On 30 November, 2004, the SFC issued a Consultation Paper inviting public comment on proposed changes to the Code. The consultation period was extended by one month to end on 14 February 2005 in response to respondents’ requests. When finalising the revisions, the SFC has carefully considered the comments received from the respondents and taken into account market developments in Hong Kong and London. The revisions have been endorsed by the Takeover Panel.

The main revisions are:

• 'Low-ball' offers - such offers might be used as a tactic to frustrate the offeree company’s business where there is no genuine intention to takeover the offeree company. The new provisions provide that a voluntary offer at a discount of more than 50% to the market price of the shares will not normally be allowed to proceed.
• Frustrating actions - the Code has been amended to address concerns about risks to shareholders arising from an incumbent board taking deliberate but lawful action to frustrate a successful offeror from exercising board control. The revised Code provides that once a successful offeror calls a general meeting to appoint directors of the offeree company, the existing board must co-operate fully and convene a general meeting as soon as possible. During this period the existing board will also be restricted from taking any frustrating action such as issuing new shares, or selling or acquiring assets of material amounts without shareholder approval.
• Telecom mergers - the Code has been amended to provide a broad framework for dealing with telecom mergers that are subject to review by the Telecommunications Authority under the laws introduced in July 2004. The SFC will keep this area under review and may amend the Code further in light of experience in dealing with such takeovers.

The Consultation Paper also consulted the public about whether the Code should be amended to provide for whitewash waivers of general offer obligations triggered as a result of on-market share repurchases.

The majority of respondents disagreed that such waivers should be permitted. Some suggested that the uncertainties as to the price and timing of on-market repurchases contributed to the undesirability of such an amendment.

One respondent emphasised that, in light of the prevalence of the controlling shareholder environment in Hong Kong, Hong Kong regulations have historically and justifiably placed greater attention on ensuring that the interests of minority shareholders are not unfairly prejudiced than regulations in other markets.

There is a concern that minority interests may be prejudiced in the guise of increasing shareholder value if the proposal were allowed. The Takeover Executive agrees with these concerns and believes that it is in the overall best interests of minority shareholders not to amend the Code in this respect.

The Consultation Paper also recommended a number of changes to the Code relating to the vetting of documents in order to shorten the vetting process where appropriate. The comments received supported the proposed changes which have been adopted.

Mr Peter Au-Yang, SFC’s Executive Director of Corporate Finance, noted that: "By keeping the Code up-to-date with market developments and international practice, the changes help to ensure continued fair treatment for shareholders who are affected by takeovers and mergers."