Deciphering Corporate Actions: Merger & Acquisition

What is Merger & Acquisition?

Merger and Acquisition always involves two companies. [ap_spacing spacing_height="20px"]

Merger: The board of directors of both companies have to seek shareholders' approval for a merger. After the merger, the acquired company will cease to exist and becomes part of the acquiring company. [ap_spacing spacing_height="20px"]

Acquisition: The acquiring company obtains the majority shares of the acquired firm. The acquired firm does not change its name or legal structure. [ap_spacing spacing_height="20px"]

For the acquiring company, the process is known as a takeover. [ap_spacing spacing_height="20px"]

For the acquired company, the process is known as a reverse takeover.

How Does It Work?

For the acquiring company, existing shareholders are often involved in the following: [ap_spacing spacing_height="20px"]

• A general meeting will take place to vote for or against the acquisition. If the existing shareholders are absent during the meeting, their voting rights are voided. [ap_spacing spacing_height="30px"]
• If the acquiring company raises capital via right issue to fund the acquisition. You can view the post on right issue if you need any clarifications.

For the company to be acquired, these are the things existing shareholders need to take note of: [ap_spacing spacing_height="20px"]

• The acquiring company may fund the acquisition via cash or shares. If it is shares, you will receive shares of the acquiring company. [ap_spacing spacing_height="30px"]
• The acquired company may not remain listed on the stock exchange after the acquisition. It depends the conditions stated in the acquisition.

*Important Note*

A merger or acquisition does not mean that you will profit from the corporate action.

There had been cases where the cash offer was a far cry from the initial IPO pricing, and was not offered at a premium. You may actually incur a loss from a merger or acquisition.

Example: Singapore Airline's Acquisition of Tiger Airways

Singapore Airline's acquisition of Tiger Airways via cash has the following timeline: [ap_spacing spacing_height="30px"]

Dated 25th November 2015 [ap_spacing spacing_height="30px"]

• There is a cash offer of $0.41 per share AND  the option to subscribe for Singapore Airline shares. Refer to the image below. [ap_spacing spacing_height="30px"]
• Singapore Airline plans to delist Tiger Airways after the acquisition. [ap_spacing spacing_height="30px"]

Dated 4th January 2016 [ap_spacing spacing_height="30px"]

• Singapore Airline revised offer price to $0.45 with no further revision. [ap_spacing spacing_height="30px"]

Dated 10th March 2016 [ap_spacing spacing_height="30px"]

• Singapore Airline can exercise the right of compulsory acquisition to compulsorily acquire all the Tiger Airways Shares of existing shareholders who have not accepted the Offer at the close of the Offer. [ap_spacing spacing_height="30px"]

For existing shareholders, you will realise that nothing much can be done at your end except to accept the cash or share offer. [ap_spacing spacing_height="20px"]

This is similar for most Mergers and Acquisitions. Existing shareholders do not have many options but to accept the cash or share offer, especially if the acquiring company plans to delist the acquired company from the stock market.

Example 2: Chinese consortium's acquisition of Global Logistics Properties (GLP)

• A Chinese private equity consortium put in the winning bid of 16 billion Singapore dollars ($11.6 billion) for Singapore-listed Global Logistic Properties (GLP), the largest warehouse operator in Asia. [ap_spacing spacing_height="30px"]
• The consortium comprises Hopu Investment Management, Hillhouse Capital Group, Vanke Group and Bank of China Group Investment. [ap_spacing spacing_height="30px"]
• The deal is Asia's largest private equity buyout and is supported by GLP's largest shareholder, Singapore wealth fund GIC. [ap_spacing spacing_height="30px"]

Source: CNBC

In summary, the details are as follow:

14th July 2017

• Cash offer of S$3.38 [ap_spacing spacing_height="30px"]
• Chinese Private Consortium plans to privatize Global Logistics Properties. [ap_spacing spacing_height="30px"]
• Singapore's Wealth Fund GIC, owns 37% stake of GLP and has agreed to the acquisition.

What Can You Do?

• Sell your existing shares on the stock market before the delisting date. [ap_spacing spacing_height="30px"]
• Accept the Cash Offer.

What Happens If I Do Not Take Any Action?

• In majority of all mergers and acquisitions cases, the acquiring companies will compulsorily acquire all remaining shares. Hence, you do not have any choice in this matter. [ap_spacing spacing_height="30px"]
• In the event where acquiring company does not compulsorily acquire the remaining shares, you will become a private shareholder. This is not recommended as you will need to engage legal aid and source for your own willing buyer to liquidate the shares in future.

Disclaimer:

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