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Takeovers and Mergers in Sri Lanka

In Sri Lanka, the administration of the Company Takeovers and Mergers Code is the function of the Sri Lankan Securities & Exchange Commission (SEC). The Code is a set of rules made by the Commission under the provisions of the Securities & Exchange Commission Act.The Code is applicable to all takeovers and mergers in which the target is a listed public company, irrespective of whether Sri Lanka is the place of incorporation or central management of the company. The main focus of the Code is on takeover and merger transactions. It is intended to apply to transactions which have as their objective or potential effect (directly and indirectly) of consolidating control of the relevant companies.

The main objective of the Sri Lankan Code is the protection of shareholders of target companies in the context of a takeover. The type of takeover activity sought to be regulated by the Code are:

  • The voluntary offer. The voluntary offer prohibits the offeror from approaching any shareholders of the target company; the offeror must forward the offer to Board of Directors of the offeree company. When such Board of Directors of the target company is reasonably confident that a firm offer, not subject to precondition, will be made, and that the offeror is or shall be in a position to implement the offer in full, the Board will make an announcement. The offeror should forward the offer document to the Board of Directors and every shareholder of the offeree company within 28 days of the announcement of the offer. After the offeror has satisfied all the conditions of the specified period, the offer becomes and is declared unconditional as to acceptance.

 

  • The mandatory offer. A mandatory offer is one which compels a purchaser acquiring 30% or more of the voting rights in a company to make a cash offer to all other shareholders at the highest price paid by such purchaser in the previous 12 months. An announcement should also be made when the person acquires shares carrying 30% or more of the voting rights of the company, or while holding between 30% and 50% of the voting rights of the company in any period of 12 months, to the effect that it has become obligatory on the part of the offeror receiving acceptances so as to result in the combined shareholding of the offeror carrying 50% of the voting rights of the company, with confirmation by the offeror’s financial advisor that resources are available to the offeror to satisfy full acceptance of the offer. The Code prevents the appointment of a nominee of the offeror or person acting in concert with the offeror to the Board of Directors of the offeree company; or the transfer or exercise of voting rights in the company by such offeror or person acting in concert; until the offer document is forwarded to the Board of the offeree company and to its shareholders.
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