ASIC’s joint bids policy revised

Policy Statement 159

The Australian Securities and Investments Commission (ASIC) released its revised policy on joint bids on 28 March 2007. The policy applies to bidders who together have more than 20 per cent of the voting power in a target. Joint bidders in these circumstances usually require ASIC relief to avoid breaching section 606 of the Corporations Act. ASIC’s amended Policy Statement 159: Takeovers, compulsory acquisitions and substantial holding notices sets out ASIC’s current policy in granting this relief.

Background

Since 2001, ASIC’s policy has been to grant relief to joint bidders if the circumstances of the bid do not disadvantage target shareholders by deterring rival bidders. The conditions for such relief were first published by ASIC in 2001 in its Media Release [MR 01/295] ASIC clarifies its policy on joint bids.

Since then, ASIC has further refined its views on the conditions that will be imposed for joint bid relief. Policy Statement 159 now reflects ASIC’s latest thinking on joint bids and clarifies certain technical changes that have been introduced since 2001.

Conditions for relief

ASIC will generally provide relief for joint bids where section 606 would otherwise have prevented bidders from coming together to make the bid, if the following four conditions are met:

• the bid includes a non-waiveable minimum acceptance condition from non-associated shareholders who hold at least 50.1 per cent of the bid class securities
• the joint bidders must accept a higher rival bid unless they match the bid
• the bidders must use their best endeavours to have the target obtain an independent expert report on whether the bid is fair and reasonable to shareholders, and
• if the joint bid does not proceed because of a defeating condition, the bidders must immediately terminate their joint bid arrangements.

50.1 per cent minimum acceptance condition

The purpose of this condition is to ensure that the joint bidders do not have an unfair advantage by virtue of their combined voting power in the target. The condition effectively gives non-associated shareholders a right of ‘veto’ over the bid and cannot be waived.

ASIC’s initial policy in 2001 required a similar condition, except that the 50.1 per cent acceptance condition applied to the number of non-associated shareholders in the bid class (the ‘head count test’), rather than the non-associated shares (the ‘share count test’). This occasionally led to difficulties for bidders, such as share splitting by target shareholders.

ASIC had, in the past, modified the relief granted to allow joint bidders to use the ‘share count test’ rather than the ‘head count test’ on a case-by-case basis. The current policy appears to do away with the ‘head count test’ entirely in favour of the ‘share count test’.

Higher rival bid

This condition is intended to ensure that joint bidders do not deter a rival bid with their potential combined blocking stake in the target. ASIC defines a ‘higher bid’ as a bid which offers more than 105 per cent of the joint bid consideration. In circumstances where the rival bid offers a different form of consideration to the joint bid (for example, scrip, instead of cash), ASIC will take into account other factors such the liquidity of the scrip offered and any expert’s report.

A key point of clarification in ASIC’s current policy which was not in its 2001 release is that this condition may not be imposed if one of the joint bidders had no relevant interest in the target securities when the joint bid arrangements were made unless ASIC is concerned that a rival bidder would still be deterred by these joint bid arrangements. This is in line with ASIC’s views in previous relief applications, where the condition was considered unnecessary and not imposed if the creation of the joint bidding group did not result in the creation of a larger voting stake.

Further, ASIC has also clarified that where the condition is imposed, joint bidders will only be required to accept a rival bid if:

• the rival bid has become unconditional, and
• if they do not increase their bid to match the rival bid within seven days.

Expert’s report

The purpose of this condition is to assist target shareholders in assessing whether the price offered by the joint bidders is fair and reasonable.

Termination of joint bid

The requirement is designed to ensure that where a joint bid does not proceed, the joint arrangements fall away and the bidders do not retain their increased voting power. This reflects ASIC’s practice in recent relief applications.

This article was written by Sandy Mak, Senior Associate.

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