Australia's takeover laws and regulations limit aggressive defensive tactics commonly seen in other jurisdictions. ASX-listed companies also face additional restrictions during control transactions. However, Australian takeover targets are not without defences and strategic and advanced planning is essential to resist undervalued bids and maximize value.
The immediate response steps upon receipt of an approach and will be detailed in the Target’s Defence Manual (refer to Part 1 of this series), however it will broadly consist of a telephone or email cascade from the Chair through to the CEO / MD who contacts advisers to determine the next steps.
This article is Part 3 in HopgoodGanim Lawyer’s Australian Takeover Defence Series, where we discuss the requirements in responding to the approach made by potential acquirers.
Is disclosure required?
Assuming that the initial approach has been by way of delivery of a non-binding indicative proposal (NBIO), a key question faced by the Target is whether disclosure to the ASX (and any other market on which the company’s securities may be listed) is required.
In our experience, an NBIO will usually state that, subject to the Target board recommending the proposal and satisfactory due diligence and other conditions, the bidder is willing to acquire the Target. The NBIO will similarly almost always be expressed to be conditional and confidential, such that if it is disclosed, the bidder reserves the right to withdraw the proposal. As such, an NBIO will usually be able to be categorised by the Target as constituting a “confidential and incomplete proposal”.
The continuous disclosure rules of the ASX (Listing Rule 3.1) contain a carve out (Listing Rule 3.1A) such that information which is otherwise material and/or price sensitive is not required to be disclosed provided that:
- the information concerns an incomplete proposal or negotiation;
- the information is confidential (and ASX have not formed the view that the information has ceased to be confidential); and
- a reasonable person would not expect the information to be disclosed.
ASX guidance provides specific examples of disclosure in the context of takeover situations, including, relevantly, receipt of an NBIO which is expressed to constitute an incomplete and confidential proposal. ASX expressly notes that they do not consider that a reasonable person would expect disclosure of such information, as it would make it impossible for entities to have confidential negotiations about a potential control transaction (which would in turn have a chilling effect on the market for corporate control).
Accordingly, in the absence of any other factors and assuming that confidentiality is not lost through a media leak or speculation, disclosure will not normally be required on receipt of an NBIO.
What about if there is a media leak or speculation in the press about the NBIO?
A key requirement for a Target not being required to disclose an NBIO is that it remains confidential. Accordingly, if confidentiality is lost due to a “leak” or considerable media speculation, the Target must make immediate appropriate disclosure.
Given the Target will often be reacting to a media article on very short notice, a brief trading halt to review and assess the information may also be considered as an initial immediate step ahead of more fulsome disclosure.
Reject or ignore the approach
Broadly speaking, there are two alternative courses of action for the Target board to take, and the relevant considerations in following either path can only be discussed in broad terms, as they will be highly dependent on the particular circumstances of the approach and the Target’s response.
A decision to reject or ignore an approach should only be made after taking into account the statutory and fiduciary duties of the directors. Assuming however that after taking appropriate advice and due to the nature of the offer (i.e. it is clearly inadequate and not in shareholders’ best interests) the board resolves to reject the approach, a key question is whether or not disclosure of the subsequent rejection is required.
In this regard, ASX guidance provides specific examples of disclosure in the context of takeover situations, including, relevantly, rejection of an NBIO. ASX expressly notes that they do not consider that disclosure of such information is required provided that confidentiality is maintained.
ASX notes that even though disclosure would not normally be required under Listing Rule 3.1, there would be nothing stopping an entity from voluntarily disclosing information about the offer and its rejection for its own corporate purposes (that is, because it wanted to put itself “in play” and initiate an auction for control).
Putting to one side strategic considerations around disclosing the approach and the rejection, the board should nevertheless still consider whether from a market perception, perspective disclosure should still be made on the assumption that the approach (and rejection of the approach) may subsequently become public.
Continue discussions and engagement with the potential bidder
If a decision is made following an approach to continue discussions with the potential bidder and commence negotiations for an agreed transaction, there are a number of further issues (e.g. price and preferred transaction structure) which the directors of the Target should take into account during those negotiations.
Part 4 in our Series will examine the process for continued engagement and tactics that can be employed to seek to extract maximum value for the benefit of the Target and its shareholders as a whole.
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