2013 mergers & acquisitions review · continuous disclosure and takeover approaches – rocks...

2 0 1 3 M E R G E R S & A C Q U I S I T I O N S R E V I E W


C O N T E N T S

C O N T I N U O U S D I S C L O S U R E A N D T A K E O V E R A P P R O A C H E S - R O C K S A N D H A R D P L A C E SDAMIAN REICHEL 2

I N T R O D U C T I O N A N D O V E R V I E W O F D E V E L O P M E N T S I N 2 0 1 3JOHN KEEVES 1

T H E T A K E O V E R S P A N E L : 2 0 1 3 I N A N U T S H E L LMARKO KOMADINA & SCOTT CUMMINS 6

R E G U L A T I O N O F D I R E C T F O R E I G N I N V E S T M E N T I N A U S T R A L I A : I M P L I C A T I O N S O F T H E R E J E C T I O N O F A D M ’ S B I D F O R G R A I N C O R P

BYRON KOSTER 11

N O R C A S T v B R A D K E N : H O W A N M & A T R A N S A C T I O N C A N T U R N I N T O I L L E G A L B I D R I G G I N G

TIM BOWLEY & MICHELE LAIDLAW 13

202 0 1 2 - 2 0 1 3 B R E A K F E E S U R V E Y

TIM BOWLEY & BRIAN VUONG

W H A T C A N D I R E C T O R S D O T O R E S P O N D T O S H A R E H O L D E R A C T I V I S M ? T H E D E C I S I O N I N A D V A N C E B A N K v F A I R E - E X A M I N E D

JOHN KEEVES 16

Calendar 2013 was a mixed year for merger and acquisition activity in Australia. In general Australian transaction volumes and values remained subdued, with relatively few significant public markets deals. This was probably contributed to by the domestic political uncertainty of Australia’s longest running Federal election campaign and the instability in the leadership of the incumbent Labor Government, as well as global financial conditions.

Despite this, during 2013, Johnson Winter & Slattery had a role in two of the largest public markets deals, advising a shareholder of GrainCorp in relation to Archer Daniel Midland’s long running and ultimately unsuccessful $2 billion takeover offer, and advising Envestra in relation to APA Group’s scheme proposal to acquire the 67% of Envestra’s shares not owned by APA, valuing Envestra at $2.2 billion. The foreign investment aspect of the former deal is the subject of Byron Koster’s article Regulation of Direct Foreign Investment in Australia: Implications of the Rejection of ADM’s Bid for GrainCorp.

In addition, our corporate M&A team acted on a series of significant private treaty M&A deals, acting for a number of private equity sponsors, funds and corporates, including Archer Capital, Apollo Global, L Capital, USS, Arrium, Unilever, Adelaide Brighton and also Vocation, in connection with its successful IPO in December 2013.

Our team was bolstered during 2013 by the addition of three new Corporate M&A partners, Jeremy Davis, Byron Koster and James Rozsa, complementing our existing team, and in particular deepening our private equity expertise and experience and broadening our relationships with US and other foreign law firms.

In last year’s review, Damian Reichel wrote about the intersection of public markets M&A and Australia’s continuous disclosure rules

in relation to the “phantom bid” for David Jones1. During 2013, the Australian Stock Exchange finalised its revised Guidance Note 8 on continuous disclosure, and Damian continues his theme in Continuous Disclosure and Takeover Approaches – Rocks and Hard Places.

The intersection between competition law and M&A was put under the spotlight in 2013 with the Bradken case, examined by Tim Bowley and Michele Laidlaw in Norcast v Bradken: How an M&A Transaction can turn into Illegal Bid Rigging.Shareholder activism continues to be a feature of the Australian market, as elsewhere. In What can Directors do to Respond to Shareholder Activism? The Decision in Advance Bank v FAI Re-Examined, I take another look at the case law on the extent to which an incumbent board can use corporate resources to defend an activist campaign. In a year marking the appointment of a new President, Ms Vicki McFadden, the Takeovers Panel has had another relatively active year, with 17 applications concerning 16 different transactions, including one review application, compared to 24 and 16 respectively in 2012. Marko Komadina and Scott Cummins’ article The Takeovers Panel: 2013 in a Nutshell surveys the Panel’s work during the year.The final item in our 2013 M&A Review also updates our previous survey work on break fees2, with Tim Bowley and Brian Vuong’s 2012-2013 Break Fee Survey on page 20.

1 See ‘Disclosure of takeover approaches – the David Jones saga’ http://www.jws.com.au/__files/f/5423/Public%20Markets%20M&A%20-%202012%20review.pdf2 M&A Law and Strategy, February 2008, p6 http://www.jws.com.au/__files/f/6216/M&A%20Law%20and%20Strategy%20Update%202008.pdf

JOHN KEEVES Practice Group Head - Transactional and AdvisoryT +61 2 8274 9520

+61 8 8239 [email protected]

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I N T R O D U C T I O N A N D O V E R V I E W O F D E V E L O P M E N T S I N 2 0 1 3

The major development in continuous disclosure in 2013 was the commencement in operation of a revised ASX Guidance Note 8 (GN8). GN8 has provided much more clarity on the question of when a major transaction should be announced under Listing Rule (LR) 3.1.

E X C E P T I O N S T O D I S C L O S U R E

It has long been well understood by most in the market that a confidential and incomplete transaction proposal is not required to be announced due to the application of the LR 3.1A exception.

However the third requirement of the LR 3.1A exception, that ‘a reasonable person would not expect disclosure’ is less well known and its ambit was considered by some to be uncertain. GN8 has made clear that this third requirement would generally be satisfied if the first two are satisfied, that is, in the usual case it does not really add anything of substance.

On the question of when a proposal ceases to be incomplete, GN8 has provided practical and pragmatic guidance – essentially, when the agreement is signed, provided of course that there is genuinely no deal until it is signed. Hence a company can schedule a signing for the time when the immediate subsequent announcement is considered optimum – for example after close of trading or before trading opens.

The requirement of confidentiality was also helpfully clarified. GN8 explains that ‘confidential’ does not mean that there needs to be an enforceable confidentiality agreement, it is sufficient if the proposal is known only to a limited number of people; the people who know the information understand that it is to be treated in confidence and only to be used for permitted purposes; and those people abide by that understanding.

GN8 also made clear that any leak of the proposal will have the effect that it has ceased to be confidential. In this regard,

it may be sufficient if there is a posting on an internet chat site, blog or other social media. Further, the ASX can form the view that information has ceased to be confidential if there is ‘a rumour known to be circulating the market about the matter’. Also, under LR 3.1B the ASX can require the company to make an announcement if it considers there to be a false market as a result of a rumour or published speculation.

A P P R O A C H B Y P O T E N T I A L S U I T O R S – C O N F I D E N T I A L I T YA potential bidder who wishes to engage with a target company board to discuss a possible takeover or merger proposal will invariably specify that its approach must be kept confidential. At this stage there will normally be no confidentiality agreement between the potential suitor and the company, although as noted above, that is not required to satisfy the LR 3.1A requirement of confidentiality. In the usual case, however, it is likely that the company having received information which it knows (because the potential suitor has said so) is confidential and in subsequently making use of the information by considering the proposal, is under an obligation enforceable under general law principles of equity to maintain the confidentiality. How this sits with the company’s obligation to disclose if confidentiality is lost or considered by the ASX to have been lost has not yet been explored by the Courts, but it is likely that the potential suitor will be taken to have accepted the possibility of disclosure being required by law – and in many cases the suitor’s statement of the confidentiality of the communication will make that expressly clear.

Whilst the application of LR 3.1A to a confidential approach is clear, what if the target company rejects the approach?

DAMIAN REICHEL PartnerT +61 2 8274 [email protected]

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C O N T I N U O U S D I S C L O S U R E A N D T A K E O V E R A P P R O A C H E S – R O C K S A N D H A R D P L A C E S

It is apparent from the recent controversy over a merger approach from Myer to David Jones in October last year that this is not a silly question, at least to some institutional shareholders and some in the media.

M Y E R A P P R O A C H T O D J S

Myer approached David Jones on 28 October 2013 to invite DJs to engage in discussions for a possible merger of DJs into Myer. Such a merger has been mooted for years, such that it could readily be assumed that both companies would have examined the prospect in some detail from time to time. (Clearly, Myer had done so.) Myer had in mind that the merger would be effected by a David Jones scheme of arrangement under which Myer shares would be offered in exchange for David Jones shares, without any premium – Myer referred to it as being a ‘merger of equals’.

The catalyst for the Myer approach was speculated in the media to have been the unexpected foreshadowed resignation of the DJs CEO, although logically that is dubious. For DJs to have engaged in a full due diligence exercise (as Myer of course required), identify and quantify synergies (much of them to be derived from redundancies), win over all stakeholders (e.g. regulators, suppliers, landlords) and ultimately to convince DJs shareholders to exchange their shares for Myer shares at no premium would have required a particularly strong, committed and charismatic deal-making CEO. But DJ’s CEO had one foot out the door. A foreshadowed resignation of a

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CEO may present an opportunity for a hostile takeover bid, since the target’s ability to defend itself may be weakened as a practical matter. But to suggest a scheme of arrangement to be led by the target company in such circumstances makes no sense.

Be that as it may, the DJs directors quickly concluded that they had no appetite for engaging with Myer, and (as it was subsequently reported) that there was no real prospect of Myer suggesting more generous terms – understandably so, since that would have required Myer to abandon the “merger of equals” concept.

Shortly after the Myer approach was considered, two directors purchased shares in DJs, expressly for the purpose of demonstrating support for the company at a time when the market appeared to have been unsettled by the CEO’s foreshadowed resignation. The purchases were promptly announced (in accordance with the requirements of the Listing Rules). Also just before the purchases were announced, DJs released its quarterly sales figures, which were flat (on a like for like basis). But the share price rose. In the absence of any other explanation for the price rise, the prevailing meme was that it must have been that the sales results were in fact positive news because the market must have been expecting they would be negative, or something like that.

In any case there were suggestions in the media that the directors might have insider traded. DJs’ Chairman immediately approached ASIC to ask it to look into the situation to satisfy itself that there was no insider trading. It appears DJs also informed ASIC that Myer had made the merger approach.On 30 January 2014 an article appeared in the ‘Street

Talk’ column in the Australian Financial Review (AFR) speculating that some investment bankers had approached shareholders to discuss their receptiveness to a Myer merger with DJs under which Myer would offer a 30% premium. Also on 30 January 2014, it was reported that ASIC had investigated the DJs directors’ share trading and had determined not to take any action. ASIC was not reported to have made any mention of the 28 October 2013 Myer approach (although ASIC subsequently made clear it had looked into that, in addition to the sales figures).

T H E L E A K ( S )

It appears from an editorial published in the AFR on 1 February 2014 that on the day that ASIC’s position was reported in the media (30 January 2014), the AFR learned of Myer’s 28 October 2013 approach to DJs. The editorial said that the AFR put a list of questions to the Chairman of DJs that day.

DJs made an ASX announcement later that day (30 January) disclosing the 28 October 2013 Myer approach and its rejection. The announcement said that was in response to the ‘Street Talk’ article. The next day Myer released the letter which it had given to DJs when it had approached DJs on 28 October.

R E S P O N S E T O T H E L E A K ( S )

It is apparent from the AFR’s 1 February editorial that it was upset that DJ’s had pre-empted the AFR’s reporting of the Myer approach by making its 30 January announcement. The suggestion was that DJs had been prompted to make its 30 January

announcement by the list of questions which the AFR had given to the Chairman.Assuming the AFR’s suggestion was true (that is, DJs was not prompted by the published ‘Street Talk’ article but by the AFR’s list of questions), DJs’ announcement on 30 January would have been made to avoid the prospect of speculative trading in DJs shares consequent on the foreshadowed reporting by the AFR. A false market could be expected to result from the newspaper’s report and it was no doubt considered inevitable that the ASX would require DJs to make an announcement under LR 3.1B. Accordingly, whether DJs was prompted by the ‘Street Talk’ article or by the AFR’s list of questions, it clearly complied with its disclosure obligations by making its announcement of 30 January. Confidentiality had been lost and there was existing speculation (the ‘Street Talk’ article) and no doubt further speculation (because of the foreshadowed reporting by the AFR).

P R E - E M P T I N G A M E D I A R E P O R T

The AFR’s 1 February editorial made two main points.

The first was that regardless of the disclosure (and non-disclosure) obligations imposed on DJs and its Directors (which appear from the editorial to be broadly understood by the AFR in their overall gist), by DJs announcing the Myer approach after learning that the AFR was proposing to publish its story, DJs had not dealt with the AFR ‘in an ethical and professional manner’ – presumably DJs was supposed to wait for whatever the AFR was proposing to publish before making its announcement and notwithstanding the

4 C O N T I N U O U S D I S C L O S U R E A N D T A K E O V E R A P P R O A C H E S – R O C K S A N D H A R D P L A C E S

‘Street Talk’ article – in effect ignore its disclosure obligations to allow the AFR to break the news. DJs should have been ‘ethical and professional’ with the AFR rather than being ‘ethical and professional’ in its obligations to shareholders and prospective shareholders.

The editorial concluded DJs’ action ‘risks encouraging more speculative reporting of the many questions the company needs to answer’.

The AFR accepted that this would likely result in shareholders being misled. It said: “The way that DJs handled this, and the way the current rules operate, only seems to ensure that investors are more likely to be misled in future because it fails to understand the nature of media reporting”. That is, since the AFR was not confident that it would not be pre-empted by checking claimed facts with the company before publishing them, it would just go ahead and publish them regardless (so it seems) of their truth or otherwise.

The AFR’s (and some its stablemates’) subsequent reporting was generally vituperative and based on asserted facts which in important respects were different to those reported in the business pages of The Australian and other media. In addition to intense criticism over what it called ‘the David Jones share trading scandal’ it kept up a steady flow of criticism over the DJs directors failing to put what it often referred to as the ‘offer’ from Myer to DJs shareholders. (Other media such as The Australian more accurately characterised the Myer ‘approach’. As is borne out by the express terms of Myer’s letter of 28 October which Myer released on 31 January 2014, Myer had made no ‘offer’ but rather had invited discussions with DJs.)

It may be that without the directors’ share purchases being an issue, the criticism would not have been as intense; however the directors’ share purchases were not mentioned in the AFR’s 1 February editorial.

D I S C L O S U R E O F R E J E C T E D A P P R O A C H E S

The AFR’s 1 February editorial’s second point was that, again regardless of the disclosure (and non-disclosure) obligations imposed on DJs and its directors, ‘shareholders should be entitled to know if an offer has been made for assets that they own – and why their board thought that they should not take it’.

This theme was taken up by a number of institutional shareholders (according to media reports). There was no serious suggestion that the nil premium merger terms foreshadowed by Myer were acceptable; the point was that DJs should have allowed the shareholders to consider and debate the prospect, and DJs should have engaged with Myer to try to get it to improve its ‘offer’.

The prospect of Myer abandoning the ‘merger of equals’ concept by offering a premium would of course have required Myer to accept that DJs shareholders should get a much higher proportion of the combined entity as compared to Myer’s own shareholders. This prospect was not explored in the media or by analysts. It would have seemed inherently unlikely at the time, but that was not the point that shareholders were reported to have made – their point was that any credible merger or takeover approach should be put to them for consideration.


The key the resolution is an appreciation by share-holders of the appropriateness of the disclosure (and non-disclosure) obligations imposed on directors.

It is probably a forlorn hope that individual shareholders in their individual portfolio companies can be convinced of the benefits of protecting the interests of the market as a whole, which those rules are designed to do.

However what seems to have been overlooked in the DJs debate is that the disclosure (and non-disclosure) obligations in fact fundamentally serve the individual commercial imperatives of individual shareholders in individual companies – they need not have regard to the interests of their fellow market participants.

In short, if directors are pressured to disclose credible takeover or merger approaches if they decide to reject them, they will not be approached at all. Most potential suitors will not want to be embarrassed (or worse) by public knowledge that their approach was rebuffed.

T H E D I L E M M A F O R D I R E C T O R S

In the upshot, this episode underscores that directors are in an invidious position when approached by a potential merger partner or takeover bidder with a confidential, non-binding, incomplete invitation to engage in discussions in relation to a transaction which whilst credible is not in its terms acceptable.

The company and its directors are legally obliged not to disclose the approach by their contractual and/or equitable obligations, consistent with the Listing Rules.

If they learn from the media – or at least the AFR, who has made its position on this demonstrably clear – that the approach has leaked and they announce it before the media outlet splashes its story, they may well upset the media and precipitate hostile and ‘speculative’ reporting. (As Mark Twain advised, one should never upset someone who buys ink by the barrel.)

If the approach leaks after it has been rejected by the board, it appears that the directors will be criticised by the media and shareholders for failing to allow shareholders the opportunity to consider and debate the approach.

R E S O L V I N G T H E C O N U N D R U MThe directors themselves cannot resolve this conundrum. They could of course engage with all credible suitors so that they can subsequently say (if the approach is leaked) that they are engaging, but that is somewhat cynical and in any event would just buy time – and in the meantime the board and management are distracted from running the company’s business.

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“ I n s h o r t , i f d i r e c t o r s a r e p r e s s u r e d t o d i s c l o s e c r e d i b l e t a k e o v e r o r m e r g e r a p p r o a c h e s i f t h e y d e c i d e t o r e j e c t t h e m , t h e y w i l l n o t b e a p p r o a c h e d a t a l l . ”

Some may be prepared to impose a ‘bear hug’ but most in this category would want it to be them and not the target company controlling the timing and terms of the disclosure of the approach.

If friendly potential suitors are deterred, the shareholders’ only hope will be that someone might be prepared to launch a hostile bid. But since a hostile bid is made without due diligence, the bidder will rarely if ever make an offer at an optimum price, at least at the outset. And very few potential acquirers are prepared to launch a hostile bid in the first place.

In short, if shareholders want to enhance the prospect of potential offers for their shares via mergers or takeovers, at the optimum price, they should respect and support the obligations and duties of the directors to respond to approaches in the manner which in their judgment is appropriate, and certainly not to disclose them in breach of their obligations to potential suitors.

Hope springs eternal, but this is a idea that all shareholders should embrace rationally in their own commercial self-interest.



In 2013, the Takeovers Panel saw a significant increase in the number of rights issues and placements coming before it (44% of matters in 2013; 30% in 2012; 28% in 2011), suggesting that existing investors are becoming more activist in response to capital raisings by issuers. In particular, four of the 17 matters before the Panel in 2013 involved allegations of underwritten rights issues being used as a device to increase the control of one or more major shareholders. We discuss these matters and their implications in the section titled Underwritten rights issues below.

Conversely, there was a reduction in the number of takeover bids that went before the Panel (22% of matters in 2013; 35% in 2012; 28% in 2011), consistent with the lukewarm public M&A market throughout 2013.

Interestingly, of the seven decisions in 2013 in which the Panel declined to make a declaration of unacceptable circumstances (ignoring cases where the relevant parties withdrew the transaction or gave undertakings or other concessions), 6 were decided without conducting proceedings – compared to 5 out of 7 decisions in 2012 and 2 out of 5 in 2011. Although these figures are based on small sample sizes, they are indicative of the Panel’s apparent increasing willingness to decide matters based on the application and the parties’ preliminary submissions, and to reject unfounded claims without conducting proceedings, which is consistent with the Panel’s objective of efficiently and quickly resolving takeover disputes.

One of the more interesting individual cases was Warrnambool, in which the Panel considered issues regarding the declaration of dividends and revisited the issue of ‘truth in takeovers’ that arose in Alesco and Ludowici in 2012. Together with Alesco, Warrnambool prompted the release by the Panel of a consultation paper about statements as to dividends. We consider Warrnambool and the Panel’s dividend consultation paper in the section titled Warrnambool: dividends and ‘last and final’ statements below.

MARKO KOMADINA PartnerT +61 2 8274 [email protected]

SCOTT CUMMINS AssociateT +61 2 8247 [email protected]

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The Panel was also faced with some significant questions regarding the use of break fees in contexts other than takeover bids. Tim Bowley and Brian Vuong discuss those cases in 2012-2013 Break Fee Survey. Looking forward into 2014, the Panel recently released another consultation paper, proposing that bidder’s statements and target’s statements should contain upfront summary information as a standard measure. We discuss that consultation paper and its implications in the section titled Standardised summaries in bidder’s statements and target’s statements below.

U N D E R W R I T T E N R I G H T S I S S U E S

T h e q u e s t i o n f o r d i r e c t o r s

Two exceptions to the ‘20% acquisition limit’ in section 606 of the Corporations Act are when a person increases their voting power under a pro-rata rights issue or due to acquisitions of securities as an underwriter or sub-underwriter to a fundraising (items 10 and 13 of section 611 of the Corporations Act respectively). The Panel’s Guidance Note 17: Rights Issues (GN 17) makes it clear that where a rights issue has the potential to affect control1, the directors of the company undertaking the rights issue ‘should carefully consider all reasonably available options to mitigate that effect’. A corollary of this is that company may not structure a rights issue with the objective of affecting the control of the company by a person. The Panel may make a declaration of unacceptable circumstances if the company contravenes these principles.Alternatively, shareholders (excluding the party increasing its level of control, and its associates) could specifically approve the transaction in a general meeting under item 7 of section 611 of the Corporations Act. 1 ‘Control’ in this sense is the gradated concept used in the takeovers provisions of the Corporations Act, rather than the ‘all or nothing’ concept used elsewhere in the Corporations Act.

T H E T A K E O V E R S P A N E L – 2 0 1 3 I N A N U T S H E L L

GN 17 describes a number of the factors that should influence the directors’ assessment about how they can minimise the control effect of a rights issue, including the economic and other circumstances of the company, the structure of the rights issue and the effect of the rights issue. In addition, the Panel’s approach is illustrated by four decisions in 2013: Laneway, Coppermoly, Avalon and Virgin.

L a n e w a y R e s o u r c e s L i m i t e d [ 2 0 1 3 ] AT P 7

In Laneway, the Panel was, on the application by ASIC, concerned by a proposed 16 for 1 rights issue which could have caused the voting power in the company of the underwriter and sub-underwriter (who were associated), and their other associates, to increase from 24% to 86%.

The company was in need of funds and was fully-drawn on a loan facility from the sub-underwriter. The structure was such that existing shareholders would have needed to pay 33 cents per existing share to avoid being diluted, when shares were trading at only 3.5 cents. As a result, the company only expected that between $1 million and $3 million of a target $22 million would be raised from shareholders. It therefore appeared that the rights issue was largely intended to be a debt-for-equity conversion masquerading as a rights issue (but without the ordinary protections for shareholders in a debt for equity conversion, such as the approval by non-associated shareholders). In fact, the prospectus for the rights issue expressly stated that one of the two purposes of the rights issue was to facilitate the conversion of the loan facility from the sub-underwriter into equity. Needless to say, this is not consistent with the company’s obligations to attempt to

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limit the control effect of the rights issue.

The Panel reiterated its view expressed in a number of previous decisions that it will look at the effect of the rights issue against the principles in section 602 and that unacceptable circumstances will exist where there is an increase in voting power from underwriting or sub-underwriting arrangements that are better characterised as something else, such as placement arrangements.

The Panel therefore indicated that the circumstances had been unacceptable and that the conversion of the loan facility into equity should be made subject to shareholder approval. However, it refrained from making a declaration because the company withdrew the rights issue, thereby remedying the unacceptable circumstances.

C o p p e r m o l y L i m i t e d [ 2 0 1 3 ] AT P 8

In Coppermoly, the Panel focused on the structure of a 1 for 4 underwritten rights issue. The rights issue was priced at a 61% premium to the lowest traded price in the previous three months, and a 25% premium to the highest traded price in that period. As a result, the take-up of existing shareholders under the rights issue and associated shortfall facility was only 1.75%. These aspects led the Panel to consider that the structure was designed to discourage participation by existing shareholders (and therefore maximise the number of shares that would be issued to the underwriter). The fact that there was no sub-underwriting in place exacerbated the control effect. The Panel was also highly critical of the fact that the directors reserved the ability to reject applications for shortfall shares. As a result, the Panel declared that these circumstances were unacceptable.

In addition, certain associates of the underwriter had purchased a 12% interest in the company after the announcement of the rights issue and the entry into the entitlement offer, which meant that the underwriter and its associates would be likely to collectively hold more than 20% of the shares in the company after the rights issue. The Panel considered that these circumstances were also unacceptable. The fact that the company had considered alternative funding proposals prior to selecting its underwriter (which appeared to involve larger sized rights issues) did not seem to excuse the company.

The Panel ordered that the underwriter complete its underwriting obligations, and then offer the shortfall shares for sale to existing shareholders at the same price as under the rights issue. To the extent that those shares were not taken up by existing shareholders and the underwriter and its associates retained a voting power in excess of 20% in the company, the underwriter and its associates were prohibited from exercising voting rights attaching to those shares (with voting rights being restored at a rate of 3% every six months, akin to the 3% creep exception in item 9 of section 611 of the Corporations Act).

A v a l o n M i n e r a l s L i m i t e d [ 2 0 1 3 ] AT P 1 1

In Avalon, the Panel also made a declaration of unacceptable circumstances, having concluded that the company had not taken all reasonable steps to minimise the potential control impact of a 1 for 1 rights issue that had been underwritten by a 20% shareholder.

In coming to that view, the Panel focused on the fact that there was no attempt made to have the rights issue



sub-underwritten, and that the company concerned did not fully explore a proposal for a non-shareholder to underwrite the rights issue.

The company’s excuse for not exploring that alternative proposal was that the alternative underwriter wanted to conduct due diligence, but that the company believed it needed funds before the due diligence could be completed. However, the alternative underwriter had also put forward an interim funding proposal pending completion of the due diligence. The directors appeared to have rejected that alternative proposal on the basis that its terms were uncertain, without having made a proper attempt to develop the proposal.

In light of these factors, the Panel concluded that the company had not taken all reasonable steps to minimise the potential control implications of the rights issue. The Panel therefore made a declaration of unacceptable circumstances and ordered that the underwriter not take up any shortfall under the rights issue.

Interestingly, the Panel also criticised the company for not including a foreign sale facility in the rights issue. Foreign sale facilities are used where a company undertaking a rights issue is not confident whether it would be breaching the laws of a foreign jurisdiction by issuing shares to a shareholder resident in that jurisdiction. The foreign sale facility permits shares to be issued to a nominee approved by ASIC, which then sells the newly-issued shares and remits the proceeds (net of expenses) to the excluded foreign shareholders. Although it was ultimately unnecessary for the Panel to express a concluded view, the Panel expressed favour for the view that the ‘rights issue exception’ to the 20% takeovers threshold would not be available if a

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company did not use a foreign sale facility and instead left it up to individual shareholders to assess whether they could lawfully participate in the rights issue.

V i r g i n A u s t r a l i a H o l d i n g s L i m i t e d [ 2 0 1 3 ] AT P 1 5

In Virgin Australia, the Panel declined to make an order of unacceptable circumstances in relation to a 5 for 14 rights issue by Virgin Australia which was sub-underwritten by its three largest shareholders: Etihad Airways, Singapore Airlines and Air New Zealand. There was no suggestion that the three airline shareholders were associates. The Panel decided that although the rights issue could have been structured to have been more favourable to retail shareholders, the circumstances were not unacceptable.

In coming to this view, the Panel noted that the use of three sub-underwriters limited the control effect, and that the maximum potential individual ownership increase of 2.1% (for Air New Zealand) was not sufficiently significant in the context of the ownership structure of the company to justify a declaration of unacceptable circumstances.

The applicant also argued that by imposing a cap on shareholders’ ability to participate in the shortfall facility, the company had structured the rights issue to favour the sub-underwriters. However, the Panel noted that the level of the cap (being an additional 40% of shareholders’ original entitlement) was slightly higher than the maximum theoretical proportion of shares which the airline shareholders could acquire as sub-underwriters, meaning that the structure did not unacceptably disadvantage retail shareholders.

This can be contrasted with Dromana Estate Limited 01R in 2006, in which the Panel held that a cap on applications under a shortfall facility was unacceptable, although the Panel did not clearly state the reasons for the different approach.

C o n c l u d i n g r e m a r k s o n r i g h t s i s s u e s

The Panel considered that circumstances were unacceptable in each of Laneway, Coppermoly and Avalon despite accepting in each case that there was a genuine reason that the companies were seeking funds. This illustrates that the company is not excused from its obligation to take all reasonable steps to minimise the control impacts of a rights issue simply because the company is in a difficult cash position. Although the Panel did not expressly acknowledge that the circumstances of the company would influence the assessment of what steps are reasonable in a particular case, it is quite conceivable that it could form this view if called to consider the question.

It is also interesting to compare the approaches to the pricing of rights issues. In Coppermoly, the rights issue was at a significant premium to recent prices, which would presumably have been value accretive to existing shareholders – yet the Panel concluded that circumstances were unacceptable because the pricing tended to discourage participation by shareholders. Conversely, in Laneway, the rights issue was priced at a significant discount to recent trading prices – however this was not sufficient to avoid the rights issue being characterised as being designed to discourage shareholders from participating, because of the amount each shareholder would need to contribute to avoid being diluted (being an amount per share that was


more than nine times current trading price per share).

As is often the case, the orders of the Panel to address unacceptable circumstances were highly influenced by the particular circumstances of the case. For instance, in Coppermoly, the underwriter was ordered to complete its underwriting obligations (amongst other orders), but in Avalon, it was prohibited from doing so. It is therefore difficult to articulate a general rule about the orders the Panel may make if a company fails to take all reasonable steps to minimise the control impact of a rights issue.

W A R R N A M B O O L : D I V I D E N D S A N D ‘ L A S T A N D F I N A L’ S T AT E M E N T S

S u m m a r y

In Warrnambool Cheese and Butter Factory Company Holdings Limited [2013] ATP 16, the Panel considered announcements of a ‘conditional record date’ for the payment of a special dividend which would become retrospective, together with subsequent announcements purporting to rescind that proposal. The Panel stated these arrangements ‘were complex, created uncertainty and were most undesirable’. Although minded to make a declaration of unacceptable circumstances, the Panel declined to do so in light of undertakings from the relevant bidder to adopt a simplified and increased offer price – even though this meant the bidder and the target departed from a ‘last and final’ statement.

F a c t s

Warrnambool related to the takeover bid by Saputo for Warrnambool Cheese and Butter Factory Company Holdings Limited.

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On 15 November 2013, pursuant to an agreement between Warrnambool and Saputo, Warrnambool announced that its directors were recommending Saputo’s bid (in the absence of a superior offer) and, subject to Saputo obtaining a relevant interest in 50.1% of Warrnambool’s shares, would declare a fully franked special dividend of $0.46 per share. If Saputo obtained a relevant interest in at least 90% of Warrnambool’s shares, Warrnambool would declare a fully franked special dividend of $0.85 per share. The record date for the dividend was 26 November 2013, apparently independent of the date that Saputo passed either 50.1% or 90%. Warrnambool’s announcement also referred to the franking credits being worth up to $0.56 per share, depending on the circumstances of the individual shareholder. An amount equal to the dividend (ignoring the value of any franking credit) would be deducted from the $9.00 cash consideration under Saputo’s bid.On 25 November 2013, after the ex-dividend date for the proposed special dividends, Saputo and Warrnambool made interlocking announcements to the effect that the special dividends proposal was being rescinded and that Saputo would instead increase its bid from $9.00 to $9.20 per share if it obtained a relevant interest in more than 50% of Warrnambool shares.

D e c i s i o n

Warrnambool’s announcement about the special dividend on 15 November was not qualified in relation to superior offers. The Panel held that it was therefore a ‘last and final’ statement and subject to ASIC’s ‘truth in takeovers’ policy. This is a little unusual as the ‘truth in takeovers’ policy is normally directed at statements made

by a bidder, not a target. However, the bidder, Saputo, had also made an announcement referring to the special dividends. The Panel regarded this as ‘designed as integrated parts of a single transaction’ and consequently held that the special dividends proposal was also a ‘last and final’ statement by Saputo.The Panel held that the 25 November announcements by Saputo and Warrnambool were a departure from their last and final statements of 15 November which resulted in the market between those dates being misinformed, that is, the market had been trading on information that was departed from when it was entitled to assume the information would not be departed from. Further, the Panel considered that the conditional record date structure was unworkable and that the market would not have been able to trade in an informed and orderly manner after the conditional record date of 26 November. This was exacerbated by the competing bids for Warrnambool from Murray Goulburn Co-operative Co Limited and Bega Cheese Limited, together with Saputo having foreshadowed that it would declare its bid unconditional by 28 November, after the conditional record date. For these reasons, the Panel concluded that it would be impractical to require Warrnambool and Saputo to adhere to their ‘last and final’ statements of 15 November. Instead, the Panel accepted undertakings from Warrnambool and Saputo which had the effect of Saputo increasing its offer price so that all Warrnambool shareholders received at least as much value (including full allowance for franking credits) as they would have received had the parties kept to their ‘last and final’ statements of 15 November.



I m p l i c a t i o n s – ‘ l a s t a n d f i n a l ’ s t a t e m e n t s

Warrnambool is consistent with a number of cases where the Panel has expressed favour for ASIC’s ‘truth in takeovers’ policy, but its ultimate orders did not hold the relevant party to its statements. (See for instance Ludowici in 2012 and Rinker 02 & 02R in 2007, where the Panel was inclined towards a fairly flexible approach to the policy.) However, on other occasions, the Panel has favoured strict compliance with last and final statements. (See for instance Alesco 03 in 2012.)

It is therefore sufficiently clear that market participants should ensure that any last and final statements they make during a bid are sufficiently qualified if there is any chance that the person making the statement may wish to depart from it if circumstances change. This includes targets, such as Warrnambool in this case. It is less easy to predict what the consequences will

10

be in a particular case if the person departs from their statement, even though the Panel’s objective (i.e. to best address any unacceptable circumstances present in the case) are easy to state in the abstract.

I m p l i c a t i o n s – f u t u r e d i s c l o s u r e s a b o u t f r a n k i n g c r e d i t s

Prompted by Warrnambool, as well as Alesco in 2012, the Panel released a consultation paper on 10 January 2014 containing a proposed new guidance note regarding its treatment of franking credits in connection with bids. In summary, the draft guidance note indicates that:• where a dividend is contemplated as part of the offer

consideration, the value of any franking credits should not be included in the ‘headline’ offer price; and

• if a bidder reserves the right to deduct the value of any dividend from the offer price, it must not also deduct the value of any franking credits unless the bidder’s statement makes it clear how the deduction would be calculated (either by a formula or as a fixed amount) and the basis for adopting that calculation.

Comments on the consultation paper were due at the end of February 2014. We would expect to see the draft guidance note finalised soon.

S T A N D A R D I S E D S U M M A R I E S I N B I D D E R ’ S S T A T E M E N T S A N D T A R G E T ’ S S T A T E M E N T S

Also on 10 January 2014, the Panel released a consultation paper containing proposed amendments to its Guidance Note 18: Takeover documents (GN 18).

The primary proposed change is that GN 18 would now contain ‘the Panel’s best practice guidance’ on the contents of a summary section to be included at the front of bidder’s statements and target’s statements. The summary is prompted by a desire on the part of the Panel for takeover documents to be more accessible to shareholders, especially retail shareholders.

The Panel proposes that the summary would include sections such as:• offer consideration• reasons to accept/reject the offer• recommendation (for target’s statement)• key dates• key conditions and terms of the offer• information about the bidder• summary of the expert’s report (if any)• key risks• how to accept/reject the offer• other key issues or unusual features.

Although it would be optional to include the summary, we expect that most bidders and targets would largely follow the Panel’s recommendations, especially where there is a significant body of retail shareholders. Where the summary is included, it may be that other commonly included sections (e.g. ‘Q&A’ sections) can be removed or shortened.

Comments on the consultation paper were due at the end of February 2014. We would expect to see a revised GN 18 soon.

“ . . . m a r k e t p a r t i c i p a n t s s h o u l d e n s u r e t h a t a n y l a s t a n d f i n a l s t a t e m e n t s t h e y m a k e d u r i n g a b i d a r e s u f f i c i e n t l y q u a l i f i e d i f t h e r e i s a n y c h a n c e t h a t t h e p e r s o n m a k i n g t h e s t a t e m e n t m a y w i s h t o d e p a r t f r o m i t i f c i r c u m s t a n c e s c h a n g e . ”



Many market participants and commentators were surprised by Australian Treasurer, The Hon Joe Hockey’s decision in November 2014 to reject the proposed acquisition by ADM of GrainCorp under the Foreign Acquisitions and Takeovers Act 1975 (Commonwealth) (FATA).1 This was particularly the case because broadly similar proposals had been approved previously2 and the Australian Competition and Consumer Commission (ACCC) had twice previously approved the ADM-Graincorp proposal, but the Treasurer then rejected the proposal for competition concerns.

However, current publicly disclosed Government policy3 did provide the Treasurer with a basis for the rejection on competition concerns, even though the ACCC had previously approved the transaction. This is explained further below.

Australian Government policy states that when assessing a foreign investment proposal the Government applies a “national interest” test on a “case-by-case” basis. For further information see Johnson Winter & Slattery’s ‘Australia: a guide for foreign investors’4.

T H E N A T I O N A L I N T E R E S T T E S T

There are no fixed rules about what is or is not considered to be contrary to the national interest but the Government has stated5 that it will typically consider the following factors:

• national security – the extent to which foreign investments affect Australia’s ability to protect its strategic and security interests;

• competition – in addition to examination by the Australian

Competition and Consumer Commission, FIRB will examine the effect that foreign investment will have on the diversity of ownership within Australian industries and sectors to promote healthy competition;

• other Australian Government policies – including the impact on Australian tax revenues and environmental objectives6;

• impact on the economy and the community – the impact on the general economy, including the following: plans to restructure the target entity, the nature of investment funding arrangements, the level of Australian participation in the target entity following the transaction and obtaining a fair return for the Australian people; and

• character of the foreign investor – the extent to which the foreign investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision. This also includes special considerations in relation to foreign governments and their related entities.

In addition, for foreign investment in agriculture, the Government considers the national interest considerations outlined above and will also consider a further series of matters including:

(a) agricultural production and productivity;

(b) Australia’s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our partners;

(c) employment and prosperity in Australia’s local and regional communities.

BYRON KOSTER PartnerT +61 2 8274 9550 [email protected]

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1 For investors other than US and NZ, business acquisitions over $248 million are notifiable. For US and NZ, the threshold is $1,078 million, except for prescribed sensitive sectors. For foreign governments, State Owned Enterprises and Sovereign Wealth Funds all acquisitions are notifiable.2 ABB Grain Limited and AWB Limited are two obvious examples in the grain trading and handling sector, both of which where approved by, and hence did not appear to raise national interest issues.

3 Australia’s Foreign Investment Policy (2013) http://www.firb.gov.au/content/policy.asp?NavID=14 ‘Australia: a guide for foreign investors’ available at http://www.jws.com.au/__files/f/6215/Investing%20in%20Australia_WEB_R.pdf5 See note 4, at page 7.6 JWS Legal Update: Heightened focus on tax effects in foreign acquisition assessments, http://www.jws.com.au/__files/f/6182/FIRB%20Note%20February%202014.pdf


T R E A S U R E R ’ S R E A S O N S

When explaining the rejection of the ADM proposal for GrainCorp, Mr Hockey said:• It is taking time for competition to emerge in

the grain industry. • Owning over 280 up-country storage sites and seven

of the 10 grain port terminals in NSW, Queensland and Victoria, GrainCorp continues to account for a significant share of eastern Australian storage, distribution and marketing of grains.

• Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers ability to access the grain storage, logistics and distribution network.

• Given that the transition towards more robust competition continues and a more competitive network is still emerging, now is not the right time for a 100% foreign acquisition of this key Australian business.

I M P L I C A T I O N S

In light of the above, it is apparent that despite the approval of the proposal by the ACCC, the Treasurer remained concerned about the effect that the proposal might have on competition in the grain industry. He also appears to have been concerned about Australia’s ability to remain a reliable supplier of agricultural production.

Based on the stated national interest criteria outlined above, it was open to the Treasurer to rely on these factors in disallowing the proposal.

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There was some suggestion in media reports following the decision that the Treasurer, in relying on his stated concerns, was really just looking for a basis to explain the rejection decision and that the decision was in fact motivated by a desire to appease the National Party. However, that is merely speculation and there does not appear to be any clear basis in fact for that contention.

Interestingly, the Treasurer also stated that the proposal had attracted a high level of concern from stakeholders and the general community and that therefore “allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally. This would not be in our national interest.”

This suggests that the level of public support for a proposal could be a key factor in future deliberations on foreign investment proposals. However, it has been suggested many times that the public at large does

not fully appreciate the benefits to Australia of foreign investment. Given this, elevating the importance of public support for a proposal so that it becomes a national interest factor may not be desirable as a matter of policy.

There have been very few outright rejections of long-term foreign investment proposals, and given the nature of the national interest test each of those (including ADM-GrainCorp, SGX-ASX and Shell-Woodside) can probably be explained by the particular circumstances of each case, rather than representing a trend that the Australian Government does not welcome foreign investment. The overwhelming majority of proposals that require approval or notification under FATA receive the typical statement of no objection. The three outright rejections can all be said to relate to strategic infrastructure or assets, whether grain terminals, financial markets or a key gas field, and it may be that there is a different approach to the national interest in such “strategic” cases.

That said, we are aware of endeavours by both the Financial Services Institute of Australasia (Finsia)71 and the Business Law Section of the Law Council of Australia to encourage debate about possible reform to FATA, among other things perhaps to clarify the application of the national interest test.

7 See http://www.finsia.com/docs/default-source/policy-research/ regulating_fdi_policy_report_february_2014_web.pdf?sfvrsn=0

“ . . . e l e v a t i n g t h e i m p o r t a n c e o f p u b l i c s u p p o r t f o r a p r o p o s a l s o t h a t i t b e c o m e s a n a t i o n a l i n t e r e s t f a c t o r m a y n o t b e d e s i r a b l e a s a m a t t e r o f p o l i c y. ”



http://www.finsia.com/docs/default-source/policy-research/regulating_fdi_policy_report_february_2014_web.pdf?sfvrsn=0

K E Y P O I N T S

• Last year’s judgement in Norcast v Bradken1 (Bradken) highlights that the “bid rigging” cartel prohibition in the Competition & Consumer Act 2010 (the Act) can apply to M&A sales processes. Cooperation between bidders or potential bidders in M&A processes should be considered carefully in light of the bid rigging cartel prohibition.

• The bid rigging cartel prohibition has an extensive ambit – including a broad extra-territorial reach, the ability for proceedings to be commenced by aggrieved private parties as well as the ACCC, the potential for significant damages and the very real prospect of accessorial liability for individuals involved in the bid rigging.

• By subjecting an M&A transaction to detailed judicial scrutiny, Bradken also provides a number of other salient lessons, including the limitations of confidentiality arrangements in sale processes.

T H E F A C T S

Bradken and a Canadian company called Norcast Wear Solutions Inc (NWS) were competing suppliers to the mining industry. Bradken had expressed interest in acquiring NWS on previous occasions but when NWS was put up for sale in 2011 by its private equity owner (Pala), Bradken was not invited to take part in the sale process.

NWS and Pala were concerned that if Bradken was invited into the sale process Bradken would use the sales process as an opportunity to fish for commercially sensitive information regarding its competitor. That said, it was recognised that Bradken could potentially be a serious buyer. NWS and Pala sought to balance these competing

1 Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235

considerations by arranging matters so that Bradken would find out about the sale process indirectly. The idea was that Bradken would then be forced to demonstrate its bona fides as a purchaser by having to ask to participate in the sale process.As expected, Bradken learnt about the sale process. It assumed that it had been intentionally excluded and was concerned to take steps to avoid it losing the opportunity to acquire NWS. Bradken therefore brought the opportunity to the attention of Castle Harlan, a private equity firm with which it had previous close dealings. Castle Harlan was interested, signed a confidentiality agreement and participated in the sale process. In so doing, Castle Harlan covertly involved Bradken in the process, relying on a provision of the confidentiality agreement that allowed Castle Harlan to disclose confidential information to its “advisers”. However, even though Castle Harlan took the view that Bradken was its adviser, it took careful steps to conceal Bradken’s involvement from Pala and NWS.In the course of this process, Bradken and Castle Harlan formulated an arrangement under which Bradken would acquire NWS from Castle Harlan promptly after Castle Harlan acquired NWS from Pala. Of course, none of this was known to Pala. On 6 July 2011, Pala sold NWS to Castle Harlan for US$190m. It then learnt, moments later, that Castle Harlan had almost immediately on-sold NWS to Bradken for US$212.4m. Pala thereby discovered that its attempts to control Bradken’s participation in the sale process had been completely outmanoeuvred and it had only received $190m for NWS, when Bradken had seemingly been prepared to pay in excess of $200m.

Pala initiated proceedings against Bradken, its Chairman (Nick Greiner) and Managing Director (Brian Hodges), alleging there was a bid rigging arrangement between Castle Harlan and Bradken regarding the NWS sale process and that they had engaged in

TIM BOWLEY PartnerT +61 2 8274 [email protected]

MICHELE LAIDLAW Partner (Competition)T +61 2 8274 [email protected]

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N O R C A S T v B R A D K E N : H O W A N M & A T R A N S A C T I O N C A N T U R N I N T O I L L E G A L B I D R I G G I N G

misleading or deceptive conduct, in breach of the Act. Bradken denied the charges.

T H E D E C I S I O N

At first instance the Federal Court concluded that both the bid rigging and misleading or deceptive conduct claims were established and assessed Pala’s loss at US$22.4m (the difference between what Bradken and Castle Harlan respectively paid for NWS).

It was found that Bradken and Castle Harlan had engaged in collusive bidding on the basis that:

• But for their collusive conduct, it was likely that Bradken and Castle Harlan would have been “in competition with” each other relation to the purchase of NWS (the “competition test”).

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“ . . . w h e r e t h e r e i s a c o m p e t i t i v e s a l e p r o c e s s t h e b i d d e r s ( o r p o t e n t i a l b i d d e r s ) a r e l i k e l y t o b e r e g a r d e d a s b e i n g “ i n c o m p e t i t i o n w i t h e a c h o t h e r ” i n r e l a t i o n t o t h e a c q u i s i t i o n o f t h e t a r g e t . ”

• Bradken and Castle Harlan had entered into an arrangement in relation to the sale of NWS, the purpose of which was to ensure that Castle Harlan would bid for NWS while Bradken would not (the “purpose test”).

• It did not matter that their arrangement did not take the form of a formal, binding agreement, since the cartel provisions include non-binding and informal arrangements.

The court also held that Bradken and Castle Harlan’s conduct constituted misleading or deceptive conduct. Both parties had stayed silent about Bradken’s behind-the-scenes involvement in circumstances where the Court held there was a reasonable expectation that this should have been revealed to the seller – an instance of misrepresentation by silence. In addition, in the case of Castle Harlan, the Court found it had misled and deceived Pala by means of positive representations such as:

• denying Bradken’s involvement, when questioned by representatives of the seller during site visits in Asia; and

• stating, in its final bid letter, that the final bid was made on behalf of Castle Harlan (and its associated entities) and they would not require funding from non-associated entities, when in fact the bid was effectively being jointly made with Bradken.

Finally, the Court found Bradken’s Chairman and Managing Director personally liable as accessories. The Court considered they had played an instrumental

role in the bid rigging and misleading or deceptive conduct. As such, the Court held that they had the requisite involvement in, and knowledge of, the conduct to fall within the accessorial liability provisions.

W H Y I S B R A D K E N I M P O R T A N T ?

T h e r e c o u l d b e m a n y p o t e n t i a l “ c o m p e t i t o r s ” i n a b i d d i n g p r o c e s s

The Federal Court found that, but for the “bid rigging” arrangement, it was “at least possible” that Castle Harlan and Bradken would have been in competition with each other in bidding for NWS. This relatively low threshold was all that was required to make Bradken and Castle Harlan potential competing bidders and thereby attract the operation of the bid rigging cartel prohibition. This finding was made despite the fact Bradken believed it had been excluded from the sale process, and the fact that Castle Harlan did not independently identify the NWS sale opportunity but had only learnt of it from Bradken.

In practice, this highlights that where there is a competitive sale process the bidders (or potential bidders) are likely to be regarded as being “in competition with each other” in relation to the acquisition of the target. In these circumstances, there is a heightened risk that discussions, information exchanges and/or agreements between bidders could fall within the scope of cartel conduct. It is a timely reminder for bidding consortia in particular to remain mindful of the cartel provisions and take early advice as to whether their consortium arrangements are permissible.

N O R C A S T V B R A D K E N : H O W A N M & A T R A N S A C T I O N C A N T U R N I N T O I L L E G A L B I D R I G G I N G


T h e c a r t e l p r o h i b i t i o n s a p p l y t o a b r o a d r a n g e o f M & A a c t i v i t y

Bradken also underscores that the fact that the collusive bidding prohibition is capable of extending to a broad range of M&A transactions. It applies to the acquisition of “goods” and “services”, where the latter is defined widely to include “… any rights (including rights in relation to, and interests in, real or personal property)…”. This encompasses the sale of shares and assets.

The Court was unswayed by the “anti-overlap” provision in the Act, which exempts arrangements or understandings from the cartel prohibitions insofar as they provide directly or indirectly for the acquisition of shares or assets. The Court confirmed this exception will be construed narrowly, with the sale process leading up to completion of the sale of shares or assets remaining subject to the prohibition against bid-rigging.

Furthermore, Bradken underlines the extensive jurisdictional reach of the cartel provisions. The case involved a Canadian headquartered business (NWS), being sold by a European-based private equity firm (Pala) to a US-based private equity firm (Castle Harlan), and then on-sold to Bradken. Bradken held that the collusive bidding prohibitions extend to conduct engaged in outside Australia, provided the colluding parties are relevantly connected to the jurisdiction. In Bradken, that nexus was established by virtue of Bradken being an Australian company and by Castle Harlan’s dealings in Australia, including via its interest in CHAMP, the Australian private equity firm.

15N O R C A S T V B R A D K E N : H O W A N M & A T R A N S A C T I O N C A N T U R N I N T O I L L E G A L B I D R I G G I N G

T h e c a r t e l p r o h i b i t i o n s c a n e n c o m p a s s a c c e s s o r i a l l i a b i l i t y

Bradken also highlights the fact that individuals involved in illegal cartel conduct can find themselves personally liable under the Act, which extends the operation of the cartel prohibition to persons who have been “…in any way, directly or indirectly, knowingly concerned in, or party to, the contravention”.

T h e c a r t e l p r o h i b i t i o n s c a n b e e n f o r c e d b y t h i r d p a r t i e s

It cannot be assumed that in practice the cartel provisions will only represent a problem if the ACCC chooses to deploy its scarce resources and bring a prosecution. As the actions of Pala demonstrate, the legislation provides aggrieved private parties with a right of action for contravention of the cartel provisions. Accordingly, irrespective of whether the regulator becomes involved, an aggrieved party may choose to seek its own redress for collusive bidding conduct.

M i s l e a d i n g o r d e c e p t i v e c o n d u c t c l a i m s

The Federal Court’s decision is a reminder of the very real potential for the application of the misleading or deceptive conduct prohibition in an M&A context – what is said (or not said) during a sale process can and does matter. Care and attention needs to be extended to the entire sale process and not simply focused on the question of what is (or is not) warranted in the final sale and purchase agreement.

Bradken also demonstrates the range of evidence that can be brought before a court in M&A related litigation. In particular, the case uncovered numerous emails – often unflattering – written by executives, investment bankers and others. In a number of instances, the Court considered that the email evidence trail directly refuted claims advanced during the course of the trial.

Po t e n t i a l l i m i t a t i o n s o f c o n f i d e n t i a l i t y a g r e e m e n t s

Finally, Bradken reveals the potential limitations of confidentiality arrangements when faced with aggressive conduct by participants in a competitive sales process. Pala and NWS had their lawyers put in place written confidentiality agreements and in doing so were fully conscious of the need to avoid Bradken becoming involved in the sale process through indirect means. Despite this, Bradken and Castle Harlan utilised the commonplace provision in confidentiality agreements permitting disclosure to “advisers” in order to pass information to Bradken. Bradken is a reminder that in some cases more restrictive confidentiality arrangements may be desirable, such as requiring potential acquirers to provide written notification of advisers (and other parties) to whom they are disclosing confidential information.


I N T R O D U C T I O N

Shareholder activism is both something new and nothing new at all. Shareholders who disagree vocally with incumbent management about corporate strategy and believe that greater value can be extracted than under the status quo are probably as old as the corporate form itself, or perhaps older still.

In Australia during 2013 shareholder activism gained increasing attention, while overseas there are billions of dollars that have piled into specialist “activist” funds. Increasingly institutional shareholders and proxy advisers are prepared to support the initiatives of activist agitators, and high profile non-executive directors are prepared to stand for election on activists’ slates. There is an expectation – to put it neutrally, some would put it as highly as a fear – that shareholder activism will become increasingly common in the Australian market.

In that context the purpose of this article is to re-examine Advance Bank v FAI1 - a case that has been interpreted as hampering an incumbent board’s ability to respond to an unwelcome activist shareholder.

One of the basic moves in the play book of an activist fund is to seek, or threaten, the removal of some or all incumbent directors, and replace them with the activist’s own nominees, who will presumably share the activist’s views on corporate policy. In this context, the question is asked by boards – what can we do in response to the activist campaign? And the stock answer seems to be “not very much” based on the common interpretation of Advance Bank v FAI.

The case is taken as authority for the proposition that corporate funds can never be used by incumbent directors to support their re-election in a contested situation, and this is notwithstanding that the directors might believe, subjectively, that they were acting in good

1 (1987) 12 ACLR 118

faith and in the best interests of the company, in beating off the attack on the corporate citadel.

The thesis of this article is this – Advance Bank v FAI is, when properly understood, not authority for such a limitation.

Rather, when one looks at the precise facts of the case, and the reasoning of the New South Wales Court of Appeal – in particular the leading judgement of Kirby P – it is apparent that the directors of Advance Bank could have used corporate funds to support the re-election of the incumbent directors, had they been somewhat more careful about what they did and said.

But what they in fact did was provide misleading information and took an unduly partisan approach, and by doing so exceeded their authority to use corporate funds.

T H E F A C T S O F T H E A D V A N C E B A N K v F A IThe case itself arose out of somewhat peculiar facts. Advance Bank had been a building society that had recently converted to a bank. It had special provisions in its constitution limiting shareholdings to 10% and entrenching that limitation (that is, making it very hard to remove them). It was, in a manner of speaking, takeover-proof.

But four members of the nine member board were required to retire at the first Annual General Meeting. FAI, a shareholder of the Bank with 9.65% of the voting shares, put up its own four nominees in opposition to the retiring incumbents. Although not a controlling position, four nominees out of nine when no one else could acquire more than 10% would have been a position of considerable influence.

Hindsight is a wonderful thing. At the time no one knew what fate was to befall FAI and those associated with it some 10 or so years later.2 But with the benefit of hindsight, the directors of Advance Bank displayed admirable perspicacity.

2 See for example, ASIC v Adler [2002] NSWSC 483.

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W H A T C A N D I R E C T O R S D O T O R E S P O N D T O S H A R E H O L D E R A C T I V I S M ? T H E D E C I S I O N I N A D V A N C E B A N K v F A I R E - E X A M I N E D

The directors of Advance Bank responded to the perceived threat by getting legal advice and advice from a corporate adviser. But unfortunately, the board did not follow the legal advice it had received to the letter. The four directors up for election abstained from voting on the relevant resolutions, but participated in the board discussions.3 They also separately gave their assent to the course of action adopted.

With the benefit of hindsight, it would have been better that the matters were dealt with by the other non-involved directors or perhaps an independent board committee – and formation of an independent committee would represent current usual practice in 2013. That said, while proper process is important, that of itself might not have altered the outcome of the case. The outcome really turned on the conduct of the directors not the process that gave rise to it. However, a different process might have resulted in different conduct and the conduct would have been assessed in the context of it being authorised by persons without an interest in the outcome, arguably leading to a more sympathetic approach by the Court.

In the event, what the “incumbents” decided to do was write a letter to shareholders, to be signed by the chairman – who was one of the directors up for re-election, and retain a proxy solicitation firm to call shareholders by telephone with a pre-prepared script.

3 At the time in 1987, what is now section 195 of the Corporations Act, that might have excluded directors with a material personal interest from board deliberations, was not part of the relevant legislation, being the Companies (New South Wales) Code.

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Simply put, the letter and the call script were misleading and partisan, rather than measured and balanced. They both contained material misstatements.

T H E B A S I S O F T H E D E C I S I O N

As a result, the true factual basis of the case concerned misleading information provided to shareholders, and hence the case should not be taken as authority that there is a blanket rule that corporate funds can never be used in connection with the re-election of directors. The proposition of law that was actually necessary to decide the case was, in essence, that directors could not use corporate funds to mislead shareholders in order to defend their colleagues who were up for re-election. Kirby P (with whom Glass JA agreed) listed 10 points of principle, ending with this point, which in the writer’s view is the key statement of principle in the case:

10. In election and proxy solicitation cases, such an excess or abuse of powers may occur where the directors: (a) expend an unreasonable sum of the company’s moneys; (b) expend moneys of the corporation on material relevant only to a question of personality and not relevant to corporate policy; or (c) otherwise act in a manner which is excessive or unfair in the circumstances, having regard to thecorporate purpose to be attained.4

Later, Kirby P said:

These remarks do not impose upon proxy battles the measured language of the law reports. But to

4 Note 1 at [137].

the extent that directors, in a situation of potential conflict of personal interest and corporate duty, stray into exaggeration, half truth, emotional language and misleading statements, the risk they run is that their activity will later be characterised by a court as not bona fide for a purpose of the company but rather for the primary purpose of their own re-election. To the extent that their actions are nonetheless classified as being for the purpose of the company, such conduct may still convince a court, when it is challenged, that the directors have exceeded their authority and abused their powers.

My own conclusion in this case is that, however subjectively well intentioned the appellants were, bona fide and convinced that what they were doing was in the best interests of the Bank, looked at objectively the only proper classification of their primary purpose, is that it was to secure the re-election of the chairman and the other four retiring directors. Even if it were concluded that their primary purpose was the best interest of the Bank, the way the directors went about the achievement of that purpose fatally undermined its attainment. To that extent the directors abused their powers. They exceeded their authority. (writer’s emphasis)5

That is, the true flaw was the way they went about the endeavour of trying to persuade shareholders to support the incumbents – “exaggeration, half truth, emotional language and misleading statements”. They 5 Note 1 at [138].

W H A T C A N D I R E C T O R S T O R E S P O N D I N G T O S H A R E H O L D E R A C T I V I S M ? T H E D E C I S I O N I N A D V A N C E B A N K V F A I R E - E X A M I N E D


Correctly understood, what Kirby P said means this: had the directors provided accurate and balanced information, the result of the case would have almost certainly been very different. The factual matrix involved misleading and partisan statements.

Those statements might well have been made with the intention of winning a battle worth winning, and perhaps even with good intentions of a genuine belief that what they were doing was in the interests of the company; but such good intentions could not justify “exaggeration, half truth, emotional language and misleading statements”.Kirby P was requiring – and arguably all that His Honour was requiring – scrupulous care and conduct of directors in a case where there could be confusion between private and corporate interests.

acted in a way that was “excessive or unfair”. What would have happened if they had been factual, fair and balanced?

The following passage is, in the writer’s view, the key to understanding Kirby P’s approach:

Neither the chairman’s letter, still less the Levita script, makes the slightest pretence to be a dispassionate presentation of information on policy questions such as the shareholders had an interest to receive and such as might have been expected of the directors in discharge of their duties.6

Returning to Kirby P’s principles referred to above, here are points 4 and 5:

4. It is not possible to lay down, in advance, as rules of law whether in the case of company elections generally, the solicitation of proxies particularly or otherwise, limits beyond which directors may never pass. Every case depends upon a scrutiny, in context, of its own relevant facts.5. Whilst there is no special rule governing the authority of directors in connection with elections or proxy solicitation, the heightened risk of a confusion between private interest and the best interests of the corporation (or corporate purposes) requires scrupulous conduct on the part of directors. It necessitates particular care where that conduct has the effect of influencing the outcome of an election in favour of themselves or their colleagues. (writer’s emphasis)7

6 Note 1 at [138].7 Note 1 at [136].

18 W H A T C A N D I R E C T O R S T O R E S P O N D I N G T O S H A R E H O L D E R A C T I V I S M ? T H E D E C I S I O N I N A D V A N C E B A N K V F A I R E - E X A M I N E D

“ T h e d i c h o t o m y, i f t h e r e i s o n e , i s b e t w e e n p e r s o n a l i t y a n d p o l i c y. A r e q u i r e m e n t f o r a b a l a n c e d a n d f a i r d e b a t e s e e m s u n o b j e c t i o n a b l e . B u t e v e n t h e n , a p r o p e r d e b a t e , w i t h i n l i m i t s a b o u t p e r s o n a l i t y s h o u l d b e p e r m i s s i b l e . ”

Framed in that way, the case is not authority for very much at all. It is definitely not authority for the proposition that corporate funds cannot ever be used in “proxy battles” for director elections. In fact, as noted above, the Kirby P expressly said there was no special rule for proxy battles and no absolute rule in Australia that corporate funds could not be used in relation to director elections, rejecting the submissions of FAI to that effect.8

Had the Advance Bank directors (at least those who were not up for re-election) provided fair and balanced information to their shareholders about the candidates for re-election, and focussed on the differences in policy between the two “camps”, had they acted with “scrupulous care” the result of the case would no doubt have been different.

T H E I M P L I C A T I O N S F O R S H A R E -H O L D E R A C T I V I S M ?

So to apply this idea to shareholder activism at the present time, there seems to the writer no reason why an incumbent board cannot use corporate funds to debate matters of policy with activist shareholders, in the context of a battle over director re-election, provided the incumbents are scrupulously careful to be fair, balanced and not misleading or partisan in their communications.

The dichotomy, if there is one, is between personality and policy. A requirement for a balanced and fair debate seems unobjectionable.

But even then, a proper debate, within limits, about personality should be permissible.

8 Note 1 at [128] to [136].

2 0 1 3 M E R G E R S & A C Q U I S I T I O N S R E V I E W2 0 1 3 M E R G E R S & A C Q U I S I T I O N S R E V I E W

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Those who have worked with boards and acted as board members know that there are a range of matters that go to making someone a good director, including personality. It would be a dereliction of duty for a board to ignore the importance of the personalities around a board table – and supposedly good governance would suggest ensuring that there was an appropriate makeup of people around the board table to lead to good decisions. Moreover, there will be objective criteria by which candidates could and should be judged, in terms of character, reputation, expertise, and track record. These are all relevant matters, not merely matters that can be dismissed as irrelevant matters of “personality”.

For example, should an incumbent board simply stay mute if a person of well-known bad character and repute should stand for election, even if there is no specific legal consequence such as the imperilling of a statutory licence or permit?

In a takeover context, where matters are overseen by the Takeovers Panel,9 a requirement to be fair, balanced and not misleading in communications with shareholders would pass without comment: it would be taken as a given. Likewise in relation to schemes of arrangement supervised by the Court, a requirement to be fair, balanced and not misleading in communications with shareholders is taken for granted, although that is not to say that a board of directors cannot inform shareholders that they ought to vote in a particular way. They routinely do. In other contexts, directors

9 That is, where the jurisdiction of the Panel is invoked by way of an application for a declaration of unacceptable circumstances under section 657A.

are advised to be balanced and fair when making a recommendation to shareholders as to how to vote, noting advantages and disadvantages (not least because of the decision in Fraser v NRMA10).

Therefore no one should be surprised that there is an expectation of being fair, balanced and not misleading in the context of a board re-election contest?

Another point that is often lost in this context is this: Advance Bank v FAI never should have made it as far as the NSW Supreme Court, let alone the Court of Appeal. FAI did not have standing to press the claim – it was a shareholder and the board owes its duties to the company, who is generally the proper plaintiff. The standing point was not taken at first instance, and it was accepted that on appeal it was too late to take the point. So another shareholder, in another situation with an identical factual matrix as Advance Bank v FAI would not have a remedy, subject to the rarely used statutory derivative action11, the “personal rights” approach in the Southern Resources Case12 and the possibilities inherent in section 1324 of the Corporations Act. But the consequence is this – had the point been properly taken at first instance, there would be no authority in Australia to the effect of Advance Bank v FAI.

10 (1995) 15 ACSR 590.11 Part 2F.1A of the Corporations Act 2001.12 (1990) 3 ACSR 207.

W H A T C A N D I R E C T O R S T O R E S P O N D I N G T O S H A R E H O L D E R A C T I V I S M ? T H E D E C I S I O N I N A D V A N C E B A N K V F A I R E - E X A M I N E D


C O N C L U S I O N

Having regard to the above, it is the writer’s view that Advance Bank v FAI has been misunderstood and should be re-examined. Directors do have the ability to use corporate funds to respond to activist shareholder campaign, provided they are careful about how they approach their task, both in terms of process and the substance of the communications.

Directors need not feel completely pinned down in face of an activist attack, although the response must be proportionate.

Following similar research undertaken by us in previous years, at the end of 2013 we surveyed the quantum of break fees agreed in Australian takeovers and schemes in the two-year period since 1 January 20121.

K E Y F I N D I N G S

Our survey focused on takeovers and schemes of arrangement with an implied equity value in excess of AUD$50 million in the period 1 January 2012 to 31 December 2013 where a break fee was payable by the target. The sample size consisted of 33 transactions, with only 14 takeovers and schemes with a deal value in excess of AUD$200 million, reflecting the relatively low level of significant public M&A activity in recent years.

In Guidance Note 7, the Takeovers Panel indicates that break fees which do not exceed 1% of the total equity value of the target company are unlikely to be considered unacceptable2. In the period covered by our survey, the largest break fee percentage was 1.42% and the smallest 0.22%. The mean break fee percentage in the sample was 0.950%. The vast majority of transactions had break fees of less than 1% of the total equity value of the target, and in 19 transactions, the break fee was close to the 1% guidance (between 0.95% and 1.05%). This suggests that market practice is cognisant of the Takeover Panel’s position on acceptable break fees in M&A transactions.

A table containing the key findings from our survey follows this article.1 Our previous survey is available at http://www.jws.com.au/__files/f/5423/Public%20Markets%20M&A%20-%202012%20review.pdf2 Takeovers Panel Guidance Note 7: Lock-up devices states that this is the aggregate of the value of all classes of equity securities issued by the target having regard to the value of the bid consideration when announced. In limited cases, it may be appropriate for the 1% guideline to apply to a company’s enterprise value, for instance because the target is highly geared.

A N O T A B L E T R A N S A C T I O N W H I C H T R I E D T O P U S H T H E L I M I T S

While the survey suggests that market practice largely conforms with the Takeovers Panel’s 1% guidance, 2013 did witness a notable outlier involving Billabong International Limited. In July last year Billabong announced that it had agreed a financing package with a consortium consisting of Altamont Capital Partners and GSO Capital Partners. The package involved a $294 million bridge facility and a commitment letter for a $294 million long term financing to replace the bridge facility. Subject to Billabong shareholder approval (for the purposes of the ASX Listing Rules and the Corporations Act), a tranche of the long term financing would be convertible into redeemable preference shares which would in turn be convertible into ordinary shares, and the consortium would be issued 84.5 million options. The package included three features which were in the nature of break fees:• A bridge facility termination fee of $65 million, payable if

Billabong obtained long term financing with another party, or if Billabong underwent a change of control and the Altamont/GSO bridge facility was repaid. The termination fee represented 54% of Billabong’s equity value prior to the announcement of the Altamont/GSO proposal.

• Under the terms proposed for the long term financing:– if Billabong underwent a change of control, Billabong would be obliged to repay the long term debt plus a make-whole premium of 10% of the principal amount and an amount equivalent to interest that would otherwise have accrued. The make-whole premium could have amounted to more than $100 million; and– an interest rate of 35% would apply to the convertible tranche of the long term debt unless and until Billabong shareholders approved the conversion terms – at which point it would reduce to 12%.

TIM BOWLEY PartnerT +61 2 8274 [email protected]

BRIAN VUONG AssociateT +61 8 8239 [email protected]

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2 0 1 2 - 2 0 1 3 B R E A K F E E S U R V E Y

In Billabong, both the bridge facility termination fee and the make-whole premium could be triggered if Billabong underwent a change of control. Given their size relative to Billabong’s equity value, the Panel considered that they represented significant financial penalties which were likely to deter rival proposals for Billabong. They could not be justified by reference to the fact that Billabong was in need of substantial funding and that the Altamont/GSO consortium had agreed to provide the necessary funding following an extensive process undertaken by Billabong. The fact remained that alternative proposals for Billabong were still a real possibility – indeed, the Panel application was brought by a rival consortium – which meant that the potentially anti-competitive effect of the Altamont break fees was a real and not theoretical possibility.

The Panel considered that the 35% interest rate on the convertible tranche of the long term debt, which continued unless and until Billabong shareholder approval was obtained to the conversion, was in essence a “naked no-vote break fee” – that is, a fee that is payable if target shareholders decline to support a proposal. From a regulatory perspective, naked no-vote break fees are regarded with particular caution out of a concern that they may put “a gun to the head” of target company shareholders. In Billabong, the Panel determined the 35% interest rate would result in an incremental interest cost to Billabong of approximately $10 million per year. It held that this would be likely to coerce Billabong shareholders into approving the conversion terms and was therefore unacceptable.

A naked no-vote break fee met a similar fate in Moreton Resources Limited.4 In that case, Morton Resources, which was in financial distress, entered into a $1 million secured convertible funding agreement. It was a term of the agreement that Moreton pay the funding provider a break fee of $250,000 if certain conditions precedent were not satisfied, including if Moreton failed to obtain shareholder approval for the issue of the convertible notes under Listing Rule 7.1. The Panel considered that a break fee of $250,000, for a company in financial distress and relative to the $1 million funding package of which it formed part of, would be likely to coerce shareholders into approving the issue of the convertible notes. The Panel was also sceptical as to whether the break fee was a fair approximation of the funding provider’s costs in the event the deal did not proceed. The fee’s disproportionate size underscored the Panel’s concern that the break fee was intended to operate as a coercive device.

B U T A N A K E D N O V O T E B R E A K F E E C A N B E A C C E P T A B L E I N T H E R I G H T C I R C U M S T A N C E S

The Airtrain scheme of arrangement5 at the beginning of 2013 made it clear that naked no-vote break fees will be considered appropriate in the right circumstances. In that case, ASIC did not object to the presence of a naked no-vote break fee in the scheme implementation agreement and the court found that it was reasonable for the scheme company to have agreed to such a break fee.

4 [2013] ATP 145 [2013] FCA 209

A rival consortium challenged these arrangements in the Takeovers Panel.3 Although the arrangements formed part of a debt financing package, the Panel held that it had jurisdiction to consider the matter. This was because the convertible tranche of the debt and the proposed options could result, if fully converted and exercised, in the Altamont/GSO consortium acquiring a 40% shareholding in Billabong. Accordingly, the Panel held that the application relevantly concerned the control of voting shares in Billabong.

In Guidance Note 7, the Panel identifies two ways in which a break fee may be unacceptable: if it is “anti-competitive” (the prospect of the target company having to pay the fee will deter rival bidders) or “coercive” (the prospect of the target company having to pay the fee if the bid is not successful is likely to compel target shareholders to accept the bid).

3 Billabong International Limited [2013] ATP 9

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“ F r o m a r e g u l a t o r y p e r s p e c t i v e , n a k e d n o -v o t e b r e a k f e e s a r e r e g a r d e d w i t h p a r t i c u l a r c a u t i o n o u t o f a c o n c e r n t h a t t h e y m a y p u t “ a g u n t o t h e h e a d ” o f t a r g e t c o m p a n y s h a r e h o l d e r s . ”

2 0 1 2 - 2 0 1 3 B R E A K F E E S U R V E Y


The scheme involved Airtrain Holdings Limited, an unlisted public company which owned the Brisbane Airport Rail Link. Airtrain had 65 shareholders divided into three classes, comprised of financial institutions, infrastructure businesses and other sophisticated and professional investors. As a result of the class structure, each class had a separate class vote to approve the scheme. Under the scheme implementation agreement, Airtrain would pay the acquirer a break fee of $1,100,000 if the scheme was not approved by any of the classes.

In the circumstances, the court held that the break fee was unlikely to coerce Airtrain shareholders into approving the scheme rather than considering it on its merits. In particular, the court noted that:

• A very significant proportion of Airtrain’s shareholder base had already expressed public support for the scheme, which had been the most favourable outcome from a structured sale process which had been undertaken by the company in late 2012 with the support of shareholders; and

• The amount of the break fee was within the 1% guideline established by the Takeovers Panel and could be easily funded from Airtrain’s cash reserves.

22 2 0 1 2 - 2 0 1 3 B R E A K F E E S U R V E Y

In addition, the Court considered that there were sound reasons for Airtrain agreeing to the naked no-vote break fee. Despite the public statements of support from shareholders, the acquirer was concerned that the scheme carried with it the risk that a small number of shareholders could block the scheme, owing to the need for separate class votes and the small number of shareholders in each class. The acquirer had therefore insisted on the fee as a condition to agreeing to proceed with the transaction. Given the desire of the Airtrain shareholders to exit their investment, the Airtrain board considered it would be contrary to shareholders’ interests to jeopardise the transaction by refusing to agree to the break fee.

C O N C L U S I O N

Billabong, Moreton Resources and Airtrain highlight a common commercial tension underlying many M&A transactions – namely, the proponent of a proposal which requires target shareholder approval will often be reluctant to expend effort advancing a proposal only for it to give the target shareholders an “option” as to whether or not they ultimately give their approval.

Despite this, Billabong and Moreton Resources show that in an Australian context a first mover cannot use a disproportionate break fee to entrench their position in the face of a target company shareholder vote.

Airtrain suggests that a proportionate naked no-vote break fee which provides a level of reasonable cost recovery only, may be acceptable in appropriate circumstances. However, such cases are likely to remain the exception rather than the rule, given that the number of market precedents to date is limited, ASIC has continuing concerns about naked no-vote break fees, and the starting position of both the Takeovers Panel and the courts is to approach such fees with caution.


Date Announced

Target Name Bidder Company Takeover/Scheme

Break Fee (Target Payable)

Break Fee as % of Deal Va lue

3 Jan 2012 Charter Hall Office REIT Reco Ambrosia Pte Ltd Scheme $11,000,000 0.90%11 Jan 2012 African Iron Ltd Exxaro Australia Iron Investments Pty Ltd Takeover $2,500,00 0.85%16 Feb 2012 Ludowici Ltd FLSmidth & Co AS Scheme $2,200,000 0.68%5 Mar 2012 Nexbis Ltd Agathis Three Pte Ltd Scheme $798,356 1.00%2 Apr 2012 Customers Ltd DirectCash Payments Inc. Scheme $1,700,000 0.98%16 Apr 2012 Castlemaine Goldfields Ltd LionGold Corp Ltd Takeover $250,000 0.45%23 Apr 2012 Biota Holdings Ltd Nabi Biopharmaceuticals Scheme $2,000,000 1.28%30 Apr 2012 Spotless Group Ltd Pacific Industrial Services Bid Co Pty Ltd Scheme $10,000,000 1.42%16 May 2012 Industrea Ltd General Electric Scheme up to $2,000,000 up to 1.00%21 May 2012 Rocklands Richfield Ltd Linyi Mining Group Co Ltd Takeover $2,000,000 1.02%28 May 2012 Talent2 International Ltd Perbec Pty Ltd Scheme $1,149,000 0.99%31 May 2012 Norton GoldFields Ltd Jinyu (HK) International Mining Company Ltd Takeover $2,150,000 1.00%13 Jul 2012 Hastings Diversified Utilities Fund Pipeline Partners Australia Pty Ltd Takeover $12,322,525 1.00%18 Jul 2012 Gerard Lighting Group Ltd Lighting Investments Australia Pty Ltd Scheme $1,863,000 1.00%6 Aug 2012 Integra Mining Ltd Silver Lake Resources Ltd Scheme $4,250,000 1.00%27 Aug 2012 Sundance Resources Ltd Hanlong (Africa) Mining Investments Ltd Scheme $13,720,000 0.99%7 Sep 2012 Consolidated Media Holdings Ltd News Pay TV Financing Pty Ltd Scheme $19,000,000 0.98%13 Sep 2012 LinQ Resources Fund IMC Resources Holdings Pte Ltd Takeover $800,000 0.61%20 Sep 2012 CGA Mining Ltd B2Gold Corp Scheme CAN$10,000,000 0.91%29 Oct 2012 Endocoal Ltd U&D Mining Industry (Australia) Pty Ltd Scheme $710,331 1.00%13 Nov 2012 Texon Petroleum Ltd Sundance Energy Australia Ltd Scheme $1,000,000 1.00%14 Dec 2012 Cerro Resources NL Primero Mining Corp Scheme CAN$1,400,000 1.21%25 Feb 2013 Platinum Australia ltd Jubilee Platinum plc Scheme $400,000 0.72%28 Mar 2013 Azimuth Resources Ltd Troy Resources Ltd Takeover $1,850,000 0.95%10 Apr 2013 CIC Australia Ltd Peet Ltd Takeover $750,000 0.97%15 Ap 2013 Norfolk Group Ltd RCR Tomlinson Ltd Scheme $1,000,000 1.29%7 May 2013 The Trust Company Ltd Perpetual Limited (PPT) Scheme $2,100,000 0.99%1 Jul 2013 Elemental Minerals Ltd Dingyi Group Investment Ltd Takeover $1,900,000 0.96%8 Jul 2013 RHG Ltd Resimac Syndicate Scheme $1,200,000 0.88%15 Jul 2013 Australian Power and Gas Company Ltd AGL Takeover $1,000,000 1.00%3 Sep 2013 Perilya Ltd Zhongjin Lingnan Mining (HK) Company Ltd Scheme $600,000 0.22%8 Oct 2013 Warrnambool Cheese & Butter Factory Co Saputo Dairy Australia Pty Ltd Takeover $3,925,000 0.76%5 Dec 2013 Carabella Resources Ltd Wealth Mining Pty Ltd Takeover $727,000 1.01%

B E L O W: Ta k e o v e r s a n d s c h e m e s o f a r r a n g e m e n t i n v o l v i n g A S X - l i s t e d c o m p a n i e s w i t h a n e q u i t y v a l u e i m p l i e d b y t h e t r a n s a c t i o n o f m o r e t h a n $ 5 0 m i l l i o n a s a n n o u n c e d b e t w e e n 1 J a n u a r y 2 0 1 2 a n d 3 1 D e c e m b e r 2 0 1 3 .

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A B O U T U S

TIM BOWLEY PartnerT +61 2 8274 9574

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+61 8 8239 7119

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JEREMY DAVIS PartnerT +61 2 8274 9531

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