TP05/036
The Panel announces that it has concluded its proceedings in relation to the application by San Miguel Foods Australia Holdings Pty Ltd (San Miguel) for a declaration of unacceptable circumstances made on 7 March 2005. In light of:
- the undertakings received from Fonterra Foods Pty Ltd (Fonterra Foods) and supplementary disclosure by Fonterra Foods in its fifth supplementary bidder's statement on 4 April 2005; and
- the announcement by San Miguel on 6 April 2005 of its increased offer for shares in National Foods, and Fonterra Foods' subsequent announcement on 11 April 2005 that it would close its bid for National Foods and accept San Miguel's offer,
the Panel has decided to conclude the proceedings and not to make any declaration of unacceptable circumstances in relation to the proceedings.
Application
The application concerned a proposed joint venture (Joint Venture) which Fonterra Foods, Yoplait SAS and Sodima SAS announced on 2 March 2005. The Joint Venture was proposed to be implemented between National Foods and Sodima if Fonterra Foods acquired 100% of the shares in National Foods. The Panel announced its receipt of the application in Media Release TP05/25 on 8 March 2005.
First Part of National Foods 01 Decision
The Panel has previously issued Media Release TP05/32 setting out its decision in relation to the first part of the application i.e. issues relating to Fonterra Foods' initial failure to make adequate disclosure of the terms of the Joint Venture, and its intentions for the fixed assets, employees and businesses of National Foods in light of the Joint Venture. The Panel considered that Fonterra Foods' undertakings and supplementary disclosure meant that unacceptable circumstances no longer existed and required no further action.
Second Part of National Foods 01 Decision
The second part of the proceedings related to the need for Yoplait and Sodima to lodge a substantial shareholding notice following their entry into an agreement in connection with the Joint Venture (Fonterra/Yoplait Deed). Proceedings in relation to this issue were suspended pending the outcome of an application by Yoplait and Sodima for relief from the requirement to attach the Fonterra/Yoplait Deed to a substantial shareholding notice.
In light of the changes in San Miguel's and Fonterra Foods' positions in the contest for National Foods, and the Joint Venture consequently not proceeding, the Panel considers that there would now be no material benefit for the market in National Foods shares, or for National Foods shareholders, from Yoplait and Sodima giving substantial holding notices nor from Yoplait and Sodima attaching a copy of the Fonterra/Yoplait Deed to any substantial holding notice. The Panel has consequently consented to Yoplait and Sodima withdrawing their undertakings to give substantial holding notices in relation to the shares in National Foods, held by Fonterra, in which the Panel found Yoplait and Sodima had voting power by virtue of an association with Fonterra (which is discussed below) .
Initial Finding on "Association"
In Media Release TP05/32, the Panel advised that it considered that entering into the Fonterra/Yoplait Deed caused Fonterra (on the one hand) and Sodima and Yoplait (on the other hand) to become associates in relation to National Foods.
The Fonterra/Yoplait Deed originally contained an obligation under which Fonterra was required to use all reasonable efforts to be in a position to implement the Joint Venture, following Fonterra achieving majority control of National Foods and pending Fonterra acquiring all of the shares in National Foods (JV Preparation Obligation).
On balance, it seemed that the JV Preparation Obligation reflected an agreement for the purpose of controlling the conduct of the affairs of National Foods. The Panel considered that the JV Preparation Obligation required Fonterra to manage National Foods (from the time it acquired control until the Joint Venture is set up) in a way which, at the least, does not impede setting up the Joint Venture. Further, the Panel considered that the JV Preparation Obligation required Fonterra Foods to prepare National Foods' businesses for transition into the Joint Venture. For instance, subject to Fonterra not being adversely affected, the JV Preparation Obligation would prevent Fonterra from causing or allowing National Foods to close down or sell off its Fresh Cultured Products and Fresh Dairy Desserts business.
Given that Fonterra had a relevant interest in at least 19.03% of the shares in National Foods, the Panel therefore considered that Sodima and Yoplait had voting power in National Foods of at least 19.03%. Accordingly, the failure by Sodima and Yoplait to lodge a substantial holding notice by 9.30 a.m. on the next business day after they entered into the Fonterra/Yoplait Deed constituted unacceptable circumstances.
At that stage, while the prospect of Fonterra acquiring control of National Foods was a real prospect, the Panel considered that Sodima and Yoplait should lodge a substantial holding notice for the benefit of National Foods shareholders and the market in National Foods shares.
Yoplait and Sodima Undertakings
Each of Sodima and Yoplait undertook to the Panel to lodge a substantial holding notice. However, the undertakings were expressly on the basis that prior to giving any substantial holding notice Yoplait and Sodima would apply to ASIC (and, if necessary, the Panel on review) for relief from the obligation to annex the Fonterra/Yoplait Deed to the notice.
If such relief was not forthcoming, the Panel reserved its position on making a declaration of unacceptable circumstances and orders in relation to the failure by Sodima and Yoplait to lodge substantial holding notices upon entering into the Fonterra/Yoplait Deed.
ASIC/Panel Relief
Yoplait and Sodima applied to ASIC under section 673 for relief from the requirement in section 671B(4)(a) to attach a copy of the Fonterra/Yoplait Deed to any substantial holding notice they lodged. ASIC refused their application on the basis that it did not consider that the relief would advance the objectives of the takeovers provisions as set out in section 602. Yoplait and Sodima subsequently applied for a review of the ASIC decision. That review is the subject of the National Foods 02 proceedings announced by the Panel in Media Release TP05/33 published on 6 April 2005. The Panel understands that, in light of this Panel's decision, Yoplait and Sodima are likely to seek the Panel's consent to withdraw the National Foods 02 application. The Panel has not yet determined the National Foods 02 proceedings.
Reasons
Initial Decision – Disclosure Concerning the Joint Venture
The Panel considers that unacceptable circumstances existed as a consequence of Fonterra's initial failure to make adequate disclosure of the terms of the Joint Venture, and its intentions for the fixed assets, employees and businesses of National Foods in light of the Joint Venture. However, the Panel considers that those unacceptable circumstances were adequately remedied by Fonterra Foods' supplementary bidder's statement issued as part of an undertaking to the Panel in these proceedings.
Consequently, it did not appear to be in the public interest to make any declaration or orders.
Final Decision – Substantial Holding Notice by Yoplait and Sodima
The Panel considers that unacceptable circumstances existed as a consequence of Yoplait and Sodima's failure to give a substantial holding notice by 9.30 a.m. on the business day following the entry by Yoplait, Sodima and Fonterra into the Joint Venture (as evidenced by executing the Fonterra/Yoplait Deed). However, the Panel notes that at that time Yoplait and Sodima believed that the Fonterra/Yoplait Deed did not cause an association between themselves and Fonterra.
The Panel considers that its Media Release TP05/32, Fonterra Foods' fifth supplementary bidder's statement published on 4 April 2005, the media coverage surrounding the Panel proceedings and the announcements by both Fonterra and National Foods, meant that the market and National Foods shareholders had been given the material information which would have been provided in a substantial holding notice from Yoplait and Sodima. The Panel also considers that National Foods shareholders would have been provided with the information which would have been material to them and which was contained in the Fonterra/Yoplait Deed.
Further, the Panel considers that the announcements of 6 and 11 April by San Miguel and Fonterra Foods respectively, made the prospect of the Joint Venture purely hypothetical and made the information in the Fonterra/Yoplait Deed essentially irrelevant to the market for National Foods shares and to National Foods shareholders. However, the Panel recognised that the commercial harm to Yoplait and Sodima which might occur as a consequence of disclosing the Fonterra/Yoplait Deed would still likely remain to a very similar extent as previously.
Taking those three elements into account, the Panel considered it appropriate to conclude the proceedings, without making any declaration in relation to the substantial holding notice issues and to consent to Yoplait and Sodima withdrawing their undertakings to the Panel to give a substantial holding notice in respect of National Foods shares.
Conclusion
The Panel considers that the proceedings before it and its decision will serve as a useful and timely reminder for persons considering entering into agreements in relation to the conduct of target companies' affairs, as to the potential for those agreements to trigger substantial holding notice obligations.
The Panel recognises that the circumstances of National Foods meant that it may have been commercially and practically essential for Yoplait, Sodima and Fonterra to enter into some form of agreement such as the Joint Venture. The Panel similarly recognises that it may be similarly essential for other bidders in the future, either because of joint operational issues as in the National Foods case or, for example, as a result of competition policy requirements, to enter into such agreements. However, it appears clear to the Panel that the obligations which must be either express or implied on the bidder to run the affairs of the target in any period of partial ownership subject to the agreement, are likely to cause similar association issues.
The Panel expects that parties to such agreements will either limit the obligations (express or implied) in the agreements to ensure that there is no risk of an association being formed, nor of the parties gaining relevant interests in the shares of the others, or that they will promptly make substantial holding notice disclosure which complies with the Corporations Act.
The Panel will publish its reasons on its website www.takeovers.gov.au.
The sitting Panel in these proceedings was Kevin McCann, Mark Paganin and Michael Ashforth.
Nigel Morris
Director, Takeovers Panel
Level 47, 80 Collins Street
Melbourne, VIC 3000
Ph: +61 3 9655 3501
