The Mandatory Bid Rule under China's Takeover Law: A Comparative and Empirical Perspective

Abstract

China initially transplanted the mandatory bid rule (MBR) from the United Kingdom (U.K.) in the early 1990s but significantly amended it in 2006 to allow the use of partial bids, as well as full bids or general bids, to discharge the MBR duty. This amendment makes the MBR in China deviate from its place of origin both in the books and in action. This paper analyses the similarities and differences between the Chinese MBR and its counterparts in the U.K. and Japan. In doing so, it empirically investigates how the Chinese-style MBR has been applied in practice by examining all relevant cases during the first ten-year period of 2007 to 2016 after the amendment. The study finds that mandatory general bids mainly appeared in cases of indirect takeovers, negotiated takeovers, and privatizations, with a high non-enforcement rate (including legal circumvention and illegal violations); mandatory partial bids were made in order to acquire or consolidate the control of the target company with a low non-enforcement rate. As such, the Chinese MBR generally adheres to the British model of mandatory general bids but gradually diverges from it and converges with the Japanese model of mandatory partial bids. This paper explains the research results by reference to China’s political and economic context and puts forward reform suggestions.

Keywords: mandatory bid rule; takeover; legal transplant; general bid; partial bid; China

JEL Classification: G34, K22