This article explains how an off-market takeover bid can be used to acquire control of a listed Australian company.

What is an off-market takeover bid

Takeover bids are the most common way in which control of Australian listed companies and managed investment schemes is acquired.

There are two types of takeover bids: off-market and on-market, with off-market takeover bids being far more common than on-market takeover bids.

An off-market takeover bid is a procedure under Chapter 6 of the Corporations Act under which a bidder makes individual offers directly to all target securityholders to acquire their securities.

Target securityholders are free to decide whether or not to accept the bidder's offer – if they accept then the bidder acquires their target securities.

If the target board recommends that target securityholders accept the bidder's offer from the outset, the off-market takeover bid is considered 'friendly'. As an off-market takeover bid is driven by the bidder and does not require target consent or co-operation, it can also be used for a 'hostile' acquisition of a target.

Interestingly, hostile off-market takeover bids are more common than friendly off-market takeover bids, and in most cases an off-market takeover bid that starts as a hostile bid is only successful if it is ultimately recommended by the target board.

Overview of an off-market takeover bid

An off-market takeover bid consists of sending offers contained in a bidder's statement to target securityholders, a response by the target in its own target's statement, and target securityholders lodging acceptance forms and receiving cash or scrip (or a combination thereof) as consideration from the bidder in exchange for their target securities.

The key phases and steps for a friendly off-market takeover bid are shown below. For a hostile off-market takeover bid, Phases 1 to 3 are more limited.