Crossing 30% with a block purchase and a brother's on-market buying
Ms Lau holds 26.0% of the issued shares of a Main Board listed issuer. On 3 June she signs a sale and purchase agreement to buy 8.0% from the founder at HK$8.20 per share; the market price that day is HK$6.90. On 15 April she bought 1.5% on-market at HK$7.10. Her brother, a retired teacher with his own brokerage account, bought 2.0% on 20 May at HK$7.50. Ms Lau says she did not tell her brother about the block purchase, that he trades on his own, and that he is "not a concert party". She wants to avoid making a general offer because the purchase is from a single seller and she has no intention of buying more. She plans to apply to the SFC Executive for a whitewash waiver. After completion she would hold 34.0%; her brother would hold 2.0%.
1. Has a mandatory general offer obligation arisen, and what is the minimum offer price?
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Yes. Ms Lau moves from 26.0% to 34.0%, crossing the 30% threshold. Under the Takeovers Code, a person who acquires 30% or more of the voting rights of a listed company must make a mandatory general offer for all the shares (and other classes of voting securities) not already held by the offeror and concert parties. The fact that the acquisition is from a single seller and that she does not intend to buy more is irrelevant.
The minimum price is the highest price paid by the offeror or any concert party for the shares in the six months preceding the commencement of the offer period, and during the offer period. The relevant purchases are:
- 15 April: 1.5% at HK$7.10 (within six months of 3 June)
- 20 May: 2.0% at HK$7.50 (the brother, if a concert party)
- 3 June: 8.0% at HK$8.20
The highest is HK$8.20, so the offer must be at not less than HK$8.20 in cash (or with a cash alternative). A mandatory offer cannot be subject to financing or other conditions; it may be conditional only on acceptances reaching 50%.
2. How should the Executive treat the brother's 2.0% purchase?
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The Takeovers Code presumes that a person and his close relatives act in concert unless the presumption is rebutted. A brother is a close relative. Ms Lau's assertion that she did not tell him and that he trades on his own is not enough by itself; the Executive will look at the surrounding evidence, including the timing of his purchase (20 May, shortly before the 3 June block), the size of the purchase, any shared accounts or financing, and any communication between them. The burden is on Ms Lau to rebut the presumption.
If the brother is treated as a concert party:
- His 2.0% is attributed to Ms Lau. Her group would hold 28.0% before the block and 36.0% after, so the mandatory offer obligation is even clearer.
- His purchase at HK$7.50 is a relevant price for the six-month lookback, although it is below HK$8.20 and therefore does not raise the minimum offer price.
- His dealings during the offer period must be disclosed, and he cannot deal in the shares except in accordance with the Code.
Ms Lau should make full disclosure to the Executive and the Exchange, and should not assume the brother can be ignored.
3. Is a whitewash waiver available?
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A whitewash waiver is not a general escape route from a mandatory offer. The Executive grants it only in limited circumstances, typically where the obligation arises from a transaction that is itself subject to independent shareholders' approval - for example, a subscription for new shares or a rights issue - and where the independent shareholders approve the transaction without the offeror and concert parties voting. The rationale is that the shareholders are being asked to approve the dilution or the acquisition and can decide whether to forgo the offer.
Here, Ms Lau is buying existing shares for cash from the founder. The independent shareholders are not being asked to approve the acquisition, and a waiver would simply deprive them of the mandatory offer that the Code requires. The Executive is very unlikely to grant a whitewash waiver for a cash block purchase from a third party. Ms Lau's choice is therefore to make the general offer at not less than HK$8.20, or not to complete the acquisition and remain below 30%. If she completes without an offer or waiver, she and her concert parties will be in breach of the Code, and the Executive can take disciplinary action and require remedial steps.