In recent years it has been the class action industry that has captured the hearts, minds and wallets of shareholders seeking to improve their return on investment.
But a decision last month by the Full Federal Court has confirmed there is now another important player in the shareholder value equation: the Takeovers Panel.
In only 18 months, the Panel has gone from being legally doubtful to a central player in allocating the value between bidders and target shareholders in takeovers.
Until recently, whether the Panel would survive constitutional challenge cast a shadow over all that it did. That changed in early 2008 when the High Court decided in the Alinta matter that the Panel was not a body exercising judicial power, giving it the constitutional green light.
The Federal Court’s decision last month to back the Panel’s decision about the contested takeover for Rinker by Cemex, has further confirmed the breadth of its powers.
With the shackles of legal doubt removed, the Panel has enthusiastically taken a hands-on approach to the value allocation between bidders and target shareholders.
An example of this can be seen in the aftermath of the Cemex bid for Rinker.
Cemex had made a best and final statement regarding its offer consideration. Cemex subsequently permitted Rinker shareholders to keep a proposed dividend. ASIC took Cemex to the Panel, arguing Cemex had effectively increased its offer price, departing from its best and final offer statement infringing ASIC’s Truth in Takeovers policy.
The Panel’s orders, which have now survived a Review Panel and two Federal Court hearings, were that all shareholders who sold Rinker shares in the period between the best and final offer statement and the statement allowing shareholders to keep the 25 cent dividend, were to be compensated 25 cents per share.
This decision confirms that because of its broad powers, the Panel can make sweeping orders without regard to long held legal maxims—or obstacles, depending on your perspective—such as loss and reliance.
In the words of the Full Federal Court, ‘The Panel is not required … to place itself in the position of an arbiter of a class action in an investor class action suit.’
Another example of where the Panel has demonstrated its preparedness to drive shareholder value in a contested M&A deal, is the contest for control of Gloucester Coal.
In that matter, the Panel was willing to interrupt an agreed deal that was expressly permitted by the Corporations Act to allow shareholders access to a competing bid. At the same time, the Review Panel wrested the decision making from Gloucester Coal’s shareholders and gave it to the Board. Anointing the Board as the arbiter of competing deals had the desired result and it was a significant reason behind a 44 per cent increase in the final cash offer price.
While class actions may have the headlines at the moment, there is little doubt that the Takeovers Panel will have a significant role to play in allocating value to shareholders. The combination of its sweeping jurisdiction, its preparedness to exercise that jurisdiction and the absence of procedural rules will ensure that this is so.
This article appeared in the Australian Financial Review on 27 July 2009.
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