XN000022-1975-08-18 — Page 3

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MONDAY, AUGUST 18, 15"-

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+A MERGER IS A RATHER VAGUE TERM AND IS SOMETIMES USED FOR A TAKEOVER, BUT USUALLY IT REFERS TO AN ARRANGEMENT BY WHICH THE ASSETS OF TWO COMPANIES ARE ACQUIRED BY ANOTHER COMPANY, USUALLY NEWLY FORMED, WHOSE SHAREHOLDERS ARE THOSE OF THE TWO ORIGINAL COMPANIES. IN EITHER CASE AN OFFER IS MADE FOR THE SHARES OF AT LEAST ONE OF THE COMPANIES INVOLVED AND THE CODE WILL APPLY EQUALLY TO TAKEOVERS AND MERGERS,+ HE SAID.

THE SPOKESMAN SAID TAKEOVERS OCCUR IN MOST COUNTRIES IN THE ORDINARY COURSE OF COMMERCIAL AND INDUSTRIAL DEVELOPMENT AND THEY ARE AN ESSENTIAL FEATURE OF ECONOMIC GROWTH. THIS APPLIES PARTICULARLY IN HONG KONG WHERE THERE ARE MANY SMALL FIRMS WHICH NEED TO BE CONSOLIDATED INTO MORE SUBSTANTIAL UNITS.

+SO TAKEOVERS ARE FREQUENTLY DESIRABLE, BUT OF COURSE EACH PARTICULAR CASE HAS TO BE JUDGED ON ITS MERITS,+ THE SPOKESMAN ADDED.

IN THE PROCESS OF CARRYING THROUGH TAKEOVERS THERE MAY BE ABUSES WHICH WORK TO THE DETRIMENT OF SHAREHOLDERS AND RUN COUNTER TO GOOD COMMERCIAL PRACTICE, SO IT IS ADVISABLE TO REGULATE THEM AND THE COMPANIES LAW REVISION COMMITTEE MADE A RECOMMENDATION TO THIS EFFECT IN THEIR FIRST REPORT PUBLISHED IN JUNE 1971.

IN PARTICULAR, THE SHAREHOLDERS OF THE COMPANY BEING TAKEN OVER MUST BE TREATED FAIRLY AND MUST BE GIVEN ALL RELEVANT INFORMATION NEEDED TO MAKE A BALANCED JUDGMENT ON THE TAKEOVER OFFER, AND TIME TO CONSIDER THIS INFORMATION.

HOWEVER, THE FACT THAT A TAKEOVER BID ABIDES BY THE CODE DOES NOT IN ANY WAY IMPLY THAT THE PROPOSAL IS FINANCIALLY SOUND OR OTHERWISE DESIRABLE. THE DECISION TO ACCEPT OR REJECT AN OFFER MUST BE TAKEN BY THE SHAREHOLDERS THEMSELVES IN THE LIGHT OF THE INFORMATION GIVEN TO THEM, ASSISTED IF THEY WISH BY

PROFESSIONAL ADVISERS, THE SPOKESMAN EMPHASISED.

THE CODE ITSELF DOES NOT HAVE THE FORCE OF LAW, BUT THERE IS EVERY REASON TO EXPECT THAT IT WILL RECEIVE THE FULL SUPPORT OF ALL THOSE PROFESSIONALLY CONCERNED WITH TAKEOVERS.

HE SAID IT HAS BEEN DECIDED TO TRY TO OPERATE IT ON A VOLUNTARY BASIS BECAUSE THE CONDITIONS IN WHICH TAKEOVERS OCCUR, AND THE DETAILS OF THE PROPOSALS VARY SO MUCH THAT LEGISLATION WOULD HAVE TO BE COMPLEX IF IT WERE TO BE COMPREHENSIVE.

+MOREOVER, A NON-STATUTORY CODE WILL BE EASIER TO AMEND OR EXTEND IN THE LIGHT OF EXPERIENCE. THIS WILL BE USEFUL BECAUSE ALTHOUGH EXPERIENCE IS AVAILABLE FROM VARIOUS OVERSEAS CENTRES, THE BACKGROUND IN HONG KONG IS DIFFERENT IN SEVERAL IMPORTANT RESPECTS, AND THE COMMITTEE WILL BE BREAKING NEW GROUND.+'

/THE SPOKESMAN