24 July, 2015
Summary
- The Takeovers Panel is proposing to clarify its requirements around the use of shareholder intention statements during control transactions through the release of a new guidance note (Draft Guidance Note), with the aim of addressing ambiguities that may cause shareholder intention statements to mislead or confuse.
- The Panel has invited comments on the Draft Guidance Note by 1 September 2015. The proposed guidance is discussed in further detail below.
Key elements
The Takeovers Panel's analysis indicates that in 2014, 45% of takeovers and 86% of schemes were announced with a statement of shareholders’ intentions, such as:
'HoldCo, a holder of 15%, intends to accept the offer by BidCo in the absence of a superior proposal'
The Draft Guidance Note states that the Panel does not 'encourage or discourage' shareholder intention statements. Statements of shareholder intent (both attributable to specific shareholders and in aggregate) can be a useful source of additional information for retail shareholders in assessing control transactions, as smaller shareholders may lack the capacity or resources to analyse the transaction in the same way that major shareholders can.
However, the Draft Guidance Note identifies that shareholder intention statements may be misleading, or at least confusing, if the statements are expressed in unclear terms (eg ‘present’ intention), are subject to ambiguous qualifications or are published without detailed information regarding the relevant shareholding and the shareholder’s consent – at least if the holding is material.
The Draft Guidance Notes also includes the following specific guidance on the Panel’s assessment of when a shareholder intention statement may give rise to unacceptable circumstances:
- early acceptance: where a shareholder has disclosed its intention to accept a bid, early acceptance of a bid may constitute unacceptance circumstances if:
- the bid is accepted prior to the earliest date on which the shareholder publicly indicated it intended to accept the bid, or
- the intention statement is qualified by reference to a superior proposal and the initial bid is accepted before allowing a reasonable time to pass for a superior proposal to emerge.
- superior proposal: if an intention statement is not qualified by reference to a superior proposal, or the relevant shareholder acts contrary to a demonstrably superior proposal without good reason (including acceptance of the initial bid), and in both cases the aggregate of that shareholders’ and the bidder’s shareholding exceeds 20%.
- disclosure: the following details are not publicly disclosed:
- the identity of the shareholder to whom the statement is attributed (although this may not apply to aggregated intentions statements if the aggregate holding is not material), and
- for material holdings, the number and percentage holding, and
- consent: the shareholder to whom an intention statement is attributed has not given its ‘consent to be named’ in the relevant public disclosure document.
Timing of acceptance
The Panel has sought comment on what constitutes a reasonable period for an alternative proposal to emerge (in the context where a shareholder’s intention to accept is qualified by ‘no superior proposal’ emerging) and has asked whether a timeframe, such as 14 or 21 days should be specified.
We can appreciate the attractiveness of a ‘bright line’ test for both market participants and the Panel in terms of increased certainty – however we query whether this particular line would be effective in all cases. It imposes further regulation on the actions of a stakeholder group (target shareholders) to whom the takeovers regime is broadly supposed to afford more flexibility and freedom of decision-making.
If a target shareholder’s primary reason for supporting a transaction (via disclosure of its intentions) is to prevent momentum for the bid from dissipating early, that shareholder may instead simply accept the bid early without first disclosing its intentions. This simply shifts the focus to all early acceptances of bids, in circumstances where the market would only have visibility of the action after the event has occurred, rather than having it flagged through an early intentions statement (meaning that consequences and remedies may be more difficult to manage).
Consents to be named from relevant shareholders
The Panel has also sought comment on whether shareholder consent to the making of statements is required in all circumstances. As it stands, the Draft Guidance Note indicates that:
- each shareholder whose intentions form part of an aggregated intention statement (ie holders of X% of ordinary shares have stated their intention to accept into the bid) relating to a material aggregate number of shares must consent to the use of the aggregated intention statement in a takeover context – even a holder who speaks for an immaterial number of shares, and
- that the Panel will determine whether an aggregated intention statement should have been attributed to particular shareholders.
In linking the requirement to obtain consent (per the first bullet point above) to the ‘consent to be named’ provisions of the Corporations Act,1 the Draft Guidance Note appears to imply that individual shareholder consent is required under those provisions in all cases. Assuming this interpretation is correct, it would make it an offence for a bidder/target to include an aggregate intention statement without also naming every relevant shareholder and including their consent to be named.2 If this implication was not intended, we suggest that the Draft Guidance Note be amended to clarify this.
Since the Panel seems to concede in the draft Guidance Note that the Corporations Act does not require the bidder/target to publish the name of each holder whose intentions are rolled up into an aggregated statement (and to obtain their consent) at least where the aggregate is not material, it is unclear what discretion the Panel has to require this publication and consent where the aggregate is material. If the Panel is to exercise discretion in this context, a clearer description of the notion of materiality may assist, so that shareholders and bidders/targets have a clearer understanding of when they are require to obtain and publish the relevant consents.
Commentary
The Draft Guidance Note underlies a concern expressed by the Panel that shareholder intention statements may be used inappropriately as a lock-up device, or have been used in ways which are unclear or overstate shareholders’ actual intentions. The Draft Guidance Note is helpful to market participants as it clarifies what the Panel expects and requires in this area.
However, one likely consequence of more regulation of shareholder intention statements (including the potential requirement to obtain individual shareholder written consent in a manner which would attract a further level of statutory liability for those shareholders, even in the context of aggregated statements) is a growing reluctance on the part of individual shareholders to allow their intentions to be used in this way.
This may push bidders/targets towards the use of generic descriptions such as ‘strong support’ or ‘positive responses’ when describing aggregate shareholder responses (as has been the case in a number of recent control transactions), which presumably falls within the scope of the vague and unclear statements that the Panel is in fact seeking to remove.
Endnotes
- Corporations Act 2001 (Cth) s636(3), s638(5).
- Corporations Act 2001 (Cth) s636(5), s638(7).
For further information, please contact:
Simon Reed, Partner, Herbert Smith Freehills
simon.reed@hsf.com
