Other takeovers issues which commonly arise or need consideration include:
- whether foreign investment approval is required;
- whether competition clearance is required;
- ASIC's truth in takeovers policy which requires persons to be bound by their public statements in relation to a takeover; and
- the acquisition or cancellation of target options and other convertible securities.
Below is a sample of other takeovers issues which commonly arise or need to be considered. This is by no means an exhaustive list.
Foreign investment approval
Australia has a foreign investment approval regime that regulates acquisitions by foreign persons of equity securities in Australian companies and unit trusts, and of Australian businesses and Australian real property assets. The regime is set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) and accompanying regulations.
An overview of the regime is available on Allens' website.
Competition clearance
Australia has a competition regime which is aimed at prohibiting anti-competitive trade practices and protecting consumers. It includes rules on when a proposed acquisition needs clearance from the Australian Competition and Consumer Commission.
An overview of the regime is available on Allens' website.
Truth in takeovers policy
A feature unique to the Australian takeovers market is ASIC's 'truth in takeovers' policy. The policy is that where a market participant makes a public statement (known as a 'last and final statement') in the course of a takeover bid that they will or will not do something in relation to the bid, ASIC expects that the market participant will adhere to that statement unless they have clearly and expressly qualified it at the time of making it.[1] The Takeovers Panel generally expects likewise, although in practice it may grant alternative remedies to requiring strict adherence to a last and final statement (see below). A common example of a last and final statement is a statement by a takeover bidder that it will not increase its offer price or will not extend its bid. The policy only refers expressly to takeover bids, but ASIC and the Takeovers Panel regard it as extending to schemes of arrangement.
The truth in takeovers policy is unique because it is not founded on any specific rule that persons are bound by their public statements. Rather, the regulators consider that a person's departure from a last and final statement could be in breach of the misleading or deceptive conduct provisions of the Corporations Act. The rationale is that buyers and sellers of securities are entitled to rely on unqualified statements that a bidder, target or major shareholder will do or not do something in relation to the bid, and should not be exposed to loss if that party subsequently acts contrary to the statement. For example, if a bidder makes a statement that it will not increase its offer price and subsequently departs from that statement by announcing an increased offer price, a shareholder who has sold on-market following the statement will have missed the opportunity to participate in the increase. Likewise, if a bidder makes a statement that it will not extend its bid and subsequently does so, a shareholder who has sold on-market may on the basis of the statement may lose the opportunity of an increased offer during the extended period.
The Takeovers Panel has shown a readiness to 'enforce' the policy and make declarations of unacceptable circumstances where a bidder has departed from a last and final statement. In particular, the Panel has in two cases declared unacceptable circumstances where a bidder has publicly stated that it would not increase its offer price but subsequently did so. In both cases, the Panel allowed the increased bid to proceed but ordered the bidder to compensate certain shareholders who traded in shares following the last and final statements. The Panel's decisions in those cases reflect a tension between upholding the truth in takeovers policy and ensuring that shareholders are not deprived of the best possible price for their shares.
The forum in which a last and final statement is made does not matter. An off-the-cuff comment by the CEO of a bidder to a journalist which is then published in a newspaper can attract the policy as much as a statement in an ASX announcement. Therefore, bidders, targets, major shareholders and other persons who play a significant role in a takeover proposal need to be careful in the public statements they make, and should seek legal advice before making any last and final statements.
Defensive tactics
Many ASX-listed Australian companies have employee incentive plans which involve the granting of share options or rights to executives. A person seeking to acquire ownership of all of a company's shares should make arrangements to acquire, or have cancelled, any options, rights and other securities convertible into shares. This is to avoid the highly undesirable situation where a bidder has acquired 100% of the company's shares but there remain options or rights on issue which, if exercised, would result in the issue of shares to the options or rights holders and the bidder ceasing to own 100% of the company. This is an issue because in that situation the company's directors would need to take into the account the interests of the minority shareholders, and the company would be subject to the related party transactions restrictions in the Corporations Act. Furthermore, the exercise of the options or rights may, depending on the circumstances, cause the target to exit the bidder's Australian tax consolidated group.
The common methods for acquiring or cancelling options and rights (and other convertible securities) are as follows:
- if the control transaction proceeds via a takeover bid:
- the bidder making a simultaneous takeover bid for each class of convertible securities; or
- the bidder entering into contractual arrangements with each convertible securityholder and the target under which the convertible securities are to be transferred to the bidder or cancelled if the bidder obtains a relevant interest in more than 50% of the target's shares and the bid is unconditional; and
- if the control transaction proceeds via a scheme of arrangement:
- the bidder proposing a simultaneous scheme of arrangement for each class of convertible securities; or
- the bidder entering into contractual arrangements with each convertible securityholder and the target under which the convertible securities are to be transferred to the bidder or cancelled if the scheme becomes effective.
To avoid any collateral benefit or unequal treatment issues, the consideration provided for the acquisition or cancellation of convertible securities should be no greater than market value. For this purpose it is usual to undertake a Black-Scholes or other valuation of the convertible securities.
An alternative method of eliminating convertible securities is to compulsorily acquire them. In general terms, a person can compulsorily acquire a company's convertible securities if the person's voting power in the company is at least 90% and the person beneficially owns at least 90% by value of all the shares and convertible securities in the company. The consideration payable is normally the fair market value of the convertible securities.
Footnote
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Statements of intention (eg. that a shareholder will accept a takeover bid) can lead to a Takeovers Panel declaration of unacceptable circumstances for reasons independent of whether the statement is adhered to.