China
Takeover Guide
Contact
Mr. Yi Zhang
King & Wood Mallesons
[email protected]
Contents
Page
RELEVANT LAW REVIEW
1
RELEVANT IMPORTANT CONCEPTS
1
TAKEOVER BY OFFER
3
TAKEOVER BY AGREEMENT
5
MANAGEMENT BUYOUT BY AGREEMENT
6
RELATED DETAILS
6
THE LIFE CYCLE OF A TAKEOVER
8
DEFENSIVE TAKEOVER TACTICS
9
TAKEOVER BY FOREIGN INVESTORS
11
TAKEOVER OF STATE-OWNED SHARES
12
SUPERVISION AUTHORITY
13
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RELEVANT LAW REVIEW
The Securities Law of the People’s Republic of China (the “Securities Law”), effective
from January 2006 and amended in June 2013, is the fundamental basic law governing
takeovers of listed companies in China. Chapter 4 of the Securities Law, “Takeovers of
Listed Companies”, provides the framework and principles for acquiring a company listed
on a Chinese stock market.
The Company Law of the People’s Republic of China (the “Company Law”), effective from
1 January 2006 and amended on 28 December 2013, is also relevant to takeovers of
listed companies.
The Procedures for the Administration of the Takeover of Listed Companies promulgated
by the China Securities Regulatory Commission (the “CSRC”), effective from 2006 and
amended in 2012, is the most detailed regulation governing takeovers of listed
companies and sets forth the legal requirements that must be met in order to acquire a
company listed in China.
The Procedures for the Administration of Strategic Investment in Listed Companies by
Foreign Investors, was released by the Ministry of Commerce, the CSRC, State
Administration of Taxation, State Administration for Industry and Commerce and State
Administration of Foreign Exchange on December 31, 2005. The Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, released by the Ministry
of Commerce, State-owned Assets Supervision and Administration Commission of the
State Council, State Administration of Taxation, State Administration for Industry and
Commerce, the CSRC and State Administration of Foreign Exchange, was effective on 8
September 2006 and amended on 22 June 2009. These two regulations set forth
additional requirements on foreign investors’ acquisitions of listed companies.
Opinions of the State Council on Further Optimizing the Market Environment for the
Merger and Reorganization of Enterprises, released by the State Council on March 7,
2014, and effective from March 7, 2014, sets forth some principles 1 of approval system
reform including reform of approval system regarding listed company takeover.
RELEVANT IMPORTANT CONCEPTS
Core Definitions
“Affiliation” means the relationship between the Controlling Shareholder, De Facto
Controlling Person, director, supervisor or senior management personnel of a company
and an enterprise directly or indirectly controlled, or managed by such a person, as well
as any other relationships that may lead to a transfer of the interests of the company.
1
These principles include: (i) ex ante review of the takeover reports of listed companies shall be cancelled, but ex post
accountability shall be reinforced; (ii) purchase, sale and replacement of substantial assets by listed companies shall no longer
be subject to examination and approval (except where backdoor listing is constituted); (iii) certain circumstances of exemption
of the obligations to make take-over offers by listed companies shall no longer be examined and approved; (iv) the power to
examine and approve the transfer of shares held in listed companies by local State-owned shareholders shall be delegated to
local governments; (v) classified review shall be conducted for the merger and reorganization of listed companies, while cases
of enterprise merger and reorganization that meet relevant requirements shall be eligible for fast-track review or exemption of
review.
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There is no affiliation between State-controlled enterprises merely due to the fact that the
State has a controlling interest in both of them.
“Acting in Concert” means an act whereby investors jointly increase the quantity of
share voting rights that they can control in a listed company through an agreement or
other arrangement.
“Controlling Shareholder” means a shareholder whose capital contribution, directly or
indirectly, accounts for 50% or more of the total capital of a limited liability company or
whose shareholdings, directly or indirectly, account for 50% or more of the total share
capital of a company limited by shares; or a shareholder whose capital contribution or
shareholdings are less than 50% but whose voting rights are sufficient to have a major
impact on the resolutions of the shareholders’ meeting or shareholders’ general meeting.
“De facto Controlling Person” means a person who, although not a shareholder of the
company, is capable of actually controlling the conduct of the company through
investments, agreements or other arrangements.
“Full Circulation Reform” means the approach taken by the CSRC beginning in 2005 to
enable the non-tradable shares to be tradable on the stock exchanges. Before such
reform, around two-thirds of the shares issued by all the listed companies prior to their
public offerings are held by state-owned companies or other kinds of companies, which
are non-tradable on the stock exchanges and can only be transferred by agreement.
Once a listed company fulfills its Full Circulation Reform, all of its shares will be tradable
on the stock exchanges after certain lock-up periods.
“Having Control of a Listed Company”: an investor will be deemed to control a listed
company in each of the following circumstances:

the investor is a Controlling Shareholder that holds more than 50% of the shares
in the listed company;

the investor can actually control over 30% of the share voting rights of the listed
company;

the investor controls the appointment of more than half of the members of the
board of directors through actual control of share voting rights;

the investor, by virtue of share voting rights that it directly holds, is able to have a
major influence on the resolutions of the shareholders' general meeting of the
company; or

other circumstances recognised by the CSRC.
“Legal Person Shares”: before the Full Circulation Reform, around 2/3 of shares issued
by listed companies are non-tradable, and these non-tradable shares can be divided into
State-owned Shares and Legal Person Shares. Generally, Legal Person Shares refer to
those non-tradable shares held by those companies who are not State-owned.
“Strategic Investment” means any mid-term or long-term strategic acquisition of a
certain scale by a foreign investor of A-shares of a PRC listed company which has
completed full circulation reform or a PRC company which became listed after full
circulation reform.
Key Shareholding Percentages
5%-30% (excluding 30%): if the share interests in a listed company owned by an
investor and person(s) Acting in Concert have reached, are expected to reach or have
exceeded 5% but have not reached 30% of the issued shares, the investor and the
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person(s) Acting in Concert shall prepare a short-form or long-form report detailing the
change of holdings (depending on whether the investor with the person(s) Acting in
Concert is the largest shareholder or De Facto Controlling Shareholder of the listed
company and the share interests owned by the investor and the person(s) Acting in
Concert have reached 20%), to be filed with the CSRC, the stock exchange and the
CSRC’s local agency, notify the listed company and then publish the report.
5% increase or decrease: once the share interests owned by an investor and person(s)
Acting in Concert have reached 5% of the issued shares of the listed company, the
investor and the person(s) Acting in Concert must submit a report and make an
announcement whenever there is a 5% increase or decrease of the shares it (they)
hold(s).
10%: except for investments in special industries that have special regulations or an
investment that has been approved by the competent authority, where a foreign investor
carries out a Strategic Investment in a listed company, the percentage of shares acquired
after the completion of the first investment shall not be less than 10% of all of the issued
shares.
25%: if the percentage of shares held by a foreign investor in a listed company is higher
than 25%, the listed company shall be entitled to be treated as a foreign-invested
enterprise. However, if a domestic company, enterprise or natural person acquires its
domestic listed affiliates in the name of a foreign company duly incorporated or controlled
by it, this listed company shall not be entitled to be treated as a foreign-invested
enterprise, unless the foreign company subscribes for the capital increase of the listed
company or increases its capital contribution to this listed company and the amount of
capital is over 25% of the registered capital of this listed company.
30% or above: if the shares held by an investor in a listed company have reached 30%
of the issued shares of the company and the investor continues to increase its
shareholding, it must make a general offer or partial offer.
75-90% or above: upon the completion of a takeover, if the shares held by the public
account for less than 25% of the total shares of a listed company, if the total share capital
of the listed company is lower than RMB 400 million, or if the shares held by the public
account for less than 10% of the total shares in a listed company in which the total share
capital is more than RMB 400 million, the stock exchange shall terminate the trading of
shares of the listed company.
TAKEOVER BY OFFER
Takeover by Offer
“Takeover by Offer” means an activity whereby an investor who, in order to obtain the
shares and control of a listed company, voluntarily chooses to issue, or is required by law
to issue, to all shareholders of the target company an offer to acquire all of the shares
held by them (a "General Offer") or some of the shares held by them (a "Partial Offer").
Factors Requiring Takeover by Offer
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
A purchaser who holds between 0 and 30% of the total share of a listed company
may voluntarily choose to issue a general offer or a partial offer to acquire shares
of the listed company;

if, through securities trading on the stock exchange, the share interests held by a
purchaser in a listed company reach 30% of the issued shares of the company
and the investor continues to increase its shareholding, it shall proceed by means
of a General Offer or Partial Offer;
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
if, through transfer by agreement, the share interests held by a purchaser in a
listed company reach 30% of the issued shares of the company and the investor
chooses to increase its shareholding, it must proceed by means of a General
Offer or Partial Offer;

if a purchaser intends to acquire more than 30% of the share interests of a listed
company by means of an agreement, it must proceed by means of a General
Offer in respect of the shares in excess of 30% unless an exemption from the
CSRC has been obtained.
The aforesaid purchaser includes the investor and any person(s) Acting in Concert. The
interests held by a purchaser in a listed company shall include the shares registered in its
name and the shares that, although not registered in its name, are controlled by the said
purchaser in respect of their voting rights. The interests held by a purchaser and the
person(s) Acting in Concert in a listed company shall be calculated collectively.
The percentage of shares that are scheduled to be acquired shall not be less than 5% of
the issued shares of the listed company.
Offer Price
Where a purchaser carries out a takeover by offer, the offer price for shares of the same
class shall not be lower than the highest price paid by the purchaser for acquiring the
shares of that class during the six months prior to the day of the publication of the
announcement of Takeover by Offer.
If the offer price is lower than the arithmetic mean of the daily weighted average prices of
the shares of that class in the 30 trading days prior to the day of the publication of the
announcement, the financial advisor engaged by the purchaser must, inter alia, analyse
the trading of shares of that class in the preceding six months and explain the
reasonableness of the offer price.
Payment Vehicles
A purchaser may pay the acquisition price of a listed company by legal means such as
cash, legally transferable securities ("Securities") or a combination of cash and Securities.
If a purchaser issues a General Offer for the purpose of terminating the listing status of a
listed company or it issues a General Offer as a result of its failure to obtain an exemption
from the CSRC, and if it pays the purchase price with Securities, it must at the same time
provide a cash alternative for the shareholders of the target company to choose; where
the purchaser pays the acquisition price with bonds listed on a stock exchange, the
tradable period of such bonds may not be less than one month.
Performance Guarantee
Where the acquisition price is paid in cash, the purchaser must deposit no less than 20%
of the total acquisition price into a bank designated by the securities registration and
clearing institution as a performance bond upon announcement of the Takeover by Offer.
Where the purchaser pays the acquisition price with Securities listed and traded on a
stock exchange, it shall, upon announcement of the Takeover by Offer, transfer the
Securities to be used for payment to the custody of the securities registration and clearing
institution, except for the new shares as issued by the listed company.
Takeover Period
The period for a takeover offer shall not be less than 30 days, or more than 60 days,
unless there is a competing offer. If there is a competing offer and the purchaser that
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issued the initial offer changes the takeover offer within 15 days prior to the expiration of
the period of the initial takeover by offer, the period of the takeover shall be extended.
The extended period shall not be less than 15 days and shall not continue beyond the
expiration date of the last competing offer.
A purchaser may not revoke its takeover offer within the takeover period.
Preliminary-Acceptance and Carrying Out the Takeover
Until three trading days prior to the expiration of the offer period, Shareholders that have
agreed to accept a takeover offer may entrust a securities company to handle the
procedures for withdrawing the preliminary acceptance. A shareholder may not withdraw
its acceptance of the offer within the three trading days prior to the expiration of an offer
period.
During the offer period, the purchaser shall announce on a daily basis the number of
shares under preliminary acceptance on the website of the stock exchange.
Upon expiration of the takeover period, any purchaser thatmade a Partial Offer must
purchase the shares under preliminary acceptance from the shareholders of the target
company on the terms agreed to in the takeover offer. Where the number of shares under
the preliminarily accepted offer is greater than the number of shares scheduled to be
acquired, the purchaser must acquire the shares under the preliminarily accepted offer on
a pro rata basis. Where the purpose is to terminate the listing status of the target
company, the purchaser must purchase all of the shares under the offer initially accepted
by the target company shareholders on the terms agreed to in the takeover offer. A
purchaser that issued a General Offer as a result of failure to obtain an exemption from
the CSRC must purchase all of the shares under the offer which have been initially
accepted.
Remaining Shareholders’ Option to Sell Shares after the Company’s De-listing
Upon the expiration of the takeover period, if the distribution of the equity interests of the
target company does not meet the listing conditions and

the total share capital is lower than RMB 400 million, the shares held by the
public is lower than 25% of the total shares in a listed company; or

where the total share capital is more than RMB 400 million, the shares held by
the public is lower than 10% of the total shares in a listed company.
The stock exchange must terminate the trading of the shares of the listed company. The
remaining holders of the shares of the target company have the right to sell their shares
to the purchaser on the same terms as those in the takeover offer within a reasonable
period specified in the takeover report, and the purchaser must acquire such shares.
Under Chinese law, the purchaser has no right to “mop up the minority”.
TAKEOVER BY AGREEMENT
Takeover by Agreement
“Takeover by Agreement” means a share transfer activity by a purchaser who, through
executing an agreement with certain shareholders of a listed company, intends to obtain
control of the listed company.
Prerequisites for Takeover by Agreement
A purchaser is not required to issue a Takeover by Offer where:
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
the purchaser executes a share transfer agreement with the shareholder(s) of the
target company;

the sum of the purchaser’s holdings and the shares purchased will not exceed
30% of the total issued shares of the company;

the circumstance falls within any of statutory exemption circumstances (see
Related Details); and

the purchaser obtains an exemption of Takeover by Offer from the CSRC.
In addition, if by means of agreement, the share interests owned by a purchaser in a
listed company have reached or exceeded 5% but do not exceed 30% of the issued
shares of the company, the purchaser need only disclose the share interests as
stipulated. In this situation, the purchaser does not need to carry out a Takeover by Offer
or apply for an exemption from Takeover by Offer.
MANAGEMENT BUYOUT BY AGREEMENT
Persons Involved
The listed company’s directors, supervisors, senior management personnel, employees
or the legal person or other organisation controlled or authorised by them.
Prerequisites
The listed company must be a sound and well-operated organisation with an effective
internal control system, and the percentage of independent directors on the board of the
company must be greater than or equal to 50%.
Requirements

The company must engage an asset evaluation institution with securities and
futures business qualifications to provide an evaluation report on the assets of
the company;

the proposed buyout must be approved by a two-thirds majority of the nonconnected directors and adopted by non-connected shareholders present at the
meeting representing more than half of the voting rights;

before giving their opinion, the independent directors must engage an
independent financial advisor to issue a professional opinion on the takeover.
The opinions of the independent directors and the independent financial advisor
must be announced together.
RELATED DETAILS
Circumstances when a Purchaser can apply for an Exemption from Takeover by Offer
In any of the following circumstances, a purchaser may apply to the CSRC for exemption
from a Takeover by Offer:

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the purchaser and the transferor are able to prove that the proposed transfer
does not result in a change in the de facto controlling person of the listed
company;
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
the listed company is facing serious financial difficulties, the restructuring plan
proposed by the purchaser to rescue the company has been approved by the
company’s shareholders' general meeting, and the purchaser undertakes not to
transfer its interests in the company for three years;

the acquisition by the purchaser of the new shares issued to it by the listed
company with the approval of the non-connected shareholders in the
shareholders' general meeting of the listed company results in the share interests
owned by the purchaser in the company exceeding 30% of the issued shares of
the company, the purchaser undertakes not to transfer the new shares issued to
it for three years, and the shareholders' general meeting of the company has
agreed to exempt the purchaser from issuing an offer;

the proportion of the share interests owned by the investor in a listed purchaser’s
company exceed 30% of the issued shares of the company as a result of a
transfer without consideration, change or consolidation of State-owned assets
carried out with the approval of the government or the State-owned assets
administration authority;

a party’s share interest in a listed company exceeds 30% of the issued shares of
the company as a result of a reduction in share capital following a repurchase of
shares from specific shareholders at a specified price approved by the
shareholders' general meeting;

a financial institution, such as a securities company or bank, holds more than
30% of the issued shares of a listed company as a result of its engagement in
businesses such as underwriting and lending within its scope of business in
accordance with the law, but it does not have any intention actually to control the
company and it has proposed a solution by transferring the relevant shares to
non-connected parties within a reasonable time period; or

other circumstances deemed by the CSRC as necessary for adapting to the
developments and changes in the securities market and protecting the lawful
rights and interests of investors.
In any of the following circumstances, a purchaser may be exempted from filing an
exemption application and directly apply to the stock exchange and the securities
depository and clearing institution for the handling of formalities for stock transfer and
ownership transfer:

where the purchaser’s share interests in a listed company have reached or
exceeded 30% of the issued shares of the company and the increase of its share
interests owned in each 12-month period after one year following the attainment
of the 30% threshold does not exceed 2% of the issued shares of the company;

where the purchaser’s share interests have reached or exceeded 50% of the
issued shares of the company and the continuous increase of its interests in the
company shall not affect the listing status of the company; or

a party’s share interests in a listed company exceed 30% of the issued shares of
the company as a result of succession.
Purchase or Sale of Shares during the Takeover Period
In the event of a Takeover by Offer, during the period from the announcement by the
purchaser until the end of the takeover period, the purchaser may not sell the shares of
the target company, or purchase the shares of the target company in any manner and on
any terms other than those specified in the offer.
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Competing Offer
Competing offers may arise during both a Partial Offer and a General Offer. The initial
offer will be affected if there is a competing offer. For example, the purchaser of the initial
offer may have to increase the offer price, extend the period of the takeover, produce an
additional performance bond or hand over additional securities for custody.
Duties of Financial Advisor
When engaging in the takeover of a listed company, a purchaser must hire a professional
institution registered in China qualified to engage in the financial advisory business as its
financial advisor.
The financial advisor engaged by the purchaser must perform a due diligence
investigation, issue a financial advisor's report, and supervise and guide the purchaser
through the transaction.
The independent financial advisor engaged by the board of directors or independent
directors of a listed company must perform a due diligence investigation and issue an
independent financial advisor's report covering the qualification of the purchaser, the
strength of the purchaser, the effect of such takeover to the company, and the
reasonability of the purchase price (in the case of takeover by offer), etc.
Duties of Lawyer
In the case of a Takeover by Offer, the lawyer engaged by the purchaser must issue a
legal opinion covering the qualification and creditability of the purchaser, the source of the
purchase capital, the internal approval and authorisation, and other issues the CSRC is
concerned with. In the case of a Takeover by Agreement in excess of 30% of the issued
shares of a listed company, the lawyer engaged by the purchaser shall also issue a legal
opinion.
THE LIFE CYCLE OF A TAKEOVER
Timetable for Takeover by Offer
Date
Action
T day
Purchaser shall prepare a Takeover by Offer report, engage a
financial advisor to submit a written report to the CSRC and the
stock exchange, on which the target company is listed, with
duplicates to the CSRC local agency, notify the target company and
to issue an announcement with a summary of the Takeover by Offer
report.
T+15
After this day, if the CSRC has no objection, the purchaser shall
publish the Takeover by Offer report, the professional opinion
issued by a financial advisor and a legal opinion by a lawyer.
T+35
Before this day, the board of the target company shall submit to the
CSRC its report and a professional opinion issued by an
independent financial advisor, and shall submit duplicates thereof to
the CSRC local agency and the stock exchange, and publish the
report.
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Date
Action
T+45*
The offer period expires on this day.
T+60*
Before this day, the purchaser must submit a written report on the
status of the takeover to the CSRC, submit duplicates thereof to the
CSRC agency and the stock exchange, and notify the target
company.
T+45+R*
If a listed company de-lists because it does not meet the listing
requirements relating to the distribution of its shares, the remaining
shareholders shall have the right to sell their shares to the
purchaser within a reasonable period specified in the takeover
report.
* This timetable assumes that the offer period is 30 days.
Timetable for Takeover by Agreement
Date
Action
T day
Execution of share transfer agreement.
T+3
Deadline for application to the CSRC for an exemption from making
a Takeover by Offer.
T+3+20*
The CSRC must issue its decision to extend or withhold an
exemption on or prior to this day.
T+6+20*
Deadline for publishing the takeover report.
T+36+20*
The securities registration and clearing institution will complete the
registration of the transfer of ownership of interests in the target
company on or before this day.
*20 working days.
DEFENSIVE TAKEOVER TACTICS
PRC law does not prohibit defensive takeover tactics. Related regulations governing
defensive takeover tactics can be found in, inter alia, the Company Law, the Securities
Law and the Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors.
Defensive takeover tactics fall essentially into two broad categories: pro-active defences
and reactive defences.
Pro-active defences, which operate as a deterrent to takeover attempts before they occur,
include:
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
absolute control of the company;

share incentive plans that involve senior management personnel and/or
employees holding shares;
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
the sale of shares to enterprises or natural persons who support the controlling
shareholder or the board;

protective clauses in Articles of Association, for example, a clause stipulating that
the number of directors substituted within a given time period cannot exceed a
certain percentage;

buy-back of the company’s shares.
Reactive defences include:

criticism of the takeover, to dissuade shareholders from accepting it;

seeking a “white knight” to make a competing offer;

“Golden Parachutes”;

“Scorched earth”;

“Poison pills”.
PRC Law on Defensive Takeover Tactics
Most of the regulations in China governing defensive takeover tactics are so general that
it is uncertain whether a given defensive takeover tactic is legal or not.
Article 20 and 21 of the Company Law and Article 7 of the Procedures for the
Administration of the Takeover of Listed Companies stipulate that the controlling
shareholder or de facto controlling person of a target company may not abuse its
shareholder's rights to harm the lawful rights and interests of the target company or other
shareholders.
Article 8 of the Procedures for the Administration of the Takeover of Listed Companies
stipulates that the directors of a target company must treat all purchasers of the company
fairly; the decisions made and the measures taken by the board of directors of the target
company with regard to a takeover shall be conducive to safeguarding the interests of the
company and its shareholders; the board of directors may not abuse its power to create
undue obstacles to a takeover, use the resources of the company to provide any form of
financial assistance to a purchaser, or harm the lawful rights and interests of the company
or its shareholders.
Before a listed company issues shares to increase capital, it should firstly specify the
purpose of the raised proceeds and obtain approval from the CSRC. Therefore, the tactic
of issuing certain shares to certain investors upon the initiation of a hostile takeover (one
of poison pills) may not be feasible as a practical matter.
Article 33 of the Procedures of the Administration of the Takeover of Listed Companies
stipulates that the board of directors of the target may not carry out any disposal of the
company's assets, outward investment, adjustment to the major business of the company
or any guarantee or loan that have a major impact on the assets, liabilities, rights and
interests or business results of the company without approval of the shareholders'
general meeting.
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TAKEOVER BY FOREIGN INVESTORS
Methods for Foreign Investors to Invest in PRC Listed Companies
There are four methods currently for foreign investors to purchase the shares of PRC
listed companies directly:

to purchase B-shares of the companies listed in Shanghai or Shenzhen stock
exchange.

to be qualified as a Qualified Foreign Institute Investor (QFII) and to purchase Ashares within its approved investment quota;

to purchase the state-owned shares and legal-person shares of listed companies
that have not finished their full circulation reform, which are non-tradable on the
stock exchanges; and

to purchase A-shares of listed companies that have finished their full circulation
reform or of the companies listed after the beginning of the full circulation reform
by way of Strategic Investment.
Main Requirements for Strategic Investment
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
Acquisitions made by foreign investors must comply with the requirements of the
industrial policies on foreign investment. In an industry where the Foreign
Investment Industrial Guidance Catalogue does not permit foreign investment, no
acquisition can be made. Where there are specific provisions on the shareholding
percentage provided in laws and regulations, the acquisition must comply with
the related requirements;

the total overseas assets of a foreign investor must be no less than USD100
million or the total overseas assets under its management must be no less than
USD500 million; a foreign investor who does not satisfy the above requirement
may conduct a strategic investment if the total overseas assets of its parent
company are no less than USD100 million or the total overseas assets under the
management of its parent company are no less than USD500 million, and its
parent company commits to assuming joint and several liability for the investment
activities of the investor;

the investment may be made in installments but the percentage of shares
acquired after the completion of the first installment may not be less than 10% of
all issued shares of a listed company, except for investments in special industries
that have special regulations or an investment that has been approved by the
competent authority;

the A shares of a listed company obtained by the investor may not be transferred
within three years;

approval by the Ministry of Commerce is required;

if an anti-monopoly examination has been triggered, approvals by the Ministry of
Commerce and the Administration of Industry and Commerce are required;

the transaction is subject to the national security review process with the Ministry
of Commerce if the industry involved in the transaction has some bearing on the
listed industries.
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Means of Strategic Investment
To give effect to a Strategic Investment:

Transfer under an agreement: the foreign investor may obtain the shares of a
listed company by way of a transfer agreement executed by and between the
foreign investor and the shareholders of the listed company. The price of a share
transfer shall depend on the valuation made by an asset evaluation institute.

Private placement by a listed company: the foreign investor may subscribe to
the shares of a listed company by way of a private placement contract executed
by and between the investor and the listed company.

Takeover by Offer: when a foreign investor has become a Strategic Investor of a
listed company by way of the above two means, it is allowed to acquire more
shares of the listed company by way of Takeover by Offer.
Payment Vehicles
To conduct the acquisition, the foreign investor may pay the price by convertible foreign
currency, RMB it legally holds, legally transferable Securities or shares of an overseas
listed company.
Anti-Monopoly Examination
Pursuant to Article 51 of the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, where mergers and acquisitions of a domestic
enterprise by a foreign investor meets the thresholds for declaration of the Provisions of
the State Council on Thresholds for Declaration of Concentrations of Undertakings, the
foreign investor shall make a declaration with the Ministry of Commerce in accordance
with the Antimonopoly Law and no transaction could be carried out without such
declaration.
Law and Jurisdiction
If a foreign investor carries out a takeover of a listed company and the associated change
in share interest, it shall obtain the approval of the relevant State authorities, applythe law
of China and submit to the judicial and arbitral jurisdiction of China.
TAKEOVER OF STATE-OWNED SHARES
Among PRC listed companies, a large number of listed companies have state-owned
shares, and some of them are absolutely or relatively controlled by State-Owned Share
Holding Entities (“SOSHE”) as holding shareholders. Where the target company is
controlled by a SOSHE, or the shares proposed to be purchased are state-owned shares,
the following issues arise.
Direct Takeover of State-Owned Shares of Listed Companies
Before the completion of the full circulation reform for all shares in the A-share market,
state-owned shares shall not be circulated in the secondary trading market. The transfer
of state-owned shares of the listed company that has not completed its full circulation
reform to a foreign investor is required to be conducted by way of public selection of
transferee in principle.
After the completion of the full circulation reform for all shares in the A-share market, all
shares can be circulated in the secondary market. The SOSHE may reduce its
shareholding in the secondary market after the sales limitation period has expired and the
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state-owned non-circulated shares it held have been transferred to circulated shares.
During the sales limitation period, the SOSHE may also transfer its state-owned shares
by way of a transfer agreement. Under these circumstances, it is required in principle to
choose the final transferee by way of public selection.
Acquisition of Shares of the SOSHE
If the foreign investor conducts a takeover of the shares of a listed company by way of
acquisition of the shares of the SOSHE, the transferor must give notice of share transfer
in certain equity trading markets and widely select transferees while the SOSHE must
submit the plan for changing the shareholding to the supervision authority for approval.
Price Determination
Generally speaking, all state-owned assets transferred to foreign investors or other nonstate-owned institutions must be evaluated.
The price of state-owned shares transferred by agreement shall be confirmed by the
transferor or supervision authority on the basis that the price of each state-owned share
shall not be less than its audited net assets. To fix a transactional price, the profit-earning
ability and market position of the listed company should also be considered. The price for
acquisition of the shares of the SOSHE shall be confirmed on the basis of the appraised
value approved or recorded.
Approval Authority
Generally speaking, the transfer of state-owned shares of non-financial listed companies
must be approved by the State-Owned Assets Supervision and Administration
Commission of the State Council or its provincial branch; the transfer of state-owned
shares of financial listed companies must be approved by the Ministry of Finance.
SUPERVISION AUTHORITY
CSRC
The CSRC is the main regulatory authority regulating the takeover of listed companies
and associated changes in shareholdings. When it deems necessary, the CSRC shall
order rectification and adopt regulatory measures such as regulatory dialogue, issuance
of a reminding letter and order of suspension or cessation of the takeover.
Ministry of Commerce (“MOC”)
The MOC is responsible for the examination and approval of issues concerning industrial
policy, change of enterprise nature (for example whether a listed company transformed
into a foreign investment enterprise) and industrial monopoly, during the takeover
process.
State Administration of Industry and Commerce (“SAIC”)
The SAIC is responsible for examination and approval of issues concerning the change of
enterprise registration and industrial monopoly during the takeover process.
Industrial Supervision Authority
The takeover of a listed company whose business scope includes any industry limitation
with respect to foreign investment is required to be approved by the related industrial
supervision authority first.
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State-Owned Assets Supervision and Administration Commission (“SASAC”)
SASAC regulates issues relating to state-owned shares of listed companies.
State Administration of Foreign Exchange (“SAFE”)
SAFE supervises the funding source and turnover of foreign exchange in foreign
acquisitions.
Shanghai/Shenzhen Stock Exchange (“Stock Exchange”)
The Stock Exchange organises the trading and provides services for the takeover of
listed companies and the associated changes in share interests, implements real-time
monitoring of securities trading activities, and supervises the conscientious performance
of information disclosure obligations in the takeover of listed companies and the
associated changes in share interest.
China Securities Depository and Clearing Corporation Limited (“SD&C”)
SD&C provides services in connection with matters such as the registration, depositing
and clearing involved in the takeover of listed companies and the associated changes in
shareholdings.
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