Legal Transplantation of UK-Style Takeover Regulation in Singapore

Abstract

In 1974, Singapore adopted the UK City Code of Takeovers and Mergers (City Code), even though it did not have the equivalent of the business community to the City of London. The concentrated ownership structure of Singapore listed firms differs significantly from the Berle and Means ownership model found in the UK firms, even today. This chapter gives an account of the evolution of takeover regulation and explains the reasons for the transplantation, and with certain limited exceptions, maintenance of, UK model of takeover regulation, from the perspectives of the supply side of rule production, that is, the blockholders and regulators. First, the regulatory framework has been responsive to blockholders generally by successive increasing the mandatory bid threshold progressively from 20% in 1974 to 30% in 2002 and adhering to the creeper rule (which was abolished by the UK in 1998). Together with the availability of the whitewash waiver, blockholders have more flexibility to increase their stake or to inject fresh cash/assets into the company without making a mandatory bid for the remaining shares. Second, even though concentrated shareholdings are the norm, there is a significant proportion of companies where any group of blockholders does not have statutory control (that is, more than 50%). The requirement in the Takeover Code that directors of a target company must seek shareholder approval for action that would frustrate a bona fide bid limits the potential for these blockholders to prevent bona fide bids from succeeding, in the absence of case law. Concentrated shareholding structures also explain why the SIC has not, which has been the case for UK post-Cadbury takeover, tightened the restriction on deal protections that may be entered into by target companies. Third, while investor protection rights in Singapore under company law and takeover regulation are similar to the UK, there remains an important area of difference which favour the blockholders seeking to privatise targets; blockholders are able to use their shareholding to first delist the target, an option that is not readily available in UK and Hong Kong. Finally, adopting the process of regulation in the UK model enables the Securities Industry Council (SIC) a quick and efficient process to informally and proactively enforce norms and public interests and this process of takeover regulation has deeper, substantive consequences. Recent examples will be drawn to show that SIC has used the power to intervene or adjust the legal rights of the market participants, particularly the bidder, where such rights are inconsistent with the public interests. This chapter then examines the implications of the findings on recent developments, particularly in light of the fact that Singapore stock market becomes more international in attracting foreign listings and the changes in shareholder ownership patterns.