According to the Code on Share Buy-backs, an off-market share buy-back requires prior approval from the Executive Director of the Corporate Finance Division of the SFC (the ‘Executive’). The Executive’s approval is normally conditional upon several key requirements designed to protect the interests of all shareholders. One of the most critical conditions is obtaining approval from disinterested shareholders. The voting threshold is set at a supermajority, specifically at least 75% of the votes cast by shareholders who are not involved in the transaction (and their concert parties) at a general meeting. Furthermore, a circular must be sent to shareholders containing detailed information as prescribed in the Codes, including the terms of the buy-back, advice from an independent financial adviser, and the recommendation of an independent board committee. The purpose of these stringent requirements is to ensure that the transaction is fair and reasonable and does not prejudice the interests of the remaining public shareholders, as an off-market buy-back is a private arrangement not available to all shareholders.

This question assesses the understanding of Rule 25 of the Hong Kong Code on Takeovers and Mergers, which addresses ‘special deals’. A special deal is a favourable arrangement offered to one or more shareholders that is not extended to all shareholders, which contravenes General Principle 1 (similar treatment for all shareholders). The Code generally prohibits such arrangements from the time an offer is contemplated until six months after its close. However, the Executive may grant consent under specific circumstances. The approach depends on the nature of the deal. If the deal’s benefit cannot be extended to all shareholders and its value cannot be reasonably quantified, the Executive requires two key safeguards to ensure fairness: first, the independent financial adviser to the offeree company must publicly state that the terms of the special deal are fair and reasonable. Second, the arrangement must be approved at a general meeting of the offeree company by a vote of only the disinterested shareholders (i.e., those not involved in the special deal). Simply disclosing the deal or adjusting the price (which is appropriate for quantifiable deals) is insufficient for a non-quantifiable arrangement.

According to Schedule I of the Takeovers Code, an offer document must contain specific key information. Statement I is correct because the offeror’s intentions regarding the continuation of the offeree company’s business and the employment of its staff are mandatory disclosures. This allows shareholders to assess the future of the company post-takeover. Statement II is correct as the offer document must describe how the offer is to be financed, including the sources of finance and the names of principal lenders or arrangers. This requirement applies unless the offer is a cash offer intended to privatise the offeree company, a condition not specified in the scenario. Statement III is incorrect because the Code requires the name and address of the principal members of the offeror’s concert party, not the personal contact details of every member. This tests the specific level of detail required. Statement IV is correct because the Code mandates the disclosure of any arrangements that may induce a person to deal or refrain from dealing. If no such arrangements exist, an appropriate negative statement must be included to confirm this. Therefore, statements I, II and IV are correct.

According to the SFC’s Disciplinary Fining Guidelines, a licensed person’s cooperation with the SFC is a significant factor in determining the appropriate disciplinary sanction. The SFC encourages early self-reporting of breaches and full, frank cooperation during investigations. While cooperation does not provide immunity from disciplinary action, it is considered a key mitigating factor. The SFC may grant a reduction in the proposed financial penalty, often up to 30%, for those who cooperate fully and accept liability at an early stage. This approach incentivizes firms to be proactive in their compliance and transparent in their dealings with the regulator. Conversely, a lack of cooperation or attempts to conceal misconduct can be treated as an aggravating factor, potentially leading to a more severe penalty.

The Hong Kong Code on Takeovers and Mergers generally prohibits an offeree company from entering into arrangements that include inducement fees or other deal protection measures. This is based on the principle that such arrangements can deter or frustrate competing offers, which may not be in the best interests of all shareholders. Rule 21.2 of the Takeovers Code specifically addresses these fees, often called ‘break fees’. While generally discouraged, the Executive may permit such a fee if it is considered ‘de minimis’, which is typically interpreted as being no more than 1% of the total offer value. The primary concern of the regulator is to ensure a level playing field for all potential bidders and to allow the offeree’s shareholders to consider all offers on their merits without the board having fettered its discretion or created obstacles for rival bidders.

According to Rule 31.1(a) of the Hong Kong Code on Takeovers and Mergers, where an offer has been withdrawn or has lapsed, neither the offeror nor any person who acted in concert with it may, within 12 months from the date of withdrawal or lapse, announce an offer or possible offer for the offeree company. Furthermore, Rule 31.1(b) prohibits them from acquiring any voting rights of the offeree company which would trigger a mandatory offer obligation under Rule 26. Statement I is incorrect as announcing a new offer within the 12-month period is explicitly prohibited. Statement II is incorrect because acquiring shares that take the aggregate holding to 30% or more (in this case, from 28% to 33%) would trigger a mandatory offer obligation, which is also prohibited during this period. Statement IV is incorrect because while the recommendation of the offeree board is a significant factor, it does not eliminate the requirement to obtain the Executive’s consent; the Executive’s approval is the definitive requirement. Statement III correctly identifies the primary exception to this rule, as outlined in the Note to Rule 31.1, which allows for a new offer to be made within the 12-month period if the Executive’s consent is obtained. Therefore, statement III is correct.

Under the Hong Kong Code on Takeovers and Mergers, maintaining an orderly and informed market is a core principle. When an offeree company is involved in preliminary takeover discussions, its board has a strict obligation to monitor its share price and trading volume. An announcement becomes mandatory under several specific circumstances. These triggers include the company becoming the subject of rumour or speculation, or if there is an ‘undue movement’ in its share price or trading volume. In the scenario presented, both triggers have been met: a media report constitutes rumour and speculation, and a 15% price increase on high volume is a clear example of undue movement. Therefore, the board’s primary and most immediate duty is to inform the market by making an announcement. This announcement should clarify the company’s position, which may involve confirming that it is in preliminary talks but that no certainty of an offer exists. While other actions like internal investigations or consulting the acquirer might be considered, the Code prioritises immediate market transparency to prevent a false market from developing.

Under the Hong Kong Code on Share Buy-backs, an off-market share buy-back requires specific disclosures in the shareholder circular to ensure disinterested shareholders can make an informed decision. This is because the transaction is not conducted on the open market and involves a specific, identified seller (the offeree). The Code mandates that, in addition to the standard information required for a general offer buy-back (such as financial resources, share capital details, and market prices), the circular for an off-market buy-back must include particular details about the specific transaction. Key requirements include disclosing the identity of the proposed offeree(s), the full terms and conditions of the agreement between the company and the offeree(s), and making the agreement available for inspection. Crucially, to ensure impartiality and protect minority shareholders, the circular must also contain the advice of an independent financial adviser and the recommendation of an independent committee of the board on the fairness and reasonableness of the proposed buy-back. This transaction must then be approved by at least 75% of the votes cast by disinterested shareholders at a general meeting.

Under the Hong Kong Code on Takeovers and Mergers, the board of an offeree company is responsible for monitoring its share price and trading volume. An announcement obligation is triggered under several conditions, including when the company is the subject of rumour or speculation about a possible offer, or when there is undue movement in its share price or trading volume. This responsibility is heightened when the board is aware that a potential offeror has approached a holder of 30% or more of the company’s voting rights. The purpose of this rule is to prevent the creation of a false market and to ensure that all shareholders have access to the same information. Therefore, when market activity and rumours coincide with knowledge of a potential offer approach, the board must act promptly to inform the market by making an announcement.

Under Rule 4 of the Hong Kong Code on Takeovers and Mergers, once a board of an offeree company has reason to believe that a bona fide offer is imminent, it must not, without the approval of shareholders in a general meeting, take any action which could effectively result in the offer being frustrated. However, the Executive may grant a waiver in certain special circumstances. Granting options under an established share option scheme in a manner consistent with the company’s normal practice is one such circumstance where the Executive will normally give its consent. In contrast, disposing of assets of a ‘material amount’ is considered a frustrating action. The Code uses the same test as the Listing Rules for a ‘discloseable transaction’ to determine materiality, which is triggered when a percentage ratio is 5% or more. Therefore, a disposal representing 8% of total assets would require shareholder approval. Similarly, declaring and paying a dividend outside the normal course of business during an offer period is viewed as a potential frustrating action requiring consultation and likely shareholder approval. Finally, entering into or varying a service contract with a director that results in an abnormal increase in emoluments or a significant improvement in terms is also a prohibited frustrating action, unless it is for a genuine promotion and the Executive has been consulted in advance.

This question tests the understanding of post-offer obligations under Rule 10 of the Hong Kong Code on Takeovers and Mergers. An offeror has a specific duty to confirm its compliance with certain rules after a six-month period following the end of the offer period. Statement I is correct because it accurately reflects the timeline stipulated in the Takeovers Code: the offeror must provide the confirmation to the Executive within three business days of the expiry of six months from the end of the offer period. Statement II is also correct as it correctly identifies the subject matter of the confirmation, which is to attest that the offeror and its concert parties have complied with the rules concerning subsequent purchases of voting rights and special deals. Statement III is incorrect; this confirmation requirement is a standalone obligation and is not waived by other events such as achieving a high level of acceptances, initiating compulsory acquisition, or delisting the offeree company. Statement IV is incorrect because the responsibility for this confirmation lies with the offeror and its concert parties, not the offeree company’s board. Therefore, statements I and II are correct.

To advise on matters related to the Codes on Takeovers and Mergers and Share Buy-backs (the ‘Codes’), both the firm and the individual must meet specific requirements set by the Securities and Futures Commission (SFC). The firm, known as a TC Adviser, must be a corporation licensed by the SFC to carry on Type 6 (advising on corporate finance) regulated activity. Furthermore, any individual within that firm who provides advice on the Codes must be a licensed representative for Type 6 regulated activity, accredited to that TC Adviser. In addition to holding the appropriate license, the individual must also satisfy the SFC’s specific competence requirements for this specialised area. These competence requirements, detailed in the SFC’s ‘Guidelines on Competence’, typically involve demonstrating substantial and recent experience in Hong Kong’s corporate finance sector, particularly in transactions governed by the Codes. Simply passing regulatory examinations or notifying the Takeovers Executive about an individual’s involvement in a deal does not fulfill these fundamental licensing and competence prerequisites. The regulatory authority for licensing and registration is the SFC, not the Hong Kong Exchanges and Clearing Limited (HKEX).

According to the Codes on Takeovers and Mergers and Share Buy-backs, before a financial adviser accepts an appointment for a transaction falling under the Codes, it has a primary obligation to conduct a thorough internal assessment. This assessment must confirm that the firm possesses the necessary competence, professional expertise, and, crucially, adequate resources to handle the specific transaction. This includes allocating sufficient experienced professional staff and ensuring the appropriate involvement of a Takeovers Code Responsible Officer (TCRO). The firm must be confident it can dedicate the required time and effort to meet its obligations. Once the appointment commences (which is deemed to be when work starts) and an announcement triggers an offer period, the client must notify the Takeovers Executive of the adviser’s appointment. This notification must be made no later than three business days after the relevant announcement. The information provided to the Executive must include the adviser’s licence details, the names of the TCROs in charge, and the names and titles of all team members involved in the transaction.

Under the Hong Kong Code on Takeovers and Mergers, conditions attached to an offer must not be subjective or depend on the offeror’s judgment. Statement I is an acceptable condition; an offeror is permitted to set a higher acceptance threshold, such as 90%, which is common when seeking to privatise a company via compulsory acquisition. Statement III is also acceptable as it relates to a specific, material regulatory approval from a named authority (the Competition Commission), which is an objective condition. Conversely, Statement II is explicitly prohibited. General Principle 7 and Rule 3.5 of the Takeovers Code require an offeror to have every reason to believe that it can and will continue to be able to implement the offer in full. An offer cannot be subject to a financing condition. Statement IV is unacceptable because it is a subjective condition, depending on the ‘sole discretion’ and judgment of the offeror’s board. The Takeovers Code prohibits conditions whose fulfillment depends on the offeror’s own judgment. Therefore, statements I and III are correct.

This question assesses understanding of the specific roles and duties of an Independent Financial Adviser (IFA) appointed by an offeree company under the Hong Kong Code on Takeovers and Mergers. Statement I is incorrect because the IFA’s duty is exclusively to the independent shareholders of its client, not to all stakeholders like employees or suppliers. The IFA must concern itself only with the interests of the independent shareholders. Statement II is correct; upon appointment, the IFA is required to send a confirmation of its independence to the Executive as soon as possible. Statement III is also correct. The Takeovers Code specifies that where it is impracticable to form an Independent Board Committee (ICB), the IFA assumes the primary responsibility for representing the interests of the independent shareholders. Statement IV is incorrect. The responsibility to provide a confirmation of sufficient financial resources to the Executive (as required by Rule 3.5 of the Takeovers Code) lies with the financial adviser to the offeror, not the IFA to the offeree company. Therefore, statements II and III are correct.

Under the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs, a fund manager or principal trader that is part of the same group as a financial adviser to an offeror or offeree is presumed to be acting in concert. The Exempt Principal Trader (EPT) status is designed to rebut this presumption for specific trading activities, such as derivative arbitrage or hedging. However, when an EPT is ‘connected’ to an offer (i.e., part of the same group as the offeror, offeree, or their advisers), specific restrictions apply to prevent it from assisting in the transaction. These restrictions are crucial for maintaining a level playing field. Key prohibitions for a connected EPT include not being able to accept an offer until it is unconditional as to acceptances and, critically, not being permitted to exercise any votes associated with its securities in the context of the offer. This prevents the group from using the EPT’s shareholding to improperly influence the outcome of the shareholder vote on the transaction. Other obligations, such as public disclosure of dealings, remain applicable.

According to the Hong Kong Code on Takeovers and Mergers, when a profit forecast is made in connection with an offer, it is subject to stringent requirements to ensure shareholders are not misled. The general rule is that any such forecast must be reported on by the company’s financial adviser and its auditors or consultant accountants. The financial adviser’s role is to satisfy itself that the forecast has been prepared by the directors with due care and consideration and to report on the reasonableness of the assumptions. The auditors focus on the accounting policies and calculations. There is a specific exemption to this reporting requirement for a profit forecast made by an offeror, but this exemption applies only when the offer is for cash only (or, with Executive consent, for non-convertible debt instruments). In a securities exchange offer, the financial prospects of the offeror are of direct relevance to the offeree’s shareholders who are being asked to accept the offeror’s shares. Therefore, the exemption does not apply, and the full reporting requirements are in force for the offeror’s profit forecast.

An off-market share buy-back is a transaction between a listed company and one or more specifically identified shareholders, rather than being open to all shareholders or conducted through the stock exchange. Due to its selective nature, the Share Buy-backs Code imposes specific and stringent disclosure requirements to ensure that disinterested shareholders can make a fully informed decision. A key requirement that distinguishes this type of buy-back from a general offer is the need for complete transparency regarding the counterparty and the specific deal terms. The circular sent to shareholders must therefore contain detailed information about the proposed offeree(s) and the full terms and conditions of the repurchase agreement(s). This allows other shareholders to assess the fairness and commercial rationale of the transaction. Furthermore, the circular must include advice from an independent financial adviser and a recommendation from an independent committee of the board, who have evaluated the specific terms of the off-market agreement. While information on market prices and the financial impact is standard for most buy-back circulars, the disclosure of the specific agreement and the identity of the offeree is a cornerstone of the regulatory framework for off-market transactions.

Under the Securities and Futures Ordinance (SFO), specifically sections 277 and 298, it is a form of market misconduct to disclose, circulate, or disseminate information that is false or misleading as to a material fact, which is likely to induce another person to subscribe for or deal in securities. A key element is the state of mind of the person making the disclosure; they must either know that the information is false or misleading, or be reckless as to its truthfulness. In the scenario, the CEO’s characterization of preliminary negotiations as ‘imminent and highly favourable’ does not accurately reflect the situation. This could be considered reckless. Since the statement led to a share price surge, it clearly induced transactions. It is important to distinguish this from the obligations under Part XIVA of the SFO regarding the disclosure of inside information. The safe harbour for incomplete negotiations under Part XIVA allows a company to temporarily withhold disclosure of inside information, provided confidentiality is maintained. It does not provide a defence for making public statements that are actively false or misleading about those negotiations.

Under the Securities and Futures Ordinance (SFO), a person is required to comply with requests made by an investigator appointed by the SFC. Failure to do so without a ‘reasonable excuse’ constitutes an offence. In situations where requested documents or evidence cannot be produced, the SFO provides a specific mechanism for the person to formally explain the circumstances. The appropriate procedure is to make a statutory declaration detailing the reasons for the inability to provide the evidence. This formal declaration serves as a legal statement explaining the situation, such as the accidental destruction of records. Simply refusing to cooperate, ignoring the request, or attempting to substitute other information without a formal explanation could be interpreted as non-compliance, potentially leading to disciplinary action or prosecution. Providing a statutory declaration demonstrates a commitment to cooperating with the investigation to the fullest extent possible and establishes a formal record of the ‘reasonable excuse’ for non-production.

This question tests the application of Rule 26 of the Hong Kong Code on Takeovers and Mergers, which governs the mandatory offer obligation.

Statement I is correct. The concert party’s holding increases from 28.5% to 30.5% (28.5% + 2.0%). This acquisition causes their collective holding to cross the 30% ‘trigger’ threshold, obligating them to make a mandatory general offer.

Statement II is correct. The concert party’s holding is between 30% and 50%. The acquisition of 2.1% of voting rights increases their holding by more than 2% from their lowest percentage holding in the preceding 12-month period (34.0%). This crosses the ‘creeper’ threshold, triggering a mandatory offer obligation.

Statement III is incorrect. Although the concert party’s holding is within the 30% to 50% range, the acquisition of an additional 1.0% does not increase their holding by more than 2% from their lowest point in the last 12 months (47.5%). Therefore, the ‘creeper’ provision is not triggered.

Statement IV is incorrect. The ‘creeper’ provision under Rule 26 only applies to persons or concert parties holding not less than 30% and not more than 50% of the voting rights. Since the concert party already holds 51.0%, which is above the 50% threshold, the creeper rule does not apply to their subsequent acquisition. Therefore, statements I and II are correct.

According to the Codes on Takeovers and Mergers and Share Buy-backs, if a general offer results in the offeror acquiring a controlling stake but fails to meet the threshold for compulsory acquisition (typically 90% of the disinterested shares), the offeree company remains listed. Consequently, the new controlling shareholder has an immediate and ongoing responsibility to ensure the company complies with the Rules Governing the Listing of Securities (the ‘Listing Rules’). A primary and critical requirement under the Listing Rules is the maintenance of a minimum public float, which is generally 25% of the company’s issued shares. If the offer’s success has caused the public float to fall below this prescribed minimum, the controlling shareholder must take steps to restore it. Furthermore, any subsequent attempt to privatise and delist the company cannot proceed automatically. It must be conducted as a separate corporate action that strictly adheres to the delisting procedures outlined in the Listing Rules, which are designed to protect the interests of the remaining minority shareholders. These procedures differ depending on whether the company has an alternative listing on another recognised stock exchange.

According to Rule 2.1 of the Hong Kong Code on Takeovers and Mergers and its accompanying notes, an Independent Financial Adviser (IFA) must be, and be seen to be, independent. The Takeovers Executive must be satisfied on this point. Statement I describes a situation where the adviser’s firm holds an equity interest in the offeree company, which is a direct potential conflict of interest that must be disclosed and assessed. Statement II describes a fee arrangement contingent on the outcome of the offer. Note 3 to Rule 2.1 explicitly states that such fees would normally disqualify a financial adviser from acting as an IFA. Statement III describes a recent professional relationship with the offeror. This falls under the general principle that any other matter that may give rise to a conflict of interest must be considered, as it could impair the perception of objectivity. Statement IV, involving an investment in a competitor, is less of a direct conflict concerning the specific takeover transaction itself and the parties involved, and is therefore less likely to be a primary concern for the Takeovers Executive compared to the other three issues. Therefore, statements I, II and III are correct.

According to Rule 4 of the Hong Kong Code on Takeovers and Mergers, an offeree company’s board must not take any action that could frustrate a genuine offer without the approval of shareholders in a general meeting. Disposing of assets of a material amount is considered a potential frustrating action. The Code specifies that ‘material amount’ is determined using the same tests as a ‘discloseable transaction’ under the Listing Rules, which is generally triggered when any percentage ratio is 5% or more. A critical aspect of this rule is that the Executive has the authority to aggregate several transactions that are not individually material to determine if, together, they meet the materiality threshold. Therefore, if an offeree company undertakes multiple smaller disposals during an offer period, it must be cautious. The correct procedure in cases of doubt, or where aggregation might apply, is to consult the Executive in advance to determine the required course of action, which may or may not include seeking shareholder approval.

According to the Hong Kong Code on Takeovers and Mergers, specifically the rules governing the offer announcement (often referred to as the Rule 3.5 announcement), an offeror must not make such an announcement unless it has every reason to believe it can and will be able to implement the offer. This principle is fundamental to preventing the creation of a false market and protecting the interests of the offeree company’s shareholders. A critical component of this certainty is the financial capacity to complete the transaction. The Code mandates that the offer announcement must include a confirmation from the offeror’s financial adviser or another appropriate third party (such as a bank) that sufficient resources are available to the offeror to satisfy full acceptance of the offer. This is often called the ‘cash confirmation’. A mere statement of intent, a non-binding term sheet, or a plan to secure funding is insufficient. The financial adviser shares the responsibility with the offeror to ensure this requirement is met before any announcement is made, reflecting the seriousness and binding nature of the offer once announced.

Statement I is correct because the offeror’s holding of 86% leaves a public float of only 14%. According to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘Listing Rules’), a listed issuer must maintain a minimum public float of 25% of its total issued shares (unless a lower percentage has been approved by the Exchange). A float of 14% is a breach of this requirement. Statement III is correct because the offeror did not reach the 90% acceptance threshold required to exercise compulsory acquisition rights under the Companies Ordinance. Therefore, to privatise the company, the offeror must propose a withdrawal of listing under the procedures set out in the Listing Rules. These rules contain specific, and often stringent, shareholder approval requirements (e.g., approval by disinterested shareholders) to protect the interests of the remaining minority shareholders. Statement II is incorrect because the process for withdrawing a company’s listing is governed by the Listing Rules, not the Code on Takeovers and Mergers (the ‘Takeovers Code’). The Takeovers Code governs the conduct of the offer itself. Statement IV is incorrect because the right to carry out a compulsory acquisition is only triggered when the offeror has acquired, by virtue of the offer, not less than 90% of the shares to which the offer relates. Holding 86% of the total voting rights does not meet this threshold. Therefore, statements I and III are correct.

Statement I is correct. Under Rule 31.1(a) of the Takeovers Code, if a person announces that they do not intend to make an offer (a ‘no intention to bid’ statement), that person and any concert parties are normally restricted from making an offer for the offeree company for a period of six months. Statement II is incorrect. An offeror cannot unilaterally withdraw a firm offer due to adverse market conditions. According to Rule 5.1 of the Takeovers Code, an offeror can only withdraw a firm offer with the consent of the Takeovers Executive, which is only granted in exceptional circumstances, such as the materialisation of a specific condition precedent in the offer announcement. A general market downturn is typically not considered a sufficient reason. Statement III is correct. General Principle 4 of the Takeovers Code mandates absolute secrecy before an announcement. Once the board of an offeree company is approached, it has a strict obligation to maintain confidentiality to prevent the creation of a false market in its shares. This involves implementing appropriate internal controls. Statement IV is correct. The definition of ‘acting in concert’ in the Takeovers Code includes a presumption (specifically, Class (5)) that persons who, pursuant to an agreement or understanding, co-operate by providing an irrevocable commitment to an offeror are acting in concert with that offeror. Therefore, statements I, III and IV are correct.

Statement I is correct. According to Rule 4 of the Takeovers Code, creating or varying a director’s service contract that results in an abnormal increase in emoluments is considered a frustrating action. Even if this results from a genuine promotion, the offeree company is explicitly required to consult the Executive in advance.
Statement II is incorrect. A disposal of assets is considered a frustrating action if it is of a ‘material amount’. The Takeovers Code aligns this definition with the ‘discloseable transaction’ threshold under the Listing Rules, which is triggered when any percentage ratio is 5% or more. As the transaction’s percentage ratio is 4.8%, it falls below this threshold and would not, on its own, be considered a material amount requiring mandatory prior consultation under this specific provision.
Statement III is correct. While the Executive will normally consent to the grant of options under an established share option scheme where it is consistent with normal practice, this action is still a type of frustrating action prohibited by Rule 4 unless the Executive’s consent is obtained. Therefore, the offeree company must consult the Executive in advance to secure this consent.
Statement IV is correct. The payment of an interim dividend ‘outside the normal course’ during an offer period is a potential frustrating action. A dividend that is significantly larger and paid earlier than the established historical pattern clearly falls into this category, and the Takeovers Code requires the offeree company to consult the Executive beforehand. Therefore, statements I, III and IV are correct.

According to the Hong Kong Code on Takeovers and Mergers, during an offer period, dealings in ‘relevant securities’ must be disclosed. In the specific case of a securities exchange offer, the definition of ‘relevant securities’ is expanded. It includes not only the securities of the offeree company but also the securities of the offeror that are being offered as consideration, as well as any securities convertible into them or derivatives thereof. This is because the value and ownership of the offeror’s shares become directly pertinent to the transaction’s outcome. The Code requires an associate of an offeror who deals in these relevant securities for the account of a discretionary client to make a public disclosure of the dealing. For disclosure purposes, the holdings in a discretionary account are considered to be controlled by the person managing the account, not the end client. Therefore, the obligation to disclose rests with the associate managing the funds.

According to the Code on Takeovers and Mergers, General Principle 5 requires that shareholders be given sufficient information to enable them to reach a properly informed decision. A critical extension of this is the requirement that information be made available to all shareholders as nearly as possible at the same time and in the same manner. Disclosing material new information or significant new opinions, such as unannounced positive performance metrics, to a select group of shareholders (like institutional investors) without simultaneously releasing it to the public would breach this principle of equal treatment. If such a selective disclosure were to occur, the information must be immediately announced to the market. The role of the financial adviser is to ensure the client adheres to the Code. Therefore, the adviser must prevent the selective disclosure of material non-public information. While an appropriate representative of the financial adviser must typically be present at such meetings, their presence alone does not sanction the release of confidential, price-sensitive information. The primary obligation is to ensure fair and equal dissemination of information to all shareholders.