The Takeovers Panel (Panel) has arguably extended its policy on
frustrating action with its decision in the matter of
MacarthurCook Limited  ATP 20. In that matter, the
Panel considered that aspects of a 'strategic alliance'
(whereby MacarthurCook Limited (MacarthurCook) placed 3.45 million
MacarthurCook shares with IOOF Holdings Limited (IOOF) at $1.15 per
share) gave rise to unacceptable circumstances.
In particular, despite the fact that MacarthurCook and IOOF had
been in discussions for some months before AMP Capital Investors
Limited (AMP) made a conditional, indicative, non-binding proposal
to make a takeover bid (AMP Proposal), the Panel considered the
placement (which had not been approved by MacarthurCook's
shareholders) constituted frustrating action with respect to the
Guidance Note 12 sets out the Panel's policy in this area.
It provides that where corporate action is likely to frustrate or
prevent a genuine potential offer, the Panel will generally require
shareholder approval for that transaction to be taken.
A genuine potential offer is an offer, the terms of which are
communicated to target directors publicly or privately by a genuine
bidder but is not yet a formal offer under Chapter 6 of the
Of particular concern to the Panel in the context of the
strategic alliance was that:
The placement gave IOOF approximately 12.98% (fully diluted) of
MacarthurCook, making a full takeover impossible without IOOF's
IOOF could not dispose of the shares under the placement for 24
months (except where a takeover or scheme of arrangement was
recommended by the MacarthurCook board or a third party acquired
more than 50% of the voting rights in MacarthurCook).
The placement expanded the capital base of MacarthurCook (at a
substantial discount to AMP's proposed offer price of $1.35),
making the total consideration required to succeed in a takeover
greater than before the placement.
Collectively, these aspects of the strategic alliance
constituted frustrating action. Accordingly, the Panel ordered that
MacarthurCook seek shareholder approval and, in the absence of such
approval, cancellation of the placement agreements and the issued
Some commentators have suggested that the Panel's decision
extends the operation of the frustrating action concept, and
provides a bidder with the ability to constrain a possible target
from undertaking material transactions where the bidder has no
obligation to make a bid for the target.
While time will tell whether the use of non-binding, indicative
proposals by a prospective bidder to 'tie up' a target and
prevent it from pursuing material transactions become commonplace,
the premise underlying the Panel's policy remains unchanged:
decisions about control and ownership of a company should properly
be the preserve of the shareholders. Accordingly, directors of a
target should proceed with caution when considering action that has
the potential to frustrate an offer.
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