Regulator moves to upgrade merger rules

Bangladesh Securities and Exchange Commission has initiated a move to upgrade its acquisition and takeover rules as merger seekers find it difficult to comply with the existing system.

A committee will make recommendations to the regulator on possible amendments to the existing rules, said Arif Khan, a commissioner of the BSEC.

“We will also study other merger and acquisition rules in the regional markets such as Singapore, Hong Kong, India and Malaysia.”

The Substantial Share Inheritance, Acquisition and Takeover Rules of 2002 are not appropriate for the current market and need to be modernised, he said.

The fixing of share transfer price is one area of concern, according to Khan.

The transfer rate should be the historical high price of a company's stock on a bourse or the last six months' weighted average price, whichever is higher, according to the existing rules.

The rules cannot be complied with, as most of the companies' share prices rose abnormally in 1996, before the market crash.

Another clause states that a public notice will have to be published before acquisition or takeover. But the publication of such notice impacts share prices, especially for publicly-traded companies.

So, the commission often gives the companies a waiver on these issues, said Khan, adding that the existing rules are outdated compared to the regional ones.

Presently, companies -- both listed and non-listed -- follow the Companies Act of 1994 for merger and acquisition.

The court is the prime authority to allow or reject any merger or acquisition proposal made by any company, according to the law.

The stockmarket regulator only allows the issuer companies to issue or transfer shares based on the court approval.

“We are trying to find ways to involve the BSEC more effectively in the merger and acquisition process,” said Khan.

Business conglomerate Beximco Group is the pioneer in merger and acquisition in Bangladesh.

In 2005, the group first amalgamated two of its units—Beximco Pharma and Beximco Infusions—into one, Beximco Pharma.

In 2006, Beximco Textiles, Beximco Denims and Beximco Knitting merged with Padma Textile Mills, which later was renamed Bextex and again merged with Beximco.

Bangladesh Online merged with Beximco in 2009. Besides, Dhaka-Shanghai Ceramics, Shinepukur Ceramics, Shinepukur Holdings and Beximco Fisheries also merged with Beximco in different times.

Tripti Industries merged with Olympic Industries in 2008, while Keya Detergent was merged with Keya Soap Chemicals in 2010, and Ocean Containers was merged with Summit Alliance Port in 2012.

In 2014, Keya Cosmetics initiated the process of merger with its associate companies: Keya Knit Composite, Keya Cotton Mills and Keya Spinning Mills.

In all the cases, the companies announced that the merger would enhance their profitability. In most of the cases, the profit of the entities declined or failed to maintain the trend of profitability.