Australia: Panel Pushes Back On Implementation Agreements

Corporate Insights

Key Points:

Fiduciary-outs should not be so restrictively drafted that they unreasonably prevent target directors from responding to approaches that could reasonably be expected to lead to a superior competing proposal.

It's not back to the drawing board, but bidders and targets may have to be a bit more circumspect when drafting merger implementation agreements.

The Takeovers Panel decision in Ross Human Directions clearly illustrates that the negotiation of a MIA is a three-sided contest. Those three sides are the bidder, the target directors - and potential rival bidders.

The Panel's concern is that the target board should perform the difficult balancing act of giving the bidder sufficient certainty to commit to a bid without completely or unreasonably shutting the door to potential rival bids. It is from that perspective that it recently examined the lock-up provisions negotiated between Ross Human Directions and bidder Peoplebank.

Directors' room for manoeuvre

In any MIA, the target's no talk, no due diligence and other exclusivity restrictions (except for the no shop) will be subject to a fiduciary-out clause, allowing the target directors to respond to or accept a superior rival proposal where required by their fiduciary duties.

Bidders always try to ensure that fiduciary-outs are drafted as tightly as possible.

The Ross case shows that a fiduciary-out should not be so tightly drafted that it is almost a dead letter.

The MIA contained no-talk and no-due diligence provisions which nevertheless allowed Ross's directors to respond to an approach which they had determined to be a "superior" competing proposal. A "superior" competing proposal was defined as one which:

"(a) is capable of being valued and completed, taking into account all aspects of the Competing Proposal, including its conditions precedent; and

(b) would, if completed substantially in accordance with its terms, be more favourable to Shareholders (as a whole) than the Scheme, taking into account all the terms and conditions of the Competing Proposal and all aspects of the Scheme."

According to the Panel, this effectively made the fiduciary-out a contradiction in terms. Target directors could not engage with a potential rival bidder until they had determined that the rival proposal was superior, taking into account all the terms and conditions of the rival proposal. However, unless they spoke to the potential rival bidder (and possibly granted due diligence), the rival proposal might never get to the point of containing terms and conditions that the target directors could evaluate.

The Panel's solution was to amend the no-talk and no due diligence clauses so that the fiduciary-out operated where there was a superior rival proposal or a proposal which "may reasonably be expected to lead to" a superior proposal. This form of drafting has become relatively standard in recent times. However, the decision reinforces the importance of ensuring that these types of provisions are carefully drafted so as to operate properly in practice and avoid unnecessary trips to the Panel.


Another common device for tightening up fiduciary-outs is to require the board to obtain independent advice before deciding whether it should change its stance on an agreed merger.

The Panel had a number of concerns about the advice requirements to which the Ross directors were subject:

  • it was concerned that a requirement to obtain financial advice on a rival proposal should not supplant the directors' ability to determine whether it was superior;
  • once the directors had obtained legal advice on whether it would be a breach of their duties to reject a rival proposal, it was inappropriate to impose an additional requirement that they should act in what they "reasonably considered" to be their duty;
  • there appeared to be little point in requiring the target directors to obtain financial advice that a rival proposal was superior and legal advice that it would be a breach of duty not to respond to such a proposal.

The Panel ultimately decided that the fiduciary-out could remain subject to both a requirement that the proposal be determined to be superior and that, having taken legal advice, not responding would be a breach of the directors' fiduciary duties. Many targets would argue that they should only need to determine that it would otherwise be a breach of the directors' fiduciary duties without the additional requirement that the proposal is superior. Market practice appears to adopt this approach, although the Panel saw no problem with the dual requirement, presumably because if one is satisfied, the other will ordinarily also be satisfied as a matter of course.

Confidentiality and standstill requirements

Before granting due diligence to a potential rival bidder, the MIA required the target directors to extract confidentiality and standstill agreements from that rival. These had to include all the material terms in the confidentiality deed already agreed between Peoplebank and Ross.

One problem, as the Panel pointed out, was that that confidentiality deed had not been made public. Potential rival bidders might not be willing to declare themselves if they had no idea what they would be required to sign up to.

The Panel did agree with Peoplebank that a target's ability to insist on standstill arrangements with individual bidders shouldn't be used to produce an unlevel playing field between bidders. However, it didn't follow that the first bidder at the table should have the ability to determine what that level was. There was no reason, in the Panel's view, why standstill arrangements with the first bidder shouldn't be able to be scaled back to match those agreed with subsequent bidders.

Notification obligations and matching rights

As usual, the MIA required Ross to notify Peoplebank of any rival approaches, and to allow Peoplebank the right to produce a matching offer.

The Panel was concerned about the duration of the matching rights, for two reasons.

The first was that the matching rights were open for five clear business days. The Panel noted that, when they originally appeared in Australian M&A, matching rights tended to be no longer than three days. However, five days (and sometimes longer) has increasingly become common.

The Panel didn't want to prescribe any particular time period for matching rights, but did issue a warning that "any material extension of these periods is likely to be unacceptable, because of the effect that the provision has on the willingness of a third party to put forward a competing proposal".

In the case of Ross and Peoplebank, it was prepared to accept five business days, because Peoplebank's major shareholders were overseas and it was claimed that they would therefore need five days to respond to a competing proposal.

A related concern flagged by the Panel was that the five day clock would restart each time the competing proposal changed, whether or not the change was material. It did not develop its concerns on this point, because the parties reduced the five day refresh period to three days.

The actual notification obligations required Ross to give Peoplebank "any information provided to any person associated with the Competing Proposal that has not been disclosed previously to Peoplebank". The Panel believed that this obligation should be restricted to material confidential information concerning Ross's operations.

The auction issue, again

One of the perennial questions in Australian M&A is the extent to which target directors are subject to a duty to get the best price possible for their company (sometimes referred to as the Revlon duty, after a leading US case).

Before the Panel in this case, it was argued that Ross should not have entered into no-talk and no due diligence agreements with Peoplebank without first having tested the market via a public auction process.

The Panel rejected this argument, on the grounds of business practicalities:

"[T]here is no requirement that a target company must undertake a public sale process prior to entry into an implementation agreement containing such arrangements. We note that there may be many reasons why a target board seeking to obtain a control transaction for the benefit of shareholders does not wish to publicly put itself up for sale, including the impact of such a move on its relationships with its suppliers, customers and employees."


This decision doesn't mark a major departure from the Panel's policy.

Nevertheless, it does show that the Panel refuses to view takeover regulation as a matter of "set & forget". The negotiation of MIAs is constantly evolving, and the Panel has demonstrated a clear willingness to adopt and adapt its underlying principles to that changing reality.

It would be useful, of course, if the Panel were willing to draw clear lines in the sand (eg. setting a fixed maximum period for matching rights). That is not, however, how the Panel works: it is very aware that fixed policy prescriptions introduce rigidities that both hamper genuine commercial negotiations and divert resources into overly-technical drafting.

What emerges from this decision, therefore, is that, at the end of the day, the parties negotiating an MIA must test their draft agreement not only against their commercial objectives, but against the "efficient, competitive and informed market" principle that drives the Panel's decisions.

With that in mind, some of the specific issues which arise from this decision and which should now be taken on board are:

  • fiduciary-outs should not be so restrictively drafted that they unreasonably prevent target directors from responding to approaches that could reasonably be expected to lead to a superior competing proposal;
  • the material terms of confidentiality agreements between the bidder and the target may need to be disclosed before the bidder can insist that the target should impose them on other potential bidders and, even then, the bidder may not be able to insist that those terms be imposed, having to instead insist that its own terms be scaled back if less onerous terms are agreed with a rival bidder;
  • matching right periods beyond three days may need special justification;
  • notification requirements should not require the disclosure of information about the rival proposal that would deter a rival from approaching the target board.

An interesting matter which the Panel referred to in passing at the end of its statement of reasons was the extent of Ross's financial liability for any breach of the MIA:

"One issue which we did consider in determining the anti-competitive effect of the various deal protection measures, including the no-shop, no-talk and no-due diligence restrictions, is that under the SIA, RHD's sole liability for breach of the agreement is for payment of the break fee of $500,000. We clarified with the parties that this was the intention of clause 11.1(d) of the SIA, and Peoplebank and RHD agreed to make certain amendments to the drafting to put this beyond doubt."

The issue of the full extent of the target's liability for breaching an MIA is one which has not yet been fully explored by the Panel. This type of liability cap is becoming increasingly common in MIAs. However, it is not clear what the Panel's concern is in this regard. We would have thought that, provided the exclusivity provisions are appropriately drafted so as to not unreasonably deter competing bids and do not otherwise offend the "efficient, competitive and informed market" principle (which the Panel took great care in this decision to ensure), the bidder should be entitled to be fully compensated for any breach of those provisions by the target. Whether or not the liability cap should apply is simply a matter for commercial agreement.

We would be concerned if the Panel were to insist that such a liability cap apply in all cases given that there does not appear to be any basis for such a policy. As a commercial matter, a bidder may well be reluctant to agree to such a cap in circumstances where, as is usually the case, the bidder is completely exposed for all losses incurred as a result of a breach of an MIA by the bidder. This inequality is even greater where the target seeks to extend the bidder's liability under the MIA to losses suffered by target shareholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions