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Draft Amendments Tender Offers Rules

In light of the recent incident under which the tender offeror failed to close its purchase of shares in XPEC Entertainment Inc. case ("XPEC case"), and in an attempt to better protect rights of tendering investors who intend to sell securities held in a public company being acquired through a tender offer, the Financial Supervisory Commission (FSC) announced the following Draft Amendments to "Regulations Governing Tender Offers for Securities of Public Companies," and "Regulations Governing Information to be Published in Tender Offer Prospectuses" (collectively, "Draft Amendments") on 28 September 2016. Highlights of the draft Amendments are as follows:
I.    Draft Amendment to "Regulations Governing Tender Offers for Securities of Public Companies"
1.      To verify that a tender offeror has sufficient funding to complete the subject tender offer, the tender offeror who proposes to settle the tender offer consideration in cash shall provide the following supporting documents (Article 9):
(1)   a letter confirming such tender offeror's ability to settle the tender offer consideration, to be issued by a financial consultant qualified as a securities underwriter, or by a certified public account responsible for auditing and attestation of the financial reports of public companies, in either case the tender offeror's source of funding is reviewed and the letter is issued in due process; or
(2)   a letter of performance guarantee to be issued by a financial institution.
2.      To increase the accountability of the board of directors and review committee of the subject public company being acquired, with respect to their verification on importation information of the tender offer (Articles 14 and 14-1):
(1)   It is specified that, the board of directors shall verify the important information concerning the tender offer, including the identity and financial status of the tender offeror, fairness of the tender offer conditions, and reasonableness of the source of the consideration for the tender offer, and shall provide shareholders with its recommendation based on the results of its verification; in the case of a review committee, the committee shall submit to the board of directors the result of its verification on the same information together with results of its review. If an expert is engaged, such expert's opinion shall be included concurrently in the public announcement.
(2)   The minutes of the board meeting shall include the directors' specific concurring or dissenting opinions and reasons thereof so as to clarify each person's accountability;
(3)   For the benefits of the verification operations of the subject company and review committee, the length of period for submitting responses is amended to 15 days; there are new provisions concerning the requirements on the attendance and meeting procedures of the review committee members.
3.      Except Acts of God, wars, or riots, the settlement date of the tender offer consideration shall not be changed (Article 7-1).
4.     To strengthen the disclosure of tender offer information, a tender offeror shall, within two days following the circumstances below, file a report to the FSC and copy the same to the mandated institution (Article 19):
(1)   Obtaining the approval or disapproval document from another competent authority prior to the satisfaction of the tender offer conditions;
(2)   The tender offer conditions become satisfied;
(3)   The tender consideration has been settled in full in an exclusive tender account under the name of the mandated institution; and
(4)   After the satisfaction of the tender offer conditions, the number of shares tendered reaches the maximum projected purchase volume.
5.     It is specified that where a tender offeror fails to settle in full the tender offer consideration in the exclusive tender offer account under the  name of the mandated institution, an investor who participates in the tender is entitle to revoke its tender (Article 19).
6.     There are new provisions requiring the mandated institution to set up an exclusive account to receive and deduct payments for securities only, and provisions concerning negative qualifications preventing an institution to be mandated (Article 15).
7.     The maximum length of extension period is amended to not exceed 40 days. There are new provisions stating that, the legitimate reasons for a tender offeror applying to FSC for exemption of the one-year restriction on the re-tender offer action may include: a previous tender offer is not completed due to the absence of a domestic competent authority's reviewing conclusion, and such tender offer has obtained the approval from another competent authority afterwards (Articles 18 and 24).
II.   Draft Amendment to "Regulations Governing Information to be Published in Tender Offer Prospectuses":
1.      There are new provisions requiring the tender offer prospectus to include the specific information below for investors' reference, and requiring the signature or seal of an outside expert with respect to the content of the prospectus for which he/she is accountable (Articles 4 and 13-1)
(1)   An attorney's legal opinion.
(2)   Documents supporting the tender offeror's sufficient funding to complete the tender offer, as set forth in Article 9 of Regulations Governing Tender Offers for Securities of Public Companies.
(3)   An appraisal report or opinion issued by other experts.
2.      Where the tender offer consideration is proposed to be paid in cash, in a case of multi-level acquisition, the identity of the ultimate funding supplier and information related to the arrangement of the funding shall be disclosed (Paragraph 1, Article 7).
3.      Where a tender offeror is a company and the source of its funding comes from its own capital, it shall, based on its financial reports of the last two years, provide a detailed analysis and explanation on the reasonableness of the funding source for the subject tender offer. The tender offeror's public announcement of its tender offer prospectus shall also include an undertaking to honor its obligation to settle the tender offer consideration, and all the agreements or documents related to its capital arrangement. (Paragraph 2, Article 7).
4.      The tender offeror shall disclose the material details of its plans to acquire material assets after the take-over of the subject public company is completed. (Article 12).
5.      The tender offer conditions concerning the disclosure of the information and risks associated with the tendering are amended to include, such as, once the publicly announced tender offer conditions have been satisfied and the tender offer consideration has been paid in full to the exclusive tender offer account under the name of the mandated institution, a tenderer shall not be allowed to revoke its tender unless the law provides otherwise. (Articles 6 and 8)
The Draft Amendments above are currently at a preliminary notification stage. They are intended to aggravate a tender offeror's responsibility related to fund-raising, and to increase the accountability of the subject company's board of directors. Those who are planning to conduct a tender offer are advised to attend closely to the status of the Draft Amendments.