Southcorp Limited - Panel Decision

TP05/017

The Panel announces that it has concluded its proceedings in the application made by Southcorp Limited on 28 January 2005 in relation to the takeover offer by a wholly owned subsidiary of Foster's Group Limited for Southcorp without making a declaration or orders, and without accepting any further undertakings (see the Panel's Media Releases TP05/14 of 28/01/05 and TP05/16 of 03/02/05).

Unacceptable circumstances

The Panel considers that unacceptable circumstances existed when Foster's gave its bidder's statement to Southcorp on 18 January 2005, without including any of a 10 page document (Wrap Document) which Foster's proposed to bind into the document containing the Foster's Bidder's Statement to send to Southcorp shareholders two weeks later.

However, given that:

  1. Foster's did provide an advanced draft of the Wrap Document to the Southcorp directors on 25 January;
  2. the Foster's Bidder's Statement was not due to be dispatched until Wednesday 2 February;
  3. the contentious information in the Wrap Document was relatively short (3 pages);
  4. Southcorp had been aware since 17 January of a presentation on Foster's bid which Foster's had posted on ASX, and most of the material information in the Wrap Document had come from that presentation;
  5. the Panel did not consider any of the information or statements in the Wrap Document to be materially misleading; and
  6. Foster's had provided a letter to Southcorp shareholders clarifying the one item of concern which the Panel had had about some of the information in the Wrap Document,

the Panel decided that it would not be in the public interest to make a declaration of unacceptable circumstances or any orders.

Wrap Information

The Panel considers that the information and statements in the Wrap Document that discussed the merits of the Foster's takeover bid, and why Southcorp shareholders should accept (Wrap Information), although covering only three pages, were material to Southcorp shareholders' decision as to whether or not to accept the Foster's offer. On that basis the Wrap Document should have been given to Southcorp at the time Foster's gave the Foster's Bidder's Statement to Southcorp and the Southcorp directors should have had the statutory period of two weeks to consider the Wrap Information.

The application was the first in which the Panel had considered the issue of the lodgement of a wrap document.

Average Value of Broker Reports

One of the contentious issues in the Wrap Document was Foster's use of an average value for Southcorp shares (Average Value). Foster's had derived the value from the numerical average of the nine most recent reports from stockbrokers on the value of Southcorp shares prior to the announcement of Foster's acquisition of Reline Investment Pty Ltd's 18.8% of Southcorp shares. Southcorp asserted that under section 636(3), Foster's should have gained the consent of each of the brokers to the use of their valuations in deriving the Average Value.

The Panel considered that the use of individual broker valuations in the Foster's Bidder's Statement, as Foster's had done in the Investor Presentation, would have required the consent of the individual brokers. However, the aggregation of the nine values into the Average Value meant that the Average Value could not properly be attributed to any person or broker, so Foster's was not required to gain the consent of any of the individual brokers.

The Panel had initially been concerned that the Average Value implied a much greater degree of consensus than the 9 individual valuations would show. Similarly the Panel was concerned that the Average Value did not show the time period from which the broker valuations had come (August 2004 to January 2005). The Panel requested Foster's to send a letter to Southcorp shareholders setting out some clarification of those two points to assist Southcorp shareholders in assessing the weight that they might give to the Average Value quoted in the Wrap Document.

Foster's agreed to do so as close as practicable to the date on which it sent the Foster's Bidder's Statement to Southcorp shareholders. On that basis the Panel decided that there were insufficient concerns over the rest of the Application to warrant restraining dispatch of the Foster's Bidder's Statement. If Southcorp's other concerns were made out, the Panel considered they would be able to be corrected by supplementary or corrective disclosures to Southcorp shareholders.

Misleading Statements

Southcorp asserted that four statements in the Wrap Information were misleading. Foster's responded that they were not misleading, they should be treated as solely Foster's opinions and that Foster's had a reasonable basis for holding the opinions. While not agreeing that the statements were solely Foster's opinions, the Panel did not consider that the statements were misleading.

Other elements of Southcorp's application

Southcorp asserted that Foster's statements as to its intentions for the merged entity in the event its bid is successful, fell short of the level of certainty and development of Foster's actual plans. Southcorp cited two media articles to support its position. The Panel did not accept that the articles were inconsistent with the intentions that Foster's had stated in the Foster's Bidder's Statement. The Panel declined to commence proceedings in relation to that part of Southcorp's application.

Similarly the Panel did not commence proceedings in relation to concerns raised by Southcorp that one of the conditions of Foster's bid was incapable of being fulfilled.

Discussion

Undertaking from Foster's

The clarifying information which Foster's undertook to provide advised Southcorp shareholders of the range of dates of issue (August 04 to January 05) and the range of valuations (approximately $2.00 to approximately $4.00) of the broker valuations made prior to the Foster's offer which were used in the Foster's bidder's statement in the calculation of the average broker valuation.

The Panel was of the preliminary view that it may have been preferable for Foster's to obtain the consent of each broker under section 636(3) to the use of their valuation so as to allow it to publish the name of each broker, the relevant valuation and date of valuation, and any other material information in relation to the broker's report in the Foster's bidder's statement. However, as Foster's had apparently been unable to obtain the consent of all of the relevant brokers, it was only possible for Foster's to publish an average figure and the range of valuations and valuation dates, rather than details of individual reports. In view of the undertaking, the Panel determined not to make orders restraining dispatch of the bidder's statement.

1. Wrap Document

Background

On 17 January 2005, Foster's announced its intention to make a conditional takeover offer for all the ordinary shares in Southcorp. Foster's had announced a few days before hand that it had agreed to acquire the 18.8% of the shares in Southcorp owned by Reline Investments Pty Ltd. Foster's published a fourteen page media release discussing its proposed bid and setting out a range of the terms and conditions of the proposed offer (Foster's Announcement).

On the same date, Foster's posted a 30 page document on Australian Stock Exchange Ltd (ASX) which was described as a presentation to institutional investors (Investor Presentation). The Investor Presentation contained a wide range of information on Foster's view of its takeover bid and its reasons for making the bid and its reasons why it would be beneficial to Foster's. The Investor Presentation also contained the values, dates of report and identity of the broker concerning what Foster's reported as all of the most recent broker valuations of Southcorp prior to the announcement of Foster's acquisition of Southcorp shares from Reline.

On 18 January 2005 Foster's lodged its bidder's statement (Foster's Bidder's Statement) with the Australian Securities and Investments Commission (ASIC) and sent it to Southcorp and ASX. Foster's did not lodge any other documents with the Foster's Bidder's Statement.

Over the next few days correspondence went between the solicitors for Foster's and Southcorp. On 21 January Southcorp expressly asked whether Foster's intended to dispatch any other additional material to Southcorp shareholders other than the bidder's statement which had been lodged with ASIC and given to Southcorp. Southcorp asked for copies of any additional material to be provided to Southcorp at least 5 business days prior to the dispatch of Foster's Bidder's Statement.

In a letter of 24 January 2005 Foster's indicated that it intended to include additional material with, or as part of, the Foster's Bidder's Statement to be dispatched to Southcorp shareholders. As at the date of that letter, the Wrap Document had not been lodged with ASIC or sent to the ASX or Southcorp.

On 25 January 2005 Foster's provided to Southcorp a copy of an advanced draft of the Wrap Document.

On 28 January 2005, Southcorp made an application to the Takeovers Panel in relation to the Wrap Document, or at least part of it.

Content of the Wrap Document

The Wrap Document comprised 10 pages and was made up of the following documents:

  1. a front cover of the booklet, which included the title "Bidder's Statement";
  2. one page headed "Important Dates"
  3. a one page letter from Foster's Chairman to Southcorp Shareholders dated 2 February 2005 (Chairman's Letter);
  4. one page entitled "Features of the Offer";
  5. two pages entitled "Why You Should Accept";
  6. one page entitled "What you Should Do";
  7. the table of contents to the Foster's Bidder's Statement; and
  8. two blank pages.

Southcorp's Contentions

Southcorp submitted that:

  1. the Wrap Document contained information which section 636(1)(m) required to have been included in the Foster's Bidder's Statement lodged with ASIC. Southcorp said that as a consequence, the directors of Southcorp had not had a reasonable time to consider all material information that should have formed part of the Bidder's Statement;
  2. Foster's should include the additional information in the Wrap Document in a replacement bidder's statement that should be dispatched to Southcorp shareholders.

Section 636(1)(m) requires a bidder's statement to set out

"any other information that is material to the making of the decision by a holder of bid class securities whether to accept an offer under the bid" and "is known to the bidder".

Southcorp contended that the Wrap Document contained the type of information which was material to the making of the decision by Southcorp shareholders whether to accept the Foster's offer. Southcorp submitted that the Wrap Document was presented in a way which suggested that it forms a key part of the Bidder's Statement.

Southcorp noted that section 633(6) of the Act allows a bidder to send additional information to target shareholders with its bidder's statement, provided such information is also sent to the target company at the time the bidder sends the bidder's statement to target company shareholders. Southcorp also noted that a predecessor of section 633(6) has been relied upon to include a Chairman's letter together with the offer documents when dispatched to target shareholders

Southcorp contended that, contrary to section 602(b) of the Act Southcorp's directors, had not been given "a reasonable time to consider the proposal" and "enough information to enable them to assess the merits of the proposal".

Foster's Response

Foster's responded denying that it had been under any obligation to provide the Wrap Document to Southcorp prior to dispatching its bidder's statement.

Amongst other things, Foster's said that:

  1. the information and statements in the Wrap Document were not material and therefore not required to be included in the Foster's Bidder's Statement under section 636(1)(m);
  2. the Wrap Information was merely Foster's opinion, and so was not "information" as described in section 636(1)(m);
  3. a substantial quantity of the Wrap Information had been included in the Foster's Bidder's Statement;
  4. some of the Wrap Document went to process only (for example the enquiry line phone number, how to accept etc);
  5. the information used to compile the three relevant pages of the Wrap Document was taken from the Investor Presentation which had been published by Foster's on the ASX on 17 January 2005 or the media release issued by Foster's on 17 January 2005 announcing its bid; and
  6. Southcorp had clearly read that information because it is referred to in Southcorp's letter to shareholders dated 24 January 2005.

Foster's referred to section 633(6) as permitting it to send "additional information" to the Southcorp shareholders with the Foster's Bidder's Statement provided such information is also sent to the target company at the time of dispatch of the offers to Southcorp shareholders. Foster's asserted that the Wrap Document contained merely "additional information".

Reasons

The Panel considered the submissions and rebuttals that parties provided.

a. Materiality

The first consideration of the Panel was whether some or all of the Wrap Information was material to Southcorp shareholders' decision.

The Panel considered that part of the Wrap Document was clearly material to Southcorp shareholders decision, and that Foster's also clearly considered it to be material given the prominence and presentation of the Wrap Document.

The Panel considered this to be the case despite Foster's submissions that the Wrap Document contained merely information which might influence Southcorp shareholders. For example, two of the pages are headed "Why you should accept". The Wrap Document was the most prominent part of the booklet to go to shareholders and included material which would be arguably the most influential in their decisions. Under the principle that target directors should have reasonable time to assess the merits of a takeover, the Southcorp directors should have had that information in the form that it was proposed to be presented, no later then they had the Foster's Bidder's Statement.

The Panel considered that some of the Wrap Information:

  1. was factual information and was not solely a statement of Foster's opinion;
  2. was material to Southcorp shareholders and not merely information which might, in some immaterial way, influence Southcorp shareholders;
  3. was presented very prominently, in such a way that Southcorp shareholders would take it that Foster's intended the Wrap Information to be material to their decision; and
  4. is the sort of material Southcorp shareholders would expect their directors to address in the target's statement.

The Panel did not accept Foster's submissions that the Wrap Information is not claimed to be factual or objective, nor that it is "no more than a helpful aggregation of existing material".

The Panel accepted that while some parts of the Wrap Information were carefully expressed to be Foster's opinion, much of the Wrap Information was presented as factual information. The Panel agreed with Foster's that because the Wrap Document was presented as Foster's "selling" document, Southcorp shareholders would be likely to assume that Foster's conclusions from the information it was presenting in the Wrap Document would be open to argument from Southcorp in its target's statement. Nevertheless, the Panel considered that the Wrap Information could not all be categorised as merely Foster's opinions, and that much of the Wrap Information was material to Southcorp shareholders.

b. Additional Information

The Panel accepted Foster's submissions that it was entitled to send an additional document with the Foster's Bidder's Statement, under section 633(6). However, that is subject to the proviso that any information or statements in the Wrap Document which were material to Southcorp shareholders' decision should also have been included in the Foster's Bidder's Statement.

If Foster's nevertheless had wished to present the contents of the Wrap Document as an additional supplementary document under section 633(6), the Panel considers that Foster's should have included in the Foster's Bidder's Statement all material information which it proposed to include in that supplementary document. In addition, Foster's should have ensured that the presentation of the additional information was not materially different from the way that the information was presented in the Foster's Bidder's Statement lodged with ASIC.

c. Already Disclosed

The Panel did not accept Foster's submissions that the Wrap Information had already been disclosed to Southcorp shareholders such that it was not required to be disclosed under section 636(1)(m). While much of the information had been presented in one form or another in the Investor Presentation and the Foster's Announcement, the Panel did not consider that mere posting on ASX of the Investor Presentation and the Foster's Announcement a few days previously was sufficient to meet the test when considering whether the information in the Wrap Document could be left out of the Foster's Bidder's Statement. The Panel considers that Foster's presentation of the valuation of its offer compared to Southcorp's share price, and the reasons Southcorp shareholders should accept, were information which should be provided to Southcorp shareholders as part of the Foster's Bidder's Statement.

d. Time for Southcorp directors to consider the Wrap Document

Southcorp submitted that its directors had been given insufficient time to consider the information in the Wrap Document.

It is true that the Southcorp directors did not receive the full two weeks which would normally be required for them to consider information in the Foster's Bidder's Statement. Instead, they received a little less than a week.

Nevertheless, the Panel was not inclined to make any orders delaying dispatch of Foster's Bidder's Statement solely on the basis that the Wrap Document had not been lodged at the same time as Foster's Bidder's Statement. In the Panel's view, the time which they had to review the Wrap Document allowed Southcorp directors to consider the additional information contained in the Wrap Document in sufficient time to provide a response in its target's statement.

The Panel noted that, while Southcorp had not previously been given the contents of the Wrap Document, it was very likely to have had some familiarity with those contents given that most of the additional material in the Wrap Document came from the Investor Presentation which had been published on ASX on 17 January 2005. Albeit that the Southcorp directors did not know until they received a copy of the Wrap Document what the information content would be, when they received the Wrap Document their assessment and assimilation of the Wrap Information is likely to have been materially quicker given their prior exposure to the Wrap Information. The Panel also noted that there were only three substantive pages of the Wrap Document which Southcorp directors would have needed to address.

e. Market practice

Foster's submitted that it is market practice for bidders not to include material such as the Wrap Document and the Wrap Information in bidder's statements lodged with ASIC, and that market practice is to provide a copy of such information to the target at the time that the bidder's statement is dispatched to shareholders.

The Panel considers that the evidence is at best mixed and that there is no consistent practice of not providing information such as the Wrap Document to ASIC, ASX and the target directors at the time a bidder's statement is lodged with ASIC.

In addition, regardless of market practice, it would not be acceptable for Foster's to exclude material information from its bidder's statement and merely to give a copy of the Wrap Document to Southcorp and to ASIC when the Foster's Bidder's Statement was dispatched to shareholders. Any market practice which condoned such exclusion would be unacceptable.

f. Supplementary bidder's statement

Foster's submitted that there must be allowance for developments in the market between the time a bidder's statement is lodged (with ASIC and the target) and the time that bidder's statement is sent to shareholders. Foster's submitted that Southcorp was saying that if information or statements are not in the Bidder's Statement at the time of lodgement they can never be disclosed to shareholders.

The Panel did not accept Foster's or Southcorp's submissions that its decision would inhibit rapid and easy communication of material information to target shareholders. Where there are changes to material information, such as developments in the market, which occur after a bidder has lodged its bidder's statement there are a number of proper ways to inform target shareholders. If the changes are material, the supplementary bidder's statement provisions apply and are the appropriate way for a bidder to provide new information to target shareholders. Or, alternatively, a bidder may apply to ASIC for relief to allow it to submit a replacement bidder's statement if the bidder's statement has not yet been dispatched.

If the market developments are not material, but a bidder still wishes to advise target shareholders of the developments, it remains open to a bidder to send current information to target shareholders with the bidder's statement under the provisions of section 633(6) concerning "additional information".

g. Future implications – broker valuations

Foster's submitted that requiring it to have included the Wrap Document in the Foster's Bidder's Statement would set a precedent that would mean that all other bidders would be required (under section 636(1)(m)) to disclose individual broker valuations for the target whenever those valuations are known to the bidder. Foster's submitted that such a decision would mean that almost every bidder's statement lodged by a bidder in the past would have been defective.

The Panel considered Foster's submissions carefully. The Panel would not wish this decision to be taken to stand for an overly inclusive requirement which would cause bidders material compliance problems.

Because of its content, presentation and location, much of the information included in the Wrap Document was intended and expected to influence Southcorp shareholders deciding whether or not to accept the offer. Accordingly, it was material and, if it was to be used at all, it should have been included in the Foster's Bidder's Statement. However, some of the material was a matter of Foster's judgement and opinion, rather than information, and therefore, while potentially material, was not strictly required to be given to Southcorp shareholders, whether in the Foster's Bidder's Statement or elsewhere. However, once Foster's decided to send the Wrap Information to Southcorp shareholders, the policy of section 602(b) required Foster's to include the material statements included in it in the Foster's Bidder's Statement.

On the other hand, not all information that Foster's chose to include in the Wrap Document would necessarily be material and therefore required to be included in the Foster's Bidder's Statement under section 636(1)(m).

Foster's may also have known very large amounts of other information, which it considered not to be material and chose not to include in either the Foster's Bidder's Statement or the Wrap Document. If that information had included broker valuations, and Foster's did not consider them to be material to Southcorp shareholders' decision, then the Panel does not consider its decision implies that that other information (including possibly broker valuations) should have been included in the Foster's Bidder's Statement. The Panel's decision does not stand for a position that broker valuations will always be material information required to be disclosed under section 636(1)(m) merely because a bidder is aware that brokers have published valuation reports concerning the target company.

Of course what is or is not material is at times open to dispute between parties. Merely because Foster's, or Southcorp, considered a piece of information to be, or not to be, material, does not make it so. However, that problem exists for every bidder or target and their advisers right now. The Panel's decision in these proceedings does not make that problem any harder or more complicated for them.

This decision merely stands for the proposition that most of the Wrap Information was material for Southcorp shareholders and should have been included in the Foster's Bidder's Statement.

In terms of what must be included in a bidder's statement (as opposed to merely being despatched as "additional information" under section 633(6)) this decision does not make any statement about the materiality of broker valuations in general, or when they must be included in a bidder's statement if known by a bidder.

h. Consistency with Aberfoyle and GIO cases

Foster's cited the decision in GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 582 (GIO) as deciding that neither the Wrap Information nor the Wrap Document was required to be given to Southcorp at the same time as the Foster's Bidder's Statement.

The Panel accepts that Foster's was entitled to send additional documents with the Foster's Bidder's Statement. However, the decision in GIO is no support for Foster's submissions, because Emmett J did not hold that a wrap section could contain material information omitted from the Part A statement. In these proceedings, the Panel finds that the Wrap Information comprised material statements which had not been included in the Foster's Bidder's Statement. This is fully consistent with the GIO decision.

Foster's cited the decision in Aberfoyle Ltd v Western Metal Ltd (1998) 28 ACR 187 (Aberfoyle) at 209 and 210 in which Justice Finkelstein stated:

"cl 17 [the predecessor of section 636(1)(m)] does not require an offeror to disclose its evaluation of the shares or the economic assumptions upon which that evaluation has been based. Speaking strictly, cl 17 is concerned with the disclosure of facts and circumstances of which the offeror is aware and not with the disclosure of matters of opinion about which minds may differ, assessments that are based on variable assumptions or predictions or the assumptions or predictions upon which those assessments are based.

However, for the reasons set out above, the Panel does not accept that the Wrap Information constitutes merely Foster's opinions nor that it is held out by Foster's to be only its opinions. The Wrap Document clearly contains, and is held out to contain, factual and other information, into which Foster's has included some of its opinions and conclusions. However, as it would be impractical and undesirable to attempt to extract those parts which are clearly opinion from the large volume of factual information, the substantive material in the Wrap Document should have been provided to Southcorp. This also is consistent with the section of the decision in Aberfoyle which Foster's cited to the Panel.

Decision

The Panel decided the following in relation to the Wrap Document:

  1. some of the Wrap Information is material to the decision of Southcorp shareholders in considering the Foster's takeover bid;
  2. the Wrap Document should have been included in the Foster's Bidder's Statement lodged with ASIC and given to Southcorp;
  3. the position and presentation of the Wrap Document is relevant in assessing whether the Wrap Document should have been included in the Foster's Bidder's Statement;
  4. Foster's was not merely following "common market practice" in not serving the Wrap Document with the Foster's Bidder's Statement;
  5. Southcorp directors, although not given the statutory period of time to review the Wrap Document, did receive adequate time in the circumstances of these proceedings; and therefore
  6. while unacceptable circumstances existed at the time of Foster's lodging the Foster's Bidder's Statement with ASIC and giving it to Southcorp, they no longer exist and it would not be in the public interest to make any declaration of unacceptable circumstances. Similarly, while the Panel may have required Foster's to give the Wrap Document to Southcorp if it had received the Application prior to 25 January 2005, there is now no need for the Panel to consider such an order.

The Panel was not asked, and did not consider, the issue of whether or not the Wrap Document, assuming the Foster's Bidder's Statement contained all material information, should, or should not have been bound into the Foster's Bidder's Statement. The Panel notes, however, that it considers it highly likely that ordinary Southcorp shareholders would take the whole, bound document to be the Foster's Bidder's Statement and take it that the Wrap Document was part of the Foster's Bidder's Statement. One of the indicators was that the Wrap Document has "Bidder's Statement" on the front cover. The Panel considers that Foster's choice of binding the material into the Foster's Bidder's Statement reduced the prospect of the Wrap Document being considered merely "additional information" sent with the Foster's Bidder's Statement.

2. Inclusion of Average Broker Valuations

Foster's stated on page 3 of the Wrap Document:

"The offer of $4.17 per share is $1.38 per share more than the average broker valuation for Southcorp of $2.79 per share, or a 49% premium."

This statement was supported by a graphic and a note:

"Average broker valuation based on the valuation published by 9 brokers in the most recent broker research reports available to Foster's prior to 13 January 2005, being the day Foster's announced the purchase of a 18.8% interest in Southcorp from Reline Investments Pty Ltd. The names of the brokers from whom you may obtain copies of these reports may be requested by calling the offer enquiry line."

In the Investor Presentation released to ASX on 17 January, Foster's derived this average1 from 9 identified broker reports, giving dates, valuations and the names of the relevant brokers. These details were not given in the Wrap Document or the Foster's Bidder's Statement. Foster's stated in submissions that it had requested each broker's consent to the use in the Foster's Bidder's Statement of a statement based on their report, but that three of the nine had refused, for company policy or conflicts reasons. Foster's said it had decided that an average would be more useful to many investors than separate statements based on the respective brokers' reports. It was common ground that shareholders who were not clients of the relevant brokers would be unlikely to be able to obtain copies of the reports, which were not on web sites available to the public.

The Panel was concerned that this description of the broker valuations might imply that there was a consensus between the brokers as to the value of Southcorp, whereas the highest valuation was nearly twice the lowest. As mentioned above, at the Panel's suggestion, Foster's undertook to send to each shareholder a clarifying letter explaining that the broker reports had been issued over the period from August 2004 to January 2005 and that the valuations ranged from about $2.00 to about $4.00.

Southcorp objected, saying that the statements regarding broker valuations in the Wrap Document:

  1. contained material information, which should have been included in the bidder's statement, because they:
    1. were capable of influencing shareholders to accept or reject offers under the bid;
    2. were part of the material used to support statements of Foster's' opinion in the Wrap Document; and
    3. had not previously been disclosed to shareholders;
  2. contravened subsection 636(3), which requires the consent of a person to the use in (or in a document accompanying) a bidder's statement of a statement said to be based on a statement by that person;
  3. were misleading or incomplete, in that they were not accompanied by a discussion of the methods, assumptions and qualifications relevant to the various brokers' valuations;
  4. were misleading, so far as they suggested that offerees could obtain copies of the reports from the brokers; and
  5. should have been updated when the brokers updated their reports (which several had done by the time the bidder's statement was issued).

Southcorp added that broker forecasts are in many circumstances matters of speculation or opinion and judgement, which should not be sent to shareholders at all.

ASIC strongly supported its stated policy position that the broker's consents should have been obtained to the issue of a statement based on their views, in relation to both the Wrap Information and the explanatory letter.

The Panel regards Foster's use of the broker reports as resembling the use in a bidder's statement of market prices, and not as resembling the use of an independent expert's report. That is, averaged or otherwise taken together, the broker reports are a useful sampling of market sentiment. For this reason, it was inappropriate to require Foster's to obtain the brokers' consents, as would have been required for an independent expert's report under section 640.

Subsection 636(3) requires the bidder to obtain the consent of a person to the use in a bidder's statement of a statement said to be made by the person or to be based on a statement made by the person. A statement is based on a statement by another person when it conveys something that other person said, directly or by implication. The average of these nine broker valuations is different from each of the valuations given by each of the brokers. The Panel considers that because the average does not convey something said by any one of the nine brokers, consents of the brokers were not required for Foster's use of the average. In the particular context of the issue of brokers' valuations, Foster's use without consent in the explanatory letter of the approximate end points of the range of brokers' valuations is consistent with this view, in that this information was used to indicate the variety of views taken by the brokers and not as a view with which Foster's agreed, or which it invited offerees to adopt.

This conclusion is consistent with the policy of subsection 636(3), which is to ensure that statements are made in a bidder's statement only with appropriate care and consideration, by preventing an issuer from shielding itself from liability for a statement by attributing that statement to someone else, unless the other person accepts liability under item 10 in subsection 670B(1) by consenting to the use of their statement in the context. This policy has no sensible application to the averaged broker valuation, which could not meaningfully be attributed to any one of the brokers and for which no one of them could meaningfully take liability.

This does not mean that nobody takes responsibility for the statement. Since Foster's made the statement in a document connected with a takeover, it is civilly liable for it, if it is deceptive or misleading, whether under section 670B or section 1041H. Since the average was included in the Wrap Document, not the bidder's statement proper, if it is misleading, Foster's is liable under section 1041H, not section 670B. In such circumstances Foster's, cannot rely on the reasonable reliance defence in subsection 670D(3). Instead, Foster's would have to rely on the conduit defence in Yorke v Lucas, which on the facts is not open to it.

In Practice Note 55, ASIC indicates that it may give relief from the corresponding requirement in subsection 716(2) for the use in a prospectus of a correct and fair copy of a statement from a book or periodical, where the statement was not made in connection with the offering or the business or assets of the issuer. The basis of this policy is that, where a relevant statement was made by a disinterested person, offerees may be better served by allowing the issuer to put the statement before them without the maker's consent than by requiring it to omit the statement, if it cannot obtain the maker's consent, under strict insistence on the policy of obtaining consents for all attributed statements.

The broker valuations considered in this matter have been produced for purposes other than documenting or responding to the bid, and have been widely disseminated. The brokers owe a duty of care to their clients in issuing the reports. Many shareholders, but not all, are clients of the brokers and have access to some of the reports, and a few may have access to all of them. There may be a case for considering an extension of the policy to exempt bidders from obtaining consent for fair use of broker valuations, on an averaged or other aggregated basis, in cases such as this. There are, however, some difficult issues, such as whether a broker's valuation should (or may) be excluded, because the broker is connected with a party, or the valuation appears to be an outlier.

The Panel does not accept the implication in Southcorp's submissions that brokers' valuations of shares should generally be omitted from bidders' and targets' statement, because they are speculative. However, neither does the Panel consider that Foster's should have included them on a routine basis, as being material information. Bidders and target should be free to use aggregated valuations as a useful but not infallible indicator of market sentiment, where such an indicator is useful information for shareholders. Given that shareholders may place material weight on them, care should be taken in their presentation (such as the disclosure of the range of values mentioned above), and relevant and current valuations should only be excluded for good and specific reasons. If valuations are to be used to indicate market sentiment, it is important that a bidder or target be able to use any relevant and current valuation, which may not be the case if they must obtain the consent of each broker to include their valuation in an aggregate.

Similarly, bidders should disclose carefully the period from which the valuations come and the bidder's reasons for choosing the period. If the period is not the most recent, or selecting a more recent period may give a materially different result, the bidder should ordinarily give the most recent aggregate result as well. This is consistent with the Panel's decision in General Property Trust [2004] ATP 30.

The Panel was not convinced, on the submissions before it, that there is a current requirement for Foster's to update the average broker valuation. Foster's submitted that there had been no material change in the Average Value and provided its arguments for believing so. Southcorp, in turn, disagreed. In their submissions, both parties asserted that to determine the "true" current Average Value required one or more of the most recent broker valuations to be excluded, for various reasons. The Panel considered that in the particular circumstances of these proceedings the case has not been made for a current requirement for Foster's to update the Average Value.

The Panel noted that if Southcorp considers that there has been a material change in the Average Value it is open to provide its view of the correct value to Southcorp shareholders. This decision should not be taken to be a view on whether or not there might be any requirement for such update, now or in the future if there were any material change to the average valuation figure. .

Given that offerees who are not already clients of those brokers are unlikely to be able to obtain copies of the relevant brokers' reports from the brokers whose names they can obtain from Foster's by telephone, it is unfortunate that the note in the Wrap Document invited them to request those copies. The note, however, has no tendency to mislead or deceive offerees about their decision on the offer, only into spending time attempting to obtain the copies. Foster's states that the note was included in response to a remark by the Panel in AurionGold at [85] to the effect that it would be good practice for a bidder who used broker reports to tell offerees where they could obtain copies of those reports. No doubt, but to do so where the reports would not be forthcoming is counterproductive. The remark in AurionGold may need to be qualified in a Guidance Note, in the light of brokers' practices and an assessment of the role of brokers' valuations in takeover documents.

The Panel does not think that there is any risk that, if their use is countenanced, broker valuations such as these will come to replace independent experts' reports in takeovers. An independent expert has advantages over a broker in that its report is prepared as an assessment of a particular bid, with access to inside information and the freedom to choose a valuation method suitable to the company in question.

The Panel intends to refer the issues raised in these proceedings concerning the use of broker valuations and consent to the wider Panel with a suggestion that the Panel consider issuing a Guidance Note on the subject

Decision

The Panel decided that Foster's was not required to gain the consent of the nine brokers to include the Average Value in the Wrap Document or the Foster's Bidder's Statement.

The Panel decided that the use of the Average Value without further information concerning such things as the brokers' identities and the assumptions and methodology of their valuations, did not constitute unacceptable circumstances (this decision is made partly on the basis of Foster's having provided the clarifying letter to Southcorp shareholders).

3. Misleading Statements

In section 3.2(d) of the Application, Southcorp alleged that the following statements in the Wrap Document were materially misleading to Southcorp shareholders:

  • that "in the absence of takeover speculation, Southcorp's share price would be significantly lower than the Offer price of $4.17 per share";
  • the Foster's offer is a "substantial premium to the average valuation of Southcorp based on independent broker research";
  • the Foster's offer "represents a significant premium to the trading price of Southcorp";
  • "Southcorp's share price has traded above its fundamental valuation".

The Panel accepted Foster's submission that each of these statements had a reasonable basis and was not arrived at recklessly.

However, the Panel did not accept Foster's submissions that all of the statements were merely and solely Foster's opinions. Some of the statements were prefaced by the words "Foster's believes …". However, many of these clear statements of opinion were also supported by statements that were clearly intended to be read as factual statements.

Target shareholders are unlikely to accept the assertions as unqualified hard fact. Instead, shareholders are likely to look to their directors to express any contrary view, if they think it necessary. This may readily be done in a media release or in the target's statement. The statements are unlikely to mislead target shareholders and do not prevent the existence of an informed market in Southcorp shares.

In particular the Panel notes:

  • In regard to Foster's statement that in the absence of takeover speculation, Southcorp's share price would be significantly lower than the Offer price of $4.17 per share, the Panel accepted Foster's submissions that the prevalence of recent media commentary to the effect that recent rises in Southcorp's share price were, to a large extent, due to speculation that a takeover offer was imminent provide a reasonable basis for this opinion.
  • In regard to the Foster's statement that the Offer represented a substantial premium to the average valuation of Southcorp based on independent broker research, the Panel did not accept Southcorp's submissions that "premium" is generally understood by the market to be only the amount by which the Offer price exceeds the trading price. In this regard the Panel notes that it is quite customary to advertise the "premium" represented by an offer price over other measurements of value (for example, net tangible assets).

Decision

The Panel formed the view that these statements were not misleading and did not otherwise give rise to unacceptable circumstances.

4. Intentions of Foster's

The Panel declined to commence proceedings in regard to Southcorp's allegation in section 3.3 of its Application that Foster's disclosure of its intentions for Southcorp was incomplete.

Southcorp alleged that in two interviews with the Australian Financial Review and one interview with BRW, Trevor O'Hoy, the Chief Executive Officer of Foster's, and Jamie Odell, the managing director of the Foster's Beringer Blass wine division, made statements that suggested that Foster's intentions for Southcorp were more advanced than those disclosed in section 4 of Foster's Bidder's Statement.

The Panel assumed that Messrs O'Hoy and Odell spoke for Foster's and were not simply voicing individual opinions. Given their positions and roles in the bid, this seems likely.

After reviewing the articles relating to those interviews, the Panel noted that the statements made by both executives were not inconsistent with the statements in the Bidder's Statement and included more detail only in regard to certain aspects of the procedure by which Foster's intentions may be put into effect, and which were not material to Southcorp shareholders. Each of them is reported as agreeing that the success of the post-bid integration of Southcorp into Foster's depends on the resulting cost savings, but as refusing to quantify the expected amount of savings.

5. Options Condition

The Foster's bid is subject to a condition in section 2.12 (p) of the Bidder's Statement which requires that all options to subscribe for Southcorp shares be exercised, cancelled or subject to cancellation agreements before the Foster's offer period ends (Options Condition).

In section 3.4 of its Application, Southcorp alleged that existence of the Options Condition constituted unacceptable circumstances because, in its view, the condition could not be fulfilled. This was in part due to a large proportion of the options being not currently exercisable.

The Panel declined to commence proceedings in relation to this aspect of the Application.

In general a bidder is free to choose its bid conditions, subject to those conditions not being contrary to the prohibitions in sections 626 to 629 of the Act and not being otherwise self-defeating or impossible to satisfy (Brisbane Broncos No. 1 and No. 2). The Panel could see no reason why, for example, the condition could not have been satisfied by cancelling the options by agreement with the relevant optionholders. The fact that this could not be achieved without the cooperation of all optionholders does not make the Options Condition unacceptable.

The Panel noted further that Foster's undertook in section 2.17(b) of its Bidder's Statement to use its best endeavours to ensure that each of conditions to its offer was satisfied and not to do or omit to do anything which may cause a breach of any such condition. To the extent that satisfaction of the condition required reasonable co-operation from Foster's, Foster's is obliged to provide this co-operation. This increases the likelihood of the Options Condition being satisfied and removes any element of discretion from Foster's as to whether or not the condition will be fulfilled.

The Panel will publish its reasons on its website www.takeovers.gov.au in due course.

The sitting Panel in these proceedings was Professor Ian Ramsay, Alice McCleary, Michael Ashforth.

Nigel Morris
Director, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3501

1 The investor presentation actually used the average figure $2.76 due to a change in one valuation.

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