M&A in Hong Kong: Takeovers Code and Regulatory Approvals

Overview of the Hong Kong Takeovers Framework

Acquisitions of control over companies listed on the Hong Kong Stock Exchange (HKEX) are subject to the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs (together, the Takeovers Code), administered by the Securities and Futures Commission (SFC). The Takeovers Code is not a piece of legislation in the traditional sense — it is not enacted by the Legislative Council — but rather a regulatory code with which market participants are expected to comply. Breach of the Code can result in regulatory sanctions including public censure, cold-shouldering by the financial community, and in serious cases referral to law enforcement authorities.

The primary objectives of the Takeovers Code are to ensure that all shareholders of a target company are treated equally, that shareholders have sufficient information and time to consider any offer for their shares, and that the acquisition of control does not occur by means of manipulative or deceptive market practices.

Mandatory General Offer Obligation

The cornerstone of the Takeovers Code is the mandatory general offer (MGO) obligation. A person who acquires 30% or more of the voting rights of a listed company (or who already holds between 30% and 50% of the voting rights and acquires further voting rights in any twelve-month period) must make a mandatory offer to acquire all remaining shares of the company at a price no less than the highest price paid for shares in the relevant period.

The MGO obligation is designed to protect minority shareholders by ensuring they have an opportunity to exit the company at a fair price when a change of control occurs. The offeror cannot set conditions on a mandatory offer (unlike a voluntary offer), and the offer must be made in cash or accompanied by a cash alternative.

Voluntary Offers and Privatisations

A voluntary general offer may be made by an offeror who has not triggered the mandatory offer threshold. Unlike an MGO, a voluntary offer may be subject to conditions, including conditions relating to the level of acceptances received and the receipt of regulatory approvals. A voluntary offer made with a view to taking the company private (a privatisation) must typically be accepted by shareholders holding at least 90% of the shares not already held by the offeror, after which the offeror may compulsorily acquire the remaining shares.

Whitewash Waivers

A whitewash waiver allows a person to avoid the mandatory offer obligation that would otherwise be triggered by the issue of new shares to them, provided the dilutive transaction is approved by independent shareholders. Whitewash waivers are commonly used in connected transactions, fundraisings, and debt restructurings where a major shareholder or rescue investor would otherwise cross the 30% threshold. The SFC must consent to the whitewash waiver, and independent shareholders must vote in favour at a general meeting.

Regulatory Approvals in M&A Transactions

In addition to Takeovers Code compliance, M&A transactions in Hong Kong may require a range of regulatory approvals depending on the industry and the parties involved:

Competition clearance: Major transactions that affect competition in Hong Kong markets may require review by the Competition Commission under the Competition Ordinance (Cap. 619), particularly where the parties have significant market share in Hong Kong.

Merger control in regulated industries: Acquisitions in regulated sectors such as banking, insurance, telecommunications, and broadcasting may require approval from sector-specific regulators including the HKMA, Insurance Authority, Communications Authority, and Chief Executive in Council.

Mainland China approvals: Where the target or the offeror has significant Mainland China operations, approvals from Mainland authorities including the State Administration for Market Regulation (SAMR) for merger control purposes may be required.

Foreign investment approvals: Cross-border transactions may trigger foreign investment review requirements in the target's home jurisdiction, which must be carefully assessed as part of deal structuring.

Timetable for a Recommended Offer

A recommended offer (where the target board supports the bid) under the Takeovers Code follows a defined timetable. After the announcement of a firm intention to make an offer, the offeror typically has 21 days to despatch the offer document. The offer must remain open for at least 21 days from despatch. There are defined deadlines for the posting of offeree board circulars, final closing dates, and the period within which the offeror must have declared the offer unconditional.

How Alan Wong LLP Can Help

Alan Wong LLP advises offerors, target companies, financial advisers, and independent board committees on Takeovers Code compliance, mandatory and voluntary offer structuring, whitewash waiver applications, and regulatory approvals for Hong Kong public M&A transactions. We also advise on private M&A transactions involving the acquisition of unlisted Hong Kong companies and on cross-border regulatory approval strategies. Contact us to discuss your M&A transaction in Hong Kong.