出海经纬 | A股上市公司海外并购模式及重点法律问题（英文版）

引 言

Looking at the relevant legal regimes and regulatory policies for foreign investment review in major international economies, the regulatory risks that may be associated with cross-border investment and M&A by Chinese companies include industry access, anti-monopoly and national security review.

In order to protect the development of local emerging industries and the security of certain specific key industries, such as defence, energy and communications, most countries around the world have established industrial access regimes for foreign investment in their markets to prevent disorderly capital expansion and market monopoly and to promote fair competition. Host governments usually specify the access conditions for foreign investment by issuing documents such as the Negative List for Market Access. If the industry in which the foreign company is acquired by a Chinese company belongs to an industry with special access conditions, the change in controlling interest after the completion of the M&A transaction may raise issues such as the foreign shareholding ratio and the review of special operating licences.

Acquisition of Optimum Medical Device Inc. by Endovastec (688016) (industry may not be subject to foreign investment review)

Endovastec (688016) announced on 2 July that its wholly-owned subsidiary Microport Endovastec B.V. (Heartbeat Nederland) has acquired from Earl Intellect Limited and Turbo Heart Limited 72.37% of the shares of Optimum Medical Device Inc. ("OMD"), a subsidiary of the Company. Upon completion of the transaction, OMD will become a wholly owned subsidiary of the Company.

The acquisition transaction process is illustrated below:

According to Endovastec’s announcement, the current transaction is still subject to the completion of the approval and filing procedures for overseas investments with the relevant government authorities. Endovastec does not disclose whether the transaction is subject to approval or filing with the regulatory authorities in the place where the OMD of the Acquired Business is located. Upon review of the relevant provisions of the Dutch Act on the Security Review of Investments, Mergers and Acquisitions, which establishes a reporting and review mechanism for acquisitions of target companies operating in designated key industries and sensitive technology areas in the Netherlands or operating industrial estates in the Netherlands, the industries involved in Heartbeat Netherlands do not fall within the scope of the industries covered by the Act and therefore may not be subject to reporting requirements to the Dutch Investment Review Authority.

In order to protect fair competition in the market and to prevent unfair competition and market harm caused by monopoly, major countries around the world have enacted anti-monopoly laws to restrict and regulate the monopolistic behaviour of market participants. In general, as one or more parties to a cross-border M&A transaction are usually more mature and larger players in the market, after the completion of a cross-border M&A transaction, the buyer may further strengthen its influence or dominant position in the market by integrating the business of the acquired company, which may reduce the overall level of competition in the market and ultimately harm the interests of consumers. Therefore, antitrust review of cross-border M&A transactions is one of the most important ways for countries to protect fair competition in their markets by setting standards for the scope of the subject matter of the M&A transaction and the volume of business of the parties to the transaction, and if the transaction exceeds such standards, a notification should be made to the antitrust authorities of the country or region involved in the transaction and approval should be obtained before the transaction can proceed.

New JF acquired Hong Kong-listed Greatview Aseptic Packaging Company Limited(“Greatview” ) and became its largest shareholder (China's antitrust filing was ignored in the initial phase, and additional filings was made in the later phase).

In September 2023, New JF acquired a portion of the issued ordinary shares of Greatview through the signing of a placing agreement, thereby becoming the largest shareholder of the subject company. However, it has not assumed control of the target company. Furthermore, due to the business synergy between the buyer and the target company, the acquisition encountered resistance in the form of competitive relationships between the buyer and the target company’s customers. Additionally, because of the large scale of the transaction, it involved significant procedural issues related to major asset restructuring. Furthermore, the need for both parties to complete anti-monopoly filings in China during the later stages of the acquisition led to a delay in the closing of the transaction by several months.

The disclosed information indicates that the purchaser, New JF, did not submit an antitrust declaration at the initial stage of the acquisition. In its response to the Inquiry Letter from the Exchange, New JF asserted that, in accordance with the "Regulations on the Review of Operators' Concentration," it had not obtained controlling rights over Greatview. Furthermore, it contended that there were no circumstances under which it would be able to exert decisive influence over Greatview in the future. Consequently, its advisor and the Company all deemed it unnecessary to make a declaration of operator concentration in respect of the Acquisition. In light of the fact that New JF would become the largest shareholder of Greatview following the completion of the acquisition, the State Administration for Market Regulation (SAMR) issued a reminder letter to New JF, advising it to make a declaration of concentration. Following communication with the SAMR, New JF submitted the requisite declaration materials, resulting in a delay of several months in the delivery of the merger and acquisition transaction due to the retroactive operator concentration declaration procedure.

The report on the major asset restructure, as disclosed by New JF, outlines the company's intention to further acquire the issued shares of Greatview by Jingfeng Holdings, a wholly-owned oversea subsidiary of New JF. This will be achieved through a voluntary general offer and/or other forms in compliance with the relevant regulatory requirements, although this process is not yet complete.

National security vetting represents a strategy through which a country or region can achieve its primary objective of national security. This is achieved by conducting targeted vetting of key activities and areas, with the aim of preventing any potential impact on national security resulting from the involvement of foreign subjects or individuals. In light of the impact of technological development, shifts in the international landscape, and other pertinent factors, the scope and approach to national security vetting are undergoing a period of transformation. In recent years, major countries and regions around the world have increasingly concentrated their attention on emerging strategic areas, including high-end manufacturing and high-technology service industries, as well as on sensitive areas. All major economies in the world have established dedicated agencies tasked with the responsibility of conducting national security reviews. Examples of such agencies include the Committee on Foreign Investment in the United States (CFIUS), the Foreign Investment Review Board (FIRB) in Australia, and the Federal Ministry for Economic Affairs and Climate Action in Germany.

Sai MicroElectronics Inc' acquisition of German Elmos' automotive chip production line assets (terminated due to failure to pass German foreign investment approval process)

On 20 January 2023, Sai Microelectronics (stock code: 300456) announced that on 9 November 2022, the company and relevant subsidiaries had received a formal decision document from the Federal Ministry for Economic Affairs and Climate Action, which prohibited the acquisition of Germany's FAB5 by Silex of Sweden. On 19 January 2023, Silex of Sweden and Elmos of Germany entered into a SPA Termination Agreement, thereby bringing an end to Sai Microelectronics' overseas expansion of the automotive chip industry and related businesses.

As indicated by the data divulged by Sai Microelectronics, the prohibition imposed by the German Federal Ministry of Economic Affairs and Climate Action on this acquisition transaction rendered the FDI application for this acquisition invalid, which was the direct cause of the termination of this merger and acquisition transaction. The proposed acquisition involved a range of technologies, including artificial intelligence, semiconductors, quantum mechanics and other related fields. The subject company, Germany Elmos, primarily produces automotive chip products utilising a 350nm process. However, its primary asset is an obsolete production line that commenced operation in 2009. Despite this, the acquisition ultimately failed to pass the German government's foreign investment security review. It is evident that mergers and acquisitions involving key industries and technologies represent a primary focus for scrutiny by governments with regard to foreign investment.

The capacity to procure the requisite financial resources for overseas mergers and acquisitions (M&A) is a pivotal consideration for Chinese enterprises engaged in cross-border M&A transactions. In the event that the Chinese acquirer lacks the requisite funds, it is imperative to identify a dependable financing avenue at the earliest opportunity and guarantee the availability of the requisite funds within the stipulated timeframe. Furthermore, Chinese companies must exercise particular caution with regard to the stipulations set forth in the transaction documents pertaining to financing methodologies, the disbursement of the transaction consideration, and default clauses. In this regard, particular attention should be paid to the percentage or amount of a break-up fee that may be payable to the seller. In the majority of cases, the vendor will require the purchaser to provide evidence of the source of funds and to demonstrate that the necessary financing has been secured prior to the transfer of ownership.

The three main transaction payment methods for Chinese enterprises' overseas M&A are cash payment, equity payment and hybrid payment. However, due to multiple factors such as the existing policy restrictions on cross-border share swaps of A-share listed companies and the fact that overseas sellers prefer to obtain cash exit, the degree of cash payment is the highest for overseas investment M&A by Chinese enterprises. The following will discuss several common financing paths for A-share listed companies' overseas M&A through both equity financing and debt financing.

(1) The acquisition of assets through the issuance of new shares.

As previously stated, Chinese enterprises typically remunerate the transaction consideration in cash when acquiring assets or controlling interests in foreign targets. In the event that the Chinese acquirer is a listed company, it may raise the requisite funds by issuing shares and utilise the proceeds to discharge the consideration payable for the acquisition of the overseas target company. In this case, the listed company must consider the relevant rules set forth by the domestic securities regulator regarding the issuance of shares by listed companies, fulfill its information disclosure obligations, and comply with the norms governing the use of proceeds. Furthermore, although the regulations governing major asset restructuring of listed companies have been enhanced and amended with the aim of streamlining the review process, listed companies are still required to undergo a more rigorous review and may experience delays if the fundraising exceeds 10% of the audited net assets of the listed company in the most recent financial year. Consequently, in cross-border M&A transactions involving substantial financial commitments, the funds procured through share issuance may represent only a portion of the transaction consideration, with the remainder requiring resolution through alternative means, including bond issuance and bank loans.

In comparison to utilising the proceeds of share issuance to raise funds as the transaction cash payment consideration, the direct utilisation of newly issued shares of a listed company as the consideration for the acquisition of assets or interests in an overseas target company is a more optimal method of payment, particularly in the present context where foreign exchange approvals are rigorous. Nevertheless, the deployment of newly issued shares of a listed company as transaction consideration for an overseas M&A may entail a cross-border share swap.

The Ministry of Commerce's Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (as amended in 2009, henceforth referred to as the "Merger and Acquisition Provisions") define cross-border share swap as "the act of purchasing equity interests of shareholders of a domestic company or additional shares of a domestic company by shareholders of the domestic company with their equity interests or additional shares of the domestic company, as a means of payment". This may also be expressed as "the purchase of the equity interests of shareholders of a domestic company or additional shares issued by a domestic company". Furthermore, the M&A Provisions stipulate that offshore companies must be legally established and adhere to a robust corporate legal system in their place of registration. Additionally, the company and its management must not have been subjected to disciplinary actions by regulatory authorities within the past three years. With the exception of special-purpose companies as outlined in Section III of this chapter, offshore companies must be listed entities, with their listing occurring in an exchange that adheres to a robust system of securities trading. The aforementioned provisions also stipulate that the offshore companies in question must be legally established and possess a robust corporate legal system in the country of registration. Furthermore, the companies and their management must not have been subject to regulatory penalties by the relevant authorities within the past In the event that the overseas target company, which the A-share listed company intends to acquire, is neither a special-purpose company nor a listed overseas company, it fails to meet the prerequisites for cross-border share swap and is therefore unable to adopt the method of issuing shares to purchase the relevant interests held by the equity holders of the aforementioned overseas target company.

Prior to the enactment of the Foreign Investment Law, the most significant instances of listed companies acquiring interests in overseas target companies through cross-border share swaps are outlined below:

After the implementation of the Foreign Investment Law on 1 January 2020, the State will apply the pre-accession national treatment plus negative list management system to foreign investment. Except for those involving special administrative measures and related mergers and acquisitions, the notification system will apply to mergers and acquisitions of domestic enterprises by foreign investors, and it will be sufficient for the foreign investor or foreign-invested enterprise to submit investment information (initial report, amendment report, etc.) to the relevant commercial department without obtaining prior approval from the Ministry of Commerce. However, as the Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and the Measures for the Administration of Strategic Investments in Listed Companies by Foreign Investors have not been amended or repealed, there is no clear regulatory calibre as to whether cross-border M&A by A-share listed companies will still have to meet the conditions that "the foreign company must be a listed company and be approved by the Ministry of Commerce". 

In studying the cases of share swaps in cross-border mergers and acquisitions of listed companies after the implementation of the Foreign Investment Law in 2020, most of the knots indicate that there may be no need to apply the Merger and Acquisition Provisions to handle the approval procedures of the Ministry of Commerce, as described below:

Additionally, there have been instances of cross-border acquisitions in which the preliminary transaction plan was a share swap, and the response to the stock exchange indicated that the M&A provisions were not applicable. However, the final adjustment was made to a cash acquisition plan, and the rationale behind this decision remains unclear. This is exemplified by the following case:

Furthermore, among the cross-border mergers and acquisitions (M&A) cases announced by listed companies in FY2024 as at 6 August, Wanxiang Qianchao (000559) has expressed its intention to purchase 100% of the equity interest in Wanxiang America Corp. held by Wanxiang America Corporation (a US company) by way of share issuance and cash payment. Consequently, the aforementioned acquisition can be classified as a cross-border share swap acquisition transaction. As indicated by Wanxiang Qianchao's disclosure, the acquisition transaction is currently in progress. However, there has not yet been a clear conclusion regarding the approval of foreign mergers and acquisitions. Consequently, the case is subject to continued observation.

2) Form a partnership with the Merger and Acquisition Fund.

Given the numerous obstacles faced by listed companies in issuing shares as consideration for cross-border mergers and acquisitions (M&A), it is common practice for listed companies to engage in cross-border M&A transactions by jointly raising funds with other investors. The most prevalent form of such joint venture is the formation of a partnership with a cross-border M&A fund. Partnerships with cross-border M&A funds are characterised by varying modes of capital contribution, operation and distribution. The most prevalent partnership is that between private equity funds and listed companies. In this model, listed companies and private equity institutions leverage their collective strengths to enhance their capabilities in target selection, capital sourcing, industrial advancement, management integration, and exit strategies for overseas mergers and acquisitions. This collaborative approach enables the optimization of M&A benefits.

The Private Equity & Listed Company Partnership model is comprised of a two-step arrangement. The initial phase involves the establishment of a fund management company by the private equity institution and the listed company (or associated person) with the objective of launching a cross-border M&A fund. The subsequent phase entails the selection of a target company for merger and acquisition by the M&A fund, followed by the integration of relevant industries with the listed company, the docking of resources, and the enhancement of management, among other measures. This is undertaken with the intention of selling the target company to the listed company at an opportune time, thereby facilitating a profitable exit. The following example illustrates the acquisition of 100% of LSG by BY-HEALTH (300146), which provides a case study for analysing the specific process arrangement of this model.

Step 1: Listed company and an M&A fund entering into a collaborative agreement to establish an M&A entity for the purpose of a cash acquisition.

In July 2018, BY-HEALTH, in collaboration with four private equity funds spearheaded by Zhongping Capital and Guangfa Xinde, established the acquisition entity, By-Health Bysen, with the objective of acquiring 100% of the equity interest of LSG in cash, with contributions provided all the Co-Investors. The shareholding structure of the M&A Entity is outlined below:

Step 2: The listed company issues shares with the objective of purchasing the shareholdings of the Target company, which are held by the M&A fund.

Concurrent with the introduction of the cross-border M&A proposal, BY-HEALTH disclosed a share issuance plan with the objective of procuring assets (shares). BY-HEALTH has announced its intention to acquire the equity interests in LSG held by four private equity funds, namely Zhongping Guojing, Jiaxing Zhongping, Xinde Aodong and Xinde Houxia. The purchase price has been set at RMB 1.4 billion, with the objective of achieving full control of BY-HEALTH Bysen. Consequently, BY-HEALTH Bysen will be in a position to consolidate 100% of LSG, while the external investors of the M&A funds will also be able to exit through a share swap.

Despite the fact that, at the level of policy regulations, commercial banks are able to provide support for the overseas mergers and acquisitions (M&A) of Chinese enterprises by issuing M&A loans, it remains challenging for such enterprises to actually obtain M&A loans from banks. This is evidenced by the fact that, in 2015, the China Banking Regulatory Commission (CBRC) revised the "Guidelines on the Risk Management of Commercial Banks' M&A Loans". These revised guidelines stipulate that M&A loans shall account for no more than 60 per cent of M&A funds, and that the term of the M&A loans is generally no more than seven years.

1) Domestic Guarantee and Foreign Loan

In practice, the financing of cross-border transactions frequently employs a combination of domestic guarantees and foreign loans. In accordance with the Provisions on Foreign Exchange Management of Cross-border Guarantees (Huifa [2014] No. 29) and the Circular on Improving Foreign Exchange Management of Banks' Domestic Guarantees and Foreign Exchange Management of Foreign Exchange Loans (Huifa [2017] No. 108) issued by the State Administration of Foreign Exchange (SAFE), domestic guarantees and foreign exchange loans are defined as cross-border guarantees in which the guarantor's registered place of business is situated within the territory, while the debtor's and the creditor's registered place of business is located outside the territory.

In practice, the most common model of domestic guarantee and foreign loan is as follows: on the condition of an unconditional and irrevocable counter-guarantee issued by a domestic enterprise in China (the applicant) to the domestic branch of the lending bank, the domestic branch of the bank will issue a letter of guarantee or a standby letter of credit to the bank's overseas branch or overseas correspondent bank, and so forth. The beneficiaries are the applicant's holding or participating enterprise registered abroad (the borrower), and the overseas branch or overseas correspondent bank will provide financing to the borrower. The specific process is outlined below:

Domestic Guarantee and Foreign Loan Charts:

2) Bonds Issuance

Bond issuance represents a form of debt financing, which can typically be classified as either domestic or overseas issuance, contingent on the location of issuance. Domestically issued bonds encompass a range of instruments, including corporate bonds and interbank debt financing instruments. In accordance with the pertinent regulations governing share placements by listed companies, listed companies may raise capital through bond issuance for the purpose of facilitating outbound investments or cross-border mergers and acquisitions. Illustrative examples include:

In comparison to domestic bond issuance, it is optimal for Chinese enterprises to issue bonds abroad and utilise the proceeds to remunerate the consideration for cross-border mergers and acquisitions (M&A), benefiting from the advantages of a diverse range of currency options and enhanced fund-raising efficiency. It is crucial to highlight that, in addition to the procedures associated with overseas investment, Chinese enterprises issuing bonds abroad must also ascertain whether they are obliged to submit an application to the National Development and Reform Commission (NDRC) for the examination and registration of foreign bonds. In accordance with the Administrative Measures for the Audit and Registration of Medium- and Long-term Foreign Debt of Enterprises, as set forth by the NDRC in January 2023 (NDRC Decree No. 56, henceforth referred to as "Decree No. 56"), instances necessitating prior audit and registration procedures include borrowings made abroad by a domestic enterprise and its controlled offshore enterprises or branches, which are denominated in local currency, or which are denominated in foreign currencies, and which are denominated in foreign currencies. This encompasses debt instruments with a maturity of one year or more, denominated in either local or foreign currencies, and with agreed-upon debt repayment and interest payment terms, which have been borrowed abroad by domestic enterprises and their controlled foreign enterprises or branches. ... The aforementioned measures define debt instruments as including, but not limited to, senior debt, perpetual debt, capital debt, medium-term notes, convertible bonds, exchangeable bonds, financial leases and commercial loans.

In accordance with the stipulations set forth in Decree 56, the term "control" is defined as the direct or indirect ownership of more than half of the voting rights of an enterprise, or the ability to dominate the enterprise's operations, finances, personnel, technology, and other significant aspects, even in the absence of ownership of more than half of the voting rights. Additionally, Decree 56 delineates the regulatory framework applicable to indirect investments by Chinese enterprises abroad. This encompasses both large and small red chip and VIE structure enterprises. The decree stipulates that if an enterprise whose primary business activities are conducted within China borrows debt abroad in the name of an enterprise registered abroad, based on the equity, assets, income, or other similar interests of the domestic enterprise, the Decree No. 56 will be applied in the same manner.

In accordance with the stipulations set forth in Decree No. 56, the auditing and registration authority is obliged to issue a Certificate of Auditing and Registration of Enterprises Borrowing Foreign Debt within a period of three months following the date of acceptance. This is to be granted to applications that comply with the provisions set out in the aforementioned decree. It is prohibited to borrow foreign debt without undergoing an audit and registration process. It is thus imperative that sufficient time be allotted for the examination and registration of foreign debt in the financing programme and transaction process prior to an enterprise utilising foreign debt funds for an overseas investment.

The completion of an M&A transaction is contingent upon the fulfilment of several conditions, including the commercial consent reached between the parties to the transaction. Additionally, the interests of other subjects related to the transaction may also affect the completion of the transaction. These subjects may include the company's shareholders, creditors, business partners, and employees. To illustrate, the non-controlling shareholders of the target company may exert considerable influence on the completion of the transaction in accordance with the stipulations set forth in the company's articles of association or through the negotiation of specific agreements between the shareholders. These agreements may encompass special voting rights and pre-emptive rights, among other provisions. Conversely, the creditors of the target company may instigate significant alterations to the terms, valuation and price payment of the M&A transaction. This may be achieved, for instance, through the introduction of accelerated expiry clauses pertaining to a change of controlling interest in the loan agreement signed with the target company. Furthermore, a change of control of the target company resulting from a cross-border M&A transaction may also give rise to a change or cancellation of special terms of the cooperation contracts of the business partners and the departure of core employees.

Tianqi Lithium's acquisition of the Australian lithium mining company ESS (the transaction was terminated due to the failure of approval at the ESS shareholders' meeting).

As stated in the announcement by Tianqi Lithium, Tianqi Lithium Energy Australia Pty Ltd ("TLEA"), a subsidiary of Tianqi Lithium, entered into a Scheme Implementation Agreement ("SIA") with Essential Metals Limited (ASX: ESS), a listed company in Australia, on 8 January 2023 with the intention of purchasing all the shares of ESS. In accordance with the terms of the Scheme Implementation Agreement, the transaction is contingent upon the approval of a majority of ESS shareholders, with the aggregate number of shares held by these voting shareholders representing a minimum of 75% of the total number of shares entitled to vote. Additionally, the transaction is subject to the review and approval of the Australian Securities and Investments Commission, the Australian Securities Exchange, and the local courts in Australia.

On 20 April 2023, ESS convened a general meeting of shareholders for the purpose of considering the proposed transaction. The voting results of the general meeting indicated that over half of the shareholders participated in the voting process. However, the number of shares held by the participating shareholders in favour of the transaction did not exceed 75% of the total number of voting shares. Consequently, the transaction was not considered and approved by the ESS general meeting, and the transaction was subsequently terminated.

In addition to the aforementioned government regulatory risks and financing risks involved in cross-border M&A transactions, other risks that may arise from the transaction itself, such as business, management and cultural integration risks (e.g. SAIC's acquisition of Korea's SsangYong Motor), business or market change risks (e.g.  KraussMaffei's acquisition of Equip Luxembourg in 2018 and its announced divestiture in July 2024) and nationalisation risks (Ganfeng Lithium (002460.SZ) announcement of the cancellation of nine mineral concessions for the Sonora lithium clay project held by the company's subsidiary in Mexico by the Mexican General Directorate of Mines), etc., are also issues that cross-border M&A transactions need to pay attention to and consider and respond to prudently. 

When initiating an overseas merger and acquisition (M&A) transaction, Chinese enterprises must undertake a comprehensive risk assessment, conduct a detailed analysis and evaluation of the proposed transaction plan, and conduct a thorough review of relevant compliance and regulatory policies. Additionally, it is crucial to engage a professional team with extensive experience in international transactions to facilitate a seamless and successful transaction.

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