Article by Rebecca Maslen-Stannage and Nicola Yeomans
The Takeovers Panel's (Panel) recent decision in Skywest Limited 03 is a display of the Panel's willingness to block bids where 'unacceptable circumstances' cannot be adequately remedied.
The unacceptable circumstances arose because the CFO of the target (Skywest) had secretly communicated non-public profit forecasts and other price-related information to the bidder, CaptiveVision Capital Limted (CVC). This important information was not disclosed to counter-parties to CVC's pre-bid acquisitions and was omitted from the bidder's statement.
Bidder's Co-Operation Allows Alternative Panel Orders
In the initial proceedings, CVC declined an invitation from the Panel to confirm to Skywest and the Panel precisely what information it had received from Skywest's CFO. As a result of this obstructionist stance, the Panel was not able to determine the scope of the information being withheld from Skywest shareholders. The original Panel concluded that it was not in a position to make an order requiring supplementary disclosure to allow the bid to proceed.
CVC was far more cooperative in its application for review of the Panel's blocking decision.
CVC volunteered and arranged an independent forensic analysis of computer hard drives. CVC also signed statements acknowledging the consequences of providing false or misleading evidence to the Review Panel. The new information offered by CVC allowed the Review Panel to assess the information secretly conveyed by the CFO to CVC. In addition, the passage of time and events since the original Panel decision had the effect that the information conveyed to CVC was likely to have become 'stale'. In this regard, the Review Panel was comforted by Skywest's disclosure of significant further information about its performance and prospects.
The Review Panel agreed with the original Panel's order that all shareholders who sold shares to CVC while it was in possession of the undisclosed information could rescind that sale or withdraw their acceptance of the bid. The costs orders made against CVC by the original Panel were also maintained on the basis of CVC's 'completely inappropriate course of behaviour'.
To allow the bid to proceed, the Review Panel also ordered that the bidder's statement be amended to include details of the information that CVC had failed to originally disclose and the nature and extent of the relationship between CVC and Skywest's CFO. Skywest was also ordered to issue a supplementary target statement indicating its profit expectations for the upcoming financial year as well as the present status of the company's IPO proposal.
Implications Of The Decision
The Review Panel will consider referring aspects of the Skywest proceedings to ASIC. This illustrates the role that the Panel plays in relation to control transactions: the role of the Panel is not a punitive one. It is for other regulatory bodies to consider and determine whether or not any punishment should be imposed. Of course, the efficacy of this system in deterring future breaches will depend on the ability—and willingness—of the appropriate regulatory agencies to undertake investigation and prosecution in appropriate cases.
Also implicit in the Review Panel's decision is the view that Panel orders should strike a balance between giving target shareholders the opportunity to consider a bid while protecting the interests of those affected by the unacceptable circumstances. The Skywest decisions send a clear message that parties before the Panel should cooperate immediately to remedy unacceptance circumstances or risk a Panel order blocking the bid.
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