Research On Mandatory Tender Offer Legal System

Mandatory tender offer legal system is that when an investor holds a certain percentage shares with voting right of a listed company, he should give offer to all the other shareholders of the company in accordance to the law to buy their shares except for the exemption of the statutory department. The system originated from the U.K. and then influenced almost all the other countries on acquisition of a company. There are two reasons. The first reason lies in the equal principle for the shareholders. The shareholders of the target company should be treated equal. The second reason is that when the controlling right transfers, the shareholders should have opportunity to secede. The purpose of the system is to protect minority shareholders' interest and restrain the unjust behavior during the process of acquisition. But in practice it is severe criticized. Some scholars think that it cannot realize its purpose and it becomes an obstacle in acquisition, especially in the case of deciding the ownership of the premium of controlling right.Our legislation stipulates mandatory tender offer system at the beginning of our securities market in the principle of protecting minority shareholders' interest. But there are always exemptions because of our natural defection on different stock rights. Administrative Rules on Acquisition of Listed Company in 2002 made this system applicable by the means of giving different offer and prices depending on different cases to set the prices. There are 6 tender offers from the case of Nangjing Steel Stock. To our disappointment, only some parties that held legal person shares accepted the offer. Most parties that held circulating shares refused the offer. The reason lies in that all the acquisitions occur in the case of excessive takeover by agreement. The purchaser benefits from the defections of the system to reduce financial risk and listing termination risk and give a price that the circulating share shareholders are not interested in .Many people reconsider the system because of these defections. First, what's the reasonable price of the offer? On the basis of my analysis, the 34th article of the rules has its effect. The public accepts its setting price methods. It protects the minority legal person share shareholders' interest and finds a new way for the transfer of legal person share. But setting the circulating stock at 90% price of the former value is not reasonable. Second, is it necessary to set such system despite of its weak effect? Of course it is necessary. The system is very important before we have a better system to protect minority shareholders' interest. We should further improve it. Third, what's the evaluation of present mandatory tender offer system? It is quite useful to accelerate and regulate the acquisition system. At present, most acquisition is passive. The active and competent acquisition will appear in the future. At last, how to improve this system? This paper points out two ways. First, we should modify the rules on mandatory tender offer, especially to adjust the offer price for circulating shares. Second, we should improve the attaching rules, reinforce the responsibility of being honest of controlling shareholders, improve our company's framework and relax the administration on stated owned share. Third, we should improve the background of the system and make all the shares circulating for mandatory tender offer.