Summary of takeover provisions in Australia
The following is a summary of the main takeover provisions in Australia. It is general information only and is not legal advice.
- 20% acquistion limit
- Types of bids
- Information to shareholders
- Compulsory acquisition
- Substantial holder notices
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 or 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 compulsory acquisition of voting shares or interests or any other kind of securities under Part 6A.1.
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.
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 concept of "associates" is complex. It will include (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.
There are a number of exceptions to the prohibition in s606, including:
- an acquisition that results from an acceptance of an offer under a takeover bid (item 1 of s611)
- an acquisition approved by a resolution of the company in which the acquisition is made (item 7 of s611)
- acquisitions of no more than 3% in every 6 months (the 3% "creep" exception in item 9 of s611)
- an acquisition that results from a rights issue (item 10 of s611)
- a downstream acquisition resulting from an acquisition of relevant interests in another listed entity (item 14 of s611) and
- acquisitions resulting from a scheme of arrangement (item 17 of s611).
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.
A bid can relate to any class of securities.3
The differences between market and off-market bids include:
- consideration under a market bid must be cash only, while an off-market bid may offer any form of consideration (including cash, securities or a combination of both)
- a market bid can only extend to quoted securities, while off-market bids may be for quoted or unquoted securities
- offers under a market bid must be for all the securities in the bid class, while an off-market bid may specify a proportion of the securities in the bid class to which the offer relates4
- offers under a market bid must be unconditional, while offers under an off-market bid may be subject to conditions that are not prohibited by ss626 to 629 and
- for a market bid, an increase in consideration is not passed on to those who have already accepted the bid, while for an off-market bid, if the consideration offered under the bid is improved, those who had already accepted the bid are entitled to the increase (s650B(2)).
All offers made under an off-market bid must be the same.
Other relevant takeover provisions that apply to both market and off-market bids include:
- s623, which prohibits the bidder or an associate of the bidder from offering a person a "collateral benefit"5
- s622, which prohibits the making of 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 consideration to be offered under the bid (an "escalator") and
- s621(3), which provides that 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.
Further, 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.6 The terms and the conditions of the bid must be the same as or not substantially less favourable than those in the public proposal.
The timetable for giving information to shareholders in an off-market bid is set out in s633.7 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 shareholders during a 3-day period within 14 to 28 days after the bidder's statement is sent to the target.
The target must then dispatch a target's statement to the bidder no later than 15 days after the target receives a notice from the bidder that all the bidder's statements have been dispatched.
General and specific disclosure requirements apply to bidder's statements8 and target's statements.9 Where the bidder's existing voting power in the target is 30% or more (or 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.10
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 or (b) if a new circumstance arises that is relevant to security holders' decisions whether to accept the bid.
Persons involved in the preparation of the bidder's and target's statements are subject to civil liability under s670B for any misleading or material omissions. Defences apply under s670D.
A bidder under a takeover bid11 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.
Ch 6A sets out the requirements for any compulsory acquisition process.
Ch 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, or the person makes a takeover bid for securities of the company or scheme.
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.
1 References are to the Corporations Act unless otherwise indicated
2 Pt 5.1 schemes of arrangement can also be used to acquire the securities in a body. Pt 5.1 is not considered in this summary
3 ss 617
4 s618(1). Section 648D allows companies to have restrictions in their constitutions which require shareholder approval for a proportional bid to succeed
5 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
7 The timetable for giving information to shareholders in a market bid is set out in s634
11 A market bid or an off-market bid for all of the securities in the bid class