Singapore: Due Diligence In Singapore Public Takeovers

Last Updated: 12 June 2017
Article by Mark See

Acquirers wishing to buy control of, or merge with, a company with a Singapore primary listing ("Target") should first evaluate a potential Target through due diligence, the process of obtaining and studying information on the Target and its business. Analysing publicly available information avoids legal problems. By contrast, private information from a Target to an acquirer, whilst useful, could trigger legal problems (including insider trading risks). This presents an acquirer with two choices: bid for the Target on the basis of publicly available information only, or do so on the basis of both publicly available information and private information.

Bidding on the Basis of Publicly Available Information Only

Publicly available information on a Target includes:

  • The Target's and its subsidiaries' audited accounts
  • Annual reports and annual return
  • Half-yearly or quarterly financial results (the frequency of such results reporting depends on the Target's market capitalization
  • The Target's constitution (formerly known as memorandum and articles of association)
  • Details on Target's share capital
  • Details on Target's directors
  • Target's announcements made on the Singapore Exchange's website
  • News articles written about the Target
  • Stockbrokers' research reports on the Target

This information, studied from the different standpoints of finance, tax, accounting and legal, will help an acquirer in two ways. First, the acquirer will be able to value the Target. A Target's title to assets and also productivity in using resources will be important considerations. Second, the acquirer will be able to plan its takeover strategy using a general offer or scheme of arrangement, form of consideration to be offered, amount of first offer, etc.

For example, publicly available information allows such areas to be considered:

 

Financial Aspects

Capital Structure Aspects

Shareholding Aspects

Regulatory Aspects

Considerations

(i) Target's accounting policies.

(ii) Target's contingent liabilities.

(iii) Target's cash flow and profit.

(iv) Value of significant Target assets.

(v) Whether goodwill will be acquired and the effect of post-acquisition amortisation of such goodwill by the acquirer.

(i) Whether there are different classes of Target securities.

(ii) Existing option arrangements (share options or employee option plans).

(i) Who are the Target's substantial shareholders – extent of shareholding dispersion, whether any substantial shareholders might be willing to offer their Target shares to the acquirer.

(i) Government licensing for Target's business, and whether change-of-control of Target (pursuant to a successful bid) requires government approval.

(ii) Whether competition law considerations apply to the potential acquisition.

(iii) Whether foreign laws apply to Target, and which could affect acquirer's bid.

Bidding on the Basis of Both Publicly Available Information and Private Information

If there is ample public information available already, why bother with private information? After all, a Target is likely to tell inquisitive acquirers that it has already publicly announced all material information relating to it and its business, in compliance with the Singapore Exchange's continuing disclosure requirements.

The answer is that information helps acquirers. The more information that an acquirer has before making a bid for the Target, the better it can evaluate the Target and plan its acquisition strategy. 

For example, apart from the areas set out in the table above, private information allows such areas to be considered:

 

Target's auditor's Working Papers

Key Contracts

Real Estate

Employment

Considerations

(i) Target's auditor's working papers for Target's audited accounts can be used to improve financial analysis of Target.

(i) Key contracts or other arrangements could form a significant part of the Target's business, and their terms may impact a potential bid for the Target. 

For example, if the Target is a party to a joint venture, there may be buy-out obligations triggered in the joint venture as a result of a change-of-control of the Target arising from a successful bid.

(i) Property may form a significant part of Target's assets, and their ownership or lease terms may impact a potential bid for the Target. 

For example, the Target may own factories leased on land from the government, and such leases may have change-of-control restrictions (which will be triggered by a successful bid from the acquirer).

(i) Employment terms of key directors and executive officers, and whether there are any provisions (for example, promised remuneration triggered by a change-of-control as a result of a successful bid from the acquirer).

An expansive due diligence investigation can therefore offer two advantages for an acquirer.

First, the exercise will help the acquirer to validate various assumptions of the Target and its prospects. These could be strategic, financial, commercial, operational, or technological in nature.

Second, the exercise will help the acquirer to improve the terms of its planned bid. It minimises overpayment and also synergy risk.

In friendly takeovers, an acquirer can ask the Target for additional (private) information, while in hostile takeovers, it has to rely on public information for its assessment as the Target will not be likely to cooperate on information requests.

If the Target provides private information to an acquirer, both parties will have to consider if the benefit of this course of action outweighs the costs.

 

Target

Acquirer

Challenges presented by the use of private information in Target due diligence

(i) Difficult for the Target to assess what private information is materially price sensitive (and triggers insider trading risks) and what information is not (and therefore can be shared with the acquirer without creating complications).

In Singapore, the provider of the information ("tipper"), i.e. Target, will also be found guilty of insider trading if the prohibition is breached.

(ii) The Singapore on Take-Overs and Mergers ("Takeover Code") requires private information given to an acquirer to be given to any other genuine bidder making a bid.

Such information, even if not materially price sensitive, could be commercially sensitive or subject to confidentiality obligations. A Target may not want to share such information with other bidders, particularly if such bidders are trade competitors.

(i) If an acquirer obtains materially price sensitive information from a Target, the acquirer is prevented by the Takeover Code and Securities and Futures Act from dealing in the Target's securities until such information is made public by the Target, in a "flush-out announcement".

An acquirer could find itself unable to act after obtaining such information, if the Target does not cooperate.

If a Target provides private information which is not materially price sensitive to an acquirer, the acquirer must nonetheless ensure that proper disclosure is made in the takeover documentation. This is to comply with statutory and Singapore Code on Take-overs and Mergers disclosure requirements and to avoid challenges on the basis that the acquirer has materially price sensitive information which is not publically available.

Should Private Information Ever Be Used in a Public Takeover?

An acquirer, in deciding the relative importance of private information to its potential bid for a Target, should consider its specific goals for the acquisition. 

For example, an acquirer looking to enter a new product market through acquiring control of a Target and its product lines, may not consider the Target's profitability to be of great importance for the purpose of due diligence. By contrast, profitability could be of great importance if the acquirer is looking to merge with a Target of similar size, as this affects the combined entity's post-acquisition value. 

In some cases, private information may be very useful for a bid, and in others, acquirers will be content to bid on the basis of publicly available information only.

If you have any questions about this Alert, please contact Mark See, any of the attorneys in the Duane Morris & Selvam Singapore office or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions