BreakFree Limited 04(R) - Review Panel Confirms Initial Panel Decision

Release number


The Panel advises that the BreakFree 04(R) Review Panel (Review Panel) has confirmed and extended the decision of the BreakFree 04 Panel (Initial Panel) in relation to the affairs of BreakFree Limited (BreakFree), as set out in the Panel's Media Release TP03/106.

First Instance Decision

The proceedings concerned an announcement by BreakFree on 12 September 2003 (the BreakFree Announcement) about a survey of its shareholders' intentions whether to accept a scrip bid which S8 had announced that it would make for all of the shares in BreakFree and the response of S8 Limited (S8) to the BreakFree Announcement, culminating in S8's announcement on 8 October 2003 that it would drop its announced scrip bid for BreakFree.

The BreakFree Announcement stated that certain shareholders in BreakFree (whom it did not name) intended not to accept the bid, and how many shares in BreakFree they held. That number was enough that the 50.1% minimum acceptance condition in the bid could not be satisfied without their acceptances. The statement did not appear to have been made on behalf of those shareholders.

On 8 October 2003 S8 announced that it had dropped the scrip bid and that instead it would make a cash bid for all of the shares in BreakFree. That bid was made and is presently due to close on 24 December 2003. BreakFree applied to the Initial Panel to declare that unacceptable circumstances in relation to the affairs of BreakFree had resulted from S8's conduct.

The Initial Panel found that unacceptable circumstances in relation to the affairs of BreakFree arose from S8's extended delay in responding to the BreakFree Announcement, because in the absence of any further announcement by S8, the market was entitled to infer that the S8 would proceed with its scrip bid despite the BreakFree Announcement. The facts supporting this inference included S8's failure to disclose to ASIC, the market or the Panel that it was preparing a cash alternative to its scrip bid and features of the BreakFree Announcement which meant that it was not a satisfactory basis for a decision by S8 that its scrip bid could not succeed.

While the Initial Panel made a declaration that unacceptable circumstances had resulted from S8's delay in announcing the change in the structure of its bid, it pointed out that the BreakFree Announcement could not be relied upon (because the people to whose intentions it related took no responsibility for the statement) and that the announcement was an important ingredient of the situation which the Panel characterized as unacceptable. The Initial Panel made no orders to remedy the circumstances, citing the impracticability and limited benefit of requiring S8 to proceed with its scrip bid, after the cash bid had been made.

Decision on Review

S8 applied for review of the decision at first instance, submitting that the declaration should not have been made concerning its conduct, because S8 had been entitled to rely on the BreakFree Announcement and BreakFree was principally to blame for any adverse effects on the market in BreakFree shares, because it had been irresponsible to make the BreakFree Announcement. It also submitted that the declaration should not have been made at all, since the Initial Panel had determined to make no orders to remedy unacceptable circumstances.

The Review Panel confirmed the Initial Panel's decision, with one variation. It considered that the set of circumstances which resulted from the BreakFree Announcement and S8's delayed response to the BreakFree Announcement was unsatisfactory and tended to prevent the acquisition of shares in either company taking place in an efficient, competitive and informed market, to a degree which was unacceptable. It rejected S8's submission that S8 had been entitled to act as it did in reliance on the BreakFree Announcement, for the reasons mentioned by the Initial Panel in the announcement of its decision.

However, the Review Panel wishes to make it clear that the declaration concerns the set of circumstances which existed because of the BreakFree Announcement and S8's delayed response to that announcement, and not the conduct of the parties itself. That is, the declaration is not that the conduct of either S8 or BreakFree was unacceptable, but that the set of circumstances to which the conduct of both of them contributed was unacceptable. It has amended the declaration to clarify this. The amended declaration is attached.

The Review Panel rejected S8's submission that a Panel should not make a declaration of unacceptable circumstances unless the declaration is the foundation for orders designed to remove or remedy the circumstances. A declaration can be made to draw attention to the sorts of situations which parties should avoid creating in future, because of their propensity to affect adversely participants in the market.

Invitation to make Submissions on Remedial Orders

Since the Panel has received no submissions from people other than BreakFree, S8 and ASIC that orders should be made to remedy specific adverse effects of the events which it has considered, it will not decide whether to make orders until after 24 December, to allow anyone (other than BreakFree, S8 or ASIC) who believes they were adversely affected by those events to make submissions about the adverse effects and the orders that should be made. Any submissions should be received at the address below no later than 24 December 2003.

David Gonski (sitting President), Robyn Ahern and Kevin McCann are the Review Panel.

The Panel will post its reasons for this decision on its website when they have been settled.

George Durbridge
Director, Takeovers Panel
Level 47, Nauru House,
80 Collins Street, Melbourne VIC 3000

Ph: +61 3 9655 3553


Corporations Act
Section 657A
Variation of Declaration of Unacceptable Circumstances

In the matter of BreakFree Limited 04(R)

Pursuant to section 657A of the Corporations Act, the Takeovers Panel hereby varies the declaration of unacceptable circumstances made on 24 October 2003 in relation to the affairs of BreakFree Ltd to read as follows:


  1. On 11 July 2003 S8 Limited (S8) announced a takeover bid (the Scrip Bid) for BreakFree Limited (BreakFree) in which S8 offered shares in S8 as consideration for BreakFree shares.
  2. The bidder's statement for the Scrip Bid was the subject of the BreakFree 03 proceedings before the Panel. Resolution of the issues in those proceedings was postponed pending the resolution of the BreakFree 04 proceedings.
  3. On 12 September 2003, BreakFree provided a letter to its shareholders, which was also posted through the ASX Company Announcements Platform, in which, among other things, it stated that:

    Survey on Shareholder's Intentions

    BreakFree's adviser in these matters [concerning the Scrip Bid], ABN AMRO Morgans, has undertaken a telephone survey of some of the major individual shareholders [in BreakFree] to ascertain their likely acceptance of the current scrip offer.

    Based on the survey responses, ABN AMRO Morgans has advised the Board that shareholders holding a majority of shares indicated that they would not accept the current all scrip offer from S8.

These statements are referred to as the `BreakFree Statements'.

  1. The Panel was provided with copies of the script used in the conversations with each of the shareholders surveyed by ABN AMRO Morgans as well as the results of the surveys. The Panel considered that, in light of this information, the BreakFree Statements were misleading or tended to mislead.
  2. 26 days after the BreakFree Statements were made (that is, on 8 October 2003), S8 announced that it would not be proceeding to make offers under the Scrip Bid. S8 indicated that it was entitled to take this course of action because of the BreakFree Statements which meant that one of the defeating conditions (that is, the condition requiring acceptance of the Scrip Bid for a minimum of 50.1% of the BreakFree shares) in the Scrip Bid could not be fulfilled.

Under section 657A of the Corporations Act, the Takeovers Panel declares that the circumstances described in recitals C, D and E constitute unacceptable circumstances in relation to the affairs of BreakFree.

David Gonski

President of the Sitting Panel

Dated 18 December 2003