TP05/066
The Takeovers Panel advises that it has today declined to commence proceedings in response to an application from Patrick Corporation Limited in relation to the proposed takeover offer by Toll Holdings Limited announced on 22 August 2005.
Patrick's application alleged that Toll's investor presentation dated 22 August 2005 and two ASX announcements on 22 August and 5 September 2005 in relation to the proposed bid have given rise to unacceptable circumstances by:
- misrepresenting the intention to cause Patrick to distribute shares in Virgin Blue to be part of the consideration offered under the Toll bid; and
- including the value of the proposed distribution of Virgin Blue shares in calculating the value of the Toll bid and the premia of the bid value over pre-announcement trading prices of Patrick shares.
In Toll's 22 August 2005 announcement, it referred to "a proposal to acquire Patrick Corporation Limited" and stated that
"Under the proposal, Patrick shareholders will receive for each Patrick share:
- 0.4 Toll shares;
- $0.75 cash; and
- an in specie fully franked special dividend from Patrick of 0.3 Virgin Blue Holdings Limited (Virgin Blue) shares."
The Panel considered that it was unlikely that the market had been misled by the Toll announcements as to the source of the cash and shares Patrick shareholders would receive under Toll's offer for Patrick shares. The Panel also considered that Patrick shareholders would aggregate the three elements of value offered by Toll in assessing the value that they would receive for their Patrick shares, and thus it was not misleading to describe the value of the Toll offer as the sum of the three elements (provided that any risk that an accepting shareholder would not receive all 3 elements of the package was also disclosed). The Panel considered that the Toll announcements had made the source of the different elements of the package sufficiently clear.
Toll Disclosure
The Panel considers that Toll has made it sufficiently clear in its announcements that the cash and Toll shares component (Consideration) will come from Toll as part of the bid consideration regulated under the Corporations Act and that the Virgin Blue shares component (Virgin Blue Distribution) would come from Toll procuring Patrick to make the special dividend once Toll's bid for Patrick was successful.
The Panel considered that the section headed "Conditions and Payment Terms" in Toll's 22 August announcement gave sufficient information, for an initial announcement, about the payment times and mechanisms for the market to understand the major elements of the proposal.
The Panel noted Toll's clear statement in its announcements that accepting Patrick shareholders will receive the Virgin Blue Distribution. In its 5 September 2005 announcement Toll stated:
"if Toll's takeover bid is successful, Patrick shareholders who accept the offer will receive for each Patrick share:" (emphasis added).
Toll then went on to set out the elements of the Consideration and Virgin Blue Distribution again. The Panel considers that the 5 September 2005 statement was, in many ways, clearer than 22 August 2005 statement given that the 22 August 2005 statement stated that:
"Toll intends that Patrick will pay the special dividend as soon as practicable after Toll obtains control of Patrick and the conditions of its offer are satisfied or waived." (emphasis added)
Patrick shareholders and the market are entitled to rely on Toll's clear statement that they will receive the Virgin Blue Distribution if the Toll bid is successful.
The Panel noted that Toll did not make clear in its statement what it meant by its bid being "successful". Toll's announcements did say that its bid will be conditional on receiving sufficient acceptances to enable it to compulsorily acquire the remaining shares. The Panel has asked Toll to clarify to the market what Toll means by its bid being "successful".
The Panel also noted that Patrick has repeatedly sought to have Toll expressly state that the Consideration is consideration offered under the takeover bid and that the Virgin Blue Distribution is a separate proposal to be delivered after Toll's bid. Patrick makes great play of this difference. The Panel has not received any evidence that there is great significance in the differentiation, and does not consider that Toll's statements have been misleading. However, if Toll is aware of any circumstances whereby the issue would matter, the Panel considers that Toll should disclose that (in its bidder's statement at the latest) and explain the consequences of those circumstances.
The Panel noted that there is an additional point which Toll has not brought to Patrick shareholders' attention in its announcements. It is the fact that if Toll's bid proceeds and is "successful", and Toll procures Patrick to make the special in specie distribution of Virgin Blue shares, the dividend will be distributed to all Patrick shareholders, including those who do not accept Toll's offer.
Deliverability of Virgin Blue shares Distribution
The Panel notes that Toll has made no mention in any of its announcement of any circumstances, or possibility, of its bid being "successful", for example by all defeating conditions being waived or met, and Patrick shareholders who accept Toll's offer not receiving the Virgin Blue Distribution.
The Panel has advised Toll that Toll should make immediate disclosure to the market if Toll considers that there may be circumstances where its bid is "successful" (for example by all defeating conditions being waived or met) but Patrick shareholders who accept Toll's offer may, or will, not receive the Virgin Blue Distribution. If Toll considers that there may be such circumstances, the Panel would expect a clear and detailed analysis of the circumstances, the risk factors associated with them, and the consequences for accepting Patrick shareholders.
Otherwise, the Panel has advised Toll that it considers that the market, and Patrick shareholders, are entitled to act on the basis that such circumstances will not happen, and that Toll will take all steps to ensure that such circumstances do not and will not happen.
The Panel has advised Toll that it expects that the Toll bidder's statement will make full and clear disclosure of the mechanism by which Toll proposes to deliver the Virgin Blue Distribution.
Patrick shareholder understanding
The Panel did not consider that Toll's aggregation of the Consideration and the Virgin Blue Distribution together as the total value which Patrick shareholders would receive for their Patrick shares was misleading (subject to Toll disclosing any circumstances in which Patrick shareholders would not receive the Virgin Blue Distribution). The Panel considered that the aggregation of the Consideration and Virgin Blue Distribution was appropriate and is how most Patrick shareholders would assess the Toll takeover bid.
If the fact that the Virgin Blue shares would be delivered by way of an in specie dividend from Patrick, rather than as consideration directly from Toll and regulated under the Corporations Act, was material to any Patrick shareholder's decision, then that fact had been clearly disclosed.
Similarly, the fact that the Virgin Blue Distribution depends on Toll "procuring" Patrick to do so has been adequately disclosed.
The Panel considered that ordinary shareholders would understand the mechanism that Toll is proposing, that it has some accepted precedents in Australia, and that Toll had given sufficient information in its initial announcements concerning its bid.
Details required in initial announcement
Patrick submitted to the Panel that the Toll announcements did not provide sufficient detail as to the proposal and that the market in Patrick shares would trade in an uninformed manner in the period between Toll's initial announcement and the lodging of Toll's bidder's statement. The Panel considers that an initial announcement of an intention to make a takeover does not require all details of mechanisms etc to be disclosed. However, any bidder who omits a material condition or qualification of any part of its proposed bid runs a material risk of its initial announcement being misleading by omission and risks contravening section 631 of the Corporations Act.
Orders requested
Patrick had requested in its application that the Panel make orders in relation to Toll's bidder's statement. The Panel considered that it currently has no basis for considering that Toll's bidder's statement will provide other than full and clear disclosure concerning the Consideration and Distribution and the mechanisms for delivering them. Therefore, the Panel advised Patrick that it would be premature to consider the content of the Toll bidder's statement until Toll had lodged it. The Panel noted that Patrick was free to make any new application if it considered, after reviewing the Toll bidder's statement, that issues of unacceptable circumstances might arise. The Panel did not consider that it had been shown any basis to move from its position that it does not pre-vet takeovers documents without proper cause.
Decision
The Panel did not consider there was any real likelihood made out by Patrick in its application that the aspects of Toll's announcements on 22 August 2005 and 5 September 2005 of which Patrick complained, would cause unacceptable circumstances having regard to the limited (if any) effect of those aspects of Toll's announcements, on:
- the control or potential control of Patrick; or
- the acquisition, or proposed acquisition, of a substantial interest in Patrick or another company.
Therefore, the Panel declined to commence proceedings, under Regulation 20 of the Australian Securities and Investments Commission Regulations 2001.
The sitting Panel which considered the application was Stephen Creese, Marie McDonald (sitting President) and Simon Withers.
Nigel Morris
Director, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3501
