Crossing 30% after a founder block purchase
Mr Chan holds 29.8% of Harbour View Hotels, a Main Board listed issuer. On 10 June he agrees to buy 2.6% from a retiring founder at HK$8.20 per share. In the previous six months, Mr Chan bought 1.2% at HK$9.10 and his wife, a concert party, bought 0.8% at HK$9.60 before selling it in April. Harbour View's shares last traded at HK$8.00. Mr Chan also holds an option, granted last year, to buy 3% from a family trust at HK$7.50, exercisable in three months. He tells the board he does not want to make a general offer and asks whether he can complete the 10 June purchase and rely on the option being out of the money. The company has 800 million shares and no other material shareholders.
1. Does the 10 June acquisition trigger a mandatory general offer? Explain the 30% threshold and the creeper rule.
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The acquisition takes Mr Chan from 29.8% to 32.4%, crossing the 30% threshold. Under Rule 26.1 he must make a mandatory general offer for all shares unless a whitewash waiver is granted. The creeper rule is not the main trigger here, but it would also catch a 30-50% holder who adds more than 2% in 12 months. His wife's purchase is relevant because concert party dealings are aggregated for the trigger and for price. The fact that he does not want to make an offer is irrelevant; the obligation is mandatory.
2. What is the minimum offer price and can he avoid the offer by arguing the option is at HK$7.50?
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Rule 26.3 requires the offer price to be not less than the highest price paid by Mr Chan or any concert party in the six months before the offer period. His wife paid HK$9.60, so the offer must be at least HK$9.60, even though the June purchase was at HK$8.20 and the market is HK$8.00. The HK$7.50 option does not lower the price; it is an interest in shares and, if exercised, would be an additional acquisition. He cannot complete the June purchase and then argue the option is out of the money. A whitewash waiver would require independent shareholders' approval and SFC Executive consent, and is normally sought before the triggering acquisition, not after.
3. What announcements and independent advice are required once the offer is triggered?
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Once triggered, he must announce the offer, set up an independent board committee and appoint an IFA to advise independent shareholders. The offer document must follow the Takeovers Code, include the price and conditions, and be dispatched within the Code timetable. The board must not do anything that frustrates the offer. If he fails to announce or make the offer, the SFC can take disciplinary action and require him to pay compensation. The independent shareholders should receive advice on whether the HK$9.60 price is fair.