WHAT YOU NEED TO KNOW

• ASX has issued guidance about de-listing a target company following a takeover bid, while there are still minorities. A bidder who acquires control should be able to de-list the target; it is a question of timing.
• If the bidder acquires 75% of shares in the target and certain other tests are met, ASX is likely to permit de-listing within 12 months of close of the bid.
• If the 75% threshold and other tests are not met, the target can still be de-listed with shareholder approval. The bidder and associates cannot vote on a de-listing within 12 months, but they are likely to be able to vote on a de-listing after 12 months.

ASX has issued welcome guidance about the circumstances in which it will permit a company to be de-listed, if it has recently been the subject of a takeover bid but still has minority shareholders. The guidance is contained in ASX Guidance Note 33 and will take effect from 1 January 2014.

Generally, bidders for ASX listed companies say in the “intentions” section of their bidder’s statements that they intend to maintain the listing of the target, subject to meeting ASX’s spread requirements. However, more recently a number of bidders have indicated that they intend to cause the target to apply for de-listing.

The de-listing application is made by the listed entity (that is, the target), which would be controlled by the bidder following a successful takeover. The target directors must act in the best interests of the target and need to weigh up the benefits of listing (for example, providing a market for shares) against the disadvantages (listing fees, compliance costs, executive time involved in dealing with analysts and so on).

In a takeover bid context, ASX is concerned to ensure that the threat of imminent de-listing is not unfairly used as a tactic to coerce minority shareholders into accepting a takeover offer. ASX’s guidance draws a distinction between applications to de-list which are made within 12 months of close of the bid and those which are made outside the 12-month period.

Application Within 12 Months Of Close Of A Takeover Bid

ASX is likely to permit de-listing without requiring shareholder approval if:

• the bidder and its related bodies corporate (bidder’s group) own or control at least 75% of shares in the target but have not satisfied the compulsory acquisition thresholds (normally 90% ownership). The 75% threshold has some analogy with the English position where a resolution passed by 75% of votes is generally required to de-list an English target company;
• the number of holders with a holding of at least $500 in value (excluding the bidder’s group) is less than 150. At this point the entity will be at the margin for de-listing by ASX for lack of spread in any event;
• the bidder indicated in its bidder’s statement that, if it acquired control of the target, it intended to cause the target to apply for de-listing;
• the takeover bid was open for at least two weeks after the bidder group reached the 75% threshold; and
• the target applies for de-listing no later than one month after the close of the takeover bid.

ASX is likely to require notice to be sent to minority shareholders warning them that if they wish to sell through ASX, they will need to do so by a particular date, otherwise they will only be able to sell off-market. The de-listing will not occur earlier than three months after this warning notice is sent.

If the above requirements are not met, then ASX is likely to require shareholder approval by ordinary resolution for the de-listing within the 12-month period and ASX will not permit the bidder and associates to vote.

Application More Than 12 Months After Close Of A Takeover Bid

ASX is likely to permit de-listing with the approval of shareholders by ordinary resolution, and the bidder and associates are likely to be able to vote. At this stage, ASX considers sufficient time has elapsed since the bid to remove any inference that de-listing is being sought to coerce shareholders into accepting the bid.

Bidder Planning

The outcome of this guidance is that a person who acquires control of a listed company can be reasonably confident of procuring a de-listing within a year or so. The timing of the de-listing hinges on the success of the bid (ie whether the bidder achieves the necessary 75% acceptance level and the other tests are met). If these tests are met, the target could be de-listed within a little over three months after the close of the bid. If the bidder achieves control but does not satisfy these tests, it cannot be confident of achieving de-listing in the first 12 months (since the bidder and associates cannot vote on the resolution). Instead it may choose to wait 12 months and put the de-listing to a vote of remaining target shareholders (on which the bidder and associates are likely to be able to vote a controlling stake in favour of the resolution).

Is 75% the new 90%?

The existence of a 75% threshold could affect bid tactics. For example, a bidder may choose to highlight that threshold (particularly once it has acceptances for 75%) in order to encourage shareholders to exit, and thus facilitate it reaching 90% and moving to compulsory acquisition. It is also possible that 75% could become more popular as a minimum acceptance condition or could be used as a trigger for increased bid consideration under truth in takeovers type statements.

Minorities Still Matter

If the target is de-listed, the bidder will still need to be mindful of the interests of minority holders. Any bidder nominees on the board of the target company will need to act in the best interests of all target shareholders. Further, the related party transaction laws will continue to apply to dealings between the target and the bidder (requiring minority shareholder approval for non-arm’s length transactions between them).

A sometimes overlooked point is the continued application of a continuous disclosure regime to an unlisted disclosing entity (broadly, an entity which has 100 or more members who hold shares which were originally issued under a prospectus or similar document). The regime is similar to that which applies to ASX listed entities except that the disclosure of price sensitive information must be made in a document which is lodged with ASIC (rather than ASX) as soon as practicable after the entity becomes aware of the information.

For further information, please contact:

Marie McDonald, Partner, Ashurst
[email protected]

Aaron Shute, Ashurst
[email protected]

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