By Raymond Mah and Cassandra Nicole Thomazios
Introduction to Mergers & Acquisitions in Malaysia
The term Mergers and Acquisitions (“M&A”) generally refers to the consolidation of companies or assets through different types of transactions. Over recent years, the M&A scene in Malaysia has significantly slowed down as the number of completed mergers and acquisitions in Malaysia involving listed companies dropped from 338 in 2013 to only 78 transactions in 2017. Despite this slowdown, 55% of mergers and acquisitions activities in Malaysia was attributable to the consumer and financial sectors from 2012 to 2015. The reported transaction value in real estate mergers and acquisitions in Malaysia was “RM14 billion, representing 88% of the total transacted value in the financial sector in 2015”.
The Malaysian market has shifted over the past six years to attract both foreign and local investors to invest in several public companies through a series of acquisition transactions. In 2012, the acquisition of MBF Cards (M) Sdn Bhd by AMMB Holdings Bhd saw one of the country’s largest local banking groups (Ambank) acquiring 100% interest from MBF Holdings Bhd for a total of RM623.4 million (hereinafter referred to as “the Acquisition of MBF Cards”). From here on out, the consumer and financial sectors led the way in most merger and acquisition transactions in Malaysia and continued to do so in 2017 with the acquisition of 44.37% interest in GHL Systems Bhd by an English-based private equity fund, through its private vehicle, Actis Stark (Mauritius) Ltd, for a total of RM290.2 million. GHL Systems Bhd is a payment services provider within the Asean region with its operations based predominantly in Malaysia, the Philippines, Thailand, Australia and Indonesia.
This article will provide a brief overview of the types of mergers and acquisitions transaction structures, typical legal agreements involved and applicable key laws and regulations within the context of mergers and acquisitions in Malaysia.
Type of Mergers & Acquisitions
The difference between a merger and an acquisition is that a merger occurs when two entities join together to create a new entity. An example of this would be the oil and gas sector merger between Kencana Petroleum Berhad and SapuraCrest Petroleum Berhad Group in 2012, the result of which is now known as SapuraKencana Petroleum Berhad. An acquisition, on the other hand, refers to the purchase of one entity by another entity involving a share purchase exercise for ownership of a company without the creation of any new entity. An example of acquisition in Malaysia is the acquisition of MBF Cards (M) Sdn Bhd by AMMB Holdings Bhd, as mentioned above.
There are several types of transactions that fall under the umbrella of mergers and acquisitions and below are the predominant types in Malaysia:-
- Consolidation of businesses/ Formation of Joint venture;
- Acquisition of business and/or assets;
- Acquisition of Shares of a Company;
- Takeovers (Scheme of Arrangement under S.366 of Companies Act 2016).
In Malaysia, the most common type of merger and acquisition is by way of share purchase. The legal framework, transaction structure and process will depend on whether the entity being acquired is a public listed company or private limited company.
One of the main advantages of embarking on a merger and acquisition transaction by way of share purchase in a company is that no transfer of ownership for assets are required. This may save the buyer money as the payment of stamp duty for the transfer of real estate assets attracts a higher stamp duty rate as compared to a share transfer. In this type of acquisition, the buyer essentially acquires the company in question together with all its movable and immovable assets, employees and business. It is also common for buyers (normally bigger companies) to acquire smaller companies which have certain permits and licences (which may not be assignable). In such circumstances, the buyer will acquire the target company together with its existing permits and licenses, which will allow the buyer to operate the intended business through the acquired entity.
Key Laws & Regulations
Public merger and acquisition transactions in Malaysia are primarily governed by the Capital Markets and Services Act 2007 (“CMSA”) and the Malaysian Code on Take-Overs and Mergers 2016 (issued by the Securities Commission and enacted pursuant to the CMSA). Both private and public merger and acquisition transactions are generally governed under the Companies Act 2016.
Other key laws and regulations which may be applicable to mergers and acquisitions are as follows:-
- Bursa Malaysia Securities Berhad Listing Requirements 2010 (“Bursa Listing Requirements”)
- The Capital Markets and Services (Fees) Regulations 2012
- Financial Services Act 2013
- Offshore Companies Act 1990 (for Companies incorporated in Labuan)
- Foreign Investment Committee Guidelines (administrative)
- Contracts Act 1950
Public takeovers and mergers in Malaysia are heavily regulated by regulatory bodies such as Bursa Malaysia Berhad, Central Bank of Malaysia (Bank Negara Malaysia), Securities Commission Malaysia, Companies Commission of Malaysia and Labuan Financial Services Authority, to name a few. There are several other industry-related regulators which may be relevant depending on the nature of the merger and acquisition undertaken and the licenses that the company in question are regulated by.
Bursa Malaysia Berhad (Bursa)
Bursa is the main stock exchange in Malaysia and regulates listed companies. Therefore all listing requirements, rules and regulations issued by Bursa are to be followed by public companies undertaking a merger or acquisition transaction.
Central Bank of Malaysia (Bank Negara Malaysia)
Merger and Acquisition transactions which involve the financial sector in Malaysia will involve Bank Negara and its regulations.
Securities Commission Malaysia (SC)
The SC regulates mergers and acquisitions of companies and has enforcement scope of works towards compliance with its securities laws.
Companies Commission of Malaysia (SSM)
SSM’s main role and scope relate to administering and enforcing the conduct and affairs of companies.
Public Share Acquisitions in Malaysia
Share acquisition transactions which involve a target company that is public listed will have to comply with several regulatory bodies rules and regulations. All forms, resolutions and contracts are to be submitted to the SC & Bursa to obtain necessary approvals.
Most offer documents and/or share sale agreements will include the following information/clauses in an acquisition of a public listed company:-
- Identity of the Vendor, Purchaser and target company;
- Total number and type of sale shares to be acquired;
- Basis of consideration and purchase price of Sale Shares;
- Price adjustment (if any);
- Condition precedents and form of circular resolutions (if any);
- Terms and conditions, warranties and representations;
- Remedies for breach and termination
Set out below is a brief overview of the transaction stages that ordinarily occur in an acquisition of a public listed company:
- Before a bid is made to acquire shares in a Target Company, the bidder will conduct a due-diligence enquiry on the Target Company.
- This due-diligence enquiry will be limited to information that is made public such as information lodged with SSM and information lodged with Bursa pursuant to its listing requirements. Most often included in the Prospectus deposited with SC.
- If requested, the Target Company must provide the same documents which are publicly available to all potential interested bidders.
- Bid (Notice)
- A bidder must make a written notice of the bid to the Target Company and its shareholders under the format, rules and regulations governed by SC.
- The bidder’s intention must then be made known by way of brief press announcement (written) and published in newspapers and sent to SC & Bursa (“the Notice Announcement”).
- Takeover Offer
- If a bidder makes an offer to the target company, it is required to forward the offer to the Board of the Target Company first before announcing its takeover offer to the public within two months from the Notice announcement.
- The offer should include the relevant offer conditions and must include the information as set out in the SC guidelines.
- The offer period commences on the date of the press notice and expires either upon close of the offer, the date when offer lapses or upon withdrawal of the offer.
- Preparation of due-diligence checklist and exercise will be carried out by the bidder/offeror wherein financial advisors, project managers and lawyers will be consulted on to prepare a comprehensive due-diligence report which more often is included as condition precedents to be fulfilled in the definitive/ Share Sale Agreement.
- Financial, legal, tax and/or technical due-diligence and disclosure are required to be satisfactory to the bidder/buyer.
- Acceptance and Agreement
- If the Target Company accepts the bidders offer, the relevant Share Sale Agreement is to be entered into with the Shareholders of the Target Company within the offer period.
- Condition precedents to be met will be set out in the Share Sale Agreement documents and are to be fulfilled by the parties together with all approvals and consents before the unconditional date.
- Transfer of Sale Shares
- Once the unconditional date is met under the Share Sale Agreement and all company documents and resolutions have been prepared and executed, the transfer of the Sale Shares is to be effected.
- Timelines and adhering to rules and regulations by SC & Bursa are crucial.
- Delivery of Share Certificate and the resignation of directors are effected.
Private Share Acquisitions in Malaysia
It is becoming increasingly popular in Malaysia for acquisitions of private limited companies to be undertaken by way of a share sale purchase. The acquisition of private limited companies in this matter is less complicated than that of public listed companies as there are not as many rules and regulations to adhere to. Even though the approvals of the SC and Bursa are not required for the acquisition of private limited companies, these private mergers and acquisitions must still follow a standard transaction structure which involves compliance under the Companies Act 2016 and Contracts Act 1950.
Typical documents involved in acquisitions (both private & public) include but are not limited to the following:-
- Letter of Intent/ Offer Letter/ Term Sheet
- Non-disclosure and/or Confidentiality Agreements
- Disclosure letter (a Disclosure Letter is typically prepared upon fulfilment of all condition precedents under the Share Sale Agreement to qualify warranties that all information and/or documents disclosed under the due-diligence process are accurate)
- Share Sale Agreement
- Company resolutions (approving the share purchase transaction)
- Share transfer forms
- Letters of resignation from existing target company directors, company secretary and auditors/accountants (if necessary)
Even though the due-diligence process in private acquisitions are far less comprehensive and lengthy, it is good practice to have all of the Target Company’s existing contracts, tenancy agreements and/or loan agreements reviewed by legal counsel prior to an acquisition. One reason for this is to ensure that notice to creditors and/or landlords (where required) are duly informed of a change in either the Target Company’s shareholdings or structure. Another reason is that some contracts (in which the Target Company is a party to) may include clauses which specifically state that any change in shareholding structure, amalgamation and/or disposal of shares are grounds for breach of contract is not approved by the other contracting party. For these reasons, due-diligence exercises are not uncommon in private mergers and acquisitions as the process prevents the target company from being in default of any of its current valid and subsisting contracts.
Common Share Sale Agreement main clauses
Share acquisition transactions for private limited companies also follow a structured process, normally set out in the share sale agreement between the Seller and Purchaser. Most share sale agreements will include the following universal information and/or clauses in an acquisition of a private limited company:-
- Identity of the Seller, Purchaser and target Company;
- Total number and type of sale shares to be acquired;
- Purchase price of Sale Shares and payment of Purchase Consideration timeline;
- Condition precedents to be fulfilled on or before Completion Date
- Common condition precedents for a share purchase include completion of due-diligence / disclosure reports, approvals of shareholders for the purchase/disposal of shares (company resolutions), other regulatory approvals (if required), delivery of documents (if any);
- Terms and conditions, warranties and representations, undertakings and Indemnity by the seller to the purchaser;
- Remedies for breach and termination.
Set out below is a brief overview of the transaction stages that ordinarily occur in an acquisition of a private limited company:
- Step 1 – Execution of Preliminary Agreements (LOI & NDA);
- Step 2 – Due-diligence exercise stage;
- Step 3 – Negotiation and drafting stage of Share Sale Agreement;
- Step 4 – Execution of Share Sale Agreement;
- Step 5 – Conditions precedents stage (company resolutions and disclosure letters);
- Step 6 – Attaining Unconditional Date & Completion (lodging share transfer form and issuance of share certificate)
Acquisition of Business and/or Assets
The acquisition of business and/or assets entail the purchasing of a company’s assets and/or its business without buying over shares in the company. In such instances, the relevant transfer document or deed is required to successfully transfer the assets from one company to another. An acquisition of assets or business sale would include identified assets, liabilities and contracts of the company by way of sale and purchase agreements. Businesses which are being acquired and have employment contracts and/or any other contracts related to the business will need to be assigned or novated to the buyer. In contrast, where the buyer purchases the shares of the target company, there is no need for a transfer of business or assets.
Types of documents in a business and/or asset sale include:-
- Sale and Purchase Agreement
- Transfer form or deed for transfer of assets
- Deed of Assignment or Novation for the transfer of identified business contracts
- Due-diligence checklist for business sale (financial, legal and tax)
- Disclosure letter
- Notices/letters (especially for employees of current business)
A business and/or asset acquisition will attract a higher ad valorem stamp duty valuation, which is calculated similarly to a transfer of real estate. If the asset includes the transfer of real property, then the transaction will also attract real property gains tax (RPGT).
Set out below is an overview of the transaction stages that typically occur in a business/asset acquisition:
- Step 1 – Negotiations between Purchaser and Seller;
- Step 2 – Agreements executed (Sale and Purchase, Novation and/or Assignment);
- Step 3 – Purchase consideration paid to seller/ shareholders of the company;
- Step 4 – Asset transfer (transfer forms effected).
There are a variety of corporate structures under the umbrella of mergers and acquisitions. While they differ in regulations depending on the industry and sector, the overall legal process and due-diligence remain similar. Mergers and acquisitions essentially entail a sale and purchase transaction between a buyer and seller for an entity, business or asset. The complexity of the transaction, volume of documents and type of approvals and consents involved are the main differences between public and private company acquisitions.
What is important in a merger and acquisition transaction is that the parties involved understand the overall process and take the required steps to successfully see the deal through. Skillful negotiation is key at preliminary stages, and careful due-diligence is essential and strict adherence to agreed timelines is important in all mergers and acquisitions transactions. Having a reputable and experienced team of lawyers is crucial in all merger and acquisition transactions to achieve the intended outcome in the best way possible.
By Raymond Mah and Cassandra Nicole Thomazios
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
 Chiu Hoh Yan, “Merger and Acquisition Trends in Malaysia” (Crowe Horwath 2017), page 2 <https://www.crowe.com/my/-/media/Crowe/Firms/Asia-Pacific/my/CroweMY/Insights/Merger-and-Acquisition-Trends-in-Malaysia.ashx?la=en-GB&hash=28A97D97CD74FE027CD422C7E7A732EB8947EBAF>
 Ibid, page 3
 Ibid, page 5
 The Edge Financial Daily, “AMMB acquires MBF Cards for RM623m” (11 July 2012) < http://www.theedgemarkets.com/article/ammb-acquires-mbf-cards-rm623m>
 Ben Shane Lim (The Edge Malaysia Weekly), “Best Mergers & Acquisitions: Creating value for GHL’s shareholders” (2 January 2018) < http://www.theedgemarkets.com/article/best-mergers-acquisitions-creating-value-ghls-shareholders>
 Point to note- this is also prevalent in circumstances where the target company has assets which are charged to a creditor. In an asset acquisition, where there is an asset sale and that asset is subject to a charge, mortgage, pledge, lien or any other encumbrance, the company is under an obligation to obtain the creditor’s consent.
 Point to note- an exemption to this is where the companies are associated
Point to note- the percentage of RPGT payable will depend on the year of disposal of the real property.
 Having a good team of financial advisors, tax consultants and project managers are also necessities in all merger and acquisition transactions to achieve completion in a timely and effective manner.