Jurisdiction - Hong Kong
Hong Kong – New Takeovers Code Practice Note 19 – Chain Principle Offer Price.

15 October, 2012


In September 2012, the SFC issued a new Practice Note 19 to provide guidance on how to determine the offer price where a chain principle offer has been triggered.

Chain principle offer
As a result of acquiring statutory control of a company (which need not be a company to which the Takeovers Code applies), a person or group of persons may in turn obtain or consolidate control over a second company because the first company holds 30% or more of the voting rights of the second company. 
In such a case, Note 8 to Rule 26.1 of the Takeovers Code provides that the acquirer of the first company may trigger an obligation to make a mandatory general offer for the second company if the Note’s criterion under either the substantiality test or the purpose test is met. 
Calculation of the chain principle offer price
When calculating the chain principle offer price, the objective is to establish how much of the price paid for the first company is attributable to its holding in the second company. The offer price should be calculated objectively taking into consideration the transacted price for shares in the first company and the relative value of the second company. 
The mechanism for pricing chain principle offers may differ depending on the circumstances such as the nature of businesses and assets involved. For example, asset values are normally used to determine the chain principle offer price for asset-based companies. In other situations, earnings may be a more important or relevant consideration.
For a copy of Practice Note 19, please follow the link:

For further information, please contact:
Tony Grundy, Partner, Morrison Foerster
John Moore, Partner,  Morrison Foerster




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