Abstract
This paper discusses the purpose and practice of the mandatory bid rule in takeovers in the UK. A literature review looks at the impact of the mandatory bid rule in a takeover on both bidders and target companies. The origin and evolution of the mandatory bid rule in China are described and cumulative abnormal returns (CAR) used to measure its impact on bidders and target companies. The results show that shareholders of target companies receive a better return when bidders acquire more than 50% of the shareholding in target companies. This suggests that China should reform its mandatory bid rule by restricting the use of proportional partial bids to increase returns to the target shareholders. The results also show that in making a proportional partial bid to take a company over, bidders receive a better return when they aim for corporate restructuring that adheres to the state-led industrial policy. The authors recommend that the law should strike a balance between following the state-led policy of corporate restructuring and protecting the interests of target companies.
The authors thank Prof Zhu Ciyun & Prof Tang Xin, Tsinghua Law School; Dr Beat Reber, Sheffield University Management School, and Mr Jiannan Lin, Legal Counsel, Coscoshipping-Cinda Asset Management Co Ltd, for their feedback on earlier drafts of this article.
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Notes
- 1.
Kershaw (2016).
- 2.
Rule 9.1, The UK Takeover Code.
- 3.
Kershaw (2016).
- 4.
Notes on Dispensations from Rule 9 (Note 4), The UK Takeover Code.
- 5.
Kershaw (2016).
- 6.
Ibid.
- 7.
Borges and Gairifo (2013).
- 8.
Kershaw (2016).
- 9.
Ibid.
- 10.
General Principle 1, The UK Takeover Code.
- 11.
Kershaw (2016).
- 12.
Ibid.
- 13.
Art. 25, Measures for Takeover 2020.
- 14.
The General Principles, The UK Takeover Code.
- 15.
Ibid.
- 16.
Cai (2011).
- 17.
Coffee (1984).
- 18.
Manne (1965).
- 19.
Kershaw (2016).
- 20.
Deakin and Singh (2008).
- 21.
Davidoff (2009).
- 22.
Martynova and Renneboog (2008).
- 23.
Ibid.
- 24.
Franks and Mayer (1996).
- 25.
Martynova and Renneboog (2008).
- 26.
Ibid.
- 27.
Franks and Harris (1989).
- 28.
Ibid.
- 29.
Jensen and Ruback (1983).
- 30.
Andrade et al. (2001).
- 31.
Clements et al. (2007).
- 32.
Davidoff (2009).
- 33.
Elliott (1998).
- 34.
Eckbo (2008).
- 35.
Franks and Harris (1989).
- 36.
Franks and Mayer (1996).
- 37.
Martynova and Renneboog (2008).
- 38.
Ibid.
- 39.
Ibid.
- 40.
Sundarsanam and Mahate (2006).
- 41.
Ibid.
- 42.
Ibid.
- 43.
Bhagat et al. (2005).
- 44.
Ibid.
- 45.
Kershaw (2016).
- 46.
- 47.
Kennedy and Limmack (1996).
- 48.
Sundarsanam and Mahate (2006).
- 49.
Ibid.
- 50.
Ibid.
- 51.
Powerll and Stark (2005).
- 52.
Cosh and Guest (2001).
- 53.
Cai (2011).
- 54.
Lin (2012).
- 55.
Ibid.
- 56.
Xi (2015).
- 57.
Art. 48, Tentative Regulations on the Administration on Takeovers of Companies Listed in China.
- 58.
Art. 48 & 49, Tentative Regulations on the Administration on Takeovers of Companies Listed in China.
- 59.
Ibid.
- 60.
Cai (2011).
- 61.
Art 23, Measures for Takeover 2002.
- 62.
Cai (2011).
- 63.
- 64.
Art. 48, 49, and 50, Measures for Takeover 2002.
- 65.
Art. 48, Measures for Takeover 2002.
- 66.
Art. 24, Measures for Takeover 2006.
- 67.
Ibid.
- 68.
Cai (2011).
- 69.
Art. 65, Securities Law 2019.
- 70.
Art. 61, 62 and 63, Measures for Takeover 2020.
- 71.
Art. 62, Measures for Takeover 2014.
- 72.
Xi (2015).
- 73.
Ibid.
- 74.
For instances, Measures for Takeover 2020 (Art. 62) established that: ‘under any following circumstances, the bidder is exempted from a mandatory bid: (1) the purchaser and the transferor can prove that the transfer of shares is between different parties under the control of the same actual controller, which will not cause the change of the actual controller of the listed company; (2) The listed company is confronted with serious financial difficulty, the restructuring plan offered by the purchaser to save the company has obtained the approval of the shareholders’ meeting of the company, and the purchaser undertakes not to transfer its equity in the company in the future three years; (3) Other circumstances as determined by the CSRC for adaptation to the development and changes of the securities market or for protection of the lawful rights and interests of investors.’
- 75.
Art. 62 & 63, Measures for Takeover.
- 76.
- 77.
Ibid.
- 78.
Art. 24, Measures for Takeover 2006.
- 79.
‘Opinions of the State Council on Promoting Enterprise Merger and Restructuring’ (The State Council, 2010).
- 80.
Zheng et al. (2015).
- 81.
Ibid.
- 82.
SASAC (2013).
- 83.
Ibid.
- 84.
Lee and Bao (2020).
- 85.
Cai (2011).
- 86.
Ibid.
- 87.
Xi (2015).
- 88.
Ibid.
- 89.
Rozwadowski and Yong (2005).
- 90.
Ibid; The long security position is in the expectation that the share price will rise in value in the future, and a short position is the opposite of a long position.
- 91.
SAC (2020).
- 92.
Ibid.
- 93.
Kershaw (2016).
- 94.
Rule 9.5, Takeover Code.
- 95.
The Takeover Panel (1973).
- 96.
Brown and Warner (1985).
- 97.
The figure only calculates the share acquisitions surpassing 30% of shares in target companies.
- 98.
Kershaw (2016).
- 99.
The median of holdings by the largest shareholders in China’s listed companies is 30%.
- 100.
The mean of holdings by the largest shareholders in China’s listed companies is 32.64%.
- 101.
1 basis points = 0.01%.
- 102.
Art. 24 & 25, Measures for Takeover 2020.
- 103.
Cai (2011).
- 104.
Ibid.
- 105.
Lee and Bao (2020).
- 106.
Cai (2011).
- 107.
Reuters (2017).
- 108.
See Table 2.
- 109.
The 14th National People’s Congress (1992).
- 110.
Art. 24, Measures for Takeover 2006.
- 111.
Rule 9.1, The UK Takeover Code.
- 112.
Rule 9.1, The UK Takeover Code.
- 113.
Art. 65, Securities Law 2020.
- 114.
Art. 24, Measures for Takeover 2020.
- 115.
Zhang and Shen (2019).
- 116.
Kershaw (2016).
- 117.
Ibid.
- 118.
Practice Statements No. 26 of the Takeover Panel: Shareholder Activism (2008).
- 119.
Kang et al. (1984).
- 120.
Arts 78, 79, 80, 81, 82, Corporate Governance Code of China’s Listed Companies.
- 121.
Notes (Note No. 6) on Rule 9.1, The UK Takeover Code.
- 122.
Ibid.
- 123.
Notes on Rule 9.1, The UK Takeover Code.
- 124.
Notes (Note No. 8) on Rule 9.1, The UK Takeover Code.
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Lee, J., Bao, Y., Li, J. (2021). Evaluating the Mandatory Bid Rule for Takeover Law in China: An Empirical and Comparative Analysis. In: Lee, J. (eds) Takeover Law in the UK, the EU and China. Springer, Cham. https://doi.org/10.1007/978-3-030-72345-3_9
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