Takeover rules draw fresh scrutiny

ONCE again, takeover rules are in the spotlight.

This time, it relates to the renewed buyout offer by Federal Land Development Authority (Felda) for FGV Holdings Bhd.

Five years ago, Felda made an offer for FGV shares it didn’t own at RM1.30 a piece.

It is making a new offer at the same price.

The only difference is that Felda is starting from a new shareholding level of 86.93% of FGV, compared with 33.66% previously.

Going by the Malaysian Code on Take-overs and Mergers, Felda will need to acquire a total of 90% of the shares it does not already own before it can compulsorily purchase the remaining shares and delist FGV.

This means Felda would need to own a total of approximately 98.7% of FGV shares.

But there is a listing rule that states that a company’s shares could get suspended from trading if there is less than a 10% free float.

Such situations would be worrisome for minority shareholders, as the stock they hold would no longer be liquid.

This tends to pressure minority shareholders into accepting buyout offers, especially when the offeror is just inches away from securing 90% of the target company’s shares.

In such instances, the offeror has an advantage over the worried minority shareholders, who may be holding out for a higher bid.

One could argue that the said listing rule overshadows the level of protection the takeover code provides to minority shareholders.

For example, what would happen if the listing rule is amended to state that in takeover situations, the stock exchange would not suspend trading of the target company’s shares even if the free float drops below 10%, allowing the takeover code to take full effect?

This change would turn the tables on offerors, who would then be forced to make higher bids to meet the higher threshold demanded by the takeover code.

Minority shareholders would then enjoy better protection.