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The Takeovers Panel - An Update 2011

March 2011

 

Topics

1. Purpose
2. Reminder of Panel background
3. The market last year
4. Overview of Panel's process & work
5. What's new
6. Discussion

 

Part 1 - Purpose

 

Purpose of today's session

• Meet with practitioners
• Explain some recent developments
• Discuss issues
• Give feedback

 

Part 2 - Reminder of Panel background

 

Panel organisation

 

Welcome Kathy Farrell

We welcome Kathy Farrell as our new President

Kathy was previously a member from 2001 to 2010

She has had considerable experience as a lawyer in Mergers and Acquisitions and policy

 

Panel members - by profession

Profession	Number of Panel Members
Banker	10
Corporate	14
Finance	4
Lawyer	25

 

Panel members - by location

Location	Number of Panel Members
Melbourne	21
Sydney	19
Perth	6
Brisbane	4
Adelaide	2
New Zealand	1

 

Part 3 - The market last year

 

Control transactions 2008-2010

	Schemes	Takeovers
2008	48	63
2009	24	46
2010	40	55

 

Deals by sector in 2010 - industries

Sector	Percent
Metals & Mining	38
Energy	17
Financials	10
Capital Goods, Chemicals & Materials	10
Telecoms & Media	6
Healthcare	4
Other	15

Type of consideration

	2009	2010
	Percent	Percent
Scrip	53	23
Cash	36	62
Cash/Scrip	11	15

 

Regulatory involvement 2009-2010

	2009	2010
Takeovers Panel	19	14
FIRB	25	27
ACCC	10	8

 

Part 4 - Overview of the Panel's process & work

 

Panel process

• Procedural rules – new rules effective 1 June 2010
• Media canvassing and confidentiality
• Applications:
  • Length – limit in rules
  • Attachments – size, limit number, extract relevant parts, properly identified

 

How an application runs

• Choosing 3 Panel members - conflicts
• Process letter/Declaration of interests
• Conduct proceedings?
• Brief, submission, rebuttals
• Conferences
• Decision, reasons and media releases

 

Procedural changes

• Naming legal and financial advisers to parties in reasons – aids market transparency
• Website upgrade:
  • GN 3 Making Rules and GN 10 Public Consultation – withdrawn
  • More discussion on processes, how quickly applications move, statistics, summary of takeover provisions
• ASIC referrals – more public
• Possible consultation on GN 4 re undertakings as to damages
• Post matter reviews - earlier

 

Panel applicants

	2000-2010 (350 applicants)	2010 (26 applicants)
	Percent	Percent
Bidder/acquirer	37	27
Target	31	19
Shareholder/other	24	50
Rival bidder	6	0
ASIC	2	4

 

Panel applications by year

Year	Number of Applications
2000	22
2001	33
2002	22
2003	49
2004	33
2005	26
2006	36
2007	34
2008	37
2009	32
2010	26

 

Panel matters by decision

Average days from Decision to publication of Reasons

Year	Average Days
2000	11.5
2001	18.8
2002	24.2
2003	17.1
2004	16.4
2005	15.8
2006	16.5
2007	14.4
2008	9.8
2009	13.4
2010	13.3

Average days from Application to Decision

Year	Average Days
2000	20.9
2001	31.8
2002	55.5
2003	84.8
2004	28.9
2005	47.3
2006	92.7
2007	30.0
2008	7.4
2009	4.6
2010	5.2

 

Part 5 - What's new

 

Nearly finished the GN rewrites

Issued a revised GN 1 – Unacceptable circumstances

• Provided some guidance on reverse takeovers

Consulted on three Guidance Notes rewrites:

• GN 6 – Minimum bid price
• GN 13 – Broker Handling Fees
• GN 15 – Trust scheme mergers
• Should finalise GNs in the next month

 

Frustrating action

Transurban Group [2010] ATP 5

• An announced rights issue did not frustrate scheme proposals
• The proposals did not constitute potential bids because they were proposed schemes that were rejected
• The revised proposal was not conditional on the rights issue proceeding

Amendments to GN 12 – Frustrating action

• Acknowledging Transurban
• Allowing for a limited form of private ‘put-up or shut-up’ regime

 

New policy

GN 22 – Recommendations and Undervalue Statements

• Follows Origin Energy Limited 02 [2008] ATP 23 and Tully Sugar Limited [2009] ATP 26
• Allows a holding statement (eg ‘wait for more information’)
• The reasons for an undervalue statement should be clearly disclosed
• Directors must provide shareholders with some guidance as to the value of the target

 

New Issues - Association

The Panel has considered a number of association applications in the last 12 months:

Matter name	Conduct on association?	Declaration of UC?	Orders?
Mesa Minerals Limited [2010] ATP 4	Yes	Yes	Divestment, resticting voting, disclosure
Mesa Minerals 01R [2010] ATP 6	Yes	Declaration varied	Set aside original orders as parties had accepted into bid
Vesture Limited 02 [2010] ATP 15	No	n/a	n/a
Viento Group Limited [2011] ATP 1	Yes	Yes	Divestment, resticting voting, disclosure
Brockman Resources Limited [2011] ATP 3	Yes	No	n/a
CMI Limited [2011] ATP 4 CMI Limited 01R [2011] ATP 5	Yes No	Yes Declaration stands	Divestment, disclosure Orders stand

 

New Issues - Association

Association matters at March 2011

Association	Matters
Not conduct	19
Association found	18
Conduct but no association found	15

 

Association - questions for future policy?

Use rebuttable presumptions in relation to association?

• UK or Hong Kong models?
• Family relationships?
• Other categories?
• Indicators of association rather than rebuttable presumptions?

Should the Panel expect a certain standard for association applications?

 

GN 7 - Overview

Lock-up device	Panel guidance
Break fees	1% of equity value of target Break fee within guidelines may still be unacceptable (eg if triggers unreasonable)
No-shop	Longer period, more anti-competitive Generally does not need fiduciary out
No-due-dilligence & no-talk	Fiduciary out generally required May be less anti-competitive if auction process conducted first
Notification obligations & matching rights	Increase the anti-competitive effect of restrictions

 

RHD - Deal protection measures

  ...deal protection measures need to be subject to certain basic structural requirements to ensure that they do not unreasonably hinder competition for control of the target company.

Ross Human Directions Ltd [2010] ATP 8 at [28]

• The Panel queried the terms of the deal protection measures in the scheme implementation agreement
• Parties undertook to amend the agreement to address the Panel’s concerns

 

Deal protection measures - outcome?

• Not necessarily a "precedent"
• Cap on liability?
• Period of matching rights?
• Drafting?
• Are deal protection measures evolving too far?
• What is the onus on Target directors?
• Experience in other jurisdictions - UK

 

Independent expert reports

We think [the expert’s] report was long and would not have been clear to shareholders. In the instances where matters were raised, this was only remedied by the corrective disclosure we required. While an expert report is often technical, which can make it difficult to simplify, it would be more helpful to shareholders if written with them clearly in mind...

Northern Energy Corporation Limited [2011] ATP 2 at [112]

 

Other issues before the Panel

Representation of directors’ independence

North Queensland Metals Limited 02 [2010] ATP 7
Gladstone Pacific Nickel Limited [2010] ATP 12

Downstream acquisitions

Leighton Holdings Limited 01, 02 and 03 [2010] ATP 13
Leighton Holdings Limited 02R [2010] ATP 14

Interpretation of a force majeure condition

NGM Resources Limited [2010] ATP 11

 

Law reform

A number of proposals for reform being ventilated, including:

• Members’ schemes
• Increasing takeover threshold
• Abolishing or reducing “creep”
• Abolishing prohibition for escalators
• Including long equity derivative positions in substantial holding disclosure and the calculation of voting power for the purposes of s606
• Timetable reforms

 

Takeovers Panel Book

• The Takeovers Panel and Takeovers Regulation in Australia
• Edited by Ian Ramsay
• Published by Melbourne University Publishing
• Chapters written by practitioners

 

Thank you.

Discussion