Australia: Takeovers Panel clarifies guidance for target boards on when frustrating actions will not be unacceptable

Proposed changes to guidance to clarify target boards' scope to undertake frustrating actions are helpful and should help them manage their business when they are subject to a bid, actual or potential.

The Takeovers Panel released on 14 September 2016 a consultation paper on proposed changes to its Guidance Note 12 which deals with "frustrating actions".

A "frustrating action" is defined by the Panel as an action by a target, whether taken or proposed, in the context of a control transaction, by reason of which:

  • a takeover bid may be withdrawn or lapse; or
  • a potential takeover bid is not proceeded with.

The Guidance Note explains the Panel's policy on when a frustrating action will be unacceptable because it will interfere with the reasonable and equal opportunity of shareholders to participate in control transactions or inhibit the acquisition of control in an efficient, competitive and informed market.

As the Panel has explained previously, the policy is in simple terms about ensuring that actions by target boards do not prevent a control transaction from proceeding at a time when the decision about control should properly be taken by shareholders rather than directors.

However, the Panel does recognise that it is important to balance this policy objective, on the one hand, with permitting, on the other, the proper conduct of the target's business to continue.

Clearer guidance on when a frustrating action will not be unacceptable

The Panel states in the Consultation Paper that a number of market participants have said the existing Guidance Note does not provide clear guidance as to when a frustrating action is unlikely to be acceptable with the result that the policy has the potential effect of unduly restricting a target from carrying on its business during a bid.

In the existing Guidance Note, there are few circumstances in which the Panel clearly says that a target is likely to be able to proceed with a frustrating action, and the only one likely to be applicable in most cases, is offering shareholders a choice between the action and the bid, whether by seeking shareholder approval or otherwise.

The Panel has therefore proposed changes in the Revised Guidance Note to more clearly set out the circumstances in which the Panel considers unacceptable circumstances will not arise. Many of these circumstances were already referred to in the previous guidance as factors which the Panel would take into account in deciding whether unacceptable circumstances exist. The Panel now more clearly identifies those which it says "in general" are "unlikely to give rise to unacceptable circumstances".

At the same time, the Panel still clearly states that the circumstances which are listed are "non-exhaustive", so that it retains the flexibility to consider each new circumstance in its own context.

Introduction of new concept of "genuine opportunity to dispose of shares"

In restructuring the relevant factors, the Panel has introduced a new test, which is whether or not "the bid gives shareholders a genuine opportunity to dispose of their shares".

The Panel lists a range of circumstances in which it says the bid will not provide shareholders with a "genuine opportunity" and therefore a frustrating action will not give rise to unacceptable circumstances.

It says that a bid will not provide a "genuine opportunity" where:

  • due to condition, or some other structural feature, the takeover bid cannot be implemented or completed – this factor picks up on guidance previously provided in the context of Mariner's takeover bid for Austock Group, where the Panel found that the bid could not be frustrated because it was not properly funded and therefore not capable of implementation;
  • there are reasonable grounds to expect it will not be successful – the Panel emphasises that it will require strong evidence before reaching this conclusion such as very few acceptances being received after the bid has been open for a long time or there being a superior proposal which is likely to be implemented instead;
  • the bid is dependent on target directors recommending it – the Panel states more strongly its previously stated position that the policy cannot apply to schemes of arrangement (but leaves the door open for potential scheme proposals that refer to an alternative takeover to be frustrated) and extends this policy by stating that, for the same reason, takeover bids which are conditional on a board recommendation cannot be frustrated.
    The Panel goes on to say that a target would be required to afford the bidder a reasonable opportunity to waive an offending condition (or presumably also revise the terms of the offer if possible) to ensure the bid does provide a genuine opportunity before proceeding with the frustrating action.

"Otherwise unreasonable" for frustrating action to be unacceptable

The Panel explains that even where a bid provides a genuine opportunity, it may still be "otherwise unreasonable" for the frustrating action to be unacceptable.

These circumstances tend to focus on the nature of the target's position and the bid conditions. The particular circumstances listed by the Panel as being unlikely to be unacceptable are largely the same as those already referred to in the previous guidance as relevant considerations and include where:

  • there is a legal imperative to undertake the action;
  • the frustrating action is announced before the bid or potential bid;
  • the frustrating action is required to avoid a materially adverse financial consequence such as insolvency;
  • it is unreasonable to rely upon the triggered condition; and
  • a bid condition has been triggered and the bidder has not disclosed whether it will waive within a reasonable time or otherwise varied the terms without waiving the breach.

No longer relevant that frustrating action may have materially positive impact on business

The previous Guidance Note stated that it would be relevant to consider "whether the frustrating action materially affects the financial or business position of the target".

The Panel now states it does not consider it relevant that the action may in the view of the target board produce a materially favourable result for shareholders. The previous references to this consideration have been deleted. However, the Panel has continued to say that a frustrating action will not be unacceptable in the more extreme case where it is "required to avoid a materially adverse financial consequence" such as insolvency.

We think that this is a sensible change as a target board would be expected to have already formed the view in any example of frustrating action that it will be materially positive for the target in order to comply with their directors' duties. To make this a relevant consideration would only lead to a comparison of the relative merits of the action and the bid in deciding whether the policy should apply which is exactly the sort of decision which the policy is intended to put in the hands of shareholder (rather than the Panel).

Bidder required to waive conditions where shareholder vote rejected

Finally, the Panel has clarified that, where the target seeks approval before implementing a frustrating action, and shareholders reject the frustrating action, the bidder should be required to waive the triggered condition and/or other conditions to ensure the bid remains a "viable option for shareholders".

We think this is sensible to the extent that the Panel is suggesting only that the conditions are waived in relation to the frustrating action and only to the extent that it does not proceed (as a result of the vote not being approved). The Panel may wish to clarify this in the Revised Guidance Note.

Overall, changes provide welcome clarity

As an overall comment, our view is that the changes to clarify the scope which target boards have to undertake frustrating actions are helpful and should assist targets manage their business during what can often be relatively extended periods for which they are subject to a bid (or potential bid). However, we think it is important that the Panel continues to have the flexibility to consider each case in the context of its individual circumstances as these will vary greatly and often be very difficult to predict.

The Panel is inviting submissions until 24 October 2016.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
DLA Piper Australia
 
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 Topics
 
Similar Articles
Relevancy Powered by MondaqAI
DLA Piper Australia
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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