- Neither the court nor the Panel will make orders extending an offer which the bidder has allowed to close
- The court can help a bidder proceed to compulsory acquisition if it falls marginally short of the 90 per cent threshold
In most takeovers, shareholders tend to hold off lodging their acceptances until late in the offer period. They do this to keep their options open and are hoping to put pressure on the bidder to raise the offer price.
In some instances, this can lead to great uncertainty and problems for the bidder and the shareholders concerned, particularly where something goes wrong in the steps taken to effect the acceptance and the acceptance is defective or only lodged after the relevant deadline.
This most famously occurred in the Qantas bid in 2007 when a key acceptance, which had apparently been promised before the relevant deadline and which would have taken the bidder to over 50 per cent, was sent four hours after the deadline. The bid collapsed and the Takeovers Panel refused to validate the acceptance or extend the offer as the Panel thought that to do so would be inconsistent with an efficient market.
The Sylvania case
A similar issue has been considered by the Federal Court in a case involving the bid by Sylvania Resources Ltd for Great Australian Resources Ltd.
Sylvania’s bid was due to close at 5.00pm on 11 August 2009. Acceptances had been increasing steadily over the last week of the offer period, but, at the start of the last day, the acceptances stood at approximately 71 per cent.
When the bid closed, Sylvania had 89.82 per cent. It did not purport to extend the bid and announced to the ASX the next day that it would not proceed with compulsory acquisition as it did not have the requisite 90 per cent holding.
However, after making that announcement, Sylvania learnt of some further acceptances which had not been counted. This included:
- an acceptance for 0.03 per cent which had been overlooked
- an acceptance for 0.06 per cent which was defective and returned to the shareholder too late for him to deal with, and
- additional acceptances for 0.63 per cent that were lodged after the bid closed.
If these acceptances had been counted, Sylvania would have held more than 90 per cent and been entitled to proceed with compulsory acquisition.
Application to court
Sylvania made an application to the Federal Court in Perth seeking two orders.
First, it sought an order under section 1322 extending the offer period by a further three weeks so that other shareholders could accept the offer. Section 1322 gives the court power to extend the period for doing any act (in this case, effecting an extension of the bid). The court, supported by submissions by ASIC, refused this order and declined to extend the offer period. The court considered that this was not justified in the circumstances and, on the contrary, extending the offer after it had closed would introduce unnecessary uncertainty to the market, contrary to the objectives of the takeovers law.
Second, Sylvania asked for an order under section 661A(3), which enables the bidder to seek court approval for compulsory acquisition, even if the 90 per cent test has not been satisfied. This provision was introduced in 2000 after concerns were expressed that the law was too inflexible and there should be a provision entitling the court to make an order in appropriate cases, such as where there was a large number of lost shareholders which meant that reaching the 90 per cent threshold was impossible or virtually impossible.
The court in this case decided to exercise its power to order compulsory acquisition. The court said that Sylvania fell short of the 90 per cent threshold by only 0.14 per cent and that, in all the circumstances of the case, this was sufficient to allow the court to exercise its power. In addition, the court had regard to the late acceptances and said that, if they had been taken into account, Sylvania’s holding would have been 90.59 per cent. The court felt that the facts demonstrated that there was growing support for the takeover, rather than the bidder merely struggling to reach 90 per cent.
The case emphasises that it remains very important for bidders and shareholders to ensure that acceptances are received by the closing date and that they cannot rely on the court (or the Panel) to make orders extending an offer which has closed.
However, it also demonstrates that falling marginally short of the 90 per cent threshold may well be cured by the court if the circumstances indicate that would be the fair outcome.