Kazi Ershadul Alam and Imran Anwar of Tanjib Alam assess the M&A regulatory framework in Bangladesh
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
Companies in Bangladesh are increasingly inclined to engage in M&A, particularly in the telecom and energy sectors. Of the numerous transactions that took place in Bangladesh in 2015, the merger of Robi Axiata and Airtel Bangladesh is particularly noteworthy.
As for the legal framework, the competition law regime is developing. Numerous sectors have called for the development and implementation of M&A and antitrust regulations.
1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?
The number of M&A deals will likely increase over the next 12 months, with optimisation of labour and internal management a key issue for corporations. However, the rate of successful M&As may depend on the success of other merged entities in the relevant sectors.
It is our understanding that public M&A will increase since more firms are being enlisted. However, the existing legislation needs to be reformed to allow for different M&A strategies and fill the gaps within the existing legal framework that regulates public M&A.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The Company Act 1994 is a key statute for M&A. Other sector-specific laws may also be applicable depending on the industries involved. In addition, the Income Tax Ordinance 1984 may be relevant. The registrar of joint stock, the Bangladesh Securities and Exchange Commission (BSEC) and the sector-specific regulatory body will have a role to play in approving a merger. More importantly, the M&A must be approved by the High Court Division of the Supreme Court of Bangladesh.
Bangladesh does not have any regulations that specifically apply to public M&A, except the 2002 BSEC Substantial Acquisition of Shares and Takeovers Regulations. The scope of this regulation is limited.
The Competition Act 2012 has been enacted and the government has declared the formation of a Competition Commission (CC). However, the government has not yet framed any rules and regulations concerning competition, including addressing M&A activity.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The High Court Division of the Supreme Court of Bangladesh sanctions the scheme of M&As and therefore enforces the law relating to M&A. The interested parties submit a petition under the Company Act 1994 for the sanction of the court, normally with the approval of the relevant sector regulator. In the case of a securities transaction, the BSEC has the power to raise an objection regarding the effect of a merger. Once the CC becomes fully functional, every M&A deal will be subject to its approval.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
The structure normally involves the acquisition of stock or assets of the target company. The entities may decide to merge with each other to expand their operations.
3.2 What determines the choice of structure, including in the case of a cross-border deal?
Generally, operational considerations, including control over a particular corporation or its shareholders, and tax implications will be determining factors in deciding the structure. If the entities would like to minimise their operational cost, while at the same time expanding their business and revenue, a merger may be considered.
The need for approval from relevant government authorities, as well as the time a particular transaction may take would also be considered when determining the structure.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
The timeline of acquisitions varies and it is difficult to state a precise period for the completion of an acquisition. However, under the Substantial Acquisition of Shares and Takeovers Regulations 2002, a proposal for acquisition cannot be withdrawn except in certain situations. Also, tender offers must be published through an investment bank within three days of deciding on the acquisition of shares. The acquisition proposal is valid for at least four weeks. The entire acquisition process has to be completed, including payment, within four weeks.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
Yes, the price that has to be paid depends on whether the acquisition of shares is made from the stock exchange or otherwise. For a share acquisition not from the stock exchange, the price offered must be the highest market price at the stock exchange at the negotiated lowest rate or the average price of the shares in the last six calendar months preceding the share acquisition proposal, whichever is higher.
For an acquisition of shares from the stock exchange, the highest market price at the stock exchange or the average weekly market price in the last six calendar months preceding the share acquisition proposal, whichever is higher. If the shares to be acquired have not been traded on the stock exchange for more than six months, the price is determined through negotiation.
According to the Substantial Acquisition of Shares and Takeovers Regulations 2002, the price offered may take the form of cash, share or a combination of them or any other form as accepted by the vendor.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
According to the Company Act 1994, if a majority representing three-quarters in value of creditors or members that are present in the meeting agree to the merger, then it is binding on everyone after being sanctioned by the High Court. The transferee company may, at any time within 60 days after expiration of 120 days after the offer is made, give notice to any dissenting shareholder that it desires to acquire his shares.
3.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
In the course of acquiring shares, if the amount of shares held by the public is reduced to less than 10%, then if those shares are offered for sale, the purchaser must take over those shares. Moreover, if it is stated in the contract deed or memorandum of understanding that price must be paid in cash to one class of shareholders, the rest of the shareholders are entitled to receive the cash.
3.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
A tender offer notice must be published expressing the interest to acquire shares. The proposal may be subject to the following conditions: that the buyers can make conditional offers such as that of taking approval from the shareholders of the company, if applicable; any condition imposed by legislation; any information necessary in the public interest and related to a substantial acquisition of shares.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
The tax laws in Bangladesh are silent on the tax implications of the M&As. The key issue is whether the transaction is essentially a transfer of assets, in which case the tax on capital gain may be imposed. In the case of a share acquisition by purchase or subscription, stamp duty and value-added tax (VAT) may be applicable. The question of tax implications, however, cannot be precisely laid down in the case of M&A in the absence of any laws and/or rules dealing solely with mergers.
4.2 Are there special considerations in cross-border deals?
Parties may wish to consider whether Bangladesh has an avoidance of double taxation treaty with the `foreign country wherein one of the merged entities is registered.
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
Most M&As in Bangladesh are friendly, rather than hostile. Companies are often willing to transfer or acquire shares. However, a merger may be prevented on the grounds specified in the Competition Act 2012.
5.2 How do targets use anti-takeover defences?
See 5.1.
5.3 Is a target required to provide due diligence information to a potential bidder?
There is no legal obligation to provide due diligence information to a potential bidder. Nonetheless, it is industry practice to provide due diligence information to a potential bidder.
5.4 How do bidders overcome anti-takeover defences?
See 5.1.
5.5 Are there many examples of successful hostile acquisitions?
See 5.1.
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
The law does not specifically set out the ways for a friendly bidder and target to protect a friendly deal from a hostile interloper.
6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
The competing bidder must submit its offer within two weeks of the publication of tender offer notice.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
There is no specific threshold for antitrust notification. However, it is a requirement under section 21 of the Competition Act 2012 that a merger that adversely affects competition in the market is restricted unless approved by the CC. The CC has not been formed yet and the rules are yet to be framed.
7.2 When will transactions falling below those thresholds be investigated?
See 7.1.
7.3 Is an antitrust notification filing mandatory or voluntary?
It is hoped that once the rules come into existence, it will be possible to provide a precise answer as to whether antitrust notification filing is mandatory or voluntary.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
See 7.1.
7.5 How long are the anti-trust review periods?
If aggrieved by any order of the CC, any person (including a company) may apply in prescribed form and fees to review the order within 30 days.
7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
The CC will not approve any M&A that adversely affects competition. Moreover, it has jurisdiction over corporations or persons residing outside Bangladesh so long as the anti-competitive activity is taking place in Bangladesh. In investigating such a case the CC shall take into account the laws of both countries, i.e. where the activity is taking place and where the anti-competitive corporation or person resides or is registered.
7.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
There does not appear to be any restriction on foreign ownership. However, as for foreign companies, when approval from the Board of Investment is taken, there may be a restriction on the ratio of employees being appointed as foreign and local employees.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
The anti-corruption legislation includes the Anti Corruption Commission Act 2004 and the Money Laundering Prevention Acts 2012.
8.2 What are the potential sanctions and how stringently have they been enforced?
The anti-corruption regime is overseen by the Anti-Corruption Commission of Bangladesh and the laws are strictly enforced. For activities found to be corrupt under the legislation, in certain cases, imprisonment could be the sanction if the offence is proven.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
No.
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Kazi Ershadul Alam
Tanjib Alam
Dhaka
About the author
Kazi Ershadul Alam is an Advocate of the Supreme Court of Bangladesh and frequently keeps submission before the Company, Writ and Admiralty benches of the High Court Division. He specialises in corporate law, corporate finance, and M&A. His expertise also extends to joint ventures, demergers, private equity transactions. He has advised a wide range of clients and is considered to be one of the most promising lawyers in the fields. He is part of the legal team on the merger of mobile operators Robi and Airtel in Bangladesh. He has also worked on several other high-value M&As including the takeover of GrameenPhone IT by Accenture.
Ershadul Alam is a barrister of Lincoln's Inn, and he holds a graduate diploma in law.
He also holds an honours degree in computing and information systems from the University of London, and a master of business administration from Dhaka University.
A senior associate of the law firm, his areas of practice include: corporate matters; judicial review; commercial law; arbitration; telecommunication; intellectual property and information and communication technology law.
Imran Anwar
Tanjib Alam
Dhaka
About the author
Imran Anwar, an associate of the firm, has experience in drafting legal agreements, opinions and petitions on various legal issues. He is particularly interested in corporate M&A, private equity law, arbitration, intellectual property, procurement and financial laws.
He holds an LLM in international commercial law with a distinction from the University of Nottingham. During his LLM, he was a participant at the 22nd Willem C Vis Arbitration Moot in Vienna, Austria and received the best participant award for the LLM international and comparative copyright law module. He completed his LLB at the University of London and was called to the Bar of England and Wales from Lincoln's Inn in 2013, following completion of a postgraduate diploma in legal practice at Manchester Metropolitan University.