SEC retains 35% threshold on mandatory tender offers

The Securities and Exchange Commission (SEC) retained the 35-percent threshold on mandatory tender offers involving listed companies after it failed to draw support from capital market players on its proposal to lower the trigger point to 15 percent.

"We decided to retain the 35 percent threshold for the good of the capital market, said Jose P. Aquino, head of the SEC’s Markets Regulation Department.

The Philippine Stock Exchange, the Investment Houses Association of the Philippines, Financial Executives Institute of the Philippines and the Bankers Association of the Philippines strongly objected to the SEC proposal, saying a lower tender offer threshold would drive away investors because it will jack up the cost of stock market transactions, delay the execution of these deals and expose affected investors to unnecessary risks.

The SEC earlier considered reverting to the 15 percent threshold as stated in the Securities Regulation Code in view of the rush of mergers and acquisitions among listed companies.

"We have noted the explanations given by various market players. We think these were reasonable to retain the current threshold at 35 percent," Aquino said.

The market players explained that a lower threshold would discourage foreign investment flows into the Philippines and result in a decrease in M&A (merger and acquisition) activities and, in turn, will lower stock market trading volume.

They said the delays may allow various speculators, punters, risk arbitrageurs and even corporate insiders to diminish the expected returns of long-term financial investors.

Moreover, they pointed out that other markets in the region, especially that of Indonesia, continue to pull away from the Philippines.

The Philippines ranked last, while Indonesia came in second to last, in terms of daily value turnover among stock markets in the ASEAN region last year.

Aside from this, they noted that many direct investment companies will not consider an investment that is not within the range of $10 million to $20 million. While they are active stock market players, direct investment companies are not keen on getting control of a listed company.

But the business associations said even if the firms have no intention of controlling a listed company, there are higher chances that they will set off a lower tender offer trigger because of the low market capitalization of locally-listed companies.

A tender offer is a solicitation from a company or a third party to buy shares of a corporation for a fixed period of time usually at a premium or a price higher than what is prevailing in the market.

The rules aim to protect minority owners who may be left out if the buyer extends the offer only to strategic partners or majority owners of a company. As practiced in other countries, the tender offer rules contemplate a change-in-control situation in an affected company.

The rules, thus, require the buyer to extend the offer to all stockholders of the affected company, if the level of the buyer’s investment touches off a trigger point or threshold. – Zinnia dela Peña