KEY TAKEWAYS

  • Where a major shareholder launches a takeover bid, they sometimes use heavy handed tactics to convince minority shareholders to accept the bid.
  • While minority shareholders have protections under the Corporations Act and at common law, there may be limits on their ability to pursue and enforce their rights.

PEET’S TAKEOVER BID FOR CIC

Peet Limited (Peet) launched a takeover bid for CIC Australia Limited (CIC) in April 2013. Guiness Peat Group plc (GPG) owned 73% of CIC prior to the bid. As part of the pre-bid arrangements GPG agreed to sell a 19.9% stake in CIC to Peet. In May 2013, GPG accepted Peet’s takeover bid for the remainder of its stake.

The majority of CIC’s directors recommended the offer, but the Chairman and Managing Director decided to make no recommendation. The target’s statement did not include an independent expert’s report but it did note that these two nonrecommending directors “obtained private and confidential third party valuation advice to assist them” and that these directors believed “the value of 100% of CIC is significantly higher than the Offer”.

On 7 June 2013, Peet wrote a letter to CIC’s remaining minority shareholders noting that its shareholding was 85% and that it had secured control of CIC’s board. Peet warned shareholders that if it failed to secure full ownership of CIC there was likely to be an equity raising which may dilute some existing shareholders. Peet also noted that CIC would not pay dividends and they would also seek to delist CIC.

When Peet’s offer closed on 21 June 2013 it owned 86% of CIC. Reports indicate that a group of CIC’s minority shareholders, including CIC’s Chairman, were against the bid and wanted to prevent Peet from reaching the 90% compulsorily acquisition threshold. The dissident shareholders are apparently hoping Peet will make a further offer at a higher price.

Peet did not take this matter to the Takeovers Panel although it may have had grounds to do so. In particular, Takeovers Panel Guidance Note 22 states there may be unacceptable circumstances if a director recommends that shareholders reject a bid relying on an undervalue statement and the reasons for the recommendation and undervalue statement are not clearly disclosed (or will be disclosed later). The Panel says such a statement may be incomplete to the point of being misleading or shareholders may not have been given enough information to enable them to assess the merits of the proposal. While the non-recommending directors in CIC were not using the undervalue statements to directly reject the bid, there may still have been grounds to seek further disclosure to support their statements.

CIRRUS’ PROPOSALS FOR CAREERS AUSTRALIA GROUP

Careers Australia Group Limited (CAG) is an unlisted public company which had 88 shareholders. Cirrus Business Investments Limited (Cirrus), an entity associated with White Cloud Capital Advisors Limited and BXR Group, held 45.2% of CAG’s ordinary shares and also held convertible notes in CAG which, if converted, would have given it a 47.2% stake in CAG.

Under the terms of the convertible note deed between CAG and Cirrus, CAG agreed to regularly consider an initial public offering or other forms of liquidity event.

In November 2011, Cirrus wrote to about 40 small shareholders in CAG offering them an “exit opportunity”, structured as an option in Cirrus’ favour. Cirrus indicated that it would only exercise the option if enough shareholders accepted to bring the total number of shareholders in CAG to below 50, in which case the Chapter 6 takeover rules would no longer be applicable. Cirrus claimed that its purpose was to facilitate an exit for small shareholders, however a number of CAG’s minority shareholders took the matter to the Takeovers Panel.

The Panel declined to make a declaration of unacceptable circumstances based on undertakings received from Cirrus. Specifically, Cirrus agreed that it would not reduce the number of CAG shareholders below 50 pursuant to the exercise of the options. The Panel did, however, note that unacceptable circumstances may exist where there is a plan or proposal designed to cause a company to be taken outside the ambit of Chapter 6.

In May 2013, Cirrus then made a takeover offer for CAG. Cirrus’ bidder’s statement referred to its takeover offer as a “liquidity event” but the bidder’s statement also included comments that Cirrus had no plans to offer CAG shareholders an additional future liquidity event and that it did not plan to support a stock exchange listing. Cirrus also stated that it did not intend to compulsorily acquire shares if it became entitled to do so. The clear message to minority shareholders was that they should accept the takeover offer now or be left with shares in an illiquid unlisted company with no exit options.

Cirrus already had several nominee directors on the CAG Board, so CAG formed an independent board committee to consider Cirrus’ offer. CAG’s target’s statement recommended that shareholders reject the offer.

Some of Cirrus’ shareholders took the matter to the Takeovers Panel, arguing unacceptable circumstances, including on the basis that Cirrus did not intend to comply with the convertible note deed and that Cirrus may acquire control of CAG other than in an efficient, competitive and informed market.

The initial Takeovers Panel and the review Takeovers Panel both declined to conduct proceedings. The initial Panel said the relevant provisions of the convertible note deed did not create an obligation on Cirrus. They also stated that the takeover offer complied with Chapter 6 of the Corporations Act and met the Eggleston principles set out in section 602 of the Corporations Act. The initial Panel pointed out that the freedom of shareholders to either accept or reject the offer should generally not be curtailed.

The initial Panel also said that Cirrus’ intention not to proceed to compulsory acquisition in this case did not coerce shareholders in a way that would give rise to unacceptable circumstances. The bidder’s statement had adequately disclosed the rights that shareholders would have under section 662A of the Corporations Act to be bought out by Cirrus.

The review Panel agreed with the initial Panel and declined to conduct proceedings.

Crescent Capital Partners subsequently emerged with a counterbid for CAG at 80 cents per share, which led to Cirrus lifting its takeover offer to 85 cents per share.