30 June 2007

Takeovers and Mergers Code passes STATS takeover test

By Gary Pryke and Farhana Siddiqui

On 1 March, Singapore Technologies Semiconductors Pte Ltd (STSPL) announced that it was making a voluntary general offer (Offer) to acquire all of the issued ordinary shares (including American Depository Shares) as well as an appropriate offer to acquire certain convertible notes of Stats ChipPAC Ltd (STATS or the Company), a Singapore company dual- listed on both the Nasdaq Select Markets and the Mainboard of the Singapore Exchange Securities Trading Limited (SGX-ST).

The letter of offer also indicated that STSPL would be making an options proposal for all outstanding options, vested or unvested, of STATS’ employee share option schemes. The offer by STSPL, which had held more than 75% of STATS’ predecessor, ST Assembly Test Services Ltd (ST), came barely three years after ST’s merger with ChipPAC Ltd.

The Offer generated some excitement in the market. There were several extensions of the closing date with the market watching closely whether STSPL would increase its offer price before finally closing on 18 May. In the run up to the close of the Offer, a new shareholder emerged, announcing that it had acquired a significant stake in STATS and making it clear that it did not intend to accept the Offer. This made it less likely that STSPL would be able to secure acceptances equalling at least 90% of the issued share capital of the Company.

The Offer

STSPL’s offer was aimed at achieving 100% control of STATS. STSPL structured a 2-tier offer to entice at least 90% of STATS’s shareholders to tender their shares in acceptance of the Offer.

All shareholders who tendered their shares in acceptance would receive S$1.75 per ordinary share and S$17.50 per ADS but would receive a higher consideration of S$1.88 per ordinary share or S$18.80 per ADS if STSPL received acceptances resulting in it holding at least 90% of STATS’ issued share capital.

Special Features, issues and challenges

As STATS is a Singapore incorporated public company, the Offer was made subject to the Singapore Code on Take-overs and Mergers (the Code). Both STSPL and STATS had to comply with the requirements of the Code in the conduct of the Offer.

STATS’s dual listing meant that STATS also had to comply with US tender offer and other US securities laws, although it had a waiver from compliance with the continuing listing obligations under the SGX-ST Listing Manual.

The requirement to comply with both the Code as well as US tender offer and securities law requirements presented unique issues not typically faced in a takeover offer subject only to the Code.

While the Code and the US tender offer rules are broadly similar in purpose, they differ in detail. The US expectations of the role of the board of directors and special committee of a target were also slightly different in some respects from that expected of a target’s board and committee of independent directors in the Singapore context. STATS’s board and special committee sought to ensure, to the fullest extent possible, that both sets of rules and expectations were complied with.

One such difference was evident from the outset – STATS announced that it had formed a special committee to “review and consider the Offer and such other strategic alternatives available to the Company as the special committee may deem appropriate”

This was unusual in the Singapore takeover context, as the role of a target’s board in Singapore typically is to assess the offer on the table without necessarily looking for strategic alternatives, unlike what is expected in the US.

Certain key differences arose during the course of the Offer as a result of the requirement to comply with different sets of rules and different concepts under Singapore and US requirements.

These included differences in the concept of “independent directors” stemming both from specific requirements of US securities rules and differing market perceptions; US requirements that the financial adviser disclose details of the information underlying its analyses of the Offer, including disclosing forward looking numbers which in turn gave rise to profit forecast reporting requirements under the Code (such  reports are not required under the US regime), which were onerous in the circumstances; the inability to make a “split” recommendation under US tender offer rules; and the restriction under the Code against releasing trading results after the 39th day of the date of the Offer document.

In a number of these cases, the different requirements were resolved in consultation with the Singapore Securities Industry Council, generally resulting in a practical solution in keeping with the spirit of the Code. In other cases, such as the nature of the recommendations of the directors and the manner in which they were framed, both sets of requirements were complied with.

The chapter on the STATS takeover is likely to remain open for a while as the market watches what STSPL may do in the coming months including whether it will seek a delisting of the Company’s shares from Nasdaq and the SGX-ST.

In the meantime, the cross-jurisdictional nature of the Offer has been instrumental in demonstrating that the Code is sufficiently flexible to deal with such transactions which are likely to feature increasingly in the Singapore market.

This article was first published in Asian Legal Business, Issue 7.6.