China Overhauls Takeover Code of Listed Companies

October 02, 2006 | BY

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China's new Takeover Code imposes stringent information disclosure requirements and clarifies rules to make the acquisition process more efficient.

China's new Takeover Code aims to boost domestic and cross-border merger and acquisition activities involving PRC-listed companies. It imposes stringent information disclosure requirements to improve transparency and clarifies rules to make the acquisition process more efficient.

By Jean-Marc Deschandol and Charles Desmeules, Norton Rose, Beijing

The China Securities Regulatory Commission (CSRC) issued the Acquisition of Listed Companies Administrative Procedures (Takeover Code) on July 31 2006. The Takeover Code became effective as of September 1 2006 and repealed the old procedures (Old Takeover Code), which had been effective since December 1 2002. The Takeover Code unifies provisions under a single piece of legislation, which were previously spread out over numerous circulars and regulations. In addition, this much welcomed piece of housekeeping legislation clarifies rules on partial offers, widens the 'concerted action' concept, updates rules on offer exemptions, regulates indirect acquisitions and redefines the role of financial advisers.

Improved transparency: disclosure requirements

The Takeover Code requires shareholders (and persons 'acting in concert' with shareholders) to disclose certain information as they increase their stake in the company. The information to be disclosed depends on how the shareholder has increased its stake. For example, shareholders increasing their stake in a listed company to 5% must, within three days, report the shareholding increase to the CSRC and the relevant stock exchange, and notify the listed company and the public. Subsequent shareholding increases reaching 5% must be disclosed in a similar manner. Different reporting requirements apply to different thresholds (5

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