In the March edition of M+A Perspectives, we looked at the decisions of the Takeovers Panel in Viento, Brockman and CMI which shed some light on when the Panel will, and will not, infer that an association exists. Since that time, the Panel has considered several more allegations of undisclosed associations, including those relating to ComOps and Bentley Capital. The latest of these is the curious case of oOh!media, a Panel proceeding which related to complicated call option arrangements.

The call options

oOh!media Group Limited [2011] ATP 9 (oOh!media) involved a pair of call options over oOh!media shares which had been granted in favour of QMS. 

The first of these call options was granted by PFG in August 2010 on terms which included the following:

  • the call option was over 75,000,000 shares, being just under 20% of the shares then on issue in oOh!media;
  • a call option fee of $16,650,000 was payable to PFG (ie. 22.2 cents per share) in two payments.  An additional 7.8 cents per share was payable to PFG in respect of each share actually acquired by QMS under the call option. The aggregate price per share payable to PFG under the call option equated to 30 cents; and
  • the existence of the call option was, subject to certain exceptions, to be kept confidential.

At the time of granting call option 1, PFG did not own 75,000,000 oOh!media shares but it had obtained rights to acquire some shares from certain third parties. The existence of the call option arrangement had been disclosed to at least some of those third parties. PFG increased its voting power in oOh!media from below 5% to as high as 17.46% between the date of granting the call option and March 2011.

In April 2011, QMS entered into call option 2 with WSC in relation to at least 45,161,432 oOh!media shares. WSC had acquired some of its oOh!media shares via placements that had been undertaken by oOh!media. Call option 2 was granted on similar terms to call option 1. However, unlike call option 1, the terms of call option 2 were immediately disclosed to ASX.

Were PFG and QMS acting in concert?

oOh!media submitted to the Panel that PFG and QMS became associates on the date they signed call option 1. According to oOh!media, this association arose because they were acting in concert in relation to the ownership of oOh!media shares or the acquisition or disposal of such shares. oOh!media submitted that the terms of call option 1 were unusual. It further submitted that:

  • PFG was effectively being funded by QMS (ie. through the upfront call option fee);
  • there were other arrangements in place, such as that PFG was guaranteed a profit by buying the oOh!media shares on market below the exercise price under the option; and
  • the arrangement amounted to warehousing of shares for QMS.

While it was (in view of the undertakings described below) ultimately unnecessary for the Panel to decide the question, the Panel considered that the terms of call option 1, combined with its non-disclosure, raised enough material to justify conducting proceedings on the question of association. As we have previously commented, the key to success in showing an association will often be giving in the initial application to the Panel a body of evidence which shows conduct which is unusual or uncommercial. In this instance, it seems that oOh!media was successful in doing so.

Did QMS acquire a relevant interest in the call options shares?

oOh!media submitted to the Panel that QMS had acquired a relevant interest in the oOh!media shares the subject of the two call options from the time those options were first granted. This is because of section 608(8) of the Corporations Act, which takes a person to have a relevant interest in any securities which it has entered into an agreement to acquire, even if the performance of the agreement is subject to the fulfilment of a condition.

Each of the call options employed a drafting device which sought to ensure that QMS did not immediately acquire a relevant interest in any of the oOh!media shares. That is, the call options were drafted to fall outside section 608(8). As a practical matter, this was sought to be achieved by drafting the options in a way that sought not to bind the parties to perform their obligations under them until QMS first obtained FIRB approval.

While it was unnecessary for the Panel to decide the question, the Panel nonetheless expressed doubts about the effectiveness of these drafting devices. In doing so, it expressed the view that the low exercise price option structure was a significant commercial indicator that effective control over underlying oOh!media shares existed.

Should shareholder approval have been sought?

Call option 2 also included a condition of either shareholder approval or an ASIC exemption to QMS's voting power in oOh!media moving above 20% (other than by means of the 3% creep rule). It is likely that the inclusion of this condition was an attempt by QMS to fall within section 609(7) of the Corporations Act, which effectively overrides the operation of section 608(8) in specified circumstances.

QMS made no attempt to seek a shareholders' meeting of oOh!media prior to the date of oOh!media's application to the Panel. QMS submitted that it was not appropriate to approach oOh!media to seek shareholder approval until such time as the FIRB approval condition had been satisfied.

While it was again unnecessary for the Panel to decide the point, the Panel's reasons suggest that if QMS had been relying on section 609(7), its failure to make any attempt to seek the approval of oOh!media's shareholders may have amounted to unacceptable circumstances.


The so-called 'warehousing' of shares in ASX-listed companies has been a hot topic in 2011.  In Brockman, the Panel was asked to consider allegations that Brockman shares had been warehoused on behalf of Wah Nam International for the purposes of its takeover bid for Brockman. In oOh!media, an allegation of 'warehousing' was made in relation to the oOh!media shares the subject of the call options.

While it was again unnecessary for the Panel to decide the point, the Panel expressed concerns that the circumstances appeared to raise an argument of 'warehousing'. In particular, the Panel considered that the failure to disclose call option 1 and the low exercise prices under the call options both raised that argument.

The undertakings

One of the notable aspects of oOh!media is the means of its ultimate resolution, which involved the parties offering complex undertakings to resolve the proceedings at a relatively early stage.

The undertakings offered by QMS and WSC had, among others, the following effects:

  • oOh!media would be partly compensated for having placed shares at below 30 cents per share, being QMS's acquisition price;
  • QMS would reduce its holding to less than 15% within 6 months and not increase it for 6 months;
  • QMS would not vote more than 4.9% of its shareholding before 31 January 2012;
  • QMS would compensate shareholders who sold oOh!media shares and were unaware of call option 1; and
  • WSC would sell its entire holding of oOh!media shares within 6 months to unassociated parties.

The nature of the undertakings reflect the flexibility of the Panel as a forum for resolving circumstances of this nature in a timely and efficient manner.

The Panel invited submissions from all of the parties to the proceedings on whether the undertakings sufficiently addressed the unacceptable circumstances. No party, including ASIC, had any objection to the Panel accepting the undertakings. For its part, the Panel commented that the undertakings addressed concerns regarding both the market and oOh!media and that they resulted in an outcome similar to one that it may have imposed if the matter had gone to its conclusion and if oOh!media's case had been made out.

A final comment

ASIC has recently signalled that it will increase its scrutiny of illegal associations. Six months into 2011 and there have been a number of Panel cases on association yet ASIC has not yet sought to impose any penalties against those involved. At least not publicly. It will be interesting to see if ASIC considers it appropriate to separately take any action in any of these cases.