Biotechnology or life sciences companies are more likely to become targets of opportunistic takeover bids in times of volatile currency and stock markets, particularly where over the longer term consolidation and rationalisation may be key to growing market share. Bidders may seek to exploit this volatility to acquire technologies and assets at inadequate prices, in an attempt to deny target shareholders the true value of their shares.
When a hostile takeover is announced, the target is under significant pressures to respond and undertake numerous actions within very tight timeframes.
When the target receives a bidder’s statement (which could be the first time the target becomes aware of the bid), the target may only have 14 days before the bidder sends its bidder’s statement to the target’s shareholders. During this time, the target needs to engage and brief advisers, provide its shareholders with preliminary advices, review the bidder’s statement, begin preparing the target’s statement, possibly engage an independent expert and respond to the bidder or apply to the Takeovers Panel to ensure that proper disclosures will be made to target shareholders.
Once the bidder’s statement has been sent to the target’s shareholders, the target will have only 15 days to send out its target’s statement. To avoid the risk of shareholders acting only on information provided by the bidder, a target would normally work towards minimising the time between its shareholders getting the bidder’s statement and when they receive the target’s statement.
Engaging specialists and experts
It is often during the first 14 days that the target feels the most pressure, particularly if it is not prepared. Target directors need specialist legal and financial advice to manage the target’s response. If these specialists have not been identified and retained before the bid, it may take the target a number of days to identify them. This means valuable time is lost and the target directors would be dealing with matters without specialist assistance.
This is also the case with an independent expert. An independent expert is often engaged to provide a valuation for inclusion in the target’s statement. As this is a complete valuation of the target, and may require specialist valuation advice (for example, intellectual property or patent valuations), the more time the experts have, the greater the likelihood of an accurate valuation.
Applying to the Takeovers Panel
Targets often need to apply to the Takeovers Panel during these first 14 days. The Takeovers Panel is Australia’s primary forum for resolving disputes about a takeover bid whilst the takeover bid is under way. Targets often apply to the Takeovers Panel to require bidders to correct or expand the disclosures made in the bidder’s statement. Incidentally this often delays the time at which the bidder can dispatch its bidder’s statement and allows the target more time to prepare its target’s statement, including any independent expert report. The Takeovers Panel makes its decisions very quickly and requires parties to make applications and responses in very short timeframes. Preparation, again, allows targets to put forceful and persuasive arguments to the Takeovers Panel to maximise the chances of obtaining effective remedies from the Takeovers Panel.
Benefits of being prepared
The benefit of being prepared before a hostile takeover bid is that the directors of the target can minimise the time taken to respond fully and forcefully. This means the directors are in a better position to respond earlier, and target shareholders will have better information to make an informed decision regarding the bid.
Target directors are under increasing scrutiny by interested parties and regulators for their actions during a takeover bid. As a result, directors may be exposed to proceedings in the Takeovers Panel during the bid and the courts after the bid, including class actions. By being prepared, directors are more likely to act appropriately to discharge their duties.
Be prepared to respond
Being prepared requires putting in place procedures that can be initiated as soon as the takeover is announced. Such procedures would involve a team of takeover response advisers being identified, briefed and regularly updated. In addition, the target would have much of its information and documentation ready. in a form that can be provided to its advisers on short notice.
Targets find that being prepared before a hostile takeover bid may allow response strategies to be implemented earlier, and may increase the chances of those response strategies being successful, such as searching for a white knight or a competing bid or simply pressuring the bidder to improve its offer.