Guidance Note 1 - Unacceptable Circumstances - Public Consultation Response Statement [11/07/2018] The Takeovers Panel

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11 July 2018

Guidance Note 1 - Unacceptable Circumstances - Public Consultation Response Statement

Introduction

On 14 March 2018, the Takeovers Panel released a Consultation Paper seeking public comments in relation to proposed revisions to Guidance Note 1 on Unacceptable Circumstances. The proposed revisions give an example of unacceptable circumstances following a last and final statement in relation to a takeover bid.

Comments on the Consultation Paper were due by 20 April 2018. The Panel received submissions from Arnold Bloch Leibler, ASIC, Herbert Smith Freehills, the Law Council,1 MinterEllison and Mr Simon Mordant AM (in his personal capacity) (Annexure A). The Panel thanks the respondents for their comments. Consistent with the Panel's published policy on responding to submissions, this statement sets out the material comments received by the Panel and the Panel's response.

Attached is a copy of the final Guidance Note 1, in mark-up to show the changes from the draft circulated with the Consultation Paper (Annexure B).

Do you agree that there is uncertainty in the market regarding how long a last and final statement will be treated as having ongoing effect following the close of a bid? If so, does the proposed guidance provide greater certainty to the market?

Comments

The majority of respondents submitted that there is uncertainty and that the proposed guidance would provide greater certainty.

The Law Council acknowledged the diversity of views in the market, but on balance submitted that "if bidders are contemplating or choose to make "no increase" or similar "truth in takeovers" statements, for example as part of their "end game" strategy in a takeover bid, it would greatly assist them in particular and for the market generally to have more specific guidance (such as the proposed guidance) as to the timeframe that bidders may be held to such statements" (footnotes excluded).

One respondent submitted that the proposed guidance should not impose a meaning on last and final statements that is not consistent with the carefully chosen wording of bidders. It drew a distinction between last and final statements that expressly apply to the current bid or for a prescribed period (where it argued a "wait period" should not apply) and other last and final statements (where it argued a "wait period" should apply).

One respondent disagreed with the proposed guidance and submitted that the Panel's question is premised on a law or existing policy that a last and final statement has ongoing effect and that this is not the case. It submitted that the Panel can determine whether a departure from a last and final statement is unacceptable on a case by case basis having regard to the bidder's statement, bidder's conduct and overall circumstances of the target. It also submitted that there was no clear evidence of confusion or actual instances of departure from last and final statements after bids have closed (to its knowledge) that warranted guidance that in its view re-writes the existing law and policy.

Panel response

The Panel considers that there is sufficient uncertainty in the market to justify guidance. The Panel acknowledges that there is a range of views regarding the period before which departure from last and final statements may give rise to unacceptable circumstances. This is representative of uncertainty in the market. The Panel has decided to proceed with its proposed guidance to provide the market with more certainty.

The Panel does not consider it necessary to clarify what constitutes a "clear qualification". This would need to be determined in the circumstances.

What are the possible unintended consequences (if any) of the proposed guidance?

Comments

Two respondents raised concern that the example given in the proposed guidance only relates to last and final statements made by bidders and not other market participants.  One respondent also considered "anomalous" that the example given applies to "no increase" statements but not other types of last and final statements such as "no extension" and "no waiver" statements.

Two respondents expressed the concern raised above as to whether a statement that applies to the existing bid and not any future bid would be a "clear qualification" allowing a bidder to bid again.

ASIC submitted that the proposed guidance recognises a possible ground for unacceptable circumstances that has always existed.  Given this view, ASIC considers there is limited likelihood of significant unintended consequences from the Panel's efforts to seek to clarify the timeframe more precisely, provided the timeframe represents a reasonable conclusion as to what an ordinary investor would consider it to be. 

One respondent raised a concern that because the example given in the proposed guidance only concerns where a bidder "makes" another bid (which is generally accepted as meaning that a bidder making an off-market bid has served a bidder's statement on a target), the proposed guidance would be undermined by the bidder announcing a new bid within the 4 month wait period (which a bidder could do within 2.5 months (or 2 months with the target's consent) after its first bid closes).  It submitted that "makes" should be amended to "announce".  Three other respondents also raised this issue (in response to other questions).

Panel Response

The Panel accepts respondents' comments to change "makes" to "announces".  The Panel also removed the word "proposes" in relation to a scheme so that a subsequent bid or scheme are on equal footing.  See footnote 39 in Annexure B.

No other changes were considered appropriate at this time.  The Panel notes that the guidance is intended to be an example from which future Panels, taking a principles based approach, can extrapolate to deal with the circumstances at hand.

Do you agree with the suggested 4 month wait period? Is some other time period more appropriate?

Comments

Three respondents generally considered 4 months to be an appropriate wait period.  One respondent had no firm view on the length of the wait period.  One respondent did not consider that any wait period is appropriate.

ASIC submitted that 4 months was too short and a period of at least 6 months was more in line with "what the market would on average consider is a period during which a bidder could be expected to be held to its statement that an offer is final".  It also submitted that there was statutory support for a 6 month period referring to item 9 of s6112 and s664AA.

Panel Response

The Panel considers that a 4 month wait period is appropriate.

Should there be an exception for a "material change" or "exceptional circumstance" occurring during the wait period? If so, how should these terms be defined?

Comments

One respondent did not consider that there should be any exceptions, noting that a bidder is free to qualify its statement.  It submitted that a general exception would arguably undermine the broader truth in takeovers policy.  ASIC expressed a similar view. 

One respondent submitted that the only potential exception should be if a third party proposal emerges so that target shareholders are not disadvantaged by not allowing the initial bidder to bid again.

One respondent submitted that there should be an exception for a change in circumstances previously unknown and outside the control of the bidder which has the potential to materially increase the value of the target's shares to the bidder. 

The Law Council expressed two different perspectives on this.  One that there be no general exception.  The other that many market participants and advisers currently understand that there is a "material change in circumstances" exception that applies to last and final statements.  It submitted that this view is consistent with the basis of the policy because a departure from a statement where there is a material change is unlikely to offend that underlying policy.  It submitted that there is difficulty in defining what constitutes a "material change in circumstances" and suggested that it could be defined as some or all of the 'prescribed occurrences' in s652C or to reflect s670F.

One respondent submitted that, if the proposed guidance is adopted, then extensive exceptions are required so that target shareholders are not prejudiced.  At a minimum, it submitted that the wait period should end on the occurrence of most of the matters in s652C.

Panel Response

The Panel does not consider that exceptions are required and is concerned that any general exception may undermine the policy.  It does not agree that exceptions based on ss652C or 670F were necessarily helpful or appropriate.

In relation to the alternative view of the Law Council, the Panel does not accept that there is already an exception for a "material change in circumstance".  The Panel notes that a bidder is free to include clear qualifications and expects that the guidance will focus bidders' last and final statements.

Should the proposed guidance be extended to a last and final public statement made or authorised by a bidder in connection with a preliminary approach seeking an agreed control transaction? If so, when would the wait period commence?

Comments

A majority of respondents considered that the guidance should be extended to a last and final public statement made or authorised by a bidder in connection with a preliminary approach and that the wait period should run from the date of the statement.

One respondent considered that the policy should only apply to actual proposals capable of acceptance.

One respondent submitted that the guidance should only be extended if there is evidence of this behaviour occurring.

Panel Response

The Panel considers that it is not necessary to extend the guidance at this time to cover a last and final public statement made or authorised by a bidder in connection with a preliminary approach.  The guidance does not exclude the policy from applying in the context of these statements.  As noted above, the principle expressed in footnote 39 is intended to be considered by the Panel in other circumstances.

Please identify any amendments you think should be made to the draft revisions.

Comments

In addition to suggested changes to address matters expressed above, other suggested amendments included:

  • extending the guidance to "no extension" and "no waiver" statements
  • restricting subsequent confidential non-binding approaches during the 4 month period
  • applying the guidance to failed or abandoned schemes and
  • making clear that if a new bid is made the day after the end of the 4 month period, this will not, of itself, give rise to unacceptable circumstances.

Panel Response

Other than the change to footnote 39 in Annexure B, for the reasons expressed above, the Panel does not consider any further changes to the guidance are appropriate at this time.

11 July 2018


Annexure A: Submissions

Download the submissions [PDF 3.01MB]

Submissions were received by the following

  • Arnold Bloch Leibler
  • ASIC
  • Herbert Smith Freehills
  • Law Council
  • MinterEllison
  • Mr Simon Mordant AM (in his personal capacity)

Annexure B: Guidance Note 1 - Mark up from the draft in the Consultation Paper

Download a marked up version of Guidance Note 1 [PDF 385KB]


1 - The Corporations Law Committee of the Business Law Section of the Law Council of Australia

2 - Unless otherwise indicated, all statutory references are to the Corporations Act 2001 (Cth), and all terms used in Chapter 6 or 6C have the meaning given in the relevant Chapter (as modified by ASIC)