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Due diligence requirements
What due diligence is necessary for buyers?
Buyers must undertake financial and legal due diligence before any scheme arrangement. Financial due diligence is managed by the buyer’s accountants and management team, and is expected to reveal the following:
- the accounting and financial control system of the company;
- the value of assets and liabilities to be acquired;
- the product development and competitors; and
- the company’s ability to raise short and long-term capital and the cost of such capital in relation to general industrial indications.
Legal due diligence is conducted by the buyer’s lawyer and identifies the potential legal issues and problems that may impede transactions, such as IP and technological issues and those relating to transactional documents and agreements, business profiles or employees.
What information is available to buyers?
Generally, if an offer has the support of the target, all of the relevant information will become available. This would not be the case if the directors are adverse to the offer.
No rules or regulations oblige a company to make its information available to buyers.
What information can and cannot be disclosed when dealing with a public company?
If the target is a public company, buyers can access all of the target’s records which have been filed with the Corporate Affairs Commission and the Securities and Exchange Commission. Companies that are operating in regulated industries are required to make filings to the relevant regulator and these filings may become public.
How is stakebuilding regulated?
Section 144 of the Investment and Securities Act sets out that, in a takeover bid, the offeror must state in the bid if it intends to purchase the target’s shares in the market during the offer period. If the offeror purchases the target’s shares during the offer period in a manner other than that which is pursuant to the bid and makes payment that is greater than the price offered in the bid, such payment will be deemed to be an amendment to the bid and the bidder will be required to immediately notify the target’s shareholders of the increased consideration and pay such increased consideration. Shares bought outside the offer process will be counted for the purpose of determining whether the minimum acceptance for the offer has been fulfilled.
Under the Companies and Allied Matters Act, if the offeror holds, either by itself or through a nominee, shares which entitle it to exercise 10% or more of the unrestricted voting rights at any general meeting of the target, it must give notice to the target within 14 days of becoming aware of its shareholding in the company.
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