New takeover rule to boost equity market

Under the revisedMeasures for the Administration of the Takeover of Listed Companies(上市公司收购管理办法), which becomes effective on September 1 2006, an investor holding more than a 30% stake in a PRC listed company will no longer be required to make a general offer to buy all its outstanding shares. The new rules are expected to encourage more takeovers in the equity market by giving more options to acquirers and reducing takeover costs, as well as improving the efficiency of takeovers.

By releasing investors from buying all outstanding shares when taking control of listed companies and allowing them to buy as little as 5% of the remaining shares, a more flexible tender offer system can be established, providing purchasers with greater options. The mandatory purchase of all outstanding shares under the 2002 rules has thwarted many potential acquisitions of listed companies.

The new rules also provide greater protection for small investors by stipulating that an investor taking control of 5% of a listed company must make a public announcement, and that an investor holding a 20% stake or more in a listed company must make a detailed disclosure of its financial status.