The following is a summary of the main takeover provisions in Australia. It is general information only and is not legal advice.
Chapter 6 of the Corporations Act 2001 (Cth)1 deals with takeovers.2 It applies to Australian-incorporated listed companies, unlisted Australian-incorporated companies with more than 50 members and Australian-registered listed managed investment schemes3 (these are typically unit trusts).
The purposes of Chapter 6 are set out in s602 and include that:
- the acquisition of control over voting shares or voting interests takes place in an efficient, competitive and informed market
- the holders of shares or interests, and the directors of the company, body or the responsible entity for the scheme, know the identity of the acquirer, have a reasonable time to consider the proposal and have sufficient information to enable them to assess the merits of the proposal
- as far as practicable, the holders of the relevant class of voting shares or interests all have a reasonable and equal opportunity to participate in any benefits arising from the proposal and
- an appropriate procedure is followed as a preliminary to compulsory acquisition of voting shares or interests or any other kind of securities under Part 6A.1.
20% acquisition limit and key concepts
20% acquisition limit
Section 606 prohibits the acquisition of a relevant interest in voting shares if, because of that transaction, a person's voting power in the company:
- increases from under 20% to over 20% or
- increases from a starting point that is above 20% and below 90%.
The concept of “relevant interest” is defined in ss608 and 609. Generally, a person will have a relevant interest in securities if they are the holder of the securities, they have the power to exercise, or control the exercise of, a right to vote attached to the securities or they have the power to dispose of, or control the exercise of a power to dispose of, the securities. It does not matter how remote the relevant interest is or how it arises. If 2 or more people can jointly exercise one of these powers, each of them is taken to have that power.
A person's “voting power” in a body is determined in accordance with s610. A person’s voting power includes the total number of votes attached to all of the voting shares in the company in which that person or an associate has a relevant interest.
The definition of “associate” includes (a) a person with whom the other person is acting, or proposing to act in concert in relation to the company’s affairs and (b) persons with whom they have entered or propose to enter into an agreement for the purpose of controlling or influencing the composition of the company's board or the conduct of the company’s affairs. It will also include companies that the person controls or that control the person.Back to top
Exceptions to the 20% acquisition limit
There are a number of exceptions to the prohibition in s606, including:
|Takeover bids||item 1 of s611||an acquisition that results from the acceptance of an offer under a takeover bid|
|Approval by resolution of target||item 7 of s611||an acquisition approved by an ordinary resolution of security holders of the company in which the acquisition is made|
|3% creep in 6 months||item 9 of s611||acquisitions of up to 3% every 6 months from a starting point above 19%|
|Rights issues||item 10 of s611||an acquisition that results from a pro-rata rights issue to security holders|
|Downstream acquisition||item 14 of s611||downstream acquisition resulting from an acquisition of relevant interests in another listed entity|
|Scheme of arrangement||item 17 of s611||an acquisition resulting from a court approved scheme of arrangement|
Types of bids
There are 2 types of takeover bids: off-market bids and market bids. The provisions dealing with the main features of the offers differ depending on the type of bid.
The differences between market and off-market bids are summarised below.
|Off-Market Bid||Market Bid|
|Consideration4||Any form of consideration (including cash, securities or a combination of both)||Cash only|
|Securities covered by the bid5||Quoted or unquoted securities||Only quoted securities|
|Offer must be for all or a proportion of securities in the bid class6||May specify a proportion of the securities in the bid class to which the offer relates||Offers must be for all the securities in a bid class|
|Conditions7||Offers may be subject to conditions that are not prohibited by sections 626 to 629 (maximum acceptance conditions, conditions requiring payments to officers of the target ceasing to hold office, conditions allowing the bidder to acquire securities from some but not all of accepting security holders, conditions which are in the control of the bidder or dependent on the bidder’s opinion or state of mind)||Offers must be unconditional (though the bidder may withdraw if the target becomes insolvent or other prescribed occurrence takes place, see s652C)|
|Increase in consideration||If consideration offered under the bid is improved, those who had already accepted the bid are entitled to the increase. An improved offer price can include adding a new form of consideration8||An increase in consideration is not passed on to those who have already accepted the bid. There cannot be an increase in consideration offered during the last five trading days in the offer period9|
Other relevant takeover provisions that apply to both market and off-market bids are summarised below.
Collateral benefits rule
The bidder or an associate of the bidder cannot give, offer to give or agree to give a person during the offer period for a takeover bid a "collateral benefit".10
It is prohibited to make a pre-bid purchase, within the 6 months before the bid is made or proposed, which gives the seller a benefit that depends on the value of the consideration to be offered under the bid.11
Minimum bid price rule
The consideration offered for securities in the bid class under a takeover bid must equal or exceed the maximum consideration that the bidder or an associate provided, or agreed to provide, for a security in the bid class under any purchase or agreement during the 4 months before the date of the bid.12
2 month rule
It is an offence for a person to propose publicly to make a takeover bid for securities in a company if that person does not make offers for the securities under a takeover bid within 2 months after the proposal.13 The terms and the conditions of the bid must be the same as or not substantially less favourable than those in the public proposal.Back to top
Information to security holders
The bidder must prepare a disclosure statement called a “bidder’s statement”. This document is meant to inform the target directors and security holders about the terms of the takeover bid and should contain all information known to the bidder which is material to a decision by a target security holder whether or not to accept a bid.15
A bidder must lodge a copy of the bidder’s statement and the offer document with ASIC. The bidder must also send a copy of the bidder's statement and offer document to the target (and, if relevant, the market operator of the market on which the target’s securities are quoted) either on the day it is lodged with ASIC or within the next 21 days. The bidder’s statement must then be dispatched to target security holders during a 3-day period within 14 to 28 days after the bidder's statement is sent to the target.
The target must formally respond to a takeover bid by preparing a target’s statement. The target’s statement must contain, among other things, all information that holders of bid class securities and their professional advisers would reasonably require to make an informed assessment of whether to accept the offer under the bid.16 The target must dispatch the target’s statement to its security holders, the bidder, ASIC (and, if relevant, the market operator of the market on which the target’s securities are quoted) no later than 15 days after the target receives a notice from the bidder that all the bidder's statements have been dispatched.
If the bidder’s existing voting power in the target is 30% or more, or for a bidder who is, or includes, an individual - the bidder is a director of the target (or for a bidder who is, or includes, a body corporate - there are common directors), the target’s statement must be accompanied by a report from an independent expert stating whether, in the expert’s opinion "the takeover offers are fair and reasonable" and giving the reasons for forming that opinion.17
Extending the Offer Period
An offer must be dispatched within 2 months of announcement. Offers must be open for a minimum of 1 month but the total offer period cannot be more than 12 months.18
A bidder making an unconditional off-market bid may extend the offer period at any time before the end of the offer period.19 A conditional bid can be extended, but the bidder must do so no later than a specified date which is 7-14 days before the end of the offer period. After that time, the offer period can only be extended if another person makes a takeover bid or if the offer price under the takeover bid is improved.20 A bidder in a market bid may also extend the offer period. The extension must be announced to the relevant financial market at least 5 trading days before the end of the offer period, subject to certain exceptions (e.g. the announcement may be made up to the end of the offer period if during those 5 trading days another person announces a takeover bid for securities in the bid class).21
There is an automatic extension of 14 days if, within the last 7 days of the offer period, for an off-market bid - the offers under the bid are varied to improve the consideration offered or in any case - the bidder’s voting power in the target increases to more than 50%.22
Supplementary Bidder’s Statements or Supplementary Target’s Statements
Division 4 of Chapter 6 requires supplementary bidder’s statements or supplementary target’s statements to be prepared in certain circumstances including (a) where the bidder or target, as relevant, becomes aware of misleading or deceptive information or omissions from their respective statements that are material from the point of view of a holder of bid class securities or (b) if a new circumstance arises that is relevant to security holders’ decisions whether to accept the bid. The supplementary statement must be sent to the target or the bidder (as the case may be) as soon as practicable. The supplementary statement is also required to be lodged as soon as practicable with ASIC and the ASX (if applicable).Back to top
A bidder under a takeover bid23 may compulsorily acquire any remaining securities in the bid class if during, or at the end of, the offer period, the bidder and their associates have:
- relevant interests in at least 90% (by number) of the securities in the bid class and
- acquired at least 75% (by number) of the securities that the bidder offered to acquire under the bid (whether or not the acquisitions happened under the bid).
Chapter 6A sets out the requirements for any compulsory acquisition process.Back to top
Substantial holder notices
Chapter 6C sets out disclosure requirements for persons who have or cease to have a substantial holding in a listed company or the responsible entity for a listed registered managed investment scheme. Notification requirements also apply if the person has a substantial holding and there is a movement of at least 1% in their holding.
A “substantial holding” is defined in s9 and includes where a person and their associates have a relevant interest in 5% or more of the total number of votes attaching to voting shares in the body.Back to top
Notification during a takeover
A person is deemed to have a substantial holding in the target during a takeover bid and the bidder must notify the ASX by 9.30am on the next trading day, whenever there is a movement of at least 1% in the bidder’s holding.
- 1All statutory references are to the Corporations Act unless otherwise indicated
- 2Pt 5.1 schemes of arrangement can also be used to acquire the securities in a body. Part 5.1 is not considered in this summary
- 3References to listed companies and listed managed investment schemes refer to those entities listed on a prescribed financial market (see definition in s9). The ASX is a prescribed financial market
- 6s618. Section 648D allows companies to have restrictions in their constitutions which require shareholder approval for a proportional bid to succeed
- 8 s650B
- 10s623. A benefit that is not offered to other bid class security holders which is likely to induce the person or an associate to accept an offer under the bid or to dispose of the securities in the bid class
- 14The timetable for giving information to security holders in a market bid is set out in s634. As nearly all takeover bids are off-market bids, this summary focuses on the off-market bid structure
- 23A market bid or an off-market bid for all of the securities in the bid class