Today with this entry I return to my favorite topic, namely M&A. Having examined all the forms of investment at the disposal of the foreign investor to establish a presence in China, it is now time to spend some more words on an alternative way to conquer a portion of the Chinese market.
Foreign companies wishing to enter the Chinese market can opt for M&A as you already know. No doubt, the
M&A
approach and the
takeover
of a listed company will shorten the time needed for their expansion in this territory. However, to make M&A a success and to structure such a transaction, enterprises should have a large amount of funds at their disposal (if the transaction is not structured as a
share swap
). Second, it is necessary to conduct an in-depth studies and researches on the local companies to be acquired. Third, it is important, as stressed many times in my entries (for example
http://blawg.lehmanlaw.com/wordpress/?p=1660
) to have a strong understanding of local ways of doing business and an open-minded management to make sure the post-merger integration process will go smoothly, in order not to waste resources and to generate the synergies needed to operate in a profitable way the newly acquired entity.
Along with other laws and regulations already mentioned in other entries (
http://blawg.lehmanlaw.com/wordpress/?p=1770
) the
Measures for regulating Takeovers of Listed Companies
(i.e. the so called “Takeovers Code,” available at:
http://www.csrc.gov.cn/pub/csrc_en/laws/overRule/Decrees/200910/t20091028_166902.htm
) sets up the most comprehensive legal framework for takeovers of Chinese-listed companies. However, in order to acquire a Chinese company through buying its shares, it is not only necessary to fully understand the legal panorama regulating M&As in China, but also all the elements that compose the Chinese bourses. Some elements were already given (
http://blawg.lehmanlaw.com/wordpress/?p=1660
) but we are going to stress them again.
The Takeovers Code, which was emended in 2012 (
http://www.csrc.gov.cn/pub/csrc_en/laws/overRule/Decrees/201203/t20120328_207828.htm
) represents the continued efforts of the Chinese government to develop a modernized regulatory system for takeovers. The ongoing revisions are to suit and facilitate the new environment whereby the national economy is facing strategic restructuring. In fact, the Chinese government has viewed M&A activities as a key driver of the accelerated privatization process to enable State-controlled companies to better compete with international entities operating in China. It is worth to note that, until China’s accession to the WTO in 2001, the Middle Kingdom appeared to encourage foreigners to establish Joint Ventures or set up WFOEs while explicitly discouraging M&A (at that time there was not a precise legal framework). Recently China has made explicit moves and drafted several regulations and new Laws to attract FDIs (www. last law blog) and to foster and boost M&A activities, giving particular emphasis to SOEs and state shares in listed companies. It is evident that its purpose is to shunt State-owned enterprises into the private sector, retaining only a tiny core that the Chinese government deems crucial for national security.
Depending on the share classification, foreign investors may acquire shares through a negotiated acquisition, a private placement, an open-market acquisition or a block trade transaction. As it will be discussed later on (in other entries), different rules and restrictions apply to each class of shares, and each class has different ownership and transfer procedures. Valuations (in particular by SASAC if State-owned assets or SOEs are involved) are required for most negotiated acquisitions and statutory lockups are applicable to many types of acquisition. The CSRC (China Securities Regulatory Commission), the already mentioned SASAC and MofCOM may be heavily involved in these transactions.
It must be noted that the CSRC is the securities regulatory authority under the State Council and is charged with implementing centralized and unified regulation of China’s securities market, (in this sense the
Securities Law
, Article 7). Therefore it has jurisdiction and powers over the takeover of listed companies, in this sense the
Takeover Code
, Article 10. As a technocrat organ, it is assigned a virtually exclusive dispute resolution role with respect to takeovers. According to Article 10 of the Takeover Code, the CSRC establishes a special internal committee known as the “takeover committee” composed of professionals and relevant experts in the M&A area whose function is to provide preliminary opinions upon reviewing the takeover application.
This was only an introduction of this theme. In the next entry I will examine more in detail this topic adding some more interesting detail.
Cristiano Rizzi
(I did not mentioned before, however, some of my entries are extracted from my work titled M&A and Takeovers in China, so if some of you is interested in having the complete work, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).