The Panel announces that it has decided to set aside a decision made by the Australian Securities & Investments Commission (ASIC) to refuse an application by Fexco Investments Australia Limited (FIA), Fexco Money Transfer Limited, FEXCO, Mr Geoff Bell and Mr Peter Jess (together the Applicants) in relation to FIA's takeover bid (the Joint Bid) for Prudential Investment Company of Australia Limited (PICA).
The Joint Bid was made by FIA on behalf of all of the Applicants.
To permit them to make the Joint Bid, the Applicants sought, and obtained, relief (the Original Relief) from ASIC on 19 May 2003 from section 606 of the Corporations Act. The Original Relief included a condition (the ASIC Condition) which required the bid to be subject to a non-waivable defeating condition (the Bid Condition) to operate if acceptances are not received from at least 50.1% of PICA shareholders not associated with the Applicants at the commencement of the bid period (the Head Count Test).
On 28 August 2003 ASIC revoked the Original Relief and replaced it with relief (the Current Relief) which still included the ASIC Condition, but also allowed the Applicants to disregard, when determining compliance with the Bid Condition, a large number of very small parcels which appeared to be the result of share-splitting.
In the context of the application for the Current Relief, ASIC staff offered to consider an application to amend the Original Relief so that the ASIC Condition would be satisfied if Fexco received acceptances for 50.1% of the PICA shares in respect of which the Applicants did not have a relevant interest at the commencement of the bid period (the Share Count Test). The Applicants declined that offer on the basis that at the time they did not consider that such a condition would be satisfied.
On 11 September 2003, Fexco sought a modification to the Current Relief to allow the ASIC Condition to be based on a Share Count Test. By that time, the circumstances which caused the Applicants to decline ASIC's earlier offer to consider such a modification had changed.
The application (the Application) in the Panel proceedings was to review ASIC's refusal to amend the Current Relief, to replace the Head Count Test with a Share Count Test.
The Panel's decision
The Panel has decided that the Application can be upheld on either of two bases.
First basis - Satisfaction of the policy behind the imposition of the ASIC Condition
ASIC's policy in relation to joint bids is set out in ASIC Media Release [01/295]. That document indicates that the ASIC Condition is imposed to ensure that joint bids proceed at a price that a majority of the target shareholders regard as acceptable and to prevent joint bidders taking control at less than a fair price.
In the Panel's view, that policy justification has been fulfilled in relation to the Joint Bid since the inference that the bid is fully priced is supported by the following:
- the Joint Bid has been accepted by shareholders holding approximately 83.5% of the shares to which offers made under the bid related (that is, excluding the shares held by the Applicants);
- there was a rival bidder for control of PICA (LKM Capital Limited), after whose emergence an auction for control developed in which the Applicants eventually offered the highest price. The rival bidder received acceptances for only 0.44% of the shares in PICA;
- the report by an independent expert appointed by PICA, in particular the fact that the price now offered under the Joint Bid is 30% greater than the high end of the valuation by the independent expert; and
- holders of 64% of the marketable parcels of shares subject to the Joint Bid have accepted the bid.
The satisfaction of the policy behind the ASIC Condition supports the grant of the relief requested in the Application.
On the basis of the figures provided to the Panel, the Bid Condition would have been satisfied if it had been based on the Share Count Test.
The second basis - Exclusion of lost and abandoned shareholdings
The Application was also supported by the logic of the superseded ASIC Policy Statement 98 (even if procedures laid down in that policy statement have not been followed precisely). That policy statement addressed the way in which lost and abandoned shareholdings were to be dealt with in determining compliance with a test similar to the Head Count Test in the former provisions in the Corporations Law relating to compulsory acquisition of shares following a takeover bid.
The evidence concerning lost and abandoned shareholdings provided by the Applicants and PICA supported an inference that more than half of the non-associated shareholders (after taking into account the aggregation relief granted by ASIC) who are aware of the bid have accepted it.
The information supporting this finding was not provided to ASIC by the Applicants when they made their original application. However, the Panel has decided that the grant of the relief requested by the Applicants on this basis was nevertheless appropriate. In particular, the Panel is of the view that if the Head Count Test is used as the basis for the ASIC Condition, then it is appropriate to exclude lost and abandoned shareholdings and to aggregate any instances of share splitting when calculating compliance with that condition.
The market integrity principle
ASIC submitted that the Joint Bid had proceeded for too long on the basis of the inclusion of the Bid Condition, and that the Bid Condition was non-waivable, for it to be changed now. For that reason, changing either of these aspects of the Joint Bid would adversely impact on an efficient, competitive and informed market for PICA shares.
However, the Panel is of the view that the 'market integrity' principle is not offended by its decision to allow the Joint Bid to be declared free of the Bid Condition. The application of that policy to the Bid Condition arose solely because of ASIC's own requirement that the Bid Condition be included in the Joint Bid and that it not be able to be waived, and was not said to be based on any statement of independent intention on the part of the Applicants. The Panel considers that the Bid Condition and its non-waivable nature was an expression of ASIC's policy and would be understood by the market to be capable of change according to the dictates of proper policy. Consequently, the Bid Condition always was one which could be amended or omitted with ASIC's consent, should policy require. The Panel considers that both ASIC and the market should have recognised this.
No evidence was provided to the Panel that any shareholder acted to their detriment in reliance on the non-waivability of the Bid Condition being immutable.
Relief granted by the Panel
As the grant of relief can be supported on the basis of either of the alternatives referred to above, the Panel considers that it makes little difference whether the relief takes the form of allowing the bidder to replace the Bid Condition with a condition which is already satisfied, or simply removes the ASIC Condition from the Current Relief.
In the circumstances, the Panel has decided to set aside the ASIC decision which is the subject of the Application. The Panel proposes to vary the Current Relief to omit the ASIC Condition which will allow the Applicants to announce that the bid is free of its defeating conditions. On the basis of the information provided to the Panel it understands that if the Joint Bid becomes free of all defeating conditions then FIA will be able to proceed to compulsory acquisition of the remaining shares in PICA.
The decision will have no effect on any rights people may have in damages under section 670A or 1041H, because of the Applicants' conduct in relation to the condition.
The sitting Panel comprised Andrew Knox (sitting President), Karen Wood (deputy President) and Elizabeth Alexander.
The sitting Panel will post its reasons for decision on the Panel's website when they have been finalized.
Director, Takeovers Panel
Level 47 Nauru House,
80 Collins Street, Melbourne VIC 3000
Ph: +61 3 9655 3553 Fax: +61 3 9655 3511