In Premium Income Fund [2011] ATP 10, the Takeovers Panel made a declaration of unacceptable circumstances in relation to ALF Finance's conditional off-market bid for all of the units in Premium Income Fund (PIF). PIF is listed on the National Stock Exchange (NSX).  Its responsible entity is Wellington Capital.

Extension of the bid

This matter involved an attempt by ALF Finance to extend the offer period under its bid to 14 June 2011.  The bid had been scheduled to close on 28 February 2011.

On 18 February 2011, ALF Finance completed a "Notice of Variation – Extension of Offer Period".  A copy of the notice was released by NSX on 21 February 2011 but was not sent to PIF unit holders until on or about 2 May 2011.

Wellington Capital submitted that the evidence established that the notice of variation had been sent to unit holders after the offer period had closed.

The Panel agreed and noted that any extension of an off-market bid must be done in conformity with sections 650C and 650D of the Corporations Act. To do so, the bidder under a conditional bid must, among other things, prepare a notice of variation, lodge the notice with ASIC and then give the notice to the target and to those persons to whom offers have been made under the bid, in each case before the end of the offer period.

ALF Finance ultimately conceded that it had failed to validly extend the offer period under its bid and that its bid had therefore ended on 28 February 2011. 

Because the conditions of the bid had not been met or waived before the expiry of the offer period, unit holders who had accepted the bid are now entitled to their units back.

Listing condition

The consideration offered by ALF Finance under its bid was 0.1 redeemable preference share and 0.5 ordinary shares in ALF Finance for every unit in PIF.

In its bidder's statement, ALF Finance disclosed the possibility that it may list on ASX. These disclosures included statements in section 3.6 of the bidder's statement, under the heading "Intention to List", that "the board of ALF may or may not decide to make application for quotation of the ALF Ordinary Shares on ASX".  A number of factors were listed as being relevant to the ultimate decision as to whether or not to do so.

In a letter to unit holders dated 18 April 2011, ALF Finance stated that it "wants to list on the ASX (subject to normal commercial terms and requirements) ..." and "will, subject to normal commercial terms and requirements, expedite a listing of the company on the ASX, with the obvious associated benefits."

The Panel asked whether these statements triggered section 625(3) of the Corporations Act. That section says that if:

  • the consideration offered under a bid includes securities; and
  • the bidder's statement states or implies that the securities are to be quoted on an exchange,  

the offer is subject to a condition that an application for quotation be made within 7 days of the start of the bid period and admission to quotation be granted no later than 7 days after the end of the bid period. The section also provides that the condition may not be waived.

Wellington Capital submitted that there had been a breach of section 625(3) or at least a breach of the policy underlying it. This, it submitted, created unacceptable circumstances. ASIC made submissions to the same effect and noted the potential for the statements to act as an inducement to target unit holders to accept the bid.

The Panel agreed that the failure of ALF Finance to make application for quotation gave rise to unacceptable circumstances. In doing so, it noted the likely significance to PIF unit holders of the information about ALF Finance listing on ASX because of its effect on their ability to exit their resultant holding in ALF Finance and the likely effect on the value of that holding.

Disclosure issues

In its bidder's statement, ALF Finance made certain disclosures regarding the value of its offer to PIF unit holders as compared to the value of PIF units before the announcement of the bid. These disclosures included charts showing the offer price per unit as 15 cents as compared to the pre-bid trading price of 7.5 cents per unit.

The bidder's statement did not, however, go into any detail about how the value of the bid consideration was derived by ALF Finance.

It became apparent through submissions that ALF Finance's assessment of the value of its bid was based on the stated net asset backing of PIF units (which greatly exceeded the price at which PIF units had been trading). In other words, the value of ALF Finance's offer to PIF unit holders came from the value assumed to be in the target itself.

ALF Finance had also made statements to the effect that the redeemable preference shares offered as part of the consideration under its bid are redeemed at 15 cents per share, although no guarantee of redemption was given.

Having considered these disclosures, the Panel expressed the view that the value of ALF Finance's offer, and particularly the fact that it is based on the value of the target, was not adequately disclosed to PIF unit holders. Further, the risks of the preferences shares not being able to be redeemed were also not adequately disclosed to PIF unit holders