Mergers and Acquisitions in Hong Kong
Mergers and Acquisitions in Hong KongUpdated on Tuesday 07th March 2017
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Company merges in Hong Kong
Company mergers and acquisitions in Hong Kong have increased in the last years as a result of the growth of the local market. These two types of integration are seen as beneficial both for companies that have been battling bankruptcy or facing liquidation and see this as a solution to survive but most importantly for companies that are looking to expand the scale of their operations and their level of profits. Domestic conglomerates and large international corporations that undergoing internal restructurings can also look towards this solution.
A distinction should be made between these two processes: a company merger is the joining of one or more companies into a single legal entity when the buyer also takes over all of the assets (and liabilities). After the merging is complete, the acquired company/companies will cease to exist. The acquisition is a distinct process in which one company controls interest in another. The controlled company will still have legal status although its managers are not the same.
The M&A sector continues to remain an important one in Hong Kong as many Chinese companies are using the city as a springboard towards launching their operations internationally. Likewise, the city is a very good location for international companies that are targeting Chinese operations.
If you are interested in performing one of these integration transactions, our lawyers in Hong Kong can offer you a consultation so that you may decide what if bet for your company and business interests.
Laws governing Hong Kong mergers and acquisitions
Company mergers in Hong Kong are regulated by the Hong Kong Code on Takeovers and Mergers. Breaching the guidelines stipulated in the Code can result in unwanted sanctions for the companies that are targeting a restructuring process. The purpose of observing the said legislation is to allow fair treatment to the shareholders of the companies which are being merged. The Companies Ordinance is also relevant for this purpose for companies incorporated in Hong Kong. Other provisions for mergers and acquisitions are also included in the Securities and Futures Ordinance.
For companies that are listed need to observe the provisions set forth by the Hong Kong Stock Exchange regarding listing matters after a merger or acquisition. The specialists at our law firm in Hong Kong can give you detailed information about the legal provisions for these business transactions.
Company acquisitions in Hong Kong may be voluntary when an offer is made by a public offeror and the targeted company’s board accepts it, or it can be a hostile takeover. The latter is a rather uncommon practice in Hong Kong.
The merger process in Hong Kong
Depending on the types of companies involved in a merger or acquisition, the process can be described as horizontal, vertical or conglomerate. Horizontal mergers involve companies that operate in the same business field. Vertical mergers are possible between companies that have an upstream or downstream collaboration with one another. Lastly, the conglomerate is the integration that involved companies irrespective of their business field. As far as acquisitions are concerned, they can be friendly or hostile.
The owner of a company that has acquired another will have to consider multiple factors, including the future of the employees belonging to the acquired company. Our lawyers in Hong Kong can assess your case and guide you throughout the merger or acquisition process.
The taxes applicable to this type of process will usually include the stamp duty (applicable on share transfers). The buyer and the seller can agree to split the taxes between them. When the merger or acquisition is a cross-border one, the parties must also take into consideration the applicable laws in these types of cases enforced by the other jurisdiction.
In certain business fields, like insurance or telecommunications, company takeovers may be subject to approvals. Foreign investment is permitted in Hong Kong and the city has a generally open market, except for the broadcasting sector with is subject to stricter regulations, including in the M&A activity.
If you are interested in knowing more about investments in Hong Kong, please do not hesitate to contact us.