The Mergers. Acquisitions. Review

The Mergers & ABOUT THE AUTHORS Acquisitions Review Appendix 1 THOMAS SACHER Ashurst LLP Thomas Sacher is a partner at Ashurst LLPEdition since 1 Jul...
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The Mergers & ABOUT THE AUTHORS Acquisitions Review Appendix 1

THOMAS SACHER Ashurst LLP Thomas Sacher is a partner at Ashurst LLPEdition since 1 July 2015. From 1986 through June Ninth 2015 Thomas Sacher was a member and, from 1992 through June 2015, partner of another German law firm. He studied law at the universities of Munich and Regensburg Editor and received admission to the Bar in 1986. In 1990 he received a PhD (Dr jur) from the University of Regensburg. Mark Zerdin Dr Sacher specialises in the areas of M&A, private equity and venture capital. He advises his national and international clients in a variety of corporate law matters related to domestic and cross-border transactions and provides legal advice on transformations, mergers, formation of joint ventures, stock option plans and other corporate transactions. ASHURST LLP Ludwigstraße 8 80539 Munich Germany Tel: +49 89 24 44 21 100 Fax: +49 89 24 44 21 101 [email protected] www.ashurst.com

Law Business Research 857

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 9 (published in August 2015 – editor Mark Zerdin) For further information please email [email protected]

The Mergers & Acquisitions Review Ninth Edition Editor

Mark Zerdin

Law Business Research Ltd

PUBLISHER Gideon Roberton BUSINESS DEVELOPMENT MANAGER Nick Barette SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee, Felicity Bown ACCOUNT MANAGER Joel Woods PUBLISHING MANAGER Lucy Brewer MARKETING ASSISTANT Rebecca Mogridge EDITORIAL COORDINATOR Shani Bans HEAD OF PRODUCTION Adam Myers PRODUCTION EDITOR Anna Andreoli SUBEDITOR Hilary Scott MANAGING DIRECTOR Richard Davey Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK © 2015 Law Business Research Ltd www.TheLawReviews.co.uk No photocopying: copyright licences do not apply. 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 2015, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected] ISBN 978-1-909830-62-2 Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: 0844 2480 112

THE LAW REVIEWS 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 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 THE ACQUISITION AND LEVERAGED FINANCE REVIEW THE PRIVACY, DATA PROTECTION AND CYBERSECURITY LAW REVIEW THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW THE TRANSPORT FINANCE LAW REVIEW THE SECURITIES LITIGATION REVIEW THE LENDING AND SECURED FINANCE REVIEW

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ACKNOWLEDGEMENTS

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

AABØ-EVENSEN & CO ADVOKATFIRMA Æ´LEX AGUILAR CASTILLO LOVE AKD NV ALLEN & GLEDHILL LLP ANDERSON MŌRI & TOMOTSUNE ARIAS, FÁBREGA & FÁBREGA ASHURST LLP AZMI & ASSOCIATES BHARUCHA & PARTNERS BOWMAN GILFILLAN BREDIN PRAT BRIGARD & URRUTIA CLEARY GOTTLIEB STEEN & HAMILTON CORRS CHAMBERS WESTGARTH COULSON HARNEY CRAVATH, SWAINE & MOORE LLP

i

Acknowledgements

DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP DITTMAR & INDRENIUS DRYLLERAKIS & ASSOCIATES ELLEX FENXUN PARTNERS HARNEYS HENGELER MUELLER HEUKING KÜHN LÜER WOJTEK ISOLAS KBH KAANUUN KEMPHOOGSTAD, S.R.O. KIM & CHANG KINSTELLAR, S.R.O., ADVOKÁTNÍ KANCELÁŘ KLART SZABÓ LEGAL LAW FIRM LEGAL ATTORNEYS & COUNSELORS LETT LAW FIRM P/S MAKES & PARTNERS LAW FIRM MATTOS FILHO, VEIGA FILHO, MARREY JR E QUIROGA ADVOGADOS MNKS MORAVČEVIĆ VOJNOVIĆ I PARTNERI IN COOPERATION WITH SCHÖNHERR MOTIEKA & AUDZEVIČIUS NISHIMURA & ASAHI OSLER, HOSKIN & HARCOURT LLP

ii

Acknowledgements

PÉREZ BUSTAMANTE & PONCE POPOVICI NIȚU & ASOCIAȚII ROJS, PELJHAN, PRELESNIK & PARTNERS RUBIO LEGUÍA NORMAND RUSSIN, VECCHI & HEREDIA BONETTI S HOROWITZ & CO SCHELLENBERG WITTMER LTD SCHINDLER RECHTSANWÄLTE GMBH SELVAM & PARTNERS SEYFARTH SHAW LLP SLAUGHTER AND MAY STRELIA SYCIP SALAZAR HERNANDEZ & GATMAITAN TORRES, PLAZ & ARAUJO URÍA MENÉNDEZ UTEEM CHAMBERS VON WOBESER Y SIERRA, SC WEERAWONG, CHINNAVAT & PEANGPANOR LTD WH PARTNERS WILSON SONSINI GOODRICH & ROSATI

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CONTENTS

Editor’s Preface

�������������������������������������������������������������������������������������������������xiii Mark Zerdin

Chapter 1

EU OVERVIEW�������������������������������������������������������������������������1 Mark Zerdin

Chapter 2

EU COMPETITION OVERVIEW������������������������������������������11 Götz Drauz and Michael Rosenthal

Chapter 3

EUROPEAN PRIVATE EQUITY���������������������������������������������19 Thomas Sacher

Chapter 4

US ANTITRUST����������������������������������������������������������������������32 Scott A Sher, Christopher A Williams and Bradley T Tennis

Chapter 5

CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A�������������������������������������������������������53 Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart

Chapter 6

M&A LITIGATION�����������������������������������������������������������������67 Mitchell A Lowenthal, Roger A Cooper and Matthew Gurgel

Chapter 7

AUSTRALIA�����������������������������������������������������������������������������74 Braddon Jolley, Sandy Mak and Jaclyn Riley-Smith

Chapter 8

AUSTRIA����������������������������������������������������������������������������������87 Clemens Philipp Schindler

Chapter 9

BAHRAIN��������������������������������������������������������������������������������97 Haifa Khunji and Natalia Kumar

v

Contents

Chapter 10

BELGIUM������������������������������������������������������������������������������110 Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas

Chapter 11

BRAZIL����������������������������������������������������������������������������������122 Moacir Zilbovicius and Rodrigo Ferreira Figueiredo

Chapter 12

BRITISH VIRGIN ISLANDS������������������������������������������������132 Jacqueline Daley-Aspinall and Sarah Lou Rockhead

Chapter 13

CANADA��������������������������������������������������������������������������������143 Robert Yalden, Emmanuel Pressman and Jeremy Fraiberg

Chapter 14

CAYMAN ISLANDS��������������������������������������������������������������158 Marco Martins

Chapter 15

CHINA�����������������������������������������������������������������������������������173 Lu Yurui and Ling Qian

Chapter 16

COLOMBIA���������������������������������������������������������������������������187 Sergio Michelsen Jaramillo

Chapter 17

COSTA RICA�������������������������������������������������������������������������203 John Aguilar Jr and Alvaro Quesada

Chapter 18

CYPRUS���������������������������������������������������������������������������������211 Nancy Ch Erotocritou

Chapter 19

CZECH REPUBLIC���������������������������������������������������������������218 Lukáš Ševčík, Jitka Logesová and Bohdana Pražská

Chapter 20

DENMARK����������������������������������������������������������������������������225 Sebastian Ingversen and Nicholas Lerche-Gredal

Chapter 21

DOMINICAN REPUBLIC����������������������������������������������������236 María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez

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Contents

Chapter 22

ECUADOR�����������������������������������������������������������������������������246 Diego Pérez-Ordóñez

Chapter 23

ESTONIA�������������������������������������������������������������������������������257 Sven Papp and Sven Böttcher

Chapter 24

FINLAND������������������������������������������������������������������������������269 Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt

Chapter 25

FRANCE���������������������������������������������������������������������������������281 Didier Martin and Hubert Zhang

Chapter 26

GERMANY�����������������������������������������������������������������������������296 Heinrich Knepper

Chapter 27

GIBRALTAR���������������������������������������������������������������������������309 Steven Caetano

Chapter 28

GREECE���������������������������������������������������������������������������������321 Cleomenis G Yannikas, Sophia K Grigoriadou and Vassilis S Constantinidis

Chapter 29

HONG KONG�����������������������������������������������������������������������334 Jason Webber

Chapter 30

HUNGARY�����������������������������������������������������������������������������344 Levente Szabó and Klaudia Ruppl

Chapter 31

ICELAND�������������������������������������������������������������������������������360 Hans Henning Hoff

Chapter 32

INDIA�������������������������������������������������������������������������������������368 Justin Bharucha

Chapter 33

INDONESIA��������������������������������������������������������������������������386 Yozua Makes

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Contents

Chapter 34

ISRAEL�����������������������������������������������������������������������������������400 Clifford Davis and Keith Shaw

Chapter 35

ITALY��������������������������������������������������������������������������������������410 Maurizio Delfino

Chapter 36

JAPAN�������������������������������������������������������������������������������������422 Hiroki Kodate and Masami Murano

Chapter 37

KENYA�����������������������������������������������������������������������������������431 Joyce Karanja-Ng’ang’a, Wathingira Muthang’ato and Felicia Solomon Nyale

Chapter 38

KOREA�����������������������������������������������������������������������������������442 Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee

Chapter 39

LITHUANIA��������������������������������������������������������������������������457 Giedrius Kolesnikovas and Michail Parchimovič

Chapter 40

LUXEMBOURG��������������������������������������������������������������������465 Marie-Béatrice Noble, Raquel Guevara, Stéphanie Antoine

Chapter 41

MALAYSIA�����������������������������������������������������������������������������479 Rosinah Mohd Salleh and Norhisham Abd Bahrin

Chapter 42

MALTA�����������������������������������������������������������������������������������491 James Scicluna

Chapter 43

MAURITIUS��������������������������������������������������������������������������503 Muhammad Reza Cassam Uteem and Basheema Farreedun

Chapter 44

MEXICO��������������������������������������������������������������������������������513 Luis Burgueño and Andrés Nieto

Chapter 45

MONTENEGRO�������������������������������������������������������������������523 Slaven Moravčević and Dijana Grujić

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Contents

Chapter 46

MYANMAR����������������������������������������������������������������������������533 Krishna Ramachandra and Benjamin Kheng

Chapter 47

NETHERLANDS�������������������������������������������������������������������544 Carlos Pita Cao and François Koppenol

Chapter 48

NIGERIA��������������������������������������������������������������������������������557 Lawrence Fubara Anga

Chapter 49

NORWAY�������������������������������������������������������������������������������562 Ole K Aabø-Evensen

Chapter 50

PANAMA��������������������������������������������������������������������������������600 Andrés N Rubinoff

Chapter 51

PERU��������������������������������������������������������������������������������������611 Emil Ruppert

Chapter 52

PHILIPPINES�������������������������������������������������������������������������621 Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Patricia A Madarang

Chapter 53

PORTUGAL���������������������������������������������������������������������������630 Francisco Brito e Abreu and Joana Torres Ereio

Chapter 54

ROMANIA�����������������������������������������������������������������������������643 Andreea Hulub, Ana-Maria Mihai and Vlad Ambrozie

Chapter 55

RUSSIA�����������������������������������������������������������������������������������657 Scott Senecal, Yulia Solomakhina, Polina Tulupova, Yury Babichev and Alexander Mandzhiev

Chapter 56

SERBIA�����������������������������������������������������������������������������������675 Matija Vojnović and Luka Lopičić

Chapter 57

SINGAPORE��������������������������������������������������������������������������685 Lim Mei and Lee Kee Yeng

ix

Contents

Chapter 58

SLOVENIA�����������������������������������������������������������������������������694 David Premelč, Bojan Šporar and Mateja Ščuka

Chapter 59

SOUTH AFRICA�������������������������������������������������������������������705 Ezra Davids and Ashleigh Hale

Chapter 60

SPAIN�������������������������������������������������������������������������������������716 Christian Hoedl and Javier Ruiz-Cámara

Chapter 61

SWITZERLAND��������������������������������������������������������������������732 Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane

Chapter 62

THAILAND���������������������������������������������������������������������������745 Pakdee Paknara and Pattraporn Poovasathien

Chapter 63

TURKEY���������������������������������������������������������������������������������753 Emre Akın Sait

Chapter 64

UNITED ARAB EMIRATES�������������������������������������������������762 DK Singh and Stincy Mary Joseph

Chapter 65

UNITED KINGDOM�����������������������������������������������������������774 Mark Zerdin

Chapter 66

UNITED STATES������������������������������������������������������������������793 Richard Hall and Mark Greene

Chapter 67

VENEZUELA�������������������������������������������������������������������������834 Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M

Chapter 68

VIETNAM������������������������������������������������������������������������������847 Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc

x

Contents

Appendix 1

ABOUT THE AUTHORS�����������������������������������������������������857

Appendix 2

CONTRIBUTING LAW FIRMS’ CONTACT DETAILS�����905

xi

EDITOR’S PREFACE

By a number of measures, it could be argued that it has been some time since the outlook for the M&A market looked healthier. The past year has seen a boom in deal making, with many markets seeing post-crisis peaks and some recording all-time highs. Looking behind the headline figures, however, a number of factors suggest deal making may not continue to grow as rapidly as it has done recently. One key driver affecting global figures is the widely expected rise of US interest rates. Cheap debt has played a significant part in the surge of US deal making in the first few months of 2015, and the prospects of a rate rise may have some dampening effects. However, the most recent indications from the Federal Reserve have suggested that any rise will be gradual and some market participants have pushed back predictions for the first rate rise to December 2015. Meanwhile, eurozone and UK interest rates look likely to remain low for some time further. The eurozone returned to the headlines in June as the prospect of a Greek exit looked increasingly real. Even assuming Greece remains in the euro (as now seems likely), the crisis has severely damaged the relationship between Greece and its creditors. The brinksmanship exhibited by all parties means that meaningful progress cannot occur except at the conclusion of a crisis: the idea that reform will benefit Greece has been lost and each measure extracted by creditors is couched as a concession. However, while the political debate has become ever more fractious, the market’s response to the crisis has been relatively sanguine. This is largely a result of the fact that the volume of Greek debt is no longer in the market, but in the hands of institutions. But it is also a sign of the general market recovery and expectations that major economies will continue to grow. Perhaps one of the more interesting emerging trends in the last year is the interplay between growth and productivity. Some commentators have suggested that the recent rise in deal making is a symptom of a climate in which businesses remain reluctant to invest in capital and productivity. Pessimistic about the opportunities for organic growth, companies instead seek to grow profits through cost savings on mergers. It is difficult to generalise about such matters: inevitably, deal drivers will vary from industry to industry, from market to market. However, if synergies have been the principal motivation in

xiii

Editor’s Preface much of the year’s deal making (it certainly has been in a number of large-cap deals) then it may be that the market is a little farther from sustainable growth than some would like to think. I would like to thank the contributors for their support in producing the ninth 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 Zerdin Slaughter and May London August 2015

xiv

Chapter 29

HONG KONG Jason Webber1

I

OVERVIEW OF M&A ACTIVITY2

M&A activity in Hong Kong showed signs of acceleration in 2014. Hong Kong saw a 90.81 per cent increase in the value of M&A deals announced in 2014 compared to 2013, with a total of 1,473 deals totalling US$174,771 million in 2014 compared with a total of 1,241 deals totalling US$91,595 million in 2013.3 The Hong Kong securities markets showed healthy signs of growth in 2014 in terms of market capitalisation and trading activity. The total market capitalisation of the securities market at the end of 2014 was HK$25,071.8 billion, 4 per cent higher than the year-end total market capitalisation in 2013. Total securities market turnover in 2014 was HK$17,155.7 billion, an increase of 12 per cent compared with 2013. A total of 122 companies were newly listed on The Stock Exchange of Hong Kong Limited (HKSE) in 2014, and the total amount of equity funds raised on HKSE in 2014 was HK$942.7 billion.4 For 2014 as a whole, the Hong Kong economy grew modestly by 2.3 per cent, slower than the 2.9 per cent growth in 2013 and the average annual growth rate of

1

2

3 4

Jason Webber is a partner at Slaughter and May. The author would like to thank Jiayi Li 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. 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 2014 to 31 December 2014. Source: Thomson Reuters. Source: HKSE Fact Book 2014.

334

Hong Kong 3.9 per cent over the previous decade. The Hong Kong government has forecast that the Hong Kong economy will grow by 1 to 3 per cent in 2015.5 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; and d 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

5 6

Source: Hong Kong Census and Statistics Department. 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).

335

Hong Kong 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. 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 2014, the SFC 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 certain rules. 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 SFC under Section 24 of the SFO, make amendments to the Listing Rules. With effect from 1 July 2014, the Listing Rules were amended in relation to connected transaction requirements and definitions of connected person and associates. The amendments included refinement to the scope of connected transactions, alignment of the definitions of connected person and associate and increasing the thresholds for exemptions from the connected transaction requirements. Amendments were also made to simplify the language of the connected transaction rules by replacing the previous

7

8

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

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Hong Kong drafting with the plain language Guide on Connected Transaction Rules issued by the HKSE in April 2012. With effect from 10 November 2014, the Listing Rules were amended to reflect changes to authorised collective investment schemes. The Listing Rules have also been amended in relation to disclosure of financial information with reference to the new Companies Ordinance and the Hong Kong Financial Reporting Standards which will apply to accounting periods ending on or after 31 December 2015. There have also been some housekeeping amendments made to the Listing Rules which came into effect on 1 April 2015. There are further amendments to the Listing Rules relating to the Risk Management and Internal Control section of the Corporate Governance Code and Corporate Governance Report which will be effective for accounting periods beginning on or after 1 January 2016. iii

The Companies Ordinance

The new Companies Ordinance 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 that 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;

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Hong Kong

b

c

IV

• 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 • the amalgamation is approved under a process that is in accordance with the articles of association of each amalgamating company; while the general prohibition on a company providing financial assistance for an acquisition of shares in itself continues 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 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. 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 2014 compared to 2013. In 2014, the largest M&A transaction by value in Hong Kong9 was the acquisition of CITIC Limited from its state-owned parent CITIC Group by CITIC Pacific Limited (US$36.5 billion). CITIC Limited was listed on the Hong Kong Stock Exchange on 1 September 2014.

9

Source: Merger Market – Global and Regional M&A 2014.

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Hong Kong There were also two significant takeovers of banks in Hong Kong in 2014. In April 2014, Oversea-Chinese Banking Corporation Limited, the second largest financial services group in South East Asia by assets, acquired Wing Hang Bank Limited for US$4.95 billion. Lin Chong Hing Investment Limited and its subsidiary, Chong Hing Bank Limited, a Hong Kong-based commercial bank, acquired the municipality-owned Yue Xiu Enterprises (Holdings) Limited for US$1.5 billion, which completed in 2014. 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 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; or f 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

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Hong Kong 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. 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 or c transfer the accrued benefits to a preserved account of another MPF scheme.

10 11 12 13 14

Section 31J of the EO. Section 3 of and Paragraph 5 of Schedule 1 to the EO. 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. A contribution account is an account mainly used to accumulate MPF contributions in respect of current employment and investment returns. A preserved account is an account in which accrued MPF benefits in respect of former employment are held.

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Hong Kong 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 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 23 February 2013, stamp duty on the transfer of immoveable property in Hong Kong ranges from 1.5 per cent (for transactions up to HK$2 million) to 8.5 per cent of the amount or value of the consideration (for transactions over HK$21,739,130), 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 2014/2015 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). It is expected that the Competition Ordinance will become effective by the end of 2015. Until then, only the broadcasting and telecommunications industries are 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

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Hong Kong 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. 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. Once the Competition Ordinance becomes effective, the Competition Commission and the Communications Authority will have concurrent jurisdiction over such mergers. 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 2015, but the level of such growth, if any, will depend to a large extent on what happens in the rest of the world. Hong Kong’s economic performance in 2015 will first hinge on developments in external demand as the tepid and uneven global recovery is expected to continue.

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Hong Kong Overall, the deal appetite in Hong Kong is high, with M&A markets remaining very busy in the first quarter of 2015. With strong economic sentiment and ready access to capital, M&A across sectors and markets in the region shows a good outlook. 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 WEBBER Slaughter and May Jason 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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About the Authors SLAUGHTER AND MAY 47th Floor, Jardine House One Connaught Place Central Hong Kong Tel: +852 2521 0551 Fax: +852 2845 2125 [email protected] www.slaughterandmay.com

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