The Panel announces that it is prepared to conclude proceedings in response to an application from CMM Hotel & Retail Investments Pty Ltd (CMM) under section 657C of the Corporations Act1 in relation to the affairs of Australian Leisure & Hospitality Group Limited (ALH) and the current takeover offer by Bruandwo Pty Ltd (Bruandwo) for ALH.
The Panel has advised the parties to the proceedings that it proposes to decline to make a declaration of unacceptable circumstances in relation to Bruandwo’s announcement on the afternoon of Monday 18 October concerning a “conditional increase” to its offer for ALH shares. This is subject to the Panel receiving a number of undertakings in a suitable form which have been offered by Bruandwo. The Panel considered that it is not in the public interest to make such a declaration given that:
- ALH shareholders now have adequate time to consider the conditional increase announced by Bruandwo;
- Bruandwo has offered an undertaking to give a right of withdrawal to ALH shareholders which had accepted the revised Bruandwo conditional increase bid on the afternoon of Monday 18 October;
- Bruandwo has offered an undertaking to make appropriate disclosures in relation to any acceptance facility it establishes; and
- Bruandwo has advised that it will clarify certain issues raised by parties and the Panel in these proceedings.
The Panel advised Bruandwo that the Panel does not consider that the statement that Bruandwo made on 18 October 20042 concerning the closing date of its bid continues to operate on the revised bid. The Panel said that its decision to make an interim order extending the closing date of Bruandwo’s bid made it unreasonable for Bruandwo to be held to the 18 October statement concerning the closing date of Bruandwo’s bid.
The Panel has not specified any time or date by which CMM must “announce its position” following its announcement on 18 October urging ALH shareholders to wait for CMM’s response to the revised Bruandwo bid.
On 2 July, Bruandwo acquired a stake of approximately 16% of the ordinary shares in ALH.
On 8 July, Bruandwo announced a conditional takeover bid for all of the ordinary shares in ALH at $2.75 per share.
On 28 September, ALH and Newbridge Capital announced a recommended proposal under which Newbridge Capital would acquire all of the ordinary shares in ALH at $3.05 per share pursuant to a scheme of arrangement. The recommendation was subject to the announcement of a superior offer.
On 30 September, Bruandwo announced an increase in the consideration under its bid to $3.15 per share and the waiver of all conditions to Bruandwo’s bid. ALH’s board announced that it recommended acceptance of Bruandwo’s increased bid (in the absence of a higher offer). The increased offer was scheduled to close at 7.00p.m.3 on 18October.
On 13 October, ALH and CMM announced a recommended proposal under which CMM would acquire all of the ordinary shares in ALH at $3.35per share pursuant to a scheme of arrangement.
On 15 October, Bruandwo announced that it intended to vote against any scheme of arrangement put to shareholders to give effect to the proposed ALH and CMM merger.
At 2.13 p.m. on 18 October, an announcement by Bruandwo was released to Australian Stock Exchange Ltd. (ASX) (the 18 October Announcement). So far as relevant, the 18 October Announcement stated that:
- Bruandwo would let its bid for ALH lapse at 7.00 p.m. on 18 October if Bruandwo did not achieve a relevant interest in ALH in excess of 20% by 6.00p.m. that day;
- Bruandwo would increase its cash offer to $3.40 per ALH share if Bruandwo’s relevant interest in ALH was in excess of 20% by 6.00 p.m. on 18 October; and
- Bruandwo would increase its cash offer to $3.50 per ALH share if Bruandwo’s relevant interest in ALH was in excess of 20% by 6.00 p.m. on 18 October and if it was in excess of 50% by the closing time for its offer.
- 18 October Announcement did not disclose the automatic extensions to Bruandwo’s bid which would result from either of the above price increases.
- for present purposes, Bruandwo did not expressly reserve its rights to act otherwise than in accordance with any of the above statements in the 18 October Announcement.
At approximately 4.00 p.m. on 18 October, the Panel announced that it had received an application alleging unacceptable circumstances in relation to the 18 October Announcement.
At approximately 5.30 p.m. on 18 October, the Panel made the interim orders referred to below under the heading ‘Interim Orders’.
On 18 October, CMM made an announcement welcoming the Panel’s interim orders. In that announcement, CMM said that ‘CMM is currently considering its position in relation to the revised Bruandwo offer. It proposes to announce its position before the close of the Bruandwo bid. In the meantime, CMM encourages all ALH shareholders not to accept the Bruandwo bid’.
At approximately 9.30 a.m. on 19 October, Bruandwo released a further announcement to ASX (the 19 October Announcement). So far as relevant, the 19 October Announcement stated that:
- Bruandwo would increase its cash offer to $3.40 per ALH share if Bruandwo has received or is satisfied that it will receive sufficient acceptances to increase its relevant interest to in excess of 20% by 6.00 p.m. on 25 October; and
- Bruandwo would increase its cash offer to $3.50 per ALH share if Bruandwo’s relevant interest in ALH was in excess of 20% by 6.00 p.m. on 25 October and it subsequently receives or is satisfied that it will receive in excess of 50% by the closing time for its offer.
The 19 October Announcement did not contain any statement as to Bruandwo’s intentions if the ‘20% condition’ in that announcement was not satisfied. In particular, it did not contain a statement that Bruandwo would let its offer lapse.
The Panel issued interim orders on 18 October extending Bruandwo’s takeover bid to the later of 7.00 p.m. on 25 October and a time permitted by the Corporations Act which is determined by Bruandwo.
The Panel considered that the timing and content of the 18 October Announcement constituted unacceptable circumstances in that the 18 October Announcement was an apparent attempt to ‘stampede’ shareholders into accepting Bruandwo’s bid by providing them with an unreasonably short period of time in which to consider material developments in its bid, and an inadequate explanation of the consequences of accepting the Bruandwo bid. Even for institutional shareholders the Panel considered that there was not adequate time to consider the consequences on the competition for their shares, and control of ALH, if they accepted the revised Bruandwo bid for all or a part of their holdings. The Panel considered it highly relevant that the circumstances were entirely of Bruandwo’s making.
Although the Panel recognises that a significant number of ALH’s largest shareholders are institutional investors, it is conscious that ALH also has a large number of retail shareholders. Retail shareholders, in particular, would not have had a reasonable opportunity to be aware of the 18 October Announcement, let alone consider how to respond to it, before 6.00p.m. on 18 October. Accordingly, the Panel was not merely concerned at the ‘stampeding’ aspect of Bruandwo’s behaviour, but also the prospect that both retail and institutional shareholders might not have been aware of the material development in Bruandwo’s offer and denied the opportunity to accept it by reason of the offer lapsing.
The Panel concluded that, prima facie, the timing and content of the 18 October Announcement were inconsistent with the principle in section 602(b)(ii) that the holders of shares in a company should have a reasonable time to consider proposals to acquire a substantial interest in the company.
The Panel also had regard to other principles in section 602 and was conscious that parliament had introduced section 624(2) with the specific policy objective that shareholders should not be stampeded into accepting a revised takeover bid.
Acceptances between 2.13 p.m. and 6.00 p.m. - Withdrawal rights
Bruandwo advised the Panel that 100 shareholders had accepted the Bruandwo bid for 172,400 shares, between 2.13 p.m. and 6.00 p.m. on 18 October. As set out in Panel Media Release 98/04, Bruandwo offered to extend withdrawal rights to those shareholders.
Bruandwo has offered to undertake to the Panel to courier to those 100 shareholders a notice advising them of their right to withdraw their acceptances and a withdrawal form, at the same time as they are sent a cheque representing money owing to them by Bruandwo under its bid (that is by 25 October). Those shareholders will have 14 days to exercise those withdrawal rights by returning to Bruandwo the withdrawal form and the cheque (or cash in lieu of the cheque). The withdrawal rights will continue for the full 14 days regardless of whether Bruandwo’s bid remains on foot or lapses during that period.
Subject to a modification of the Corporations Act to facilitate its operation, the Panel proposes to accept this undertaking.
‘Truth in Takeovers’
18 October Announcement v 19 October Announcement
CMM submitted that there were a number of inconsistencies between the 18 October Announcement and the 19 October Announcement and that Bruandwo should be required to adhere to the following positions (each of which corresponds with the position under the 18 October Announcement, but with the relevant dates changed from 18 October to 25 October):
- to let its offer lapse if it did not achieve relevant interests of 20% by 6.00 p.m. on 25 October; and
- to base the triggers for the conditional increases to $3.40 and $3.50 (the Conditional Increases) on the levels of ‘relevant interests achieved’ rather than the levels of ‘acceptances that Bruandwo has received or is satisfied that it will receive’.
Bruandwo subsequently advised the Panel that by ‘satisfied that it will receive’ it meant only those acceptances committed to any ‘acceptance facility’ which it might establish or sponsor (see further below).
In essence, CMM’s position was that the positions adopted in the 18 October Announcement were ‘last and final statements’ and that Bruandwo should not be permitted to resile from them except as necessary to cater for the extension of time imposed by the Panel. ASIC supported CMM’s position.
The Panel is very concerned to give effect to the principles of ‘Truth in Takeovers’. The Panel considers it essential that market participants should not be able to resile from ‘last and final statements’ made during the course of a takeover bid.
However, the circumstances of 18 October were unique.
The Panel’s order of 18 October fundamentally changed the landscape against which Bruandwo made its announcement. Accordingly, the Panel’s orders fundamentally changed the analysis underlying Bruandwo’s commitment to let the offer lapse (and its analysis as to whether an acceptance facility would be necessary to achieve the trigger conditions to either of the price increases).
The Panel does not consider that market participants should be required to qualify ‘last and final statements’ by reference to the possibility of Panel intervention. That is not required for the existence of an efficient, competitive and informed market (and may detract from it by leading to market confusion).
Accordingly, the Panel did not consider that Bruandwo should be required to adhere to either of the positions outlined in paragraphs (a) and (b) above.
No increase statements
CMM also contended that the 19 October Announcement contained ‘last and final statements’ to the effect that Bruandwo would not increase its bid. The Panel did not agree with that interpretation of the announcement.
Confusion as to Future Increases or Extensions
The Panel accepted that there was capacity for market confusion in relation to Bruandwo’s ability to extend or increase its bid and the references in the 19 October Announcement to acceptances which Bruandwo is ‘satisfied that it will receive’.
Bruandwo has undertaken to the Panel that it will promptly clarify its intentions with respect to the above matters in an announcement to the market.
Confusion as to Conditional Increases
The Panel received submissions to the effect that Bruandwo should promptly make an announcement to ASX clearly explaining the following matters with respect to the Conditional Increases:
- that a shareholder who accepts the Bruandwo offer prior to the trigger for the Conditional Increase might receive only $3.15 per share if Bruandwo does not achieve the relevant level of acceptances for the $3.40 and $3.50 increases;
- that reaching the 20% threshold will result in an automatic 14 day extension and that reaching the 50% threshold will also result in an automatic 14 day extension (in each case, if the threshold is reached during the last 7 days of the offer period for Bruandwo’s bid); and
- that all ALH shareholders who accept Bruandwo’s bid will receive the benefit of the increased consideration if one or both of the Conditional Increases occurs regardless of when they accepted (or accept) the Bruandwo offer.
The Panel was satisfied that there was no need for an immediate announcement to address the above issues. However, it indicated to Bruandwo that it would expect Bruandwo to include such information in a supplementary bidder’s statement and any upcoming mail-out to shareholders. Bruandwo undertook that it will do this.
Based on the ‘satisfied that it will receive’ language in the 19 October Announcement, CMM raised the prospect that Bruandwo may have established an acceptance facility which had not been disclosed to market. CMM alleged that the combination of such an acceptance facility, and the failure to disclose the level of acceptances in that acceptance facility, constituted unacceptable circumstances.
Bruandwo advised the Panel that it had not established any such facility. However, it noted that it might wish to do so.
Bruandwo undertook to make the following disclosures to ASX if it (or any of its associates or advisers) established an acceptance facility:
- On establishment of the acceptance facility (or on any material change to the acceptance facility), each of the following:
- the nature and essential aspects of the acceptance facility’s structure and operational procedures;
- the person or persons who will manage the acceptance facility and their relationship with Bruandwo;
- whether persons who commit ALH shares to the acceptance facility will have a right to withdraw their commitment (and the nature, if any, of any restriction on their right to withdraw); and
- who is eligible to participate in the acceptance facility or the criteria for determining who is eligible to participate in the acceptance facility; and
- By 9.30 a.m. on each business day following a movement of 1% in the aggregate of the voting power attaching to shares committed to each acceptance facility and Bruandwo’s voting power, the details of that aggregate voting power (and a breakdown as to how much of the aggregate voting power falls in each category).
The Panel accepted that these undertakings rendered it unnecessary to consider further issues associated with any potential acceptance facility. The Panel’s decision does not preclude the possibility that the form of any acceptance facility ultimately adopted might give rise to unacceptable circumstances. However, that cannot be assessed until an acceptance facility is established and its terms disclosed to the market.
In light of Bruandwo’s announcement of 15 October that it intended to oppose any scheme to give effect to a merger of ALH and CMM (and subsequent announcements to similar effects), the Panel raised in its brief the issue of whether it would be unacceptable for one protagonist for control of a target company to vote, or announce that it would vote, its shares against a rival proposal for control.
The Panel concluded that the mere fact that a shareholder was actively seeking control of a company was not a good ground to interfere with that shareholder’s rights to exercise the votes attaching to shares which they had legitimately acquired.
Timing of CMM’s announcement of its position
In its submissions in response to the application and given CMM’s announcement of 18 October, Bruandwo asserted that it would constitute unacceptable circumstances for CMM not to “announce its position” to ALH shareholders in a timely manner. Bruandwo said this would require sufficient time for ALH shareholders to properly consider the content of CMM’s announcement before the due time and date for the closure of Bruandwo’s bid and the trigger time for the new Conditional Increase announced on 19 October. Bruandwo then asserted that the Panel should make an order directing CMM to “announce its position” before 9.00 a.m. on Thursday 21 October 2004. Bruandwo said that that time was appropriate because CMM’s original application to the Panel had sought an order extending the 18 October 6.00p.m. trigger deadline in the Conditional Increase for 48 hours, i.e. to 6.00 p.m. on 20 October.
The Panel considered Bruandwo’s arguments very carefully. It saw some powerful reasons for seeking to make orders that ensured that ALH shareholders had adequate time to consider any announcement by CMM prior to the due close of the Bruandwo offer, or the trigger time. The concept of requiring this had strong resonances with the principle in section 602(b)(ii). The concept clearly also had a strong attraction given the interim order which the Panel had made on Monday 18 October. Therefore, the Panel saw reasons for seeking to make orders that ensured that ALH shareholders had adequate time to consider any announcement by CMM prior to the due close of the Bruandwo offer, or the trigger time.
However, the Panel decided that there is not, and has never been, any principle in Australian takeovers legislation that the closing stages of rival bids should be managed or regulated in that way. Given that it has never been a part of our takeovers regime that one bidder must give consideration to the timing of another rival takeover bid, and there appeared no clear policy guideline or principle in the legislation or other material, the Panel was most reluctant to introduce such a concept without consultation. The Panel noted that such a concept is part of the London Takeover Panel rules.
The Panel considers that it has always been part of the Australian takeover regulatory regime that rival bidders may determine the time of their statements solely in relation to their own bid. Thus, the legislation imposes various requirements on bidders to make statements about the waiver or otherwise of conditions in their bid. It requires bidders to extend their offer if they seek to increase their bid in the last week, or they achieve more than 50% voting power in their bid. But there is no provision or principle which seeks to regulate the activity of a bidder in relation to a rival bid.
The Panel was concerned that this may well leave target company shareholders facing very significant time pressure as one bid is due to close, wondering whether there will be a response or competitive increase from the other bidder. However, in these circumstances, the Panel considered that its decision that Bruandwo is free to extend its bid, subject only to the normal constraints of the Corporations Act, meant that it was open to Bruandwo to extend its bid if CMM made any announcement in the closing hours of Bruandwo’s bid. The Panel considered that the commercial pressure thus applied as equally to CMM and to Bruandwo as it did to the ALH shareholders. However, given Bruandwo’s ability to relieve that pressure if it wished to stay in the race for ALH, Bruandwo’s self interest could act in the interests of ALH shareholders. If Bruandwo decided not to extend its bid, that should be a commercial decision of its own. If it did, it risked losing acceptances that may have given it victory in the competition for ALH. Alternatively, if Bruandwo chose to extend, ALH shareholders retained their opportunity to choose between Bruandwo’s bid and any proposal of CMM.
The later a rival bidder chooses to delay announcing its response to a conditional increase by a first bidder, the greater will be the risk to the rival bidder that the target shareholders will choose to accept the first bidder’s offer in fear of it lapsing. Therefore, there is a material commercial incentive for the rival bidder to ensure that it makes any rival announcement in sufficient time for target shareholders to consider, lest it lose those target shareholders to the first bidder.
The Panel did, however, note that in its announcement on 18 October, CMM urged ALH shareholders not to accept the Bruandwo offer while waiting for CMM to “announce its position”. Such a “wait for our announcement” statement might constitute unacceptable circumstances if it was not followed by the contemplated announcement in a timely manner. The active intervention by the rival bidder may, in such cases, obligate it to ensure that it does make its announcement in a timely manner, whereas not making a “wait for our announcement” statement may preserve the rival bidder’s right to choose when it makes its own statement (if indeed it makes one at all).
The Panel also considered what the consequences might be of an order directing a rival bidder to “announce its position” by a certain date. The Panel would, in effect, be ordering a bidder to come to a certain mental state, which is clearly impossible. In all likelihood, such a rival bidder would comply by saying “We have not made up our mind yet”, which would not advance the information before target shareholders. Alternatively, the Panel might make an order that a rival bidder “announce its position” to the satisfaction of the Panel by a certain time or else it would be forbidden to make any announcement increasing or varying its bid after that time. However, that appears to the Panel to be an order which would restrict competition rather than enhance it. In the absence of feasible orders requiring a bidder to make up its mind and give useful information to shareholders, the Panel considered that market forces are likely to be the most effective protection for shareholders
- the Panel decided it did not have a basis for setting any time for CMM to “announce its position”;
- the Panel considers that there is no policy, principle or provision in the Corporations Act which requires a bidder to consider the closing or other times of a rival bid when choosing when to make any announcement concerning its own bid;
- this position is not inconsistent with the Panel’s decision to make an interim order extending the period of Bruandwo’s bid because there are clear policy requirements that shareholders be given adequate time, within a bid, to consider that bid; and
- there appears no sensible remedy or order that a Panel could make, and realistically enforce, directing a bidder to make up its mind.
- if CMM did not give ALH shareholders an adequate period of time to consider its announcement of its position, before the Bruandwo bid was due to close, the Panel would consider any further application on the circumstances which existed at the time.
Not in the public interest to make a declaration of unacceptable circumstances
The Panel considered that the 18 October Announcement, given the time periods it contained, constituted unacceptable circumstances, in that it did not give ALH shareholders adequate time to consider Bruandwo’s Conditional Increase. However, subject to receiving the undertakings in appropriate form, the Panel decided that it would not be in the public interest for it to make a declaration of unacceptable circumstances. The Panel considered that by the time it came to make this decision the unacceptable circumstances had been remedied by a number of factors. They included the facts that:
- ALH shareholders have received an adequate period of time to consider the terms of Bruandwo’s revised conditional increase in Bruandwo’s bid;
- Bruandwo has offered the undertaking to the Panel which will give withdrawal rights to those ALH shareholders which accepted the Bruandwo bid in the period between the 18 October Announcement and 6.00 p.m. on 18 October (that is, the time by which the conditional increase was required to have been achieved);
- Bruandwo has offered the undertaking to the Panel regarding disclosure to the market of the terms of any acceptance facility which Bruandwo or its advisers or associates establish, and those terms include appropriate substantial shareholding disclosures; and
- Bruandwo has agreed to clarify a number of minor points raised by various parties in these proceedings.
Conclusion of proceedings
The Panel advised that its decision to decline CMM’s application and determine not to make a declaration of unacceptable circumstances, and therefore conclude these proceedings, will take effect when the Panel accepts Bruandwo’s undertaking with respect to withdrawal rights and Bruandwo has made the other minor disclosure clarifications set out in this decision. At that time the Panel’s interim order will cease (as provided for by section 657E(2)(b)).
Bruandwo has advised the Panel that it will make the other minor disclosure clarifications, as set out in this decision, before the close of trading on ASX today.
The Panel has advised Bruandwo that in order to ensure that its bid remains on foot, Bruandwo itself needs to have extended its bid to at least 7.00 p.m. on 25 October, in compliance with the terms of the Act, before the Panel accepts Bruandwo’s undertaking with respect to withdrawal rights and these proceedings then conclude. Bruandwo has advised that it will do so in a manner which ensures that the extension of the offer period is valid and that it will advise the market and the Panel when it has done so.
If the Panel is unable to accept Bruandwo’s undertaking on withdrawal rights because the modification to the Corporations Act referred to earlier in this decision is not made, or if it does not receive the appropriate undertakings, it will revisit its position set out in this decision.
Conditional Increases - Guidance
The Panel also considered the issue of whether or not the Conditional Increases would constitute unacceptable circumstances regardless of the time periods which were set for achieving the various acceptance levels. In thinking about this issue, the Panel was influenced by the fact that there have been a significant number, albeit perhaps infrequent, of takeover bids in Australia under the Corporations Act and its predecessors going back to the Companies (Acquisitions of Shares) Act 1980, where the bidder had made similar announcements about its intention to increase the bid consideration if certain criteria were met. On that basis, the Panel considers that such conditional increases are, and have been for some time, an accepted part of the Australian takeovers market. However, having said that, it is clear from the current proceedings that there may be need for guidance in the market about the terms and timing of conditional increases in the future. The Panel will consider whether it would assist the market for it to draft a Guidance Note for consultation with the market on this area.
The President of the Panel appointed Jennifer Seabrook, Ian Ramsay and Elizabeth Alexander AM to constitute the sitting Panel to consider the application.
In due course, the Panel will publish on its website its reasons for its decision in these proceedings.
Director, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3501
1 All references to sections are to sections of the Corporations Act 2001 (Cth).
2 All date references are to dates in 2004.
3 All time references are to Melbourne time