Slide 1

The Australian Takeovers Panel

Alan ShawCounsel

Takeovers Panel

AMEC seminar Sao Paulo Brazil 9 December 2009

Slide 2

Topics

1. Background on the Australian market

2. Takeovers Panel structure

3. Takeovers Panel powers

4. Takeovers Panel process

5. Takeovers Panel matters

6. Challenges to the Panel

7. International comparison

Slide 3

Part 1Background on the Australian

market

Slide 4

Market overview

1.7 million registered companies

Stock exchanges

• ASX - Australian Securities Exchange2,198 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 Exchange1 listed company

Slide 5

Degrees of control in Australian law

5% Substantial holder disclosure threshold

20% Takeover threshold

50.1% of shares voted at general

meeting

Practical ability to pass ordinary resolution (appoint board, subject to constitution)

50.1% Certain ability to pass ordinary resolution

75% of shares voted at general

meeting

Practical ability to amend constitution

75% Certain ability to amend constitution

90% Compulsory acquisition

100% Full control (no minorities)

Source: Blake Dawson 2009

Slide 6

Ways to acquire control of a public company

TARGET TARGET

COMPANYCOMPANY

TARGET TARGET

COMPANYCOMPANY

Takeover

Takeover

Selective Reduction

of Capital

Selective Reduction

of Capital

Schem

e of A

rrangem

ent

Schem

e of A

rrangem

ent

Shareholder

Approval

Shareholder

Approval

Part 5.1 of chapter 5

Item 7 of Section 611

Chapter 6

Part 2J.1 of chapter 2

Source: Blake Dawson 2009

Slide 7

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:1. ASIC can modify the law (s655A)2. The Panel can make declarations of “unacceptable

circumstances” (s657A)

ASIC and the Panel have regard to s602

The Takeovers Code - overview

Slide 8

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

The Takeovers Code - prohibition

Notes1: 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.

CSLRC: “a suitable arbitrary level falling short of the likelihood of actual control”

Not a threshold

Slide 9

Exceptions to the 20% prohibition (s611)

1. Bids - market or off-market (item 1)

2. Schemes of arrangement (item 17)

3. Shareholder approved transactions (item 7)

4. 3% creep (item 9)

5. Other exceptions – rights issues, buy-backs, underwriting etc

The Takeovers Code – the gateways

Slide 10

Bidder’s statement (section 636)1. Identity of bidder

2. Details of intentions for target (including future employment)

3. Funding of bid

4. Prospectus information if shares offered

5. Details of consideration paid in last 4 months

6. Any other information material to shareholder’s decision, unless unreasonable because previously disclosed

Target’s statement (section 638)1. 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

2. Recommendation of each director

The Takeovers Code – disclosure

Slide 11

Takeover Scheme

Control of process

Offeror Target (Implementation Agreement)

Target co-operation

Not essential Essential

Court approval No Yes. Order scheme meetings and approve scheme

Pre-bid agreement

Possible (up to 20%) Possible but may exclude shares from voting on scheme

Threshold for 100% ownership

90% held and get 75% of those bid for 75% in each class of member

Vulnerability to blocking stake

High (90% minimum acceptance condition)

Low (50% condition)

Increases as bidder’s stake diminishes eligible voting pool

Offer structure flexibility

Limited – can only bid for securities Flexible – can include reduction/return of capital, demerger and asset acquisitions

Tactical flexibility

Yes. Can increase offer price and waive/modify conditions

No

Main dispute forum

Takeovers Panel Court

Payment of consideration

Over time At one time

Disclosure Reviewed by Panel if complaint Reviewed by ASIC

Takeover or scheme?

Source: Blake Dawson 2009

Slide 12

Control transactions – this year to last year

Takeovers v Schemes

63

4846

24

0

10

20

30

40

50

60

70

Takeovers Schemes

2008

2009

Source: Freehills 2009 Public Mergers & Acquisitions Report

Slide 13

Control transactions in 2009 - industry type

Metals and Mining 24

Energy 18

Financials 10

Healthcare 4

Telcoms and Media 6

Other 10

Source: Freehills 2009 Public Mergers & Acquisitions Report

Slide 14

Market value of deals - 2009

25 24

14

57

0

5

10

15

20

25

30

<20 20-100 100-500 500-1000 >1000

Equity value ($ million)

Nu

mb

er o

f d

eals

Source: Freehills 2009 Public Mergers & Acquisitions Report

Slide 15

Type of consideration - 2009

53%

11%

36%

Source: Freehills 2009 Public Mergers & Acquisitions Report

SharesCash

Cash/ Shares

Slide 16

Indicative takeover timetable (1 month bid extended for 1 month)

Preparation for bid

Give bidder’s statement to ASIC, target, ASX

Dispatch bidder’s statement to shareholders

1 15 30

Give target’s statement to ASIC, bidder, ASX, shareholders

35

Waive or satisfy bid conditions

46

Offer closes, unless extended

66

Pay consideration

74

Offer closes, unless further extended

95

Finish paying consideration

118

Compulsory acquisition

DAY:

Source: Blake Dawson 2009

Offer open for acceptance

Bidder pays consideration

Announce Bid

Slide 17

Time for completion of takeovers - 2009

13%

26%

18%

43%

0

10

20

30

40

50

<60 60-90 days 90-120 days >120 days

Source: Freehills 2009 Public Mergers & Acquisitions Report

Slide 18

Regulatory involvement - 2009

10%

25%

19%

0% 5% 10% 15% 20% 25% 30%

ACCC

FIRB

Takeovers Panel

Source: Freehills 2009 Public Mergers & Acquisitions Report

2008 – 12%

Slide 19

Part 2Takeovers Panel structure

Slide 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

Slide 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

Slide 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

Slide 23

1

1112

4

24

0

5

10

15

20

25

30

Accountant Banker Corporate Finance Law yer

Panel members – by profession

Slide 24

Melbourne, 17

Perth, 6

Sydney, 23

NZ, 1

Brisbane, 3

Adelaide, 2

Panel members – by location

Slide 25

Panel organisation

CounselAlan Shaw

PANELPresident

51 members(part time )

DirectorAllan Bulman

Treasury

ManagerKarolina Danger

AssistantRebecca Banhelyi

Legal OfficerNirangjan Nagarajah

SecondeeMarissa BendykChange

every 8 months

Slide 26

The Executive’s role

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

Does Does not

Slide 27

Part 3Takeovers Panel powers

Slide 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

Slide 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)

Slide 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.

Principles based

Fuzzy law (vibe)

Slide 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’

Slide 32

Purposes of the takeovers code‘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

Australian company - listed, unlisted with more than 50 members, managed investment scheme

Slide 33

Chapter 6 policy in applications

105

29

29

154

77

4

47

0 20 40 60 80 100 120 140 160

602(a) - eci

602(b)(i) - identity

602(b)(ii) - time

602(b)(iii) - information

602(c) - opportunity

602(d) - comp acq

Contravention

Slide 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

Slide 35

Part 4Takeovers Panel process

Slide 36

Panel proceedings

Questions of law, judicial review "grounds"

ASIC PANEL REVIEW PANEL COURTS

Remittals

ASIC or any "person affected"

Declare unacceptable circumstances

Declare unacceptable circumstances

Panel grants or refuses relief

ASIC grants or refuses relief

Application

Appeal

Appeal

Judicial review

Questions of law

Source: Blake Dawson 2009

Slide 37

Panel processProcedural rules

o Media canvassing and confidentialityo 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

Slide 38

Part 5Takeovers Panel matters

Slide 39

Types of matters

85

38

24 26

5

27

15 136 5 4

49

17

0102030405060708090

Bidder's st

atements/ announc

ements

Target's

statements/

announcements

Associa

tion

Frustrati

ng action

Break fees

Rights iss

ues

Collateral b

enefits

Acceptanc

es

Substanti

al holding notic

es

Last and fin

al sta

tements

Equity deri

vativ

esOther

Review of A

SIC decis

ions

Panel matters

s657A s656A

Slide 40

Panel applicants

0

10

20

30

40

50

Bidder/acquirer 6 15.5 1 13 6 11 9 9 9 12

Target 10 5 10 11.5 11 4 16 9 18 5

Rival bidder 4 9.5 3.5 5 1 2 6 6 1 1

Shareholder/other 1 6.5 15.5 12 9 5 9 9 11

ASIC 1 1 1 2 1 1

Total 22 31 22 47 31 26 36 34 37 29

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Slide 41

Panel dealings

Number of Matters by Year

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Average Days to Decision

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Average Days to Publication of Reasons

0.010.020.030.040.050.060.070.080.090.0

100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Slide 42

Part 6Challenges to the Panel

Slide 43

Panel challenges

Declaration powerGlencore International AG v Takeovers Panel1

Orders powerCEMEX v Takeovers Panel2

Existence of the Panel itselfPrecision Data v Wills3

A-G (Cth) v Alinta4Notes: 1. [2005] FCA 1290, [2006] FCA 274 2. [2008] FCA 1572, [2009] FCAFC 783. (1991) 173 CLR 1674. [2008] HCA 2

Section 657A

Judicial power

Section 657D

Slide 44

Challenge to the declaration power

First judicial review overturned decision effect on control• Power to make a declaration…

o not predicated upon it appearing to the Panel that particular circumstances have an effect

o 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

Slide 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

Slide 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)

Slide 47

Two CasesPrecision Data v Wills

• Not judicial power because:o Panel creates new rights and obligationso Orders are not enforceable by the Panelo Considerations of policy have an important part to play

Attorney-General (Cth) v Alinta

• Panel does not exercise judicial power because:o Panel does not enforce law or resolve disputes about existing rights - creates

new rights and obligations taking policy into account o 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)

o Panel cannot compel compliance with its orders – done by a court independentlyo Limitation on commencement of court proceedings is temporary

• Support for the view that the Panel’s orders override the Corporations Act

Alinta AGL APT30%19.98%

Bid

Bid

Slide 48

Part 7International comparison

Slide 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)

‘Self-regulation’/ legislative

Legislative/ judicial

Legislative/ judicial

Legislative/ peer review

Slide 50

Comparison of jurisdictions 1

Australia UK US

Type/source of rules Statute Ch 6 City Code (recent statutory backing)

Fed / State statutes, case law

Main regulator Panel, ASIC UK Panel (recent statutory backing)

Courts, SEC

Can controller commit to sell controlling stake

Yes, up to 20% Yes, but 30% or more - mandatory offer to other shareholders

Yes, offer to other shareholders not necessarily required

Pre-bid acceptance commitments

Up to 20% only ("public auction" principle?)

Allowed – no limit Allowed (case law limits on full lock-up of shareholder vote)

Maximum offer/conditional offer period

12 months 60 days – minimum acceptance condition81 days – other conditions

Generally no (States have varying anti-takeover laws)

Source: Blake Dawson 2009

Slide 51

Australia UK US

Mandatory minimum acceptance condition

No Yes - 50% Generally no – 2 step offers common (State laws vary)

Restrictions on further offers?

No – subject to "truth in takeovers"

Yes – Panel consent required within 12 months

Some States require bidder to wait for a period or get shareholder approval

Ability of Bidder to rely on conditions

Unrestricted Limited (apart from certain conditions)

Unrestricted

Litigation forum and frequency

Courts – not commonPanel – common (rarely defeats bid)

Courts – rarePanel – common (rarely defeats bid)

Courts – very common (often results in delay or a change in terms)

Comparison of jurisdictions 2

Source: Blake Dawson 2009

Slide 52