Week 9 - Takeovers + Financial services and markets

How does a takeover work?

A takeover occurs when a company (bidder) seeks to gain control over another company (target) by acquiring its shares. The level of control achieved is directly proportional to the percentage of shares acquired.

What would a shareholder control if they have 50% of voting shares?

Sufficient voting power to pass an ordinary resolution, such as electing directors.

What would a shareholder control if they have 75% or more of voting shares?

Sufficient voting power to pass a special resolution, enabling changes to the company's constitution.

What would a shareholder control if they have 100% of voting shares?

The target becomes a wholly-owned subsidiary, providing administrative and tax consolidation benefits.

What is a "relevant interest" under s608?

A person has a relevant interest if they hold the securities; have power to exercise voting rights; or have power to dispose of the securities. Based on relevant interest, not ownership.

What is the prohibition threshold under s606?

A person must not acquire a relevant interest if it increases their holding from 20% or below to more than 20%, or from above 20% to any percentage below 90%.

When does s606 not apply?

s606 does not apply if a person already has at least 90% relevant interest, or for control in an unlisted company with less than 50 members.

What is the purpose of Chapter 6 (s602) in regulating takeovers?

Ensure acquisition of control in listed companies (or unlisted with >50 members) takes place in an efficient, competitive and informed market.

What is a creeping takeover and what are the conditions?

A bidder may acquire up to 3% every 6 months if they have held at least 19% continuously for 6 months or more.

Which acquisitions are exempt from s606?

Acquisition by Will / Operation of Law

What is an acquisition via IPO?

Acquisition resulting from a company being floated onto the stock exchange.

What are the features of a market bid (s634, s635)?

Must be a full bid (buy all in bid class); takes place on ASX; consideration must be cash only.

What are the features of an off-market bid (s632, s633)?

Can be full or partial; can involve listed/unlisted; consideration may be cash, securities, or both (most common form).

When can a bidder compulsorily acquire remaining shares (s661A)?

Bidder with ≥90% relevant interest and ≥75% acceptances may compulsorily acquire remaining shares on same terms.

What is the minority buy-out offer requirement (s662A)?

If bidder has ≥90% at end of offer period, they must offer to buy out remaining holders.

What is the 90% beneficial interest rule (s664A, s664AA)?

A person with ≥90% full beneficial interest may compulsorily buy within 6 months even outside takeover.

What must a bidder’s statement (s636) include?

• This document must be lodged with ASIC and provided to the target. It must detail:

  • bidder's identity,

  • terms of the bid

  • bidder's intentions regarding:

    • continuation of the target's business

    • any major changes

    • future employment of staff

What must a target’s statement (s638) include?

• The target company's board must prepare this statement for its shareholders. It must include:

  • directors' recommendation on whether to accept the offer or;

  • provide clear reasons if no recommendation is made and;

  • all information that shareholders and their advisers would reasonably require to make an informed assessment of the bid

When is an expert’s report (s640) required and what must it state?

An expert's report on whether the offer is "fair and reasonable" must accompany the target's statement if the bidder is connected with the target or already holds 30% or more of the target's shares.

What statements are prohibited under s670A?

Misleading or deceptive statements/omissions prohibited; civil and criminal liability (up to 5 years).

What is the role of the Takeovers Panel (Pt 6.10 Div 2 / ASIC Act)?

Main forum for takeover disputes during bid period; may declare unacceptable circumstances (s657A) and make orders (s657D).

What are the AFSL requirements for financial service providers (s911A)?

Financial service providers must hold an AFSL.

What are the general obligations for AFSL holders (s912A)?

AFSL holders must act efficiently, honestly, fairly; comply; train reps; manage risk; resolve disputes.

What is prohibited under short selling rules (s1020B)?

Prohibits selling without ownership unless an unconditional right to vest exists; offence.

What is prohibited under market manipulation rules (s1041A)?

Prohibits conduct creating or maintaining artificial pricing.

What is false trading or market rigging (s1041B)?

Prohibits fictitious/artificial trades creating false appearance of trading.

What statements are prohibited under s1041E?

Prohibits statements likely to induce trading/affect price that are false or materially misleading; offence.

What is misleading or deceptive conduct under s1041H?

Prohibits misleading or deceptive conduct in relation to financial products/services (civil only).

What constitutes insider information (s1042A)?

Information not generally available and likely to have material price effect; includes speculation/rumour; fault requires knowledge or reasonable awareness.

When is information considered "generally available" (s1042C)?

Information is available if readily observable, widely released with time to disseminate, or deductions from those.

When is information considered to have a "material effect" (s1042D)?

Information likely to influence common investors’ decisions to trade.

What are the insider trading offences (s1043A)?

Insider must not apply for/acquire/dispose (or agree to) trading in relevant products.

• Trading, Procuring, Tipping

Procuring Offence (s1043A(1)(d))

Insider must not procure another to trade.

Tipping Offence (s1043A(2))

Insider must not communicate inside information if aware it would likely lead to trading/procurement.

What are the defences/exceptions for insider trading (s1043F, s1043H)?

'Chinese walls' (information barriers) where the body corporate had arrangements to ensure information was not communicated to the decision-maker, and it was not in fact communicated. Trading based on the person's own intentions/activities (s1043H).

What are the penalties for breaches of these provisions (s1311, s1317E)?

Civil and criminal penalties; up to 15 years and pecuniary; compensation orders; deterrence central in sentencing.