications Authority to investigate M&A transactions and direct a carrier licensee to make changes to a proposed transaction to eliminate or avoid any anti-competitive effect. In May 2014, the Communications Authority issued such a direction for the first time in relation to HKT Limited’s proposed acquisition of CSL New World Mobility Limited, pursuant to section 7P(7)(b)(ii) TO. The Communications Authority has published the Guidelines on Mergers and Acquisitions in the Hong Kong Telecommunications Markets with the aim of providing practical guidance on the analytical and procedural approach that it intends to follow when administering these provisions.

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In the run-up to the drafting and passing of the Competition Ordinance, which, on the whole, was supported by the public, there was some debate on whether there is a need for merger control in Hong Kong to govern M&A activity. The Public Consultation Paper on Detailed Proposals for Competition law in 2008 showed a softening of the Hong Kong government’s stance on this issue, from ‘we don’t need a merger control regime’ to the invitation of views on three possible options regarding such a regime. The recommendation of the Commerce and Economic Development Bureau of Hong Kong (the CED Bureau) was that merger activities are not to be regulated, except in the telecommunications sector, which is already subject to such regulation under the TO. The CED Bureau stated that this proposal would give the Competition Commission more time to focus on its initial work of implementing the proposed Competition Ordinance, and would allow for a more effective assessment of whether merger control provisions would be desirable in other (or all) sectors in the future once the Competition Commission has accumulated some experience in the operation of the competition regime. This was the position ultimately adopted in the Competition Ordinance.

Therefore, although the application of competition law now extends to all sectors in Hong Kong, there are still no merger control provisions in the Competition Ordinance other than in relation to cases in which at least one party holds a carrier licence pursuant to the TO. In such cases, as is currently the position under the TO, a merger could be prohibited if it has or is likely to have the effect of substantially lessening competition in Hong Kong. The Hong Kong government will review the Competition Ordinance in a few years’ time, at which point the question of introducing a cross-sector merger control regime in Hong Kong may also be revisited.

X OUTLOOK

The future development of and outlook for M&A activity is at present no easier to predict in Hong Kong than it is anywhere else in the world. The Hong Kong government has predicted that Hong Kong’s economy is likely to grow in 2014, but the level of such growth, if any, will depend to a large extent on what happens in the rest of the world.

A major determinant in the medium term will be the continued economic development of China. During the global financial crisis, Hong Kong’s economy was somewhat cushioned by the resilience of the Chinese economy, and is likely to continue to benefit through closer cooperation and deeper integration with China.

Hong Kong has traditionally followed a ‘market leads, government facilitates’ principle in forming public policy. This has seen Hong Kong ranked as the world’s freest economy by the Heritage Foundation for many years.

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Appendix 1

ABOUT THE AUTHORS

JASON WEBBERSlaughter and MayJason Webber is a partner of Slaughter and May who is based in Hong Kong. He joined the firm in 1991 and became a partner in 2001. Mr Webber is involved in a wide range of corporate, commercial and financing work, advising companies, financial institutions and fund management groups. He regularly advises in relation to complex matters involving the Hong Kong regulatory authorities and governmental bodies. Mr Webber has also worked in the London office of Slaughter and May.

Mr Webber’s experience includes advising MTR Corporation Limited, Hong Kong’s mass transit railway operator, in relation to various projects including its privatisation (being Hong Kong’s first and, to date, only privatisation of this kind), its merger with the Kowloon-Canton Railway Corporation (being one of the largest and most complex mergers in Asia), and various significant new railway projects such as the Disney Resort Line, the West Island Line, the Shatin to Central Line, the Express Rail Line, the South Island Line, the West Island Line and the Kwun Tong Extension; advising various financial institutions on numerous regulatory matters involving the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, the Hong Kong Stock Exchange and other Hong Kong regulators, such as: advising a consortium of financial institutions in relation to the Hong Kong regulatory aspects of operating an automated trading and clearing system; advising one of the largest international asset management groups on the launch of retail funds in Hong Kong; advising various asset management groups in relation to acquisitions and disposals of asset management vehicles; advising the Oxford Asset Management Group on the launch of the OxAM Quant Fund, a Cayman Island-based hedge fund; and advising several international hedge fund groups on the establishment of operations in Hong Kong. Mr Webber has also sat on one of the disciplinary committees of the Hong Kong Securities and Futures Commission. He is qualified in England and Wales and in Hong Kong.

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SLAUGHTER AND MAY47th Floor, Jardine HouseOne Connaught PlaceCentralHong KongTel: +852 2521 0551Fax: +852 2845 [email protected]

www.slaughterandmay.com