One constant issue facing bidders is how to legitimately apply pressure on shareholders to accept a bid before control has passed. Shareholders are increasingly reluctant to accept any bid, even if it is unconditional, before control passes as there is a danger that they may be giving up some further potential profit on their holding if a rival bid emerged or if the bidder felt compelled to increase the bid to achieve the acceptances.
In three takeover bids this year, bidders have adopted the technique of announcing that they will not extend their bid past the scheduled closing date, but noting that, if they pass the 50 per cent threshold during the last seven days of the bid, the bid is automatically extended under the Corporations Act for a further 14 day period. As a further incentive, if the bid is conditional, the bidders have also announced that, upon reaching 50 per cent, they would declare their bids unconditional.
This technique allows some pressure to be applied, but does so in a way that is consistent with the legislation and which still provides some limited flexibility for the bidder.
The technique has been used in the following takeover offers:
Patricks’ bid for Virgin Blue, where Patricks adopted the technique when it held 49 per cent of shares in the target and the bid was unconditional.
BHP Billiton’s bid for WMC Resources, where BHP Billiton held 4.5 per cent of the capital and its bid remained conditional.
OT Holdings’ bid for Open Telecommunications, where OT Holdings held approximately 42 per cent of shares in the target and its bid remained conditional.
The technique proved successful in all of the bids with the additional pressure on shareholders causing them to accept the bid before the deadline.
The technique also puts pressure on any rival bidder to emerge. Under the legislation, if a rival bid emerges during the period, the original bidder is able to extend its offer, even if the offer is conditional (something that otherwise is not permitted during the last seven days of a conditional bid). In BHP Billiton’s bid for WMC Resources, this ability was specifically alluded to in the announcement, though the exact details were not spelt out (the announcement merely referred to the ‘limited circumstances’ in which they could extend under the legislation). In the other two bids, the bids for Virgin Blue and Open Telecommunications, this possibility was not mentioned, presumably on the basis that the likelihood of a rival bid was considered low.
There may be an interesting question about whether a bidder could extend the bid if it did not specifically refer to that right if a rival bid emerged during the last seven days. The truth in takeovers policy may suggest that the bidder would be prevented from doing so. However, the point is not clear. It would be arguable that the bidder should be able to extend its offer so it could compete with the new bidder even if it had not specifically reserved that right in its announcement. That would arguably be consistent with the legislation and consistent with the Takeovers Panel’s decision in the ALH matter last year where Bruandwo was not held to specific announcements it had made due to a significant change in circumstance after its announcement. After all, the truth in takeovers policy has not often stood in the way of an auction developing.
A bidder using this technique should also ensure that it does not inadvertently rule out the ability to extend its offer a further time after the 14 day automatic extension. For this reason, the bidders in the above takeovers have adopted the neutral language of merely saying that they ‘have not’ extended their bids, rather than saying that they ‘will not extend’ or ‘will close’ their bids on the scheduled date. Any stronger formulations could encounter problems under the truth in takeover policy.
The content of this article is intended to provide a general guide
to the subject matter. Specialist advice should be sought about your
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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”
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).