Takeovers Panel Decision in Relation to Ausdoc Group Ltd [28/06/2002] The Takeovers Panel

28 June 2002


The Panel advises that it has declined to make a declaration of unacceptable circumstances in relation to a Deed of Undertaking entered into between Ausdoc Group Ltd and ABN AMRO Capital (Belgium) N. V. on 22 May 2002. The decision relates to an application brought by ASIC on 14 June 2002.

The Panel's decision follows undertakings to the Panel by ABN AMRO and Ausdoc waiving ABN AMRO's right to the break fee under the Deed that would be payable if ABN AMRO did not reach or waive its 90% minimum acceptance condition and there had been no rival bidder for Ausdoc.

In reaching its decision, the Panel noted its view of the operation of the exclusivity arrangements, and in particular the disclosure obligations, in the Deed.

Break fee arrangements

The terms of the Deed were disclosed in Ausdoc's announcement to ASX on 22 May 2002. The Deed provides for Ausdoc to pay ABN AMRO a break fee, of up to $3.5 million, in a number of different circumstances. The amount of the break fee depends on which of those circumstances apply and, in some cases, the level of actual costs incurred by ABN AMRO. The maximum break fee of $3.5 million is approximately 1.87% of ABN AMRO's bid value of $187.6 million.

With one exception, the Panel decided that the break fees provided for in the Deed did not give rise to unacceptable circumstances. The Panel considered the break fees in light of the relevant factors set out in its Guidance Note on Lock-up Devices. It decided that the size of the break fees is not likely to have the effect of impeding competition in the market for control of Ausdoc, despite exceeding the Panel's benchmark of 1% of the value of the bid.

ABN AMRO submitted, and the Panel has accepted, that the quantum of the break fees is no more than necessary to reimburse ABN AMRO for the actual costs it has reasonably incurred in its takeover bid for Ausdoc. Those costs were higher than 1% in the particular circumstances of this case for a number of reasons, including the number and complexity of Ausdoc's businesses, and the fact that Ausdoc is a relatively small company.

The 90% break fee

The aspect of the break fee arrangement that the Panel found unacceptable is the "90% break fee". The 90% break fee would require Ausdoc to pay $2.5 million to ABN AMRO if ABN AMRO proceeds with its bid and no higher bid is made, but ABN AMRO's defeating condition requiring 90% acceptances is not satisfied or waived.

The Panel agreed with ASIC's argument that the 90% break fee may have the effect of coercing shareholders into accepting ABN AMRO's bid. The Panel considered that the proposed fee therefore was not consistent with the Panel's Guidance Note on Lock-up Devices.

However, the Panel declined to make a declaration of unacceptable circumstances in relation to the 90% break fee following an undertaking by ABN AMRO to the Panel and Ausdoc that it would waive all rights to the 90% break fee. Ausdoc also provided an undertaking to the Panel that it would not pay the 90% break fee to ABN AMRO, or provide any benefit in substitution for the 90% break fee.

Exclusivity arrangements

If Ausdoc receives, and responds to, a rival offer or expression of interest in relation to shares in Ausdoc, the exclusivity arrangements in the Deed of Undertaking require Ausdoc to disclose certain relevant information about the rival offer to ABN AMRO (Ausdoc's disclosure obligation). Initially, the Panel was concerned that the exclusivity arrangements and Ausdoc's disclosure obligation extended for the period of ABN AMRO's bid, and that that might inhibit the market for control of Ausdoc.

However, Ausdoc's obligations under the exclusivity arrangements are subject to an exception if the directors of Ausdoc reasonably consider that complying with them would involve a breach of their fiduciary obligations to the shareholders of Ausdoc. The Panel considers that Ausdoc's disclosure obligation would not apply where disclosure of a potential rival bid might prevent a better outcome for the shareholders of Ausdoc. For example, a rival, although prepared to offer more than ABN AMRO, may decline to negotiate with Ausdoc if its approach would be disclosed to ABN AMRO. In such a case, the directors of Ausdoc would be obliged not to make that disclosure to ABN AMRO.

Therefore, the Panel considers that the fiduciary exception means that Ausdoc's disclosure obligation is unlikely to give rise to unacceptable circumstances.

The sitting Panel in this matter is Mr Michael Tilley (sitting President), Professor Ian Ramsay (sitting Deputy President) and Ms Luise Elsing.

The Panel's reasons for decision will be posted on its website at http://www.takeovers.gov.au/Content/Decisions/decisions.asp

Nigel Morris
Director, Takeovers Panel
Level 47 Nauru House, 80 Collins Street, Melbourne VIC 3000
Ph: +61 3 9655 3501