Tutorial 11:

SECURITIES COMMISSION & TAKE OVER

1. What is the Securities Commission and what is the Audit Oversight Board?

SC is a self-funding statutory body with investigation, administrative and enforcement powers

for any market misconduct. It is to promote and maintain fair, efficient, secure, and transparent
securities and derivatives markets and to facilitate the orderly development of an innovative and
competitive capital market.

Power of SC

1. S.16 SCA 1993 - the SC shall have all powers necessary to perform its functions
under the securities laws.
2. S.17(1) SCA 1993 - the SC can delegate its functions or powers to its member,
committee or employees.
3. S. 159(1) SCA 1993 - the SC can make regulations as may be necessary.
4. S. 158(1) SCA 1993 - the SC can issue notices, circular or guidelines.

Audit Oversight Board

- Established under s.31C SCA 1993

- Established to carry out the functions of SC under S.31B SCA 1993

(a) Promote and develop an effective and robust audit oversight framework in Malaysia

(b) Promote confidence in the quality and reliability of audited financial statements in
Malaysia

(c) Regulate auditors of public interest entities.

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 2. What are the key laws and regulations governing the take-over in Malaysia?

LAWS GOVERNING TAKE-OVER (slide 11)

Part VI Division 2

● Section 216 to Section 225 CMSA 2007

● (pg 199-210) https://www.sc.com.my/api/documentms/download.ashx?
id=70b43137-9a48-4540-b955-f1114ceb3445
● Takeover Rules issued by Securities Commission pursuant to Section 377 CMSA
2007

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 3. Explain the meaning of take over?

A take over involves a change in the control of a company. It is a situation in which an individual
or a group of individual or a company acquiring sufficient voting shares or rights in a target
company. A change in control takes place when acquirer acquires all or over 50% of the voting
shares in the offeree’s company. If this happens the acquirer has achieved statutory control of
the offeree’s company.

S. 216(1) CMSA 2007

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 4. Briefly explain how many types of take-over offer pursuant to the Rules on Takeovers,
Mergers and Compulsory Acquisitions 2016 (Takeover Rules)?

Take-over Offer

S. 216(1) CMSA 2007

An offer made to acquire all or part of the voting shares or voting rights or any class or
classes of voting shares or voting rights, in a company.

S. 218(2) CMSA 2007

An acquirer who has obtained control in a company is required to make a take-over offer
for the remaining voting shares not held by the acquirer.

Mandatory Offer

Rules 4.01 Rules on Take-overs, Mergers and Compulsory Acquisitions 2016

Unless otherwise exempted by the Securities Commission, a mandatory offer shall apply
irrespective of how control has been effected or the creeping threshold has been
triggered

a. Where the acquirer has obtained more than 33% of the voting shares or
voting rights of the company.
b. Where the acquirer has triggered the creeping threshold – Holding more than
33% but less than 50% and subsequently acquires more than 2% of the
voting shares in any period of 6 months.

A mandatory offer is also triggered where the acquirers acting in concert acquire more
than 50% of a company through a company (an upstream entity company having shares
in the target company) thereby acquiring or consolidating control in a second company
(a downstream company).

Voluntary Offer

A take over offer carried out voluntarily to acquire the entire share capital of the target
company.
The acquirer has no obligation to make a mandatory offer.

Partial Voluntary Offer

An acquirer may not want to acquire all the shares but to acquire only sufficient
proportion to gain control of the company.
A partial offer is a voluntary take-over offer in which a person offers to acquire less than
100% of the voting shares or voting rights of the target company.
To ensure fair and equal treatment to all shareholders including the minority
shareholders, the Take-Over Rules imposes the duty on the acquirer to seek the
Securities Commission's approval.

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 Rules 5.02 Rules on Take-overs, Mergers and Compulsory Acquisitions 2016
a. A partial offer would not result in the acquirer obtaining control of the
company.
b. The acquirer already has statutory control of the company, the impartial offer
is to obtain such a percentage that would allow the company to maintain the
public spread requirement under the listing requirements.

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 5. ABC Bhd. has acquired more than 33% of the voting shares of XYZ Bhd. which is a
listed company on Bursa Malaysia. Advise ABC Bhd. on its obligations pursuant to S
218(2) of the Capital Markets and Services Act 2007, the Code of Take Over & Mergers
and the Rules on Take-overs, Mergers and Compulsory Acquisitions (if any) pertaining to
the take-over.

Issue
What should ABC Bhd. do after acquire more than 33% of the voting shares of XYZ Bhd.?

Law
Definition of company & control (slide 19 & 20)
S.218(2) CMSA 2007 states that an acquirer who has obtained control in a company is required
to make a take over offer for the remaining voting shares not held by the acquirer.
S.216(1) CMSA 2007 defines “takeover offer” as offer made to acquire all or part of the voting
rights or any class or classes of voting shares or voting rights, in a company and includes: -
(a) A take over or merger which has the effect of obtaining or consolidating control in the
company.
(b) A partial offer
(c) A take over offer by a parent company for the voting shares or voting rights in its subsidiary.
Under Rules 4.01, unless otherwise exempted by the Securities Commission, a mandatory
offer shall apply irrespective of how control has been effected or the creeping threshold has
been triggered, including by way of a scheme: -
(a) where the acquirer has obtained more than 33% of the voting shares or voting rights of the
company.
(b) where the acquirer has triggered the creeping threshold, which is more than 33% but less
than 50% and acquires more than 2% of the voting shares in any period of 6 months.
A mandatory offer does not require the approval from the SC. However, the offer documents to
company of the take over is subject to clearance from the SC.

Application
(XYZ is a listed company) Since ABC Bhd. has acquired more than 33% of the voting shares of
XYZ Bhd., it had triggered the mandatory offer. A mandatory offer is subject to fulfilment of the
acceptance condition that the acquirer and the persons acting in concert having received
acceptance in aggregate more than 50% of voting shares or voting rights of the company. If the
acceptance condition is fulfilled, the mandatory offer is declared unconditional. This means the
acquirer has gained ‘statutory control’ of the company.
The acquirer must continue to accept voting shares or voting rights of the offeree until the take
over offer period comes to an end.
In computing the level of acceptance for a mandatory offer, voting shares or voting rights that
are already acquired by offeror and persons acting in concert shall be counted.
A take over offer shall lapse if the acceptance level is not fulfilled by 5pm on the 60 th day from
the date on which the offer document was dispatched to the offeree shareholders.

Conclusion

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 In conclusion, ABC Bhd. shall make a mandatory offer to the existing shareholders in XYZ Bhd.
But this offer is subjected to acceptance condition
X 50%, X offer

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 6. TG Bhd. is a listed company listed on Main Market Bursa Malaysia.

The current shareholders’ structure of the company is as below:

Shareholders Percentage of shareholdings

1) Dato Shah 36%

-D Sdn Bhd (upstream Co. of TG Bhd)

2) A Sdn. Bhd. (51%) 15%

3) Public Nominees (Tempatan Sdn. Bhd.) 10%

4) KWAP 7%

5) Retail investors 32%

Recently, D Sdn. Bhd., a wholly-owned subsidiary of A Sdn. Bhd. has acquired all of the voting
shares of TG Bhd. from Dato Shah. Advise A Sdn. Bhd. whether it has triggered the requirement
of a mandatory offer.

Issue: Has A Sdn. Bhd triggered the requirement of a mandatory offer?

Law 1: S.216 (1)(a) CMSA 2007 stated that Acquirer means a person who acquires or proposes
to acquire control in a company whether the acquisition is effected by the person or S.216 (1)(b)
CMSA 2007 Two or more persons who, acting in concert with one another, acquire or propose
to acquire control in a company whether the acquisition is effected by the person or by an agent.

Application 1: According to S.216 (1)(a) CMSA 2007, D Sdn. Bhd is known as the acquirer who
acquired all 36% of TG bhd shares from Dato shah. However, based on S.216 (1)(b) CMSA
2007 it states that the A Sdn. Bhd is the acquirer in which A Sdn. Bhd and its wholly- owned
subsidiary (D Sdn. Bhd) acting in concert to acquire the TG Bhd shares.

Law 2: S.216 (2) CMSA 2007 stated that person acting in concert means person who pursuant
to an agreement, arrangement or understanding, co-operate to;
(a) Acquire jointly or severally voting shares of a company for the purpose of obtaining control of
that company:
(b) Act jointly or severally for the purpose of exercising control over a company.
(L1 and L2 can combine)

Application 2: Based on S.216 (2) CMSA 2007 it shows that A Sdn. Bhd and its downstream
company which is D Sdn. Bhd both who are acting in concert to acquire jointly or severally
voting shares of the TG bhd or exercising control over TG Bhd.

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 Law 3: Mandatory offer will be triggered by; Rules 4.01 (a) of Takeover rules shows where the
acquirer has obtained more than 33% of the voting shares or voting rights of the company or
Rules 4.01 (b) of Takeover rules where the acquirer has triggered the creeping threshold.
Creeping threshold means the acquirer hold more than 33% but less than 50% and acquires
more than 2% voting shares in any period of 6 months.
Moreover, the Mandatory Offer is also being triggered where the acquires acting in concert
acquire more than 50% a company through a company (an upstream entity) thereby acquiring
or consolidating control in a second company (downstream company).

Application 3: Initially A Sdn Bhd has just only held 15% shares in TG Bhd. However, after its
subsidiary company acquired 36% of the shares from Dato Shah it changed the total shares
holding of A Sdn.Bhd to 51% and unconsciously, it triggered Rules 4.01 of Takeover rules where
the person acting in concert acquired more than 50% shares in a company.

Law 4: According to Acceptance Condition, a mandatory offer is subject to fulfilment of the

acceptance condition that the acquirer and the persons acting in concert having received
acceptance in aggregate more than 50% of voting shares or voting rights of the company; if the
acceptance condition is fulfilled, the mandatory offer is declared unconditional. This means the
acquirer has gained statutory control of the company.

Application 4: Due to the effect of persons acting in concert it caused the total amount of shares
holding of A Sdn Bhd gone up to 51% which is more than the 50% of voting shares of the
company hence it said that already fulfil the Acceptance Condition and so caused the
Mandatory offer to be unconditional. At the same time, having more than 50% of voting it also
manifestly stated that the A Sdn Bhd has gained statutory control of the company.

Law 5: Rule 2.01 the Rules on Takeovers, Mergers and Compulsory Acquisitions 2016
(Takeover Rules) stated that Statutory control means a holding or more than 50% of the voting
shares or voting rights in a company.

Application 5: As both the holding company (A Sdn Bhd) and the subsidiary company (D Sdn
Bhd) have successfully acquired 51% shares in TG Bhd it means that the company gained
statutory control over TG Bhd.

Conclusion: Due to the effect of persons acting in concert, A Sdn Bhd and its subsidiary
company have triggered the requirement of mandatory offer which is unconditional .

Rule 4.01- upstream Co.-36% (More than 33% so gained the control over the co.)
Upstream and downstream Co = D sdn bhd and TG Bhd, nothing have got to do with that A Sdn
Bhd

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