Introduction

Section 307C of the Securities and Futures Ordinance provides that disclosure of inside information required under section 307B must be made in a manner that can provide for equal, timely and effective access by the public. In the context of an offer, as set out in Rule 8.1 of the Codes on Takeovers and Mergers and Share Buy-backs (the “Takeovers Code”), information about companies involved in an offer must be made equally available to all shareholders as nearly as possible at the same time and in the same manner. Notes 3 and 4 to Rule 8.1 sets out requirements in relation to information provided in investor meetings during the offer period, and information issued by associates (such as financial advisers and stockbrokers) respectively.

In the recent Takeover Bulletin, the Securities and Futures Commission (“SFC”) specifically reminds the offeree company or the offeror about the importance of equal dissemination of information which is covered by Rule 8.1 of the Takeovers Code.

Information provided during meetings
or disclosed in meeting materials

Note 3 to Rule 8.1 provides guidance in relation to information provided in meetings during the offer period or disclosed in meeting materials. Meetings of representatives of the offeror, the offeree company or their respective advisers with any shareholder in the offeror or the offeree company, or holder of other relevant securities of the offeror or the offeree company, or investment analyst, stockbroker or others engaged in investment management or advice may take place during the offer period, provided that the following are observed:

1.      No material new information is to be provided, and no significant new opinions are to be expressed by the relevant representative or adviser during the meeting.

2.      Except with the consent of the SFC, an appropriate representative of the financial adviser to the offeror or the offeree company must be present at the meeting. That representative will be responsible for confirming in writing to the SFC, no later than 12.00 noon on the business day after the date of the meeting, that no material new information was provided, and no significant new opinions were expressed, by the relevant representative or adviser at the meeting. The SFC expects such confirmation to be signed off by a senior member of the transaction team who is fully conversant with the requirements of the Takeovers Code.[1]

3.      Materials such as press releases or printouts of slides which highlight the salient facts of the offer may be distributed at the meeting and should be fairly presented. Whilst these materials need not be submitted to the SFC for comment before distribution, an appropriate representative of the financial adviser is required to confirm to the SFC that these printed materials do not contain any material new information or significant new opinion.

4.      The offeror or the offeree company and their respective financial advisers must ensure that no meetings are arranged without the relevant financial adviser’s knowledge.

The above provisions are applicable to all such meetings held during the offer period regardless of the place of and the means by which such meetings are held (e.g. by telephone or electronic means). Meetings with employees in their capacity as such (rather than in their capacity as shareholders) are not normally covered by Note 3, but the SFC should be consulted if any employees hold a significant number of shares.

Information issued by associates

According to Note 4 to Rule 8.1 of the Takeovers Code, during the offer period, associates (such as financial advisers and stockbrokers) of any party to the transaction can issue circulars in relation to the companies involved in an offer to their own investment clients, provided that such issue has previously been approved by the SFC. Such circulars must not include any statements of fact or opinion in relation to companies involved in an offer which are derived from information which are not generally available.

It should be noted that Note 4 to Rule 8.1 is also applicable to stockbrokers who, although not directly involved with the offer, are associates of an offeror or the offeree company because the stockbroker is in the same group as the financial adviser to the offeror or the offeree company. Accordingly, all entities within the same group as any financial advisers to an offeror or the offeree company should, after the commencement of an offer period, stop issuing research reports on the companies involved in the offer, except with the SFC’s prior consent. The financial adviser is not required to retrieve research reports already distributed before the offer period, but all entities within the financial adviser’s group should stop distributing these old reports and they should be removed from the websites.

Case examples

In the past, the SFC did take disciplinary actions for breach of Rule 8.1.

Disciplinary action against Nomura International (Hong Kong) Limited

Nomura International (Hong Kong) Limited (“Nomura Hong Kong”) was engaged as the financial adviser of West China Cement Limited (“West China”) in relation to the possible offer by Anhui Conch Cement Company for the shares of West China in November 2015.

During the offer period, Nomura Hong Kong issued five credit commentaries and three weekly wraps to its institutional investor clients which referred to West China. These reports contained desk analysts’ views on West China’s financial performance, and statements which, when considered in context, constituted profit forecast statements. As Nomura Hong Kong did not seek the SFC’s consent prior to issuing these reports, it has breached Note 4 to Rule 8.1. Nomura Hong Kong was publicly criticised by the SFC for such breach.

Disciplinary action against Goldman Sachs (Asia) L.L.C.

Goldman Sachs (Asia) L.L.C. (“Goldman Sachs”) was appointed as one of the financial advisers to Wing Hang Bank, Limited (“Wing Hang Bank”) in relation to a voluntary general offer for Wing Hang Bank in September 2013.

During the offer period, Goldman Sachs issued a research report and a research commentary covering Wing Hang Bank without the SFC’s prior consent. In addition, Goldman Sachs failed to remove two research reports previously issued from its research portal immediately following its appointment as the financial adviser of Wing Hang Bank. As such, Note 4 to Rule 8.1 was breached. Goldman Sachs was publicly censured by the SFC for such breach.

Key takeaways

During the offer period, the offeror and offeree company shall bear in mind the requirements for meetings with any shareholder in the offeror or the offeree company or other persons as specified in Note 3 to Rule 8.1. In particular, they are reminded not to arrange any investor meeting without its financial adviser’s knowledge or attendance. In case of doubt, the relevant persons should consult professional advisers at the earliest opportunity before embarking on a course of action which might have implications under the Takeovers Code.