The Panel has consented to the withdrawal of the application by Pacific Energy Limited (PEA) dated 14 September 2004 alleging unacceptable circumstances in relation to the off-market takeover bid by Energy World International Limited (EWI) for all the ordinary shares in PEA.
The Panel’s consent follows EWI’s agreement not to waive the 50% minimum acceptance condition under its bid and to lodge a substantially amended bidder’s statement containing further disclosure regarding a range of matters, but in particular:
- the litigation between the PEA group, on the one hand, and EWI and its associates on the other hand (the Litigation); and
- EWI’s intentions as to how those conflicts of interest will be managed if (after the bid) EWI and its associates have relevant interests in between 50% and 90% of the shares in PEA.
- a declaration of unacceptable circumstances under section 657A of the Corporations Act 2001 (Cth);
- interim orders restraining EWI from dispatching the bidder’s statement to PEA shareholders pending final determination of proceedings by the Panel; and
- final orders to rectify the alleged deficiencies in the bidder’s statement and to require that EWI’s takeover offer be made subject to a 90% minimum acceptance condition.
In particular, PEA alleged that there were a range of deficiencies in the bidder’s statement, including in relation to disclosure concerning:
- the nature and possible effects of the Litigation on PEA;
- the intentions of EWI and its associates with respect to the Litigation if EWI and its associates owned between 50% and 90% of the shares in PEA following the takeover bid, including its intentions as to how conflicts of interest would be managed;
- the composition of PEA’s board if EWI and its associates owned between 50% and 90% of the shares in PEA following the takeover bid;
- the relationship between EWI and Energy World Corporation Limited (EWC), and the performance of EWC while EWC has been controlled by EWI; and
- the funding of EWI’s takeover bid.
Shortly after the Panel received the application, EWI indicated that it would seek to resolve many of the issues raised in the application by negotiation with PEA. In connection with this, EWI gave an undertaking to PEA and the Panel that it would not dispatch its bidder’s statement without 48 hours’ prior notice to both PEA and the Panel.
Accordingly, the Panel did not grant the interim orders sought.
Outcome of negotiations
The negotiations between PEA and EWI resulted in substantial changes to the bidder’s statement.
The Panel was concerned at the potentially coercive effect which the Litigation might have on shareholders in PEA. In particular, the Panel considered that it would not be consistent with the existence of an efficient, competitive and informed market if PEA shareholders felt that they had no choice but to accept EWI’s takeover bid because of concerns that PEA would not properly manage the defence of the Litigation if it acquired control of PEA.
In response, EWI agreed:
- to tighten the statements in its bidder’s statement concerning how it intended to handle the Litigation;
- to represent in its bidder’s statement that it would use its best endeavours to ensure that those intentions were carried out; and
- not to waive its 50% minimum acceptance condition.
Due to the automatic extension provisions in the Corporations Act, EWI’s agreement not to waive the 50% minimum acceptance condition ensures that shareholders in PEA will have a reasonable opportunity to accept EWI’s takeover bid after control of PEA passes to EWI (if, in fact, control does pass). This in turn will ensure that shareholders should not feel pressured into accepting the takeover bid merely because effective control might pass to EWI (for example, because of concerns that the offer period might end with EWI and its associates owning 48% of the shares in PEA and that they might be left as part of an entrenched minority in circumstances where the controlling shareholder is in a material dispute with the company).
The Panel did not consider that the information presented in the application warranted the Panel conducting proceedings in relation to the question of whether unacceptable circumstances existed because the bid was not subject to a 90% minimum acceptance condition.
The Panel consented to the Application being withdrawn having regard to the amendments made to the bidder’s statement made by EWI.
The Panel will publish reasons for its decision in due course, in which it will address in more detail issues relating to conflicts of interest arising from litigation between a bidder and a target.
The sitting Panel is Les Taylor (sitting President), Graham Bradley (sitting Deputy President) and Guy Alexander.
Director, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3501