Step-transaction plans for M&As and listco restructurings (1)

Amid the ongoing market-oriented reform of mergers and acquisitions, as well as restructurings of listed companies, the latter process is being designed with increasing flexibility. During the past year, there was evidence of the popularity among companies for step transactions in package deals (hereinafter referred to as the step-transaction plan). As for the progress of restructurings, the step-transaction plan also allows listcos to integrate their businesses as early as practicable.

Generally, there are two steps to the aforementioned plan that listcos use for restructurings. In the first step, listcos buy equity (a controlling interest in most cases) in their targets with cash. In the second step, the listcos issue shares and use them as consideration, or use shares plus cash, to purchase the remaining equity in the targets.

According to relevant provisions of the Measures for the Administration of Material Asset Restructurings of Listed Companies, while the listcos may execute the first step involving asset acquisitions with cash on approval at general meetings, the second step, which involves asset acquisitions through the issuance of new shares (or new shares plus cash), shall not be executed until approval is obtained at both from the listcos’ general meetings and from the regulators. While the first step, being an acquisition with cash, is a precondition of the subsequent additional share issue for the purpose of further asset purchases, it is not conditional on approval from regulators.

Yin Yi is an attorney at Grandway Law Offices