As a prospective bidder or target, what should you be wary of when obtaining or using shareholder intention statements?
The last few years have seen an increase in regulatory attention over the use (or rather, misuse) by bidders and targets of shareholder intention statements. In a number of recent cases, in particular those involving takeover bids for MYOB1 and Bullabulling2, the Australian Takeovers Panel (Panel) has found bidders and targets to have used statements made by target shareholders in a manner that was unacceptable. This included both statements by shareholders as to their intention to accept a takeover offer and to reject a takeover offer.
Shareholder intention statements are designed to persuade shareholders to take a particular course of action or dissuade other prospective bidders from making a competing proposal. The Panel’s primary concern with such statements is their potential, if used inappropriately or incorrectly, to confuse or distort information in, and jeopardise the competitiveness and efficiency of, the market in the course of a control transaction, such as a takeover bid.
The Panel’s new Guidance Note 23, introduced in December 2015, highlights some significant (but easily avoidable) flaws in the way shareholder intention statements have been used or relied upon in the context of takeover bids, and the Panel’s approach to them.
In our view, there are three questions that every prospective bidder should ask themselves before using or relying upon a shareholder intention statement:
- Do I have the consent of the shareholder to use the statement?
- Does the statement accurately communicate the shareholder’s intention?
- What inferences are likely to be made from the statement, and do I intend those inferences to be made?
As the decisions in Bullabulling and MYOB show, failure to satisfy oneself as to each of the above issues could easily land a bidder or target in deep water with the Panel. Where the use of a shareholder intention statement gives rise to a declaration of unacceptable circumstances, the Panel has wide powers to make any orders it deems appropriate to remedy the situation.
Even in the absence of such a declaration, the Panel may require undertakings such as the withdrawal of a statement or the lodgement of a supplementary takeover document, which can result in increased delay, inconvenience and cost to bidders and targets in the bid process that could otherwise be avoided.
For a more detailed discussion of each of the above issues, please click here to read the full paper.
For those of our readers with more limited time, the key takeaway points from the paper are summarised below:
- Takeaway Point 1: Shareholder intention statements must only be published in a takeover document if the shareholder has consented and the consent (including details of the shareholder who gave the consent and its shareholding in the target) is included in the document. Where consent is given on behalf of a registered shareholder, one should also verify that the agent has authority to speak on behalf of the registered holder.
- Takeaway Point 2: Where a bidder or target wishes to include an intention statement made by multiple shareholders in its takeover document, each individual shareholder within the aggregated group must have consented to the disclosure of the statement, and details of their identity and individual holdings must be separately provided for in the statement.
- Takeaway Point 3: bidders and targets should, when using an intention statement from a shareholder, ensure that the statement (including any qualification) is expressed in terms that are clear in meaning. For example, the Panel has suggested, in Guidance Note 23, that an intention expressed as a “present”intention is ambiguous, and could be clarified by appropriate qualification as to under what circumstances the shareholder’s intention may change.
- Takeaway Point 4: An acceptance statement should always contain a qualification that it is subject to no superior offer emerging – for example: “X, a holder of #% of the target’s shares, intends to accept the offer by Y in the absence of a superior proposal”.
- Takeaway Point 5: An acceptance statement may also be qualified by reference to time – for example, “X, a holder of #% of the target’s shares, intends to accept the offer by Y, but by no earlier than Z days after the opening of the offer and only in the absence of a superior proposal emerging during that time”. However, if it does so, the time period specified (“Z”) must be sufficiently long to allow superior offers to materialise. Whilst what is a sufficient time period will depend on the circumstances, a period of 21 days after a takeover offer has opened will generally be considered reasonable.
The assistance of Maria Mellos, Law Clerk, of Addisons in the preparation of this article is noted and greatly appreciated.