Mergers & Acquisitions

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March 2018


Welcome to our monthly snapshot of regulatory updates and other developments in corporate law. We know you are busy, so our focus is on capturing key issues.

We'd love to hear from you. Please do let us know if you need more detail about an issue, or if there is something in particular you'd like to hear about, and feel free to call any of your Allens contacts.

What you need to know

ASIC: A new Australian Financial Complaints Authority and a look back at ASIC's focus areas in the second half of 2017
  • ASIC has welcomed the passage of legislation to establish the Australian Financial Complaints Authority (AFCA), which will act as the single independent scheme for the resolution of financial services and superannuation complaints. AFCA will be subject to ASIC oversight, and (with higher monetary limits and compensation caps) take on the roles of the three existing dispute resolution schemes: the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. ASIC will soon commence public consultations on managing the transition to the AFCA scheme and preparing appropriate updates to applicable regulatory guides, with AFCA to begin accepting complaints by 1 November 2018. The Federal Government has announced that Helen Coonan will serve as the inaugural Chair of AFCA. ASIC's approach to public consultations in the lead-up to implementation of the AFCA scheme will, no doubt, be closely monitored by superannuation and financial services providers through 2018.
  • ASIC released reports on the regulation of corporate finance issues and enforcement outcomes for July to December 2017: Report 567 – ASIC regulation of corporate finance: July to December 2017 and Report 568 – ASIC enforcement outcomes: July to December 2017.
    • Report 567 provides statistics, highlights ASIC focus areas, and includes guidance on ASIC's regulation of fundraising transactions, M&A, corporate governance issues, related party transactions and financial reporting in the second half of 2017. This report noted particular areas of concern for ASIC, including inadequate risk and business model disclosure in prospectuses, promotion of pending IPOs offending restrictions on advertising, increases in the use of lengthy technical reports with excessive detail and jargon, and inappropriate timetabling of scheme transactions where approvals and other conditions precedent have uncertain timing.
    • Report 568 details enforcement outcomes for the half year, and sets out ASIC's areas of focus for the first half of 2018, which will include a crackdown on undisclosed associations and related party transactions, tackling loan fraud and irresponsible lending, maintaining the integrity of financial benchmarks, and, in the context of market integrity, keeping watch on the potential for technology-enabled offending.

    Reports 567 and 568 provide a useful insight into areas of acute concern for ASIC. Practitioners and corporates can expect the corporate regulator to demonstrate continued focus on these areas in the first half of 2018.

  • ASIC launched a new section on its website to assist financial advisers navigate incoming professional standards requirements introduced by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Cth). This online resource will be a useful tool for financial advisers in ensuring they comply with each new standard by the appropriate deadline.
  • ASIC has released Report 566 – Surveillance of credit rating agencies, which reports on governance (including conflict of interest) arrangements, transparency and disclosure arrangements, following market-wide surveillance of credit rating agencies operating in Australia. The report includes a number of recommendations for change around board reporting, compliance teams and testing, evaluation of ratings and human resources, which will be of interest to credit rating agencies operating in Australia.
ASX: Minimum issue price of securities under Listing Rule 7.1A

Under Listing Rule 7.1A, a listed company is able to seek shareholder approval at its AGM to boost its 15 per cent placement capacity by an additional 10 per cent for up to 12 months.

Shares issued under the additional 7.1A placement capacity are subject to a prescribed minimum issue price, which is equal to 75 per cent of the VWAP of those shares, calculated over the 15 trading days before:

  • the date on which the issue price is agreed; or
  • the date of issue, if shares are not issued within 10 trading days of the issue price being agreed.

In its latest compliance update, ASX has stated that it is alive to entities purporting to issue securities under a combination of their Listing Rule 7.1 and Listing Rule 7.1A placement capacities, and allocating a lower price to the former and a higher price to the latter, in an effort to appear compliant with the minimum pricing requirement under Listing Rule 7.1A.

ASX has noted that if the average price at which securities are being issued across both capacities is less than the minimum price required under Listing Rule 7.1A, ASX will regard that as contrary to the spirit and intent of the Listing Rules. In those circumstances, ASX is likely to direct the entity that it cannot rely on its Listing Rule 7.1A placement capacity.

FIRB: Chairman denies new approach to agricultural land and electricity assets is aimed at China

Practitioners are still digesting the impact of last month's announcements about its new approach to applications dealing with agricultural land and electricity assets.

Meanwhile, in an interview with The Australian, FIRB chairman David Irvine has responded to suggestions that the new restrictions were a move against growing Chinese geopolitical strength, arguing that FIRB policy remains 'deliberately non-discriminatory'. Irvine added: 'I don't believe [FIRB's] attitude towards investment from China has changed.'

ACCC: A quiet month for merger matters

February was a quieter month for ACCC merger assessments. The ACCC announced a review into the potential acquisition of various Westconnex toll road assets by a Transurban-led consortium. The ACCC's review comes amidst the NSW Government's competitive auction process for Westconnex.

In March, the ACCC issued a Statement of Issues regarding the proposed acquisition by Saputo of Murray Goulburn, the listed dairy company, with the ACCC noting its concern that the acquisition could have the effect of substantially lessening competition that exists in South West Victoria and South East South Australia for the acquisition of raw milk from dairy farmers. According to the ACCC, Saputo’s Allansford plant and Murray Goulburn’s Koroit plant would, following the merger, have over two thirds of the raw milk processing capacity in the south-west Victoria and south-east South Australia. The ACCC did not raise competition concerns regarding other regions.

Takeovers Panel: Increased public M&A activity

The recent surge in public M&A has been accompanied by an increase in applications to the Takeovers Panel, which released a number of decisions in February, including in relation to Strategic Minerals Corporation NL, Quantum Graphite Limited (subject to Deed of Company Arrangement), and AWE Limited.

Key takeaways from the Panel in February include:

  • Strategic Minerals: The Panel confirmed, unsurprisingly, that it expects companies to ensure that all directors are involved in the review and consideration of announcements relating to significant transactions such as equity placements. See the decision regarding QGold Pty Ltd's bid for Strategic Minerals Corporation NL for further details.
  • Quantum Graphite: The Panel highlighted that there is no exception from the requirements of Chapter 6 of the Corporations Act 2001 (Cth) for companies subject to deeds of company arrangement. See the full decision for further detail.
  • AWE Limited: The Panel declined to conduct proceedings in relation to defective disclosures in the bidder's statement lodged by CERCG Aus Gas Pty Ltd, in light of CERCG undertaking to provide corrective disclosure. CERCG has since withdrawn its $0.73 offer, which is significantly below the AWE-board recommended all-cash offer from Mitsui of $0.95 per share.
Employment: Gig workers – employees or contractors?

The Fair Work Commission and Fair Work Ombudsman have recently confirmed that they will continue to apply the traditional legal tests when determining whether gig workers are employees. These traditional tests consider a variety of factors, including whether the worker is running their own business and the level of control that they have over the work that they do. However, both the Commission and Ombudsman have also acknowledged that these tests may be outdated, with the Ombudsman observing that the traditional tests do not adequately take into account whether gig workers have any realistic avenues for alternate work.

Food delivery platform Deliveroo recently made submissions to the Senate's Select Committee on the Future of Work and Workers that legislative reform is needed to provide an innovative form of protection for gig workers that strikes a balance between maintaining a gig worker's desire for flexible work, while also providing security through increased benefits. Deliveroo suggested that gig workers could accrue social benefits based on successful deliveries or positive customer ratings, as opposed to the traditional measure of ordinary hours of work. The Senate's Select Committee is to report on the issue on or before 21 June 2018.

Other developments

Takeovers Panel Consultation Paper in relation to Rights Issues

The Takeovers Panel has released a consultation paper on its proposed amendments to Guidance Note 17 Rights Issues. Comments are due by Friday 6 April 2017. The proposed changes relate to mitigation of potential control effects, and additional guidance in relation to shortfall facilities. The updated Guidance Note also clarifies that a rights issue will generally not be unacceptable if there is a clear need for funds, provided that an appropriate dispersion strategy has been put in place.

US tariffs on steel and aluminium imports

The US Government's announcement of a proposal to impose a 25 per cent tariff on steel imports and a 10 per cent tariff on aluminium imports has drawn fierce responses around the world, with the EU, Canada and China all threatening retaliatory measures. The risk of a transatlantic trade war has contributed to ongoing volatility in global markets. President Trump has until April to make a final decision. The impact on Australian companies – which export about $270 million worth of steel and $275 million of aluminium to the US each year – including the availability of any exemptions, remains to be seen.

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