All questions

Acquisitions of public companies

The Australian corporations legislation (the Corporations Act) limits the manner in which a person can acquire voting securities in a listed Australian company or managed investment scheme, or an unlisted Australian company or managed investment scheme with more than 50 members, where this would cause that person's (or someone else's) voting power in the relevant entity to increase above 20 per cent or to increase (by any amount) from a starting point between 20 per cent and 90 per cent. There are two principal methods of acquiring control of an Australian publicly listed company or managed investment scheme: takeover bids or schemes of arrangement.

While there is no strict legal requirement for 'certain funds' financing, from a practical perspective, and owing to the increasing sophistication of both borrowers and lenders, financiers' commitments to fund are often provided on this basis (and indeed, this is desirable from an acquirer's perspective).

i Takeover bids

Chapter 6 of the Corporations Act provides the framework for takeover bids under Australian law. A takeover bid can be made on-market or off-market, and does not require the support of the target (i.e., a bid can be made on a 'hostile' or 'friendly' basis). For both on-market and off-market bids, a bidder must prepare and send to the target security holders a document (known as a 'bidder's statement') that includes details of the offer, information about the bidder and certain other prescribed information (e.g., in relation to the bidder's intentions). The target must respond by preparing and issuing a 'target's statement' including the target board's recommendation as to whether security holders should accept the offer, as well as any other material information.

An on-market bid is made through a broker and can only be used to acquire securities in a listed entity. On-market bids are far less common than off-market bids because they require the consideration to be 100 per cent cash and, importantly, cannot be subject to any conditions. Accordingly, it will often be the case that an on-market bid is not a viable option, for example, because the bidder requires regulatory approvals or other conditionality, or because the bidder's financing arrangements require security to be taken over the target's assets (which can only be assured in a 100 per cent ownership scenario).

An off-market bid essentially takes the form of a written offer to security holders to purchase all or a specified proportion of their securities. The consideration can take the form of cash, securities or a combination of the two. The offer must be open for acceptance for a period of not less than one month and not more than 12 months. All offers made under an off-market bid must be the same.

An off-market bid may be subject to any conditions the bidder chooses, other than conditions that are solely within the control of the bidder (or turn on the bidder's state of mind) and certain other prohibited conditions.

Typical conditions include those relating to the non-occurrence of certain statutorily prescribed events (including certain insolvency type events), the non-occurrence of a material adverse effect, the obtaining of any necessary regulatory approvals, the absence of any legal restraints or prohibitions to the acquisition completing, and the receipt of a minimum number of acceptances (usually 50 or 90 per cent, the latter corresponding to the threshold for the compulsory acquisition (or 'squeeze-out') of minorities).

Unlike the position in the United Kingdom, there is no legal requirement in Australia for 'certain funds' financing. However, the Corporations Act does prohibit persons from making an offer if they are unable, or are reckless as to whether they are able, to complete the offer. The Australian Takeovers Panel has separately indicated that it expects that where the bid is debt-funded, a bidder would have binding commitments from its lenders at the time of announcing its offer and would not declare its bid unconditional unless it is highly confident that it can draw down on these facilities (i.e., binding funding arrangements are documented in final form and commercially significant conditions precedent to draw down have been satisfied or there is no material risk such conditions precedent will not be satisfied).

ii Schemes of arrangement

A scheme of arrangement is a court-approved arrangement entered into between a body (i.e., the target) and all, or a class, of its members. For a scheme to become binding on the target and its members (or the relevant class thereof), it must be approved by more than 50 per cent of members who vote on the scheme and those members must represent at least 75 per cent of the votes cast on the scheme. If these thresholds are met, the scheme is binding on all members (or all members in the relevant class), including those who vote against the scheme or do not vote at all. The test for identifying classes for the purposes of a scheme is that a class should include those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to a 'common interest'. However, the decision in In the matter of Boart Longyear Limited (No. 2) [2017] NSWSC 1105, suggests that courts may be willing to stretch the boundaries of what would ordinarily be considered to be the composition of a class and, in doing so, may agree to put persons in the same class even where such persons appear to have objectively distinct interests.

The typical operation of a scheme in the context of a control transaction is for the scheme to effect the transfer of target securities to the offeror in exchange for a specified consideration.

The consideration under a scheme can be structured such that security holders receive cash, securities or a combination of the two. There is more flexibility under a scheme with respect to the structure of the consideration as, unlike in a takeover bid, it is not necessary for all offers under a scheme to be the same, more easily facilitating differential treatment of security holders. Schemes can also be used to implement corporate restructures, demergers and debt-for-equity transactions.

A scheme of arrangement is essentially a target-driven process, with the target preparing the necessary security holder materials and seeking the necessary orders from the court. As such, a scheme requires the support of the target's directors and therefore is only a viable option in 'friendly' transactions.

There is no statutory requirement for 'certain funds'; however, as part of the court process, the offeror will be required to satisfy the court that it has sufficient funds to pay the scheme consideration and consummate the transaction. On a practical level, and in addition to giving the target's board comfort as to their ability to execute the transaction, this often results in offerors seeking certain funds funding from their financiers.

As with 'off-market' bids, schemes can be subject to conditions, and it is common to see schemes being subject to the receipt of any necessary regulatory approvals, together with the non-occurrence of any material adverse effect with regards to the target. In addition, there are standard conditions relating to the necessary shareholder and court approvals.