Acquisition of control of a listed company by another person or company is an important subject of corporate regulations. In Pakistan these regulations are governed under Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2017.
The amended regulations are attached with these notes as Annexure A with tracking for changes made in 2024.
The primary objective of these regulations is to provide equity and protect the interest of minorities in acquirer and acquiree entities.
Major amendments have been made in these regulations by the Securities and Exchange Commission of Pakistan (Commission) in January 2024. These notes are a summary of the changes in these regulations.
Two important subjects of takeover laws are the ‘determination of minimum offer price ’ and ‘mode of payment’. The regulations have been substantially amended to bring these in line with best practices.
Minimum offer price
This regulation is the soul of these regulations. It requires a minimum price to be paid under the public offer.
In amended regulations, a concept of frequently traded shares or otherwise has been retained, however, the term “frequently traded shares” has been defined with modifications.
The purpose of this amendment is that the minority shareholders are paid the correct price for the shares. The net assets value determined by a Chartered Accountant firm based on audited financial data not older than six months from the date of public announcement of offer has been dispensed with in case of frequently traded shares.
This effectively means that in the case of frequently traded shares the minimum price has two criteria; being the price in the stock exchange and price paid by the acquirer.
Offer price for frequently traded shares:
The public offer is to be at the price which is highest amongst the following:
(a) the negotiated weighted average price under share purchase agreement(s) for the acquisition of voting shares of the target company;
Provided that the expression “negotiated weighted average price” shall include total consideration paid in whatsoever manner, including the liabilities settled whether taken over or not, personal liabilities of sellers and consideration paid either in cash or otherwise against the shares purchased;
(b) the highest price paid by the acquirer for acquiring the voting shares of target company during the 180 days preceding the date of public announcement of public offer;
(c) the weighted average share price of target company on the securities exchange during the 180 days preceding the date of public announcement of public offer;
(d) the weighted average share price of the target company on the securities exchange during 28 trading days preceding the date of public announcement of intention and only those days shall be taken into account on which the shares of the target company have been traded.
In the past following were the bases:
(a) the negotiated weighted average price under share purchase agreement(s) for the acquisition of voting shares of the target company;
Provided that the expression “negotiated weighted average price” shall include total consideration paid in whatsoever manner, including the liabilities settled whether taken over or not, personal liabilities of sellers and consideration paid either in cash or otherwise against the shares purchased;
(b) the highest price paid by the acquirer for acquiring the voting shares of target company during six months prior to the date of public announcement of offer;
(c) the weighted average share price of target company as quoted on the securities exchange during the last 180 days preceding the date of announcement of public offer;
(d) the weighted average share price of target company as quoted on the securities exchange during 28 days preceding the date of public announcement of intention:
Provided that the weighted average share price shall be calculated as total value/total volume of the Target Company in the ready market and only those days shall be incorporated where the shares of the Target Company have been traded;
(e) the price per share arrived at on the basis of net assets value carried out by a Chartered Accountant firm based on audited financial data not older than six months from the date of public announcement of offer made by the manager to the offer. In case of fixed assets, being part of total assets, the Chartered Accountant firm shall obtain the services of a valuer to carry-out value of fixed assets, whose name appears on the list of panel of valuers maintained by Pakistan Banks’ Association.
Not Frequently Traded Shares
The price is to be:
(a) the negotiated weighted average price under share purchase agreement(s) for the acquisition of voting shares of the target company;
Provided that the expression “negotiated weighted average price” shall include total consideration paid in whatsoever manner, including the liabilities settled whether taken over or not, personal liabilities of sellers and consideration paid either in cash or otherwise against the shares purchased;
(b) the highest price paid by the acquirer for acquiring the voting shares of target company during 180 days preceding the date of public announcement of public offer; or
(c) the price per share arrived at on the basis of net assets value carried-out by a chartered accountant firm based on the audited or half yearly reviewed financial statements, as the case may be, not older than six months from the date of public announcement of public offer made by the manager to the offer. In case of fixed assets, being part of total assets, the chartered accountant firm shall obtain the services of a valuer to carry-out valuation of fixed assets, as per regulation 8A and 8B of the Companies (Further Issue of Shares) Regulations, 2020.”;
Previously it was
(b) the highest price paid by the acquirer for acquiring the voting shares of target company during six months prior to the date of public announcement of offer; or
(c) the price per share arrived at on the basis of net assets value carried-out by a Chartered Accountant Firm based on the audited financial data not older than six months from the date of public announcement of offer made by the manager to the offer. In case of fixed assets, being part of total assets, the Chartered Accountant firm shall obtain the services of a valuer to carry-out value of fixed assets, whose name appears on the list of panel of valuers maintained by Pakistan Bank’s Association Explanation -:- For the purpose of this regulation, shares shall be deemed to be frequently traded if they have been traded for at least 80 percent of the trading days during six months prior to the date of public announcement of offer and their average daily trading volume in the ready market is not less than 0.5 percent of its free float or 100,000 shares whichever is higher.
Mode of Payment
This provision deals with the mode of payment. The cash consideration and combination of cash and shares has been retained however where shares are to be the mode of payment, certain changes have been made. Now such shares have to be:
(a) shares of listed company owned by the acquirer or proposed further issuance of shares by the acquirer or owned by any person acting in concert subject to the following conditions, -
(i) such company is listed for at least two years before the date of public announcement of public offer;
(ii) shares of such listed company are presently being traded at normal counter of securities exchange;
(iii) shares of such listed company are frequently traded:
Provided that in case of proposed further issuance of shares, appropriate regulatory approvals in accordance with the requirements of the Companies. Act, 2017 are in place prior to the public announcement of offer; or
(b) listed debt instruments owned/proposed to be issued by the acquirer or owned by any person acting in concert; or
(c) Government debt securities in the form of treasury bills and sukuks with remaining maturity of not more than 364 days owned/held by the acquirer or owned by any person acting in concert.
The value of shares offered as consideration shall be the weighted average share price during 180 days preceding the date of public announcement of public offer. The value of government debt securities to be offered as consideration shall be calculated on the basis of applicable Pakistan Revaluation (PKRV) rates at the end of the day preceding the date of the public announcement of the public offer. The value of listed debt instruments offered as consideration shall be calculated on the basis of a valuation methodology in accordance with generally accepted principles for valuation of such instruments as disclosed by the acquirer.
In the past it was:
(i) such company is listed for at least two years before the date of announcement of offer; and
(ii) shares of such listed company are presently being traded at normal counter of securities exchange: provided that in case of proposed further issuance of shares, appropriate regulatory approvals in accordance with the requirements of the Companies Act, 2017 are in place prior to the Public Announcement of Offer;
Explanation:- For the purpose of calculating the consideration for existing as well as new securities, 90 days average closing price of respective security before the public offer shall be considered.
The use of the words ‘exchange or transfer’ of shares has been dispensed with.
Public announcement of intention
Under the amended regulations public announcement shall be made, in case an acquirer is a company, after passing the Board resolution, unlike the past requirement after entering into negotiations for a share purchase agreement. This is an important and sensitive procedural change.
Security
Treasury bills and short term sukuks with original maturity of twelve (12) months or less with five percent margin or any other government debt securities with ten percent margin have been added in the list of securities to be provided as securities by the acquirer.
The shares of a listed company that are proposed to be offered as non-cash consideration in the takeover transaction have been removed from the list of securities.
Similar is the case with the Government debt securities owned/held by the acquirer or by any person acting in concert, offered as consideration in the takeover.
Procedure for payment
In the procedure of payment a proviso has been added that in case the option of receiving consideration in the form of securities is exercised the offeror shall post or credit the non-cash consideration to the securities account of the person accepting the takeover offer within 2 days from the date of closure of public offer.
Use of the Word ‘Public Offer’ against ‘Offer’
Through the regulations wherever the word offer has been used a clarificatory amendment has been made to the effect that it refers to public offer. Public offer has been dealt with in Chapter IV of the regulations.
Average Daily Traded Volume
A new definition has been inserted for this terms which means total traded volume of shares of a listed company divided by total trading days during the period under consideration;
Frequently Traded Shares
Under the newly inserted definition such shares shall be shares of a listed company meeting following criteria during 180 days prior to the date of public announcement of public offer:
(i) the shares have been traded for at least 80 percent of the trading days; and
(ii) the average daily traded volume of the shares in the ready market is not less than 0.5 percent of its free float or 100,000 shares whichever is higher;”
Weighted Average Share Price
This new definition means that the price calculated as total traded value divided by total traded volume of the underlying share in the ready market during the period under consideration;