Takeovers Panel’s TVB ruling on whitewash waiver and disclosure of shareholding structure

10 May 2017

The Takeovers Executive (Note 1) notes that the Takeovers and Mergers Panel (Panel) has ruled that a waiver of the general offer obligation (a Whitewash Waiver) should be granted, subject to conditions, in relation to a share buy-back offer which Television Broadcasts Limited (TVB) announced in January 2017.


TVB’s offer announcement stated that Innovative View Holdings Limited (IVH), a company wholly-owned by Charles Chan Kwok Keung, holds 56.51% of the voting rights of Young Lion Holdings Limited (Young Lion), which in turn holds a direct interest in 26% of TVB’s shares and an additional 3.9% indirectly with its concert parties (Note 2). Young Lion stated that it did not intend to accept TVB’s share buy-back offer. The Young Lion concert group therefore applied to the Takeovers Executive for a Whitewash Waiver as its shareholding will increase from 29.9% to up to 41.19% as a result of TVB’s share buy-back and thereby a mandatory general offer will be triggered by the Young Lion concert group under the Takeovers Code.

The Takeovers Executive referred the Whitewash Waiver application to the Panel, which met on 27 April 2017 to consider the matter. The Panel was invited to determine whether a Whitewash Waiver should be granted and if so, (i) whether full details about Young Lion’s shareholding structure should be disclosed in the shareholders circular; (ii) whether concerns about the funding of the share buy-back offer can or should be addressed through disclosure in the shareholders circular; and (iii) whether the scaling back provisions in the Broadcasting Ordinance (Note 3) make any difference in light of the requirement in the Codes on Takeovers and Mergers and Share Buy-backs (Codes) to treat all shareholders equally (Note 4).

Disclosure of shareholding structure

The Panel ruled that full details of Young Lion’s shareholding structure (Appendix A) should be disclosed in the shareholders circular as otherwise TVB shareholders would not be able to reach a fully informed decision on how control of the company would be exercised. The Panel stated that it is for the offeror, which in this case is Young Lion, to satisfy the Takeovers Executive that full disclosure has been made in relation to those persons who can significantly influence the exercise of control over TVB by Young Lion, directly or indirectly, via approval rights, voting rights, shareholder agreements or otherwise.

The Panel noted that Young Lion has 56,321,003 voting shares in issue which represent 10.61% of the economic interest in Young Lion and 474,474,999 non-voting shares in issue which represent 89.39%. CMC Holdings Limited (CMC), a company controlled by Mr Li Ruigang, holds both voting and non-voting shares and 79.01% of the economic interest in Young Lion, whereas IVH holds 56.51% of the voting shares but holds only 6% of the economic interest.

The Panel noted that Young Lion’s shareholders have entered into two agreements, a Shareholders Agreement and a Relationship Agreement (Note 5), regulating certain aspects of their relationship and that as a result of these agreements certain decisions require the approval of shareholders holding a majority of all of Young Lion’s voting and non-voting shares. Although IVH holds a majority of Young Lion’s voting shares, the Panel noted that in fact CMC has the greatest influence over the appointment of directors of TVB. The Panel also noted that IVH does not control the composition of a majority of Young Lion’s board, and it follows that IVH does not control Young Lion’s voting decisions, including the voting of its 26% of TVB shares.

Under the Relationship Agreement, there are many situations in which the non-voting Young Lion shares, of which CMC holds the majority, carry power of nomination, approval or disapproval amounting to de facto voting rights. This is very far from a normal situation in which a company’s non-voting shares have no real say except in situations which affect their class rights. The Panel also noted that CMC has the option to require IVH to sell its entire shareholding in Young Lion to a Hong Kong-resident third party of CMC’s choice.

The Panel noted that whilst full details of the shareholding and ownership structure of Young Lion and a summary of the relevant arrangements between its shareholders should be made, this might not be sufficient. The Panel observed that TVB’s offer announcement states that Mr Li Ruigang indirectly holds 86.19% of the “voting rights” of CMC. The Panel noted that this indicates the presence of another class of shares in CMC, a fact that was confirmed at the Panel hearing, and that Mr Li Ruigang may not have such a substantial equity interest in CMC and, in turn, in Young Lion and TVB. The Panel further noted that there may or may not be relevant agreements between CMC’s shareholders which would affect the way it exercises its rights in relation to Young Lion and TVB and that no detailed submissions were received by the Panel on this point.

Funding of the share buy-back offer

As for the issues raised by the Executive relating to the funding of the share buy-back offer, the Panel found that whatever the source of a company’s cash resources, they are generally fungible, and all that is required of offerors in this regard under the Takeovers Code is that the announcement of an offer should include confirmation from the financial adviser that sufficient resources are available to satisfy the offer. The Panel noted that matters of disclosure under the Listing Rules or the Securities and Futures Ordinance are not matters for the Panel.

Ruling on Whitewash Waiver

The Panel noted that it is a statutory requirement under the Companies Ordinance that TVB’s share buy-back offer must be subject to an ordinary resolution of TVB shareholders in a general meeting. It follows that the vote on that resolution must be subject to the scale-back provisions of the Broadcasting Ordinance. Accordingly, in the particular circumstances of the case and in order to achieve the underlying purposes of the Codes, the Panel ruled that the Whitewash Waiver should be granted subject to a majority of votes being cast in favour of the resolution to approve TVB’s offer (without adjustment). In the circumstances and to prevent the rules operating in an inappropriate manner and to achieve the underlying purposes of the Codes, the Panel decided that the Whitewash Waiver should not be put before TVB shareholders for a separate vote.

Parties’ full co-operation is expected

The Panel noted its concerns about the difficulty the Takeovers Executive and the Panel experienced in obtaining the Relationship Agreement from Young Lion (or from TVB on its behalf). The agreement was eventually provided by the Takeovers Executive to the Panel after the Executive exercised its statutory power to obtain it. The Codes require parties concerned with Codes transactions to co-operate to the fullest extent with the Takeovers Executive, the Panel and the Takeovers Appeal Committee, and to provide all relevant information. For Young Lion and TVB to simply refuse to provide the Relationship Agreement undermines the purpose of the Codes. The Panel also put on record its concern that Young Lion did not make available to the hearing one of its directors who might be familiar with its affairs and those of its shareholders, despite an earlier direction by the Acting Chairman to do so.

The Panel’s decision can be found on the SFC’s website (Note 6).



  1. The Executive Director of the SFC’s Corporate Finance Division or his delegate.
  2. Young Lion’s simplified shareholding structure is set out in Appendix A.
  3. TVB is the holder of a licence under the Broadcasting Ordinance, which contains restrictions on voting by unqualified voting controllers (broadly, non-Hong Kong-resident shareholders) at general meetings. Where votes cast by unqualified voting controllers exceed 49% of the total, their votes shall, for the purpose of determining the question or matter, be reduced so that they amount to 49% of the adjusted votes cast. See section 19 of Schedule 1 to the Broadcasting Ordinance.
  4. General Principle 1 of the Codes provides that all shareholders are to be treated even-handedly and all shareholders of the same class are to be treated similarly.
  5. The Shareholders Agreement was filed with the Stock Exchange of Hong Kong Limited but with a schedule which sets out the interests in the voting and non-voting shares of Young Lion redacted, and this copy is available for public inspection. The Relationship Agreement, to which the Shareholders Agreement refers, was not filed.
  6. The decision is available in the "Regulatory functions – Listings & takeovers – Takeovers & Mergers – Decisions & statements" section of the SFC website.

Page last updated : 12 May 2017