Friday, November 10, 2017

Local rules for mergers and acquisitions in Malaysia

Consideration has been given for the editing and publishing of this post
Opening a company in Malaysia can be a bit difficult for foreign investors from European and Western countries because of the local laws, but also the different culture they will find here. However, this doesn’t mean they have to look somewhere else, they just need to inform themselves and ask for assistance in most cases. The law is the best help when starting a company in Malaysia. 
The possibilities of owning a business in Malaysia are multiple. One can register a business from scratch or buy an existing company. The second option has become quite popular among investors during the last several years and led to the development of the mergers and acquisitions (M&A) market in Malaysia.
Legislation on mergers and acquisitions in Malaysia
Foreign companies must comply with the local rules when merging or acquiring a Malaysian company. The main laws providing for these transactions are the Companies Law, the Code and Rules on Takeovers, the Capital Market and Services Act and the Listing Requirements. Apart from these, the Employment Law must also be respected as it provides for the protection of employees when a company takeover is completed.
Those unacquainted with the local legislation, must also know that there are several types of M&A transactions which can be concluded. Mergers and acquisitions in Malaysia can imply private or public companies. M&A transactions are:
  • mergers;
  • total acquisitions;
  • partial acquisitions.
While mergers cannot further be categorized, acquisitions can happen at various levels in a company.
Merging or acquiring a Malaysian company
The merger can be defined as a transaction under which two companies are united under the same umbrella. Usually, the large company will take over a smaller company or a company facing financial difficulties. 
In the case of acquisitions, these can be concluded by:
  • mandatory or voluntary offers;
  • schemes of arrangement;
  • acquisitions of assets and liabilities.
The takeover by mandatory or voluntary offers are usually concluded by signing of a sale-purchase agreement between two companies through their shareholders. In the case of a mandatory offer, certain acquisition thresholds must be met by the acquiring company – usually the company wants to buy more than 33% of the shares in the target-company.
Schemes of arrangement and acquisitions of assets and liabilities are usually amicable procedures which imply a cooperation between the acquiring and the target companies.
In the case of M&A transactions larger than 20 million MYR, the Economic Planning Unit in Malaysia must be notified.
What are the documents related to M&A transactions in Malaysia?
First of all, a merger or an acquisition of a Malaysian company cannot occur without the appointment of persons acting in concert to the transactions. These will be the liaison contacts between companies during the negotiations.
The documentation which must be presented in a M&A transaction in Malaysia include the offer letter, a confidentiality agreement, a due diligence report, a definitive contract for the sale-purchase of the target company, an offer document and an independent advice document, a shareholders’ approval resolution and a circular with the shareholding percentage of each stockholder in the target-company.

The local rules for mergers and acquisitions of Malaysian companies are quite complex and deep research is advised before starting the procedure. 

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