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The Australian Takeovers Panel

The Australian Takeovers Panel. Alan Shaw Counsel Takeovers Panel AMEC seminar Sao Paulo Brazil 9 December 2009. Topics. Background on the Australian market Takeovers Panel structure Takeovers Panel powers Takeovers Panel process Takeovers Panel matters Challenges to the Panel

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The Australian Takeovers Panel

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  1. The Australian Takeovers Panel Alan Shaw Counsel Takeovers Panel AMEC seminar Sao Paulo Brazil 9 December 2009

  2. Topics • Background on the Australian market • Takeovers Panel structure • Takeovers Panel powers • Takeovers Panel process • Takeovers Panel matters • Challenges to the Panel • International comparison

  3. Part 1 • Background on the Australian market

  4. Market overview • 1.7 million registered companies • Stock exchanges • ASX - Australian Securities Exchange 2,198 listed companies A$1.09 trillion (US$981 billion) market capitalisation • NSX - National Stock Exchange and Bendigo Stock Exchange 88 listed Small to Medium Enterprises • APX - Asia Pacific Exchange 1 listed company

  5. Degrees of control in Australian law Source: Blake Dawson 2009

  6. Ways to acquire control of a public company Takeover Scheme of Arrangement TARGET COMPANY Chapter 6 Part 5.1 of chapter 5 Item 7 of Section 611 Part 2J.1 of chapter 2 Selective Reduction of Capital Shareholder Approval Source: Blake Dawson 2009

  7. The Takeovers Code - overview • Set out in Chapter 6 of the Corporations Act • Prescriptive legal rules - acquisition of control of Australian public companies • and listed managed investment schemes • Rules are based on 5 principles – includes ‘Eggleston principles’ in s602 • Rules are tempered in two ways: • ASIC can modify the law (s655A) • The Panel can make declarations of “unacceptable circumstances” (s657A) • ASIC and the Panel have regard to s602

  8. The Takeovers Code - prohibition CSLRC: “a suitable arbitrary level falling short of the likelihood of actual control” Not a threshold • General prohibition on acquiring more than 20% of a company/ scheme (s606) • The transaction is not invalid if breached (s607) • The person who makes the acquisition commits an offence (s1311) Penalty: 25 penalty units/ 6 months or both • Specific gateways to increasing holdings above 20% • Disclosure Notes 1: Section 9 defines company as meaning a company registered under this Act. 2: Section 608 and 609 deal with the meaning of relevant interest. 3. Section 610 deals with the calculation of a person’s voting power in a company.

  9. The Takeovers Code – the gateways • Exceptions to the 20% prohibition (s611) • Bids - market or off-market (item 1) • Schemes of arrangement (item 17) • Shareholder approved transactions (item 7) • 3% creep (item 9) • Other exceptions – rights issues, buy-backs, underwriting etc

  10. The Takeovers Code – disclosure • Bidder’s statement (section 636) • Identity of bidder • Details of intentions for target (including future employment) • Funding of bid • Prospectus information if shares offered • Details of consideration paid in last 4 months • Any other information material to shareholder’s decision, unless unreasonable because previously disclosed • Target’s statement (section 638) • All information shareholders and advisers reasonably require to make an informed assessment of the offer, to the extent it is known and expected to be found • Recommendation of each director

  11. Takeover or scheme? Source: Blake Dawson 2009

  12. Control transactions – this year to last year Source: Freehills 2009 Public Mergers & Acquisitions Report

  13. Control transactions in 2009 - industry type Source: Freehills 2009 Public Mergers & Acquisitions Report

  14. Market value of deals - 2009 Source: Freehills 2009 Public Mergers & Acquisitions Report

  15. Type of consideration - 2009 Shares Cash Cash/ Shares Source: Freehills 2009 Public Mergers & Acquisitions Report

  16. Indicative takeover timetable (1 month bid extended for 1 month) Preparation for bid Offer open for acceptance Bidder pays consideration Give target’s statement to ASIC, bidder, ASX, shareholders DAY: 1 15 30 35 46 66 74 95 118 Announce Bid Dispatch bidder’s statement to shareholders Offer closes, unless extended Offer closes, unless further extended Finish paying consideration Compulsory acquisition Give bidder’s statement to ASIC, target, ASX Waive or satisfy bid conditions Pay consideration Source: Blake Dawson 2009

  17. Time for completion of takeovers - 2009 Source: Freehills 2009 Public Mergers & Acquisitions Report

  18. Regulatory involvement - 2009 2008 – 12% Source: Freehills 2009 Public Mergers & Acquisitions Report

  19. Part 2 • Takeovers Panel structure

  20. Panel philosophy Peer review body Regulator of takeovers and other control transactions Main forum for resolving disputes in takeovers Courts excluded during bid period “Sensible, highly qualified commercial people making commercial decisions in an atmosphere that calls for speedy resolution”: Alinta

  21. Pros and Cons • Pros Commercial dispute resolution Principles based Informal process Enforceable in court Speedy hearings Not stop bid from proceeding • Cons Acceptance of model Some limitations on investigations Extra-legal considerations

  22. Qualifications for Panel members • Australian Securities and Investments Commission Act • Section 172 • Not less than 5 members • One member to act as President • Appointed by Governor in Council for up to 5 years • May be full time or part time • Qualified by reason of experience in - • (a) business • (b) administration of companies • (c) financial markets • (d) financial products and financial services • (e) law • (f) economics or • (g) accounting

  23. Panel members – by profession

  24. Panel members – by location

  25. Panel organisation Treasury PANEL President 51 members (part time ) Counsel Alan Shaw Director Allan Bulman Manager Karolina Danger Legal Officer Nirangjan Nagarajah Assistant Rebecca Banhelyi Secondee Marissa Bendyk Change every 8 months

  26. The Executive’s role Does Does not Assist Panel members to make good (consistent and timely) decisions Provide non-binding advice on applications Interfaces with the parties on applications Organises Panel days and other communications Draft policy as settled by wider Panel Make decisions on applications Exercise any formal powers Exercise any discretions

  27. Part 3 • Takeovers Panel powers

  28. Panel powers - overview • ASIC review in relation to modifications/ exemptions from • Chapter 6 (Section 656A) • Declaration of unacceptable circumstances (Section 657A) • Orders (Interim and Final) (Section 657D) • Referrals to and remittals from court (Sections 657EB and 659A) • Rule making (Section 658C) • Policy development Procedural rules Guidance Notes

  29. Other powers • Accept enforceable undertakings (ASIC Act section 201A) • Conduct conferences (ASIC regs 35-41) • At a conference - summons witnesses, take evidence on oath, • subpoena documents (ASIC Act section 192) • Contempt power (ASIC Act section 200) • Dismiss frivolous & vexatious applications (Section 658A) Also power not to conduct proceedings (ASIC reg 20)

  30. Main power – declarations • Corporations Act • Section 657A(1) • The Panel may declare circumstances in relation to the affairs of a company to be unacceptable circumstances. Without limiting this, the Panel may declare circumstances to be unacceptable circumstances whether or not the circumstances constitute a contravention of a provision of this Act. Fuzzy law (vibe) Principles based

  31. Main power – Bases for declaration • Section 657A(2) Appears to the Panel that circumstances are unacceptable • having regard to control effect • otherwise unacceptable having regard to section 602 • because they constitute a contravention ‘Eggleston principles’

  32. Purposes of the takeovers code Australian company - listed, unlisted with more than 50 members, managed investment scheme • ‘Eggleston principles’ • Section 602: • acquisition of control of voting shares takes place in an efficient, competitive and informed market • holders of shares and directors: (i) know the identity of any person who proposes to acquire a substantial interest (ii) have a reasonable time to consider the proposal (iii) are given enough information to enable them to assess the merits of the proposal • holders of shares all have a reasonable and equal opportunity to participate in any benefits

  33. Chapter 6 policy in applications

  34. Panel orders • Interim orders (section 657E) • Final orders (section 657D) • Declaration of unacceptable circumstances • Not unfairly prejudice any person • Protect rights or interest of persons or group of persons • Ensure the takeover or proposal proceeds (as far as possible) as if the circumstances had not occurred

  35. Part 4 • Takeovers Panel process

  36. Panel proceedings ASIC PANEL REVIEW PANEL COURTS ASIC grants or refuses relief Panel grants or refuses relief Questions of law, judicial review "grounds" Appeal Judicial review Questions of law Remittals ASIC or any "person affected" Declare unacceptable circumstances Declare unacceptable circumstances Application Appeal Source: Blake Dawson 2009

  37. Panel process Procedural rules • Media canvassing and confidentiality • Legal representation Applications Choosing three Panel members for a matter – conflicts Process letter/ Declaration of interests Conduct proceedings? Brief, submission, rebuttals Conferences Decision, reasons and media releases

  38. Part 5 • Takeovers Panel matters

  39. Panel matters s657A s656A

  40. Panel applicants

  41. Panel dealings

  42. Part 6 • Challenges to the Panel

  43. Panel challenges Declaration power Glencore International AG v Takeovers Panel1 Orders power CEMEX v Takeovers Panel2 Existence of the Panel itself Precision Data v Wills3 A-G (Cth) v Alinta4 Section 657A Section 657D Judicial power Notes: 1. [2005] FCA 1290, [2006] FCA 274 2. [2008] FCA 1572, [2009] FCAFC 78 3. (1991) 173 CLR 167 4. [2008] HCA 2

  44. Challenge to the declaration power • First judicial review overturned decision effect on control • Power to make a declaration… • not predicated upon it appearing to the Panel that particular circumstances have an effect • predicated upon it appearing to the Panel that particular circumstances are unacceptable, having regard to the effect • Second judicial review considered substantial interest • Resulted in amendments: • Corporations Amendment (Takeovers) Bill 2007 • Effect changed to - ‘appearing to the Panel’ • New s 657A(2)(b) - Eggleston principles “without having to also establish either a contravention of the Act or an effect on control” • New definition of ‘substantial interest’ introduced (section 602A) • Order power improved - rights or interests of a group of persons

  45. Challenge to the order power • First judicial review • Dismissed review • Section 657D allows orders for a group: lost opportunity to trade in an efficient and informed market was sufficient nexus • Second judicial review (appeal) • Dismissed review • Orders are not concerned with damages by the conduct of another person • “en globo’ assessment available – market misinformed is sufficient nexus • “In Alinta … considerable emphasis on the specialist nature of the Panel and the public interest considerations which underpin its role”: per Full Court

  46. Challenges to the Panel itself • Judicial power of the Commonwealth • Commonwealth separation of powers is an implication from s71 of • Constitution • Principle 1 – Only Chap III courts can exercise judicial power of the Commonwealth • Principle 2 – Chapter III courts cannot exercise non-judicial power • Pros Ensures independence of judiciary from political interference Protects citizens Useful without Bill of Rights • Cons Creates inconvenience and cost (eg, cross-vesting) Perhaps merely a drafting convenience Invites pragmatic exceptions (eg, persona designata)

  47. Bid Alinta AGL APT 19.98% 30% Bid Two Cases • Precision Data v Wills • Not judicial power because: • Panel creates new rights and obligations • Orders are not enforceable by the Panel • Considerations of policy have an important part to play • Attorney-General (Cth) v Alinta • Panel does not exercise judicial power because: • Panel does not enforce law or resolve disputes about existing rights - creates new rights and obligations taking policy into account • A finding whether there has been a contravention is not binding or determinative of any legal question since Panel must take other factors into account, including public interest (s657A(2)(b)) and factors in s657A(3) • Panel cannot compel compliance with its orders – done by a court independently • Limitation on commencement of court proceedings is temporary • Support for the view that the Panel’s orders override the Corporations Act

  48. Part 7 • International comparison

  49. Development of regulation • Increased takeover activity (including "first come first served" offers) in • the late 1960's resulted in different regulatory responses: • US – Williams Act (1968) • UK – City Panel and "Code" (1968) • - EU Directive • Australia – Eggleston committee reports (1969+) - state Act amendments (1971+) - federal scheme, Companies (Acquisition of Shares) Codes (1981) - national scheme, Corporations Act (2001) Legislative/ judicial ‘Self-regulation’/ legislative Legislative/ judicial Legislative/ peer review

  50. Comparison of jurisdictions 1 Source: Blake Dawson 2009

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