Opinion No. 24-38 Re: Mandatory Tender Offer Rule

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Securities ana Exchange Commission INE

BACONG PILIPINAS

OFFICE OF THE GENERAL COUNSEL

26 November 2024

SEC-OGC Opinion No. 24-38 Re: Mandatory Tender Offer Rule

121 Valero Street, Salcedo Village ROQUE & BUTUYAN LAW OFFICES 1904 Antel Corporate center Makati City

Attention: ATTY. JOEL RUIZ BUTUYAN ATTY. ROGER R. RAYEL ATTY. GEPEE ACERON GONZALES

Dear Gentlemen:

Inc. (the "CMI"), that is contemplating on raising funds to be used for corporate purposes. This refers to your letter' requesting for an opinion in behalf of your client, Consolidated Mines,

shareholding. According to you, the shares to be issued will be taken from the unissued shares of the calling on existing shareholders to subscribe to additional shares up to a maximum of 100% of their current company. In addition, you mentioned that while the unissued shares are sufficient to cover 100% of the outstanding shares, the additional shares to be issued may not be of the same class as that currently owned by the shareholders. CMI has Class A and B common shares which have the same rights and privileges except that Class A shares are exclusive to Filipino citizens. You stated in your letter that CMI is a public company and, in order to raise capital, is considering

shares, Shareholder A, currently owns 49% of the outstanding shares of the company. You likewise stated that one of the existing shareholders who might subscribe to said additional

In relation to the proposed transaction, you are requesting guidance on the following:

1. If only Shareholder A responded to the request for additional subscription or if the resulting 2 Are the shareholders who did not respond to the CMI's call for additional subscription the mandatory tender offer rule still apply? Iif so, is Shareholder A required to pay for all structure is that Shareholder A will own more than 50% of the outstanding shares of CMI, will tendered shares, including those subscribed to after the call for additional subscription? considered to have waived their right in the tender offer?

1 Dated 25 April 2017

14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 www.sec.gov.ph | ogc_legal@sec.gov.ph Salcedo Village, Bel-air, Makatl City IN PEPI INVESTORS Ne invest in peopl A ISO 9001:2015 w1.. CL

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3 Y 5 Under the same transaction, may the shareholders assign their right to subscribe to their What procedural and substantive requirements must CMI and/or Shareholder A comply with respective proportionate share to any other shareholder, including Shareholder A? If instead of the additional subscription to be paid in cash, the advances of Shareholder A are mandatory tender offer rule apply? At what stage will Shareholder A have to comply with the tender offer rule? Upon application for approval of conversion or upon approval? Will the converted to equity and as a result Shareholder A becomes the majority owner, will the same conversion rate approved by the Commission be used in determining the purchase price for all tendered shares?

in the options contemplated?

Mandatory Tender Offers

persons to acquire equity securities of a public company.2 Rule 19 of the Implementing Rules and Regulations (IRR)3 of the Securities Regulation Code4 defines tender offer Tender offer is a publicly announced intention by a person acting alone or in concert with other

or in concert with other persons (hereinafter referred to as "person" to acquire "19.1.8. "Tender offer" means a publicly announced intention by a person acting alone equity securities of an associate or related company of such public company which controls the said public company." outstanding equity securities of a public company5 as defined in SRC Rule 3, or outstanding

to wit: Rule 19.2 of the SRC IRR provides for the cases in which the mandatory tender offer rule applies,

"19.2. Mandatory Tender Offers

percent (15%) of equity securities in a public company in one or more transactions within 19.2.1. Any person or group of persons acting in concert, who intends to acquire fifteen a period of twelve (12) months, shall file a declaration to that effect with the Commission.

percent (35%) of the outstanding voting shares or such outstanding voting shares that are 19.2.2. Any person or group of persons acting in concert, who intends to acquire thirty five sufficient to gain control of the board in a public company in one or more transactions contemporaneously make a tender offer for the percentage sought to all holders of such securities within the said period. Within a period of twelve (12) months, shall disclose such intention and

the close of such tender offer shall be proportionately distributed across selling shareholders with whom the acquirer may have been in private negotiations and other shareholders. For purposes of SRC Rule 19.2.2, the last sale that meets the threshold shall not be consummated until the closing and completion of the tender offer. If the tender offer is oversubscribed, the aggregate amount of securities to be acquired at

19.2.3. Any person or group of persons acting in concert, who intends to acquire thirty five percent (35%) of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company through the Exchange trading system shall not be required to make a tender offer even if such person or group of persons acting in concert acquire the remainder through a block sale if, after acquisition through

2CEMCO Holdings, Inc. vs. National Life Insurance Company of the Philippines, Inc., G.R. No. 171815, 7 August 2007. 3 2015 Implementing Rules and Regulations of the Securities Regulation Code, IRR of RA 8799, 4 August 2015 (100) shares of a class of its equity securities. 4 Republic Act (RA) No. 8799, Securities Regulation Code, 19 July 2000. in excessof Fifty Million Pesos (PhP50.000,000.00) and has two hundred (200) or more holders, each holding at least one hundred M 14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 www.sec.gov.ph | imessagemo@sec.gov.ph 5 Supra, no. 3, Rule 3.1.16. Public company mea Salcedo Village, Bel-air, Makati City Any corporation with a class of equity securities listed on an Exchange, ory G 1309001-2 t rith as Ce

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the Exchange trading system, they fail to acquire their target of thirty five percent (35%) or such outstanding voting shares that is sufficient to gain control of the board.

sufficient to gain control of the board in a public company directly from one or more stockholders shall be required to make a tender offer for all the outstanding voting shares. percent (35%) of the outstanding voting shares or such outstanding voting shares that are The sale of shares pursuant to the private transaction or block sale shall not be completed prior to the closing and completion of the tender offer. 19.2.4. Any person or group of persons acting in concert, who intends to acquire thirty five

of the total outstanding equity securities of a public company, the acquirer shall be securities to all remaining stockholders of the said company at a price supported by required to make a tender offer under this Rule for all the outstanding equity a fairness opinion provided by an independent financial advisor or equivalent third 19.2.5. If any acquisition that would result in ownership of over fifty percent (50%) party. The acquirer in such a tender offer be required to accept all securities tendered." (Emphasis supplied)

benefit for their shares as the controlling shareholdersg. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.7 The purpose of mandatory tender offer is to ensure that minority shareholders get the same

to wit: Meanwhile, Rule 19.3 enumerates the exemptions from the mandatory tender offer requirement,

"19.3. Exemptions from the Mandatory Tender Offer Requirement

objectives of the tender offer rules, the mandatory tender offer requirement shall not 19.3.1. Unless the acquisition of equity securities is intended to circumvent or defeat the apply to the following:

19.3.1.1. Any purchase of securities from the unissued capital stock; Provided, the acquisition will not result to a fifty percent (50%) or more ownership.of securities by the purchaser or such percentage that is sufficient to gain control of the board:

xxX xXX XXx'

company.8 The legislative intent of Section 19 of the SRC9 is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed the direct purchase of its stocks or through an indirect means, mandatory tender offer applies.1o corporation. Whatever may be the method by which control of a public company is obtained, either through The mandatory tender offer rule does not apply only to direct acquisition of shares in the public

: SEC Opinion No. 01-03, 7 January 2003. offer to stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a'statement containing such of the information required in Section 17 of this Co ' Supra, no. 2. SEC. 19. Tender Offers. -19.1. (a) Any person or group of pers least Fifty Million Pesos [P50,000,000.00) and having two l all requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of information as the Commission may prescribe, and shall be filed with the Commission and sent to the issuer'not later than the time 1o Supra, no. 2. (+63 2) 8818 5348 / (+63 2} 8818 5418 8 Id (15%) of any class of any any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such copies of such materials are first published or sent or given to security holders. i4/F The SEC Headquarters. 7907 Makati Avenue each or who intends to acquire at least thirty per cent (30%) of such equity over a period of twelve (12) months shall make a tende Salcedo Village, Bel-air, Makati City ot aI 1r0tn0f as the Commission may prescribe. Such person or group of persons shall publish hundred (200) or more stockholders 10TC acting in concert who intends to acquire at least fifteen per cen. ny class of any equity security of a corporation with assets of at rs with at least one hundred (100) shares Tuphainlas A T H

www.sec.gov.ph | imessagemo@sec.gov.ph

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shares of a public company is exempt from the mandatory tender offer requirement as long as the percentage that is sufficient to gain control of the board. acquisition will not result to a fifty percent (50%) or more ownership of securities by the purchaser or such To answer your first query, based on the foregoing, a purchase of securities from the unissued

will be required to make a tender offer for all the outstanding equity securities to all the remaining unissued capital stock, the same will still not fall under the exemptions to the mandatory tender offer requirements since Shareholder A will own more than 50% of the outstanding shares of the company. As such, the mandatory tender offer rule under Rule 19.2.5 of the SRC IRR will apply and Shareholder A and either pay for, or return, the tendered shares not later than ten (10) business days after the termination stockholders at a price supported by a fairness opinion issued according to the guidelines under the IRR. Shareholder A would be required to accept all the shares tendered within the period the offer was open, of the tender offer.11 Thus, in your example, while the shares to be purchased by Shareholder A will come from the

Period and Manner of Making Tender Offers

Rule 19.9 of the SRC IRR provides for the period and manner of making tender offers, to wit

"19.9. Period and Manner of Making Tender Offers 19.9.1. A tender offer shall, unless withdrawn, remain open until the expiration of:

that an offer should as much as possible be completed within sixty (60) business days from the date the intention to make such offer is publicly announced; or 19.9.1.1. At least twenty (20) business days from its commencement; Provided,

the percentage of the class of securities being sought or in the consideration offered is first published, sent or given to security holders." 19.9.1.2. At least ten (10) business days from the date the notice of a change in

right in the tender offer. Rather, Rule 19.11 of the SRC IRR states: shareholder to respond to a corporation's call for additional subscription is considered a waiver of their In relation to your second query, neither the SRC nor its IRR provides that the failure of the

"19.11. Withdrawal or Lapse of the Tender Offer

but has not become unconditional in all respects and has been withdrawn or has lapsed, neither the offeror nor any person who acted in concert with it in the course of the offer may, within six (6) months from the date on which such offer has been withdrawn or has lapsed, announce an offer for the target company nor acquire any securities of the target company which would require such person to make a mandatory tender offer under this Rule and Section 19.1 of the Code." Unless with the prior approval of the Commission, if an offer has been announced

a mandatory tender offer under the SRC or its IRR, without prior approval from the Commission. another offer or acquire any securities of the target company12 which would require such person to make The lapse of the offer shall prevent the offeror, within the stated 6-month period, to announce

Subscription of Shares

may be transferred by delivery of the certificate or certificates indorsed by the by the owner, his attorney. The Revised Corporation Code (RCC)13 provides that shares of stock are personal property and

11 Supra, no. 3, Rule 19.9.7. 12 (bid., Rule 19.1.7. "Target company" means any Issuer whose equity se. 13 Revised Corporation Code of the Philip 14/F The SEC Headquarters, 7907"Makati Avenue {+63 2} 8818 5348 / (+63 2) 8818 5418 Salcedo Village, Bel-air, Makati City ppines, Republic Act (R.A.) No. 11232, 20 February 2019. sought by offeror pur: A t to a S001201 er offe C www.sec.gov.ph | imessagemo@sec.gov.ph

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in-fact, or any other person legally authorized to make the transfer.14 The by-laws may prescribe the procedure regarding transfer of shares of stock. However, no transfer of stock shall be valid except as between the parties, until the transfer is recorded in the books of the corporation.15

to all issues or disposition of shares of any class, in proportion to their respective shareholdings. 16 The right rights. Upon the expiration of said period, any stockholder who has not exercised such right will be deemed may be restricted or denied under the articles of incorporation, and is subject to certain exceptions and limitations. The stockholder must be given a reasonable time within which to exercise their preemptive to have waived it.1? The pre-emptive right under Section 38 of the RCC refers to the right of a stockholder to subscribe

transferee steps into the transferor's right to exercise the pre-emptive right attached to the original stock same right to a preference in subscribing for or purchasing new stocks issued by the corporation. The only if the latter failed to exercise such right before the transfer was effected. To rule otherwise would allow the pre-emptive right attached to the original stock to be exercised twice.18 If a stockholder sells his shares to another, the transferee acquires, as an incident to the stock, the

their proportionate share to other stockholders. To allow otherwise would in effect violate the underlying foundation or underlying basis of this right which is to maintain the proportionate voting strength and control of existing stockholders, that is, the existing ratio of their interest and voting power in the corporation.19 Thus, to answer your third query, shareholders cannot assign their preemptive right to acquire

assignor has already previously exercised such right. proportionate share; provided that the pre-emptive right can no longer be exercised by the assignee if the However, a shareholder may assign his shares and the corresponding right to subscribe to his

Tender Offer Price or Consideration

whether the additional subscriptions of Shareholder A are to be paid in cash or by way of converting Shareholder A's advances to equity, as long as this transaction results in the acquisition of ownership of the indicated threshold percentage of the total outstanding equity securities of the public company, the mandatory tender offer rule applies. As to your main question under your fourth query, pursuant to the discussion on the first query.

shares, the SRC IRR provides: As to your sub-question under your fourth query regarding the purchase price for all tendered

involves payment by transfer or allotment of securities, such securities must be valued on "19.9.2. In a mandatory tender offer, the Offeror shall be compelled to offer the highest an equitable basis. price paid by him for such securities during the preceding six (6) months. If the offer

the tender offer has commenced, the Offeror shall pay such increased consideration to all security holders whose tendered securities have been accepted for payment by such 19.9.6. In the event the Offeror in a tender offer increases the consideration offered after

17G.R No. 165887 Majority Stockholders of Ruby Industrial Corporation vs. Lim, 6 June 2011. 1s RCc, Section 38. Power to Deny Preemptive Right. - All tockholders of a stock corporation shall enjoy preemptive right to subscribe 18 SEC Opinion addressed to Del Rosario, Lim De Vera dated 28 November 1990. 14 RCC, Section 62. to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for 14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 www.sec.gov.ph ( imessagemo@sec.gov.ph 15 Ibid articles of incorporation or an amendment thereto: Provided, That such pre-emptive right shall not extend to shares issued in corporate purposes or in payment of a previously contracted debt 19 Salcedo Village, Bel-air, Makati City

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Offeror, whether or not the securities were tendered prior to the variation of the tender Offer's terms."

the transaction upon the announcement of the person making a tender offer of his/its intention to purchase the subject shares.20 As to the period of payment, whether in cash or otherwise, the SRC IRR states: As to your remaining sub-questions under your fourth query, the rules on tender offer shall govern

the tendered securities, not later than ten (10) business days after the termination or the withdrawal of the tender offer." 19.9.7. The Offeror in a tender offer shall either pay the consideration offered, or return

Regulation Department (MSRD).21 We advise that you consult the MSRD, which is the operating department found in the SRC, SRC-IRR and processes implemented by the Commission's Markets and Securities that reviews and processes applications for registration and exemption from registration of securities, exemptive relief, tender offer and other SRC-related applications. Lastly, the procedural and substantive requirements for the mandatory tender offer rules are

particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances.22'if upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null circumstances and documents disclosed/submitted, and should be considered relevant solely to the and void. It shall be understood that the foregoing opinion is rendered solely on the basis of the facts,

Please be guided accordingly.

Yours most respectfully.

XML ROMUALD C. PADILLA General Couhsel

20 Supra, note 3. Rule 19.5. 21 You may contact MSRD at the following contact details: https:/www.sec.gov.ph/contact-us/ 22 Section 7, SEC Memorandum Circular 2003-15, 16 December 2003. 14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 www.sec.gov.ph | imessagemo@sec.gov.ph Salcedo Village, Bel-air, Makati City Iohtin.$. o H