Jurisdiction - Australia
Reports and Analysis
Australia – Pinpointing The “Reasonable Person” – Draft ASX GN8 And Takeover Approaches.

29 October, 2012

 

In brief
 
  • ASX’s draft guidance makes it clear that receipt of a takeover approach that remains confidential will generally not require disclosure.
  • However, it may be likely that leaks will eventuate to justify disclosure where that outcome suits either party.
 
ASX’s new draft Guidance Note 8 Continuous Disclosure: Listing Rule 3.1 has significant implications for M&A practice. 
 
The draft guidance helpfully adopts a clear position on the previously controversial topic of announcement of takeover approaches, and provides detailed worked
examples.
 
An approach proposing a takeover or merger will usually fall within the carve-out for incomplete proposals or negotiation, subject to satisfaction of two other requirements:
 
  • it remains confidential (and ASX has not formed a contrary view), and
  • a reasonable person would not expect disclosure. 
 
The draft guidance addresses several issues concerning the scope of this carve-out:
 
  • No need to disclose receipt of confidential proposals An increasing trend toward early disclosure in recent years has led to suggestions that a reasonable person might now expect disclosure of confidential takeover approaches. The draft guidance makes it clear that ASX considers a reasonable person would generally not expect disclosure of a confidential offer to enter into a control transaction. However, worked examples note that this may not be the case in unusual circumstances, such as where target shareholders need to decide whether to accept an existing competing offer. If so, the fact that an offer says it may be withdrawn if disclosed will not override the obligation to disclose (and there may now be less reason to include such a statement).
  • No need to disclose agreements facilitating negotiation The draft guidance confirms that the “incomplete proposal or negotiation” carve-out extends to agreements entered into to facilitate negotiationabout a transaction (eg  confidentiality or exclusivity agreements) even though these agreements are, in themselves, complete and  binding. These facilitative agreements are distinguished from agreements entered into to implement or give effect to a transaction, which will not be covered by the carve-out. 
  • Rejection of approach A worked example indicates that ASX may not expect disclosure where a merger proposal is rejected on the basis that it undervalues the target and is opportunistic. ASX does not consider that the “reasonable person” requirement would require disclosure of this information. ASX comments that disclosing information about a rejected offer could cause undue speculation about a follow-up offer, potentially giving rise to a false market. ASX’s comments appear to assume that the carve-out covers the fact of rejection of an approach. Ideally, the terms of the carve-out would be amended to put this beyond dispute. 
  • Timing of announcement where offer is accepted The draft guidance confirms that, where an offer remains confidential, there is flexibility to manage the timing of acceptance and the time at which the carve-out ceases to apply. This can be achieved,  for example, by making acceptance of an indicative offer subject to negotiation and signing of a legally binding agreement (in which case the proposal will only be complete when the agreement is signed). However, disclosure cannot be delayed once an agreement is legally binding or the entity is otherwise committed to proceed. The draft guidance encourages parties, where possible, to ensure that the event triggering the need to disclose occurs outside trading hours. 
  • Loss of confidentiality/trading halts Once the carve-out ceases to apply, the information must be disclosed “immediately”. The draft guidance confirms that this means “promptly and without delay” rather than “instantaneously”. However the standard of promptness is high. The draft suggests that an entity should pre-prepare a draft request for a trading halt and draft announcement for use in the event of a leak. The draft notes that technically a trading halt does not suspend the obligation to disclose, but indicates that ASX will regard a prompt request for a trading halt to prepare an announcement to have complied with the spirit, intention and purpose of Listing Rule 3.1. (Note that this may not always be sufficient to prevent liability for contraventionarising under the Corporations Act.) 
  • Monitoring for leaks ASX may form the view that confidentiality has been lost where there is a media or analyst report about the matter, a rumour in the market about the matter or there is sudden unexplained significant movement in the price or volume of the listed entity’s securities. An entity relying on the carve-out needs to monitor the market price of relevant securities, the media, major wire services, relevant investor blogs/chat-sites/social media and analyst/journalist queries. 
  • Asset acquisitions The draft guidance note provides examples indicating that broadly the same principles apply to offers to acquire assets. One comment suggests that an offer to acquire an asset at a premium price may not be market sensitive if the entity has no intention of selling or capacity to sell.
 
Comment 
 
ASX’s guidance is likely to be treated as giving content to what a reasonable person would expect, neutralising arguments that disclosure of approaches is required (regardless of whether a confidentiality agreement has been entered into). This is likely to mean that fewer takeover approaches will be announced in the absence of  leaks or unusual circumstances. However, it would not be surprising if leaks eventuate to justify disclosure where that outcome suits either party. Consequently the effect on disclosure of takeover approaches might not be as great as one might expect.
  

 

For further information, please contact:

 

Bruce Dyer, Partner, Ashurst

bruce.dyer@ashurst.com

 

Kylie Lane, Ashurst

kylie.lane@ashurst.com

 

Ashurst Corporate/M&A Practice Profile in Australia

 

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