TP04/031
The Takeovers Panel has today announced that it proposes to review the existing Guidance Note 7 on Lock-up Devices (“GN7”). GN7 provides guidance on the Panel’s attitude towards lock-up devices such as break fees, no-talk agreements, no-shop agreements and asset lock-ups.
As a first stage of this process (“GN7 Review”), the Panel invites interested parties to provide feedback in relation to their observations of GN7’s operations and application so far and what aspects (if any) should be modified.
GN7 was first issued in December 2001. At that time, the Panel recognised that lock-up devices was an area that would continue to evolve in Australia. The Panel stated in GN7 that it would monitor the evolution of, and its own experiences with, lock-up devices, and would adapt GN7 to keep it current and relevant.
The Panel considers that there has been a substantial increase in the use of lock-up devices in Australia during the two and a half years since GN7 was issued. The Panel has also dealt with 5 proceedings with issues relating to lock-up devices in that time. The Panel thinks this is therefore an appropriate time to conduct the GN7 Review.
Some specific issues on which the Panel seeks views (without restricting the matters that may be raised) are:
- Has GN7’s guidance on break fees made more transactions possible, or easier to consummate? If so, how? If not, why not?
- Has the existence of GN7 played a role in encouraging parties to use lock-up devices in circumstances where they would not otherwise have been used?
- Have there been circumstances where a break fee, which appeared to satisfy the formal requirements of GN7, has had an adverse effect on competition? That is, are you aware of examples of potential “counter-bidders” being deterred, or shareholders being coerced into accepting a proposal, by such a break fee?
- Does the 1% limit continue to represent an appropriate guideline to be applied in considering the acceptability of break fees? Should the Panel alter or clarify its application of this guideline?
- Are there any particular paragraphs of GN7 which the public has had difficulty understanding and applying in transactions relating to lock-up devices?
- The Panel proceedings that have dealt with lock-up devices have rarely fallen neatly into the categories or examples set out in GN7. Would it be beneficial to expand the “case examples” approach in GN7 to include the additional scenarios and elements that have been considered by the Panel in those matters?
- Does GN7 give parties who are negotiating a break fee sufficient practical guidance to assess whether the specific break fee being negotiated is likely to attract adverse comment from the Panel?
- Does GN7 clearly explain the key criteria the Panel will apply in assessing the effect of a lock-up device on competition for control?
- Should there be any specific restrictions or prohibitions in GN7 on break fees payable to a bidder who already controls the target?
- Is it appropriate for a break fee to apply to a transaction that is subject to approval by the shareholders of the grantor (in general meeting)?
- Should GN7 be expanded to provide guidance on when standstill agreements would be considered likely to infringe on the principle of an efficient, competitive and informed market?
Comments are sought on the GN7 Review by Friday, 28 May 2004. GN7 is available on the Panel's website on the Guidance page.
Jeremy Kriewaldt
Counsel, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3553
jeremy.kriewaldt@takeovers.gov.au