- ASIC has released Consultation Paper 193 Takeovers, compulsory acquisitions and substantial holdings: Update to ASIC guidance.
- M&A practitioners will benefit from much of the consolidated and updated guidance covering relevant interests, underwriting, collateral benefits, acceptance facilities and ASIC’s joint bid policy.
- ASIC called for submissions before 22 February, enabling practitioners to voice concerns over any unwelcome policy change proposals.
ASIC has proposed updating and reorganising a significant body of its existing guidance on Chapters 6-6C of the Corporations Act 2001 (Cth) (the Act) into four new regulatory guides covering the following broad topics:
- Relevant interests and substantial holding notices;
- Takeovers: Exceptions to the general prohibition in s606;
- Takeover bids; and
- Compulsory acquisitions and buyouts.
In addition to the consolidation process making it more efficient and intuitive for readers to navigate ASIC’s policy, the consolidated guidance has been updated to reflect ASIC’s current views and practices in relation to Chapters 6-6C.
Below we draw your attention to a selection of areas of the new guidance and proposals. As proposed policy, the new guidance will assist M&A practitioners in deciding how to approach issues covered in the guidance. There may be some policy updates which merit public debate and will be the subject of our future updates.
Useful guidance on ‘relevant interests’ in securities and completing substantial holding notices
ASIC has provided useful practical guidance to assist in determining whether a person has a relevant interest in securities or whether the situation giving rise to the relevant interest falls within one of the exceptions.
The guidance offers helpful explanations of the relevant concepts including by use of examples.
ASIC has also reiterated that a person who gives a substantial holding notice must provide full rather than minimal or technical disclosure. To this end ASIC has included new guidance which indicates the level of detail ASIC prefers to be included in these shareholding notifications.
Rights issues potentially affecting control of an entity and arrangements which do not constitute “underwriting”
It is clear from ASIC’s updated guidance that it is concerned to prevent issuers structuring rights issues which would have an unacceptable control effect on a company, or would be inconsistent with Chapter 6.
ASIC has sought to address its concerns by setting out an expanded (but non exhaustive) list of factors that it considers may contribute to unacceptable circumstances in a rights issue. ASIC also encourages issuers, underwriters and their advisers to consider the Takeover Panel’s Guidance Note 17.
Additionally, ASIC has clarified that arrangements that depend on sub-underwriting or lower-tier underwriting, or which are subject to termination events within the underwriter’s control, should not be considered ‘underwriting’, as these arrangements do not, in effect, involve the assumption of shortfall risk.
ASIC will consider the commercial nature of the transaction rather than its legal form, in considering whether an arrangement is properly characterised as underwriting.
Updated guidance in relation to collateral benefits in takeovers (and schemes)
Similar to the practical guidance ASIC has provided in relation to ‘relevant interests’, ASIC has also put forward a (non exhaustive) list of factors that it will commonly consider when examining collateral arrangements. The ‘balance of factors’ approach which ASIC adopts is focused on the test introduced by the CLERP Act, namely that the benefit must be ‘likely to induce’ the recipient to accept the bid or dispose of securities. This approach to the test of inducement is wider than the ‘net benefits’ test.
ASIC has provided a reminder that its ‘balance of factors’ approach to collateral benefits will be relevant to scheme proponents and their advisers. This is on the basis that ASIC will take similar considerations into account when examining, and considering requests for a ‘no objection’ letter in respect of, a scheme that could otherwise have been structured as a takeover bid.
New guidance and Class Order relief in relation to acceptance facilities
ASIC acknowledges that acceptance facilities have become an increasingly common feature of takeover bids. To this end, ASIC has proposed a Class Order and associated guidance as a means of removing any residual legal uncertainty in relation to these mechanisms as well as to establish an administrative framework and basic standards for the use of these facilities going forward.
ASIC’s proposed Class Order resolves a lingering question by confirming that a bidder does not acquire a relevant interest in securities at the time they are tendered into an acceptance facility–merely because the bidder has power to control the disposal of securities as a result of a holder tendering acceptance or custodial instructions in respect of the securities into an acceptance facility.
ASIC’s proposed relief is conditional on a number of matters, although these are uncontroversial. For facilities relating to conditional bids which are only open to institutional holders with restrictive investment mandates, those particular holders must provide certification of this to the facility agent. Although this may impose an administrative burden on these holders, this measure would achieve the outcome of limiting participation to those institutions, and limit any argument that all holders are not being treated equally.
Joint bid policy broadened to include schemes
In recognition of the fact that many change of control transactions now occur by way of scheme of arrangement in addition to takeover bid, ASIC has moved to broaden its joint bid policy so that it encompasses schemes. The updated policy will apply both to joint bids that are structured as schemes and to rival offers that are structured as schemes.
Given the differences between the two transaction structures, ASIC has now proposed scheme specific conditions for joint bid relief.
ASIC’s revised policy provides useful clarification as to its approach to joint bids effected by schemes, as is the case with the ‘rival bid condition’ under the existing policy in Regulatory Guide 159 (that joint bidders must accept a higher rival bid or otherwise match it). However we see ASIC’s condition that where a higher rival scheme is proposed the joint bidders must not vote against such scheme as being potentially very unattractive to potential joint bidders. This will particularly be the case if a joint bidder has been a significant long term or strategic holder of the target’s securities. In that case the holder may prefer to maintain its interest rather than have its shares acquired under a rival scheme.
One minor concession ASIC has made is that where one joint bidder has a holding of less than 3% and where ASIC is not concerned that a rival bidder may still be deterred by the joint bid arrangements, then ASIC may not impose a ‘rival bid condition’. In this situation, ASIC would nonetheless impose an obligation on the joint bidders to consult with ASIC in a timely manner if a bona-fide third-party proposal arises, as well as requiring that target shareholders be provided with all material information and sufficient time to consider same.
Now that ASIC has now moved to establish formal scheme specific conditions for the grant of relief, the question remains whether ASIC will continue to be prepared to modify subsection 609(7) of the Act to increase the three month disposal restriction to four months (to align with the timeframe that may be required to implement a scheme) for joint bids that proceed by the alternative path of target shareholder approval under item 7 of section 611 of the Act. Recent schemes suggest that even a period of four months may be insufficient where the scheme is subject to a regulatory condition such as ACCC approval.
New guidance on joint bid policy on schemes and rights issue sub-underwriting are likely to be the topic of submissions in response to ASIC's Consultation Paper.
ASIC has called for submissions by 22 February 2013 and the updated Regulatory Guides are expected to be released in May 2013.