Week 1 - Prof Ong Ee Ing PDF

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Prof Ong Ee Ing...

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Week 1 Welcome to the Law of Mergers & Acquisitions. We will focus this week on introducing you to M&A in Singapore, including the legal and regulatory foundations, underlying concerns, as well as how M&A deals are done in general (including the lawyer’s role). Consider the following in preparation for class: • Why do businesses engage in M&A? • Why do jurisdictions regulate M&A? What kinds of regulations would you expect to see? • What kind of system does Singapore have? How does Singapore’s system differ from the UK and/or the US systems? • Refresh your memory on company law. What are the principles of company law, and how might they apply to M&A? • What do you think is the lawyer’s role in M&A? Readings • WY Wan & U Varottil, Mergers and Acquisitions in Singapore: Law & Practice (Lexis Nexis 2013) (“Singapore M&A”), Chapter 1. • John Armour & David Skeel, “Who Writes the Rules for Hostile Takeovers and Why? The Peculiar Divergence of US and UK Takeover Regulation” (2007) 95 Georgetown Law Journal 1727 (eLearn). NOTE: • Please bring to class a copy of the following: • Companies Act (Cap 50, 2006 Rev Ed). • Securities and Futures Act (Cap 289, 2006 Rev Ed). • Singapore Code on Takeovers and Mergers (www.mas.gov.sg). • Listing Manual of Singapore Exchange Securities Trading Limited (www.sgx.com). Exercises • We will discuss the celebrated APB/F&N saga for the first few weeks.

Why do businesses engage in M&A? Growth o Internal (organic) growth often slow. Thus, second option is through combinations and acquisitions (inorganic growth). o Faster and can keep pace with competitive pressures. o Eg expanding geographically to other markets. Co may not have necessary knowledge and expertise in another geography Size o Combination allows for achieving an appropriate size in a timely manner. o Motivation of size increase is to attain leadership position in industry. Synergy o Profitability of combined biz greater than sum of their parts/ achieving EOS o Merit in pursuing M&A only if it leads to enhancement in value and not if it either reduces value or remains value-neutral. o 2 categories:  operating synergy  EOS  fixed cost of production can be reduced by spreading it over a larger vol of production.  Usually done through horizontal integration, whereby Cos that are involved in the same or complementary industry combine to reduce costs. Note: competition law concerns stronger here.  Can also be done via vertical integration. Involves a combination of Cos that are either suppliers or customers of each other. o By integrating with a source of supply (backward integration), Co able to ensure quality and price of raw materials o By integrating with distribution channel (forward integration), Co able to manage marketing and distribution of its products or services.  financial synergy  small Cos difficult to raise capital on acceptable terms even though their biz may be profitable  one option would be to combine small with large Co to form a larger entity that is in better position to raise finances (debt + equity) more easily and on reasonable terms.  Increase size + creditability  Can also arise when one Co is able to take advantage of certain tax benefits available with another Co (that is unable to utilise them)  Ie Co carrying net operating losses (NOL) combine with profitable Co will be able to help profitable Co reduce tax liability by being able to set off its profits against losses of the other Co -

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Diversification o Cos may enter into industries outside their own. o De-risking strategy, don’t put all eggs in one basket. Industry factors eg deregulation, R&D capabilities o Industries intensive in R&D efforts prime candidates for M&A

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 Eg pharma industry  drug discovery process costly and time-consuming Deregulation in industry enables consolidation that was hitherto not permissible due to strong govt intervention.

Availability of targets at low prices o Undervalued Cos  Poor management  Improved management hypothesis

Why do jurisdictions regulate M&A? What kinds of regulations would you expect to see? National interests concern, ie financial markets and indirectly, the investments and life savings of a country’s citizens Competition law regulations  market concentration. Fraud, coercion What kind of system does Singapore have? How does Singapore’s system differ from the UK and/or the US systems? Shareholding in public listed Cos largely tends to be concentrated with the presence of controlling shareholders. Within such a shareholding structure, it is difficult for bidders to secure control over the targets without obtaining concurrence of controlling shareholders. Since board and management cannot be replaced without support from the controlling shareholders, the improved management hypothesis of takeovers may not operate with the same vigour as it does in economies where companies largely have diffused shareholding. APB/F&N saga Sale of a significant stake in F&N by OCBC and Great Eastern to ThaiBev Transfer of shares triggered bidding bar between ThaiBev and OUE for control of F&N Eventually, ThaiBev obtained control as OUE dropped out of bidding war. Sale of shares in F&N also triggered battle for control of its joint venture co within F&N group, APB Eventually, Heineken, an existing indirect shareholder of APB gained control over APB...