About The Takeovers Panel

Glossary

The table below contains some terms which are regularly encountered in commercial practice. The terms and their meanings are provided as a guide only and are not intended to be definitive.

Comments on the meaning of terms in this glossary, or suggestions for additional terms, can be provided to the executive at: takeovers@takeovers.gov.au.

In this glossary:

  • we use "offer" to mean a proposal by a bidder to acquire all, or a proportion, of the issued share capital of a target company by way of bid or scheme
  • we use "company" as a reference to companies and managed investment schemes
  • we use "shares" as a reference to shares in a company and units or other interests in a managed investment scheme and
  • section references are to sections of the Corporations Act 2001 (Cth), unless otherwise noted.

602 principles

The principles contained in section 602, which include the Eggleston principles (paragraphs (b) and (c) below) and the Masel principle (paragraph (a) below). The principles set out the objectives of the takeover provisions in the Corporation Act, which are that:

  1. the acquisition of control over the shares in a company takes place in an efficient, competitive and informed market
  2. the holders of shares in a company:
    • know the identity of any person who proposes to acquire a substantial interest in the company
    • have a reasonable time to consider any proposal to acquire their shares and
    • are given enough information to allow them to consider the merits of any proposal to acquire their shares
  3. as far as practicable, all shareholders have a reasonable and equal opportunity to participate in any benefits accruing to shareholders through a proposal under which a person would acquire a substantial interest in the company and
  4. an appropriate procedure is followed as a preliminary to compulsory acquisition.

asset lock-up

An arrangement between a bidder and target for the sale, purchase or encumbrance of an asset (often the crown jewels) in exchange for:

bear hug

Where a bidder approaches a potential target stating (privately or publicly) that it will make an offer only if it receives a favourable recommendation from the target's board of directors.

BIA or bid implementation agreement

An agreement, often including one or more lock-up devices, entered into between a bidder and target setting out the key terms and conditions on which the bidder agrees to bid for the target.

bid or takeover bid

An exception to the takeover prohibition involving a formal proposal by a bidder to acquire all (or a proportion) of the shares in a target company from the target company's shareholders which the bidder does not already own or control. A bid may be a market bid or an off-market bid. See section 616.

break fee

Consideration payable by a target if specified events occur which prevent a bid from proceeding or cause it to fail.2

compulsory acquisition

A statutory process by which a shareholder that owns 90% or more of a company can compulsorily acquire the remaining shares in the company. See section 661A, section 662A, section 663A and section 664A.

control premium

The amount paid or offered by a bidder above the prevailing market price of a target company's shares to obtain control of a target company.

control transaction

A bid, scheme or other transaction under which a person (the 'bidder') obtains control over a company (the 'target').

creep

An exception to the takeover prohibition which allows a person to acquire up to a further 3% of a company's issued share capital in any 6 month period. See item 9 of section 611.

crown jewels

A key asset or assets of a company.

deal protection measures

See lock-up device.

demerger

A form of corporate restructure in which shareholders in a parent company gain direct ownership in a subsidiary company that they formerly owned indirectly through that parent company (being the 'demerged company').

due diligence

The process of investigating the operational, financial and other aspects of a company before entering into a transaction with that company.

Example: A bidder may undertake due diligence on a target company before making an offer to investigate matters that may be relevant to the future success and profitability of the target company.

Eggleston principles

A set of principles formulated by the Company Law Advisory Committee in 1969 (named after the committee's chairman, Sir Richard Eggleston) which provide the philosophical basis of the present takeover legislation and which form part of the 602 principles.

'fiduciary out'

A provision which allows the directors of a party to be relieved of a lock-up device (or aspects of it) if their directors' duties require them to do so.3

friendly bid

A bid that is recommended by the target's board of directors (often recommended "in the absence of a superior offer").

go shop

A clause in an agreement between a target and a potential bidder which specifies a period of time during which the target is entitled to solicit a competing proposal.

golden parachute

An agreement between a company and an employee (usually a key employee) which gives the employee the right to terminate his or her employment and receive a substantial termination payment in the event of a hostile bid.4 Can operate as a poison pill.

greenmail

The practice of purchasing shares in a target company to prevent a bidder being able to proceed to compulsory acquisition and so forcing the bidder to buy those shares at a premium to gain 100% of the target.

hostile bid

A bid which the directors of the target recommend that shareholders do not accept.

lock-up device

A clause in an agreement between a target and a potential bidder which encourages or facilitates a particular control transaction and potentially hinders another actual or potential control transaction.5 Examples include:

MAC or material adverse change

A common condition of an offer which provides that the bidder may withdraw its offer if any change occurs that has a material adverse effect on the business, assets, financial or trading position, or profitability of the target.6

Example: A bidder may seek to rely on a MAC condition if the target announces a profit downgrade of 20% or a major natural disaster destroys the target's key asset, each during the offer period.

market bid or on-market bid

A type of bid in which a stockbroker acting on behalf of the bidder offers to acquire shares in the target on-market at a specified price (being the offer price). Any increase in consideration during the bid is not given to shareholders who have already accepted (in contrast to an off-market bid).

Masel principle

One of the 602 principles which states that the acquisition of control over the shares in a company must take place in an efficient, competitive and informed market. It was named after its contributor, Mr Leigh Masel, who was the then chairman of the National Companies and Securities Commission.

matching right

A clause in an agreement between a target and a potential bidder that provides the potential bidder with the right to match or better a competing proposal made for the target.

merger of equals

The combination (by bid or scheme) of two companies of approximately the same size.

'naked no vote' break fee

A break fee payable in a scheme if the target shareholders do not approve the scheme.

no due diligence

A clause in an agreement between a target and a potential bidder that restricts the target from granting due diligence access to potential competing bidders without the first bidder's consent.

no shop

A clause in an agreement between a target and a potential bidder which prohibits the target from soliciting competing proposals from potential competing bidders.7

no talk

A clause in an agreement between a target and a potential bidder which prohibits the target from discussing competing proposals with potential competing bidders.8

off-market bid

A type of bid in which each shareholder in the target company receives a letter of offer from the bidder which the shareholder must sign and return in order to accept the bid. Any increase in bid consideration is given to shareholders who have already accepted the bid (in contrast to a market bid).

offer period

The time that a bid is open for acceptance by target shareholders. See section 624.

poison pill

A strategy implemented by target companies before a bid is announced to thwart hostile takeovers by making the target's shares prohibitively expensive or the target otherwise unattractive to a bidder.

A common "poison pill" in the United States (where the concept was created in the 1980s) is a shareholder rights plan, which typically gives existing shareholders of a target company (excluding the bidder) the right to buy shares in the target at a discount (usually for nominal consideration) once the bidder acquires control, thus diluting the interest of the bidder and raising the cost of the bid. The "poison pill" term is loosely used in Australia to refer to any transaction or arrangement which makes a target unattractive, such as pre-emptive rights or share top-up rights which are triggered in a hostile bid.

private equity fund

An investment fund that has a mandate to take controlling positions in companies to increase their profitability and then sell the company later at a profit.

put up or shut up
or PUSU

A requirement of Rule 2.6 of the UK Takeover Code which imposes a deadline before which a potential bidder must clarify its intentions and either "put up" (i.e. make an offer), or "shut up" (i.e. publicly state that it has no intention to make an offer).

reverse break fee

A fee payable by a bidder to a target (to compensate the target for the costs and expenses of the bid or scheme) where the bidder causes the bid or scheme to fail or allows it to lapse.

reverse takeover

A takeover where the bidder seeks to acquire a target for scrip consideration which results in the target shareholders becoming the majority shareholders of the combined entity.

scheme or scheme of arrangement

A court supervised arrangement between a company and its shareholders, which is an exception to the takeover prohibition and an alternative to a bid.

scrip consideration

Shares in the bidder being offered to target shareholders as consideration for their shares.

SIA or scheme implementation agreement

An agreement entered into between a bidder and target under which the target agrees to propose a scheme to its shareholders and containing the terms and conditions on which the bidder proposes to acquire the target.

standstill

A provision restricting a person from increasing a shareholding for a specified time.

substantial holder

A shareholder who holds 5% or more in a company. Substantial shareholdings must be disclosed. See section 671B.

synergy

The efficiency gain created by bringing two or more companies or functions together.

takeover

The acquisition of a company (the target) by a person (the bidder) pursuant to a takeover bid. See section 616.

takeover prohibition

The restriction in section 606 which prevents a person acquiring an interest in more than 20% of the shares in a widely held company without satisfying one of the exceptions in section 611, such as creep, takeover or scheme.

toehold

The shareholding that a potential bidder has in a potential target prior to making an offer.

truth in takeovers

A general reference to the principle regarding false and misleading statements in takeover bids which provides that a company may not depart from particular statements made during the offer period.9

Example: If a bidder publicly states that it will not improve the consideration offered to target shareholders and then later seeks to increase the consideration, it would be in breach of the 'last and final statements' policy and would risk regulatory action as a result, including a declaration of unacceptable circumstances.

white knight

An investor who acquires shares in a target company to help that company defend against a hostile bid.


1 See GN 7 Lock-up devices at paragraph 5

2 See GN 7 Lock-up devices at paragraph 5

3 See GN 7 Lock-up devices at paragraph 5

4 Largely limited in Australia by section 200G and section 1325C

5 See GN 7 Lock-up devices at paragraph 5

6 See NGM Resources Limited [2010] ATP 11

7 See GN 7 Lock-up devices at paragraphs 19 to 21

8 See GN 7 Lock-up devices at paragraphs 25 to 29