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Slide 1
The Australian Takeovers Panel
Alan ShawCounsel
Takeovers Panel
AMEC seminar Sao Paulo Brazil 9 December 2009
Slide 2
Topics
1. Background on the Australian market
2. Takeovers Panel structure
3. Takeovers Panel powers
4. Takeovers Panel process
5. Takeovers Panel matters
6. Challenges to the Panel
7. International comparison
Slide 3
Part 1Background on the Australian
market
Slide 4
Market overview
1.7 million registered companies
Stock exchanges
• ASX - Australian Securities Exchange2,198 listed companies A$1.09 trillion (US$981 billion) market capitalisation
• NSX - National Stock Exchange and Bendigo Stock Exchange
88 listed Small to Medium Enterprises
• APX - Asia Pacific Exchange1 listed company
Slide 5
Degrees of control in Australian law
5% Substantial holder disclosure threshold
20% Takeover threshold
50.1% of shares voted at general
meeting
Practical ability to pass ordinary resolution (appoint board, subject to constitution)
50.1% Certain ability to pass ordinary resolution
75% of shares voted at general
meeting
Practical ability to amend constitution
75% Certain ability to amend constitution
90% Compulsory acquisition
100% Full control (no minorities)
Source: Blake Dawson 2009
Slide 6
Ways to acquire control of a public company
TARGET TARGET
COMPANYCOMPANY
TARGET TARGET
COMPANYCOMPANY
Takeover
Takeover
Selective Reduction
of Capital
Selective Reduction
of Capital
Schem
e of A
rrangem
ent
Schem
e of A
rrangem
ent
Shareholder
Approval
Shareholder
Approval
Part 5.1 of chapter 5
Item 7 of Section 611
Chapter 6
Part 2J.1 of chapter 2
Source: Blake Dawson 2009
Slide 7
Set out in Chapter 6 of the Corporations Act
Prescriptive legal rules - acquisition of control of Australian public companies
and listed managed investment schemes
Rules are based on 5 principles – includes ‘Eggleston principles’ in s602
Rules are tempered in two ways:1. ASIC can modify the law (s655A)2. The Panel can make declarations of “unacceptable
circumstances” (s657A)
ASIC and the Panel have regard to s602
The Takeovers Code - overview
Slide 8
General prohibition on acquiring more than 20% of a company/ scheme (s606)
• The transaction is not invalid if breached (s607)
• The person who makes the acquisition commits an offence (s1311) Penalty: 25 penalty units/ 6 months or both
Specific gateways to increasing holdings above 20%
Disclosure
The Takeovers Code - prohibition
Notes1: Section 9 defines company as meaning a company registered under this Act.2: Section 608 and 609 deal with the meaning of relevant interest. 3. Section 610 deals with the calculation of a person’s voting power in a company.
CSLRC: “a suitable arbitrary level falling short of the likelihood of actual control”
Not a threshold
Slide 9
Exceptions to the 20% prohibition (s611)
1. Bids - market or off-market (item 1)
2. Schemes of arrangement (item 17)
3. Shareholder approved transactions (item 7)
4. 3% creep (item 9)
5. Other exceptions – rights issues, buy-backs, underwriting etc
The Takeovers Code – the gateways
Slide 10
Bidder’s statement (section 636)1. Identity of bidder
2. Details of intentions for target (including future employment)
3. Funding of bid
4. Prospectus information if shares offered
5. Details of consideration paid in last 4 months
6. Any other information material to shareholder’s decision, unless unreasonable because previously disclosed
Target’s statement (section 638)1. All information shareholders and advisers reasonably require to
make an informed assessment of the offer, to the extent it is known and expected to be found
2. Recommendation of each director
The Takeovers Code – disclosure
Slide 11
Takeover Scheme
Control of process
Offeror Target (Implementation Agreement)
Target co-operation
Not essential Essential
Court approval No Yes. Order scheme meetings and approve scheme
Pre-bid agreement
Possible (up to 20%) Possible but may exclude shares from voting on scheme
Threshold for 100% ownership
90% held and get 75% of those bid for 75% in each class of member
Vulnerability to blocking stake
High (90% minimum acceptance condition)
Low (50% condition)
Increases as bidder’s stake diminishes eligible voting pool
Offer structure flexibility
Limited – can only bid for securities Flexible – can include reduction/return of capital, demerger and asset acquisitions
Tactical flexibility
Yes. Can increase offer price and waive/modify conditions
No
Main dispute forum
Takeovers Panel Court
Payment of consideration
Over time At one time
Disclosure Reviewed by Panel if complaint Reviewed by ASIC
Takeover or scheme?
Source: Blake Dawson 2009
Slide 12
Control transactions – this year to last year
Takeovers v Schemes
63
4846
24
0
10
20
30
40
50
60
70
Takeovers Schemes
2008
2009
Source: Freehills 2009 Public Mergers & Acquisitions Report
Slide 13
Control transactions in 2009 - industry type
Metals and Mining 24
Energy 18
Financials 10
Healthcare 4
Telcoms and Media 6
Other 10
Source: Freehills 2009 Public Mergers & Acquisitions Report
Slide 14
Market value of deals - 2009
25 24
14
57
0
5
10
15
20
25
30
<20 20-100 100-500 500-1000 >1000
Equity value ($ million)
Nu
mb
er o
f d
eals
Source: Freehills 2009 Public Mergers & Acquisitions Report
Slide 15
Type of consideration - 2009
53%
11%
36%
Source: Freehills 2009 Public Mergers & Acquisitions Report
SharesCash
Cash/ Shares
Slide 16
Indicative takeover timetable (1 month bid extended for 1 month)
Preparation for bid
Give bidder’s statement to ASIC, target, ASX
Dispatch bidder’s statement to shareholders
1 15 30
Give target’s statement to ASIC, bidder, ASX, shareholders
35
Waive or satisfy bid conditions
46
Offer closes, unless extended
66
Pay consideration
74
Offer closes, unless further extended
95
Finish paying consideration
118
Compulsory acquisition
DAY:
Source: Blake Dawson 2009
Offer open for acceptance
Bidder pays consideration
Announce Bid
Slide 17
Time for completion of takeovers - 2009
13%
26%
18%
43%
0
10
20
30
40
50
<60 60-90 days 90-120 days >120 days
Source: Freehills 2009 Public Mergers & Acquisitions Report
Slide 18
Regulatory involvement - 2009
10%
25%
19%
0% 5% 10% 15% 20% 25% 30%
ACCC
FIRB
Takeovers Panel
Source: Freehills 2009 Public Mergers & Acquisitions Report
2008 – 12%
Slide 19
Part 2Takeovers Panel structure
Slide 20
Panel philosophy
Peer review body
Regulator of takeovers and other control transactions
Main forum for resolving disputes in takeovers
Courts excluded during bid period
“Sensible, highly qualified commercial people making commercial decisions in an atmosphere that calls for speedy resolution”: Alinta
Slide 21
Pros and Cons
Pros
Commercial dispute resolution
Principles based
Informal process
Enforceable in court
Speedy hearings
Not stop bid from proceeding
Cons
Acceptance of model
Some limitations on investigations
Extra-legal considerations
Slide 22
Qualifications for Panel members
Australian Securities and Investments Commission Act
Section 172
• Not less than 5 members
• One member to act as President
• Appointed by Governor in Council for up to 5 years
• May be full time or part time
• Qualified by reason of experience in -
(a) business
(b) administration of companies
(c) financial markets
(d) financial products and financial services
(e) law
(f) economics or
(g) accounting
Slide 23
1
1112
4
24
0
5
10
15
20
25
30
Accountant Banker Corporate Finance Law yer
Panel members – by profession
Slide 24
Melbourne, 17
Perth, 6
Sydney, 23
NZ, 1
Brisbane, 3
Adelaide, 2
Panel members – by location
Slide 25
Panel organisation
CounselAlan Shaw
PANELPresident
51 members(part time )
DirectorAllan Bulman
Treasury
ManagerKarolina Danger
AssistantRebecca Banhelyi
Legal OfficerNirangjan Nagarajah
SecondeeMarissa BendykChange
every 8 months
Slide 26
The Executive’s role
Assist Panel members to make good
(consistent and timely) decisions
Provide non-binding advice on applications
Interfaces with the parties on applications
Organises Panel days and other communications
Draft policy as settled by wider Panel
Make decisions on applications
Exercise any formal powers
Exercise any discretions
Does Does not
Slide 27
Part 3Takeovers Panel powers
Slide 28
Panel powers - overview
ASIC review in relation to modifications/ exemptions from Chapter 6 (Section 656A)
Declaration of unacceptable circumstances (Section 657A)
Orders (Interim and Final) (Section 657D)
Referrals to and remittals from court (Sections 657EB and 659A)
Rule making (Section 658C)
Policy development Procedural rules Guidance Notes
Slide 29
Other powers
Accept enforceable undertakings (ASIC Act section 201A)
Conduct conferences (ASIC regs 35-41)
At a conference - summons witnesses, take evidence on oath,
subpoena documents (ASIC Act section 192)
Contempt power (ASIC Act section 200)
Dismiss frivolous & vexatious applications (Section 658A)
Also power not to conduct proceedings (ASIC reg 20)
Slide 30
Main power – declarations
Corporations Act
Section 657A(1)
The Panel may declare circumstances in relation to the affairs of a company to be unacceptable circumstances. Without limiting this, the Panel may declare circumstances to be unacceptable circumstances whether or not the circumstances constitute a contravention of a provision of this Act.
Principles based
Fuzzy law (vibe)
Slide 31
Main power – Bases for declaration
Section 657A(2)
Appears to the Panel that circumstances are unacceptable
• having regard to control effect
• otherwise unacceptable having regard to section 602 • because they constitute a contravention
‘Eggleston principles’
Slide 32
Purposes of the takeovers code‘Eggleston principles’
Section 602:
• acquisition of control of voting shares takes place in an efficient, competitive and informed market
• holders of shares and directors:(i) know the identity of any person who proposes to acquire a
substantial interest (ii) have a reasonable time to consider the proposal(iii) are given enough information to enable them to assess
the merits of the proposal
• holders of shares all have a reasonable and equal opportunity to participate in any benefits
Australian company - listed, unlisted with more than 50 members, managed investment scheme
Slide 33
Chapter 6 policy in applications
105
29
29
154
77
4
47
0 20 40 60 80 100 120 140 160
602(a) - eci
602(b)(i) - identity
602(b)(ii) - time
602(b)(iii) - information
602(c) - opportunity
602(d) - comp acq
Contravention
Slide 34
Panel orders
Interim orders (section 657E)
Final orders (section 657D)
• Declaration of unacceptable circumstances
• Not unfairly prejudice any person
• Protect rights or interest of persons or group of persons
• Ensure the takeover or proposal proceeds (as far as possible) as if the circumstances had not occurred
Slide 35
Part 4Takeovers Panel process
Slide 36
Panel proceedings
Questions of law, judicial review "grounds"
ASIC PANEL REVIEW PANEL COURTS
Remittals
ASIC or any "person affected"
Declare unacceptable circumstances
Declare unacceptable circumstances
Panel grants or refuses relief
ASIC grants or refuses relief
Application
Appeal
Appeal
Judicial review
Questions of law
Source: Blake Dawson 2009
Slide 37
Panel processProcedural rules
o Media canvassing and confidentialityo Legal representation
Applications
Choosing three Panel members for a matter – conflicts
Process letter/ Declaration of interests
Conduct proceedings?
Brief, submission, rebuttals
Conferences
Decision, reasons and media releases
Slide 38
Part 5Takeovers Panel matters
Slide 39
Types of matters
85
38
24 26
5
27
15 136 5 4
49
17
0102030405060708090
Bidder's st
atements/ announc
ements
Target's
statements/
announcements
Associa
tion
Frustrati
ng action
Break fees
Rights iss
ues
Collateral b
enefits
Acceptanc
es
Substanti
al holding notic
es
Last and fin
al sta
tements
Equity deri
vativ
esOther
Review of A
SIC decis
ions
Panel matters
s657A s656A
Slide 40
Panel applicants
0
10
20
30
40
50
Bidder/acquirer 6 15.5 1 13 6 11 9 9 9 12
Target 10 5 10 11.5 11 4 16 9 18 5
Rival bidder 4 9.5 3.5 5 1 2 6 6 1 1
Shareholder/other 1 6.5 15.5 12 9 5 9 9 11
ASIC 1 1 1 2 1 1
Total 22 31 22 47 31 26 36 34 37 29
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 41
Panel dealings
Number of Matters by Year
0
5
10
15
20
25
30
35
40
45
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Average Days to Decision
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Average Days to Publication of Reasons
0.010.020.030.040.050.060.070.080.090.0
100.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 42
Part 6Challenges to the Panel
Slide 43
Panel challenges
Declaration powerGlencore International AG v Takeovers Panel1
Orders powerCEMEX v Takeovers Panel2
Existence of the Panel itselfPrecision Data v Wills3
A-G (Cth) v Alinta4Notes: 1. [2005] FCA 1290, [2006] FCA 274 2. [2008] FCA 1572, [2009] FCAFC 783. (1991) 173 CLR 1674. [2008] HCA 2
Section 657A
Judicial power
Section 657D
Slide 44
Challenge to the declaration power
First judicial review overturned decision effect on control• Power to make a declaration…
o not predicated upon it appearing to the Panel that particular circumstances have an effect
o predicated upon it appearing to the Panel that particular circumstances are unacceptable, having regard to the effect
Second judicial review considered substantial interest
Resulted in amendments:• Corporations Amendment (Takeovers) Bill 2007 • Effect changed to - ‘appearing to the Panel’• New s 657A(2)(b) - Eggleston principles “without having to also establish
either a contravention of the Act or an effect on control”• New definition of ‘substantial interest’ introduced (section 602A)• Order power improved - rights or interests of a group of persons
Slide 45
Challenge to the order power
First judicial review
• Dismissed review• Section 657D allows orders for a group: lost opportunity to
trade in an efficient and informed market was sufficient nexus
Second judicial review (appeal)
• Dismissed review• Orders are not concerned with damages by the conduct of
another person• “en globo’ assessment available – market misinformed is
sufficient nexus
“In Alinta … considerable emphasis on the specialist nature of the Panel and the public interest considerations which underpin its role”: per Full Court
Slide 46
Challenges to the Panel itself
Judicial power of the Commonwealth
Commonwealth separation of powers is an implication from s71 of Constitution
• Principle 1 – Only Chap III courts can exercise judicial power of the Commonwealth
• Principle 2 – Chapter III courts cannot exercise non-judicial power
Pros
Ensures independence of judiciary
from
political interference
Protects citizens
Useful without Bill of Rights
Cons
Creates inconvenience and cost (eg, cross-
vesting)
Perhaps merely a drafting convenience
Invites pragmatic exceptions (eg, persona
designata)
Slide 47
Two CasesPrecision Data v Wills
• Not judicial power because:o Panel creates new rights and obligationso Orders are not enforceable by the Panelo Considerations of policy have an important part to play
Attorney-General (Cth) v Alinta
• Panel does not exercise judicial power because:o Panel does not enforce law or resolve disputes about existing rights - creates
new rights and obligations taking policy into account o A finding whether there has been a contravention is not binding or determinative
of any legal question since Panel must take other factors into account, including public interest (s657A(2)(b)) and factors in s657A(3)
o Panel cannot compel compliance with its orders – done by a court independentlyo Limitation on commencement of court proceedings is temporary
• Support for the view that the Panel’s orders override the Corporations Act
Alinta AGL APT30%19.98%
Bid
Bid
Slide 48
Part 7International comparison
Slide 49
Development of regulation
Increased takeover activity (including "first come first served" offers) in the late 1960's resulted in different regulatory responses:
• US – Williams Act (1968)
• UK – City Panel and "Code" (1968)
- EU Directive
• Australia – Eggleston committee reports (1969+)
- state Act amendments (1971+)
- federal scheme, Companies (Acquisition of Shares) Codes (1981)
- national scheme, Corporations Act (2001)
‘Self-regulation’/ legislative
Legislative/ judicial
Legislative/ judicial
Legislative/ peer review
Slide 50
Comparison of jurisdictions 1
Australia UK US
Type/source of rules Statute Ch 6 City Code (recent statutory backing)
Fed / State statutes, case law
Main regulator Panel, ASIC UK Panel (recent statutory backing)
Courts, SEC
Can controller commit to sell controlling stake
Yes, up to 20% Yes, but 30% or more - mandatory offer to other shareholders
Yes, offer to other shareholders not necessarily required
Pre-bid acceptance commitments
Up to 20% only ("public auction" principle?)
Allowed – no limit Allowed (case law limits on full lock-up of shareholder vote)
Maximum offer/conditional offer period
12 months 60 days – minimum acceptance condition81 days – other conditions
Generally no (States have varying anti-takeover laws)
Source: Blake Dawson 2009
Slide 51
Australia UK US
Mandatory minimum acceptance condition
No Yes - 50% Generally no – 2 step offers common (State laws vary)
Restrictions on further offers?
No – subject to "truth in takeovers"
Yes – Panel consent required within 12 months
Some States require bidder to wait for a period or get shareholder approval
Ability of Bidder to rely on conditions
Unrestricted Limited (apart from certain conditions)
Unrestricted
Litigation forum and frequency
Courts – not commonPanel – common (rarely defeats bid)
Courts – rarePanel – common (rarely defeats bid)
Courts – very common (often results in delay or a change in terms)
Comparison of jurisdictions 2
Source: Blake Dawson 2009
Slide 52