In a recent decision, the Hong Kong Takeovers and Mergers Panel ("Panel") ruled that the different levels of State-owned Assets Supervision and Administration Commission (SASAC) in the People's Republic of China (PRC) should not be automatically considered to be acting in concert. This is the first time the Panel had decided on a matter relating to a listed PRC state-owned enterprise (SOE) changing hands between different levels of SASAC at nil consideration. Three prior cases, where waivers from the obligation to make a mandatory general offer (MGO) were granted under similar circumstances during the period between 2007 and early 2008 by the Executive, are considered no longer good precedents.
In this instant, the SASAC of Anhui Province, through its wholly owned subsidiary, Magang, held 45.54 percent of the voting rights of Maanshan Iron & Steel Company Limited ("Listco", a SOE listed on the Hong Kong Stock Exchange). Anhui SASAC proposed to transfer 51 percent of Magang at nil consideration to China Baowu ("Transferee"), an iron and steel conglomerate wholly owned by the SASAC of the State Council, in pursuance of the PRC government's overall policy and strategy in relation to the restructuring of its iron and steel industry ("Proposed Transfer"). An announcement ("Announcement") disclosing the Proposed Transfer as a possible offer was published before the Panel's hearing.
The Panel took the view that in the absence of evidence showing Transferee (or its controller, the SASAC of the State Council) and Anhui SASAC had been actively cooperating to obtain or consolidate control of Listco prior to the Proposed Transfer, the parties should not be considered acting in concert. Even assuming there was a concert group in existence, the Proposed Transfer would result in a fundamental change in the balance of the shareholding with Anhui SASAC ceding control to Transferee. No MGO waiver would therefore be granted. This is a welcoming decision that is consistent with the Panel's approach in the Cross Harbour decision (2015) and the HAECO decision (2008) - see our Legal Update of 8 January 2016 for a brief account of the two decisions.
As the Proposed Transfer was to be conducted for nil consideration, the Panel was asked, for the first time, to consider what applicable price per H share should be used for the purpose of the general offer. The Executive submitted that the price should be the volume weighted average price (VWAP) of Listco's H shares on the day when Transferee was to announce its firm intention to make an offer. The Panel did not agree and decided that the offer price should be free from any impact that may have been brought about by the possibility of a general offer resulting from the Announcement. Accordingly, the applicable price should be the VWAP of Listco's H shares on the last trading day prior to the Announcement.
Originally published July 26 2019
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