Australia: New Takeovers Regulatory Guides from ASIC

Last Updated: 1 August 2013
Article by Darren Pereira and Michael MacMahon

Most Read Contributor in Australia, July 2017

The Australian Securities and Investments Commission (ASIC) has recently finalised its guidance on numerous aspects of takeover bids, substantial holdings in public companies and compulsory acquisitions.

The new Regulatory Guides are effective immediately, and follow a consultation process that began in November 2012 (please click here for a copy of our article on the Consultation Paper issued by ASIC). In the table below we set out some of the key changes in the final Regulatory Guides compared to the Consultation Paper.

Item Change Considerations
Underwriting

The underwriting exception to the 20% takeovers prohibition in Australia has never been far from the spotlight since the global financial crisis started in 2008. ASIC's new Regulatory Guides now provide that ASIC does not consider the following to be "underwriting" arrangements which would fall within the exception:

  • those that include terms that provide underwriters with the "effective control" to terminate the underwriting arrangements; or
  • those that permit an underwriter to terminate on the basis of an event that is certain, or near certain, to occur (e.g. a token fall in a market index).

ASIC has also stated that they do not consider that an underwriter has a termination right within their "effective control" solely because under the terms of the arrangement the underwriter is able to terminate on the basis of their reasonable and bona fide view of the materiality or effect of an event over which they do not have effective control.

Underwriters will need to ensure that underwriting arrangements contain a general assumption of risk to take-up a shortfall. If this proves not to be the case, the underwriter will not be able to rely on the relevant exceptions to the 20% prohibition.
Joint Bids

ASIC has broadened its policy on joint bids, which we discussed in detail in our previous article. A joint bid or scheme involves two or more parties agreeing to seek control of a target by a joint takeover bid or joint scheme of arrangement.

If the joint bidders together have greater than 20% voting power in the target ASIC relief will be necessary or the joint bidders will need to rely on section 609(7) of the Corporations Act 2001 to obtain shareholder approval for the joint bid arrangement. ASIC has indicated that reliance on section 609(7) rather than case-by-case ASIC relief may risk an application by ASIC to the Takeovers Panel. This may occur if ASIC considers that the joint bidders did so to avoid ASIC's usual conditions of relief.

Further, ASIC has also indicated that it will consider applications to extend the 3 month period in which joint bidders must obtain shareholder approval under section 609(7), however, it will apply the same considerations and conditions as if it were considering relief for arrangements that are not subject to shareholder approval (i.e. the alternative to section 609(7)). Relief is often sought by joint bidders proceeding by way of scheme of arrangement to address timing difficulties associated with putting the item 7 (shareholder approval) resolution to shareholders at the same time as the scheme proposal.

Joint bidders will need to carefully consider the structure and purpose of their arrangements. Given ASIC's position on section 609(7) it is possible that there will be a decrease in the number of joint bids structured in reliance on that section.
Acceptance Facilities ASIC has changed its view regarding when an acceptance facility can only be offered to institutional, and not all, shareholders. ASIC has moved away from the position which provided that institutions accepting into the facility confirm that their investment mandate prevents acceptance into a conditional bid. ASIC's position now is that an acceptance facility for an unconditional bid must be open to all shareholders. In other words, while the bid is conditional the facility can be limited to institutional shareholders. This means that acceptance facilities can be used for all institutions (not just those with the restriction on acceptance under their mandate) but the facility can only remain open to institutions only while the bid is conditional.
Financiers exercising security interests Currently, a financier which has a security interest over a substantial holding in securities is exempt from the 20% prohibition if the security interest is taken in the ordinary course of business. ASIC has revised its guidance as to when it will argue that the exception will not apply. This will include if the financier acquires the security interest partly for the purpose of influencing the disposal of the securities or in connection with a proposal to acquire control or a substantial interest in the issuer. Financiers seeking to rely on this exception will need to ensure that their purpose for taking the security interest is consistent with ASIC's revised guidance.
Collateral benefits The prohibition on a bidder providing a collateral benefit prevents benefits to one shareholder that are not offered to all which would be "likely to induce" that person to accept the bid or dispose of their securities. ASIC has reaffirmed that it will adopt the wider 'inducement' test, and consider various factors which we discussed in our previous article on the Consultation Paper. ASIC has also confirmed that a benefit given on arm's length terms could fall foul of the test. While ASIC guidance on the key factors it will consider is welcome, the Takeovers Panel may now need to reconsider its position in Guidance Note 21 which adopts a narrower "net benefits" test.

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.

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