- The Takeovers Panel has updated its guidance notes on the minimum bid price rule, frustrating action, broker handling fees and trust schemes.
- In short, the Panel:
- declined to effectively mandate the application of the minimum bid price rule to schemes of arrangement and indicated that foreign cash consideration should be treated in the same way as scrip
- articulated a limited ‘put up or shut up’ alternative to a shareholder vote that is potentially available to a target considering a corporate action that may frustrate a takeover
- elected not to change the minimum and maximum permitted broker handling fees, and
- confirmed that, if a responsible entity of a target is compensated for the loss of management rights, this will only require unit holder approval if it constitutes a related party transaction.
Following a public consultation process which commenced in December 2010, the Takeovers Panel has recently updated its guidance notes on:
- the minimum bid price rule
- frustrating action
- broker handling fees, and
- trust schemes.
The main developments coming out of this update process are summarised below.
Minimum bid price rule guidance note
Takeover bids are subject to the operation of the ‘minimum bid price rule’. The effect of that rule is that, if the bidder has provided or agreed to provide consideration for shares in the target during the four months before the date of its takeover offers, the consideration that the bidder must offer to target shareholders under its takeover bid must equal or exceed the amount provided or agreed to be provided during that four-month period.
In its updated minimum price bid rule guidance note, the Panel:
- declined to effectively mandate the application of the minimum bid price rule to schemes of arrangement (consistent with Freehills’ submission in response to the consultation process). For further details on our submission see our February 2011 article ‘Minimum bid price rule to be extended to schemes of arrangement?’.1
- confirmed that, if a bidder acquires shares in the four months before a takeover for a foreign cash amount (eg US dollars) and later wants to offer Australian dollars under the takeover, that Australian dollar amount must not be less than the then equivalent value of the foreign cash amount (we discuss this in more detail in the article ‘Strong Australian dollar shines spotlight on new foreign currency rule’2), and
- if a bidder is offering foreign cash under a takeover and buys shares on market in Australian dollars which, according to the then prevailing exchange rate, is a higher amount than the foreign cash amount being offered under the takeover, the bidder must ‘top up’ the amount being offered under its takeover (we discuss this in more detail in the article ‘Strong Australian dollar shines spotlight on new foreign currency rule’3).
Frustrating action guidance note
If a prospective or actual bidder has communicated (either publicly or privately) an intention to a target company that it is considering making a takeover bid and, after that communication, the target company proposes to take a corporate action that may frustrate that takeover bid, the target may (depending on the circumstances) need to put that particular corporate action to a shareholder vote.
In its updated guidance note on frustrating action, the Panel has articulated a ‘put up or shut up’ alternative to a shareholder vote that is potentially available to a target.
If a potential bidder has notified a target that it is considering making a takeover bid, in deciding whether the target should put to a shareholder vote, a particular corporate action that could frustrate that takeover, the Panel will take into account whether the target has informed the bidder that it will proceed with that action if that potential bidder does not announce its takeover within a reasonable period (normally two weeks but the timing will depend on the circumstances).
Broker handling fees guidance note
Broker handling fees are fees offered by bidders to brokers who solicit acceptances of a takeover bid from their clients.
The Panel considered whether it was appropriate to increase the minimum and maximum permitted broker handling fees payable to brokers who solicit acceptances of a takeover from their clients, from:
- a minimum fee of $50 payable in respect of an accepting shareholder, and
- a maximum fee of 0.75% of the consideration payable to an accepting shareholder, capped at $750 for a single acceptance.
The Panel elected to retain these existing limits.
Trust schemes guidance note
Under a trust scheme, a bidder proposes to acquire all the units in a managed investment scheme (the target). The acquisition is effected following a special resolution of the members of the target to amend the target’s constitution to facilitate the bidder acquiring sole ownership of the target upon majority vote by the members. Trust schemes have arisen on the Australia M&A landscape because the scheme of arrangement procedure is not available to managed investment schemes.
The Panel has, in its updated guidance note, articulated a policy that:
- if the responsible entity of a managed investment scheme receives a ‘benefit’ (eg monetary compensation) in exchange for giving up its management rights, this will only require disclosure and a disinterested unit holder approval if it constitutes a related party transaction, and
- as is the general practice in relation to the analogous scheme of arrangement procedure, an independent expert’s report issued in connection with a proposed trust scheme should opine both on whether the proposal is in the ‘best interests’ of unit holders and also whether the proposal is ‘fair and reasonable’.