Key points

  • The Panel is not bound by technicalities and black letter law. It will take a pragmatic and commercial approach in deciding whether circumstances are unacceptable. The law is just one consideration, to be applied alongside policy, market practice and public interest.
  • The Panel has broad powers to make corrective orders. In this case, the Panel was not constrained by traditional concepts of loss or reliance. The Court confirmed that all that is required is that the Panel’s orders are made on a rational basis and are appropriate to protect persons whose rights or interests have been affected.  

Background

In the August 2007 edition of our M&A Newsletter, we wrote about the Takeovers Panel’s declaration of unacceptable circumstances in relation to the contested takeover bid by CEMEX Australia Pty Ltd (CEMEX) for Rinker Group Limited (Rinker).

CEMEX initially bid US$13.00 per share and subsequently increased its price to US$15.85 per share. The announcement of CEMEX’s increased offer included a statement that the offer was CEMEX’s best and final offer, in the absence of a superior proposal. CEMEX also said that the consideration was subject to a reduction by the amount of any dividend declared and paid to accepting Rinker shareholders.

Following the ‘best and final’ offer by CEMEX, Rinker announced its full-year financial results and declared a dividend of US$0.25 per share. CEMEX later announced that it would not deduct the US$0.25 dividend from the offer price.

On application from ASIC, the Panel made a declaration of unacceptable circumstances on the grounds that CEMEX had, in effect, improved the bid consideration after an announcement of a ‘best and final’ offer, and in doing so had misled the market.

The Panel ordered CEMEX to pay $0.25 in compensation to every shareholder who had sold their Rinker shares between the date of the ‘best and final’ offer and the date of the announcement that CEMEX would not reduce the offer price as a result of Rinker shareholders being permitted to keep the final dividend.

Challenge to the Panel’s orders and appeal to the Full Federal Court

CEMEX unsuccessfully challenged the Panel’s orders in both the review Panel and before a single judge of the Federal Court. CEMEX appealed again to the Full Federal Court on a number of grounds. On 30 June 2009, the Full Federal Court handed down its decision in which it rejected all of CEMEX’s appeal arguments and confirmed the original orders made by the Panel.

Whilst there were a number of grounds of appeal, the most interesting, as a challenge to the breadth of the Panel’s powers, was CEMEX’s argument that the Panel did not act properly when it ordered CEMEX to pay US$0.25 in compensation to every shareholder who had sold their Rinker shares between the date of the ‘best and final’ offer and the date of the announcement that CEMEX would not reduce the offer price.

CEMEX argued that no individual shareholder was shown to have suffered financial loss as a result of CEMEX’s conduct nor was there any evidence that the shareholders as a group had suffered loss as a result of that conduct.

The Court rejected CEMEX’s argument and confirmed that, given the terms of the Corporations Act 2001 (Cth) (Corporations Act), the Panel has broad powers to make corrective orders where it has made a determination of unacceptable circumstances. These orders are not limited by traditional concepts of loss and reliance, as they would be under, for example, the Trade Practices Act 1975 (Cth). The Panel may proceed on the basis of a group ‘en globo’ assessment, without the need to consider the loss of any particular shareholder. All that is required is that the Panel is satisfied that the order is appropriate to protect the rights or interests of affected shareholders and that the order be made on a rational basis.

In the present case, the Panel had determined that there were unacceptable circumstances because the market had been misled by the departure from the ‘best and final’ offer and that the appropriate protective order was determined by having regard to the effect of the unacceptable circumstances on the market, being the loss of opportunity to trade in a market that was efficient and informed. The Court did not consider this approach to be improper.

In its decision on other grounds of appeal, the Court made a number of additional observations regarding the Panel’s jurisdiction, including:

  • confirmation that the Panel is not required to consider whether there has been a breach of the Corporations Act in order to make a declaration of unacceptable circumstances (although breach can be a ground for a declaration of unacceptable circumstances);
  • an acknowledgement that the Panel is an expert commercial body, and is able to make decisions and judgments (including as to the effect on the market of particular actions) based, in part, on its expertise and experience in addition to the evidence provided to it by the parties to the proceedings; and
  • confirmation that there is nothing impermissible in the Panel delegating to ASIC certain mechanical functions given that ASIC’s functions include the provision of staff and support facilities to the Panel.