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In brief
- A shareholder claimed that Transurban’s decision to proceed with a 1 for 11 rights issue to finance the acquisition of Lane Cove Tunnel frustrated a proposed acquisition of Transurban.
- The Panel refused to conduct proceedings as the proposal was not a ‘genuine potential bid’ having already been rejected by the Transurban board, was by scheme of arrangement and, in any event, the rights issue was not a frustrating action.
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The Takeovers Panel’s frustrating actions policy can cause headaches for companies the subject of a ‘potential bid’ which remains incomplete and conditional. When is a target company tied up and when is it not?
The decision in Transurban provides some useful guidance for target companies faced with this issue.
Background
In late 2009, Transurban announced that it had received, and rejected, an acquisition proposal from Canadian Pension Plan Investment Board and Ontario Teachers Pension Plan, two of the largest investors in Transurban.
On 8 May 2010, a consortium comprising CP2 Limited (CP2), Canadian Pension and Ontario Teachers advised Transurban that it intended to submit a new acquisition proposal in the next few days. On 9 May 2010, Transurban informed the consortium that it was entering into an agreement to acquire the Lane Cove Tunnel in Sydney and that it was considering how it would fund the acquisition.
On 10 May 2010, Transurban announced the Lane Cove acquisition and that it would be partially funded by a rights issue.
On 11 May 2010, the consortium submitted a proposal to acquire Transurban by way of a scheme which was conditional upon, amongst other things, the rights issue not proceeding. On 12 May 2010, after discussions with Transurban, the consortium submitted another proposal (at a lower price) which did not require the rights issue not to proceed.
On 12 May 2010, Transurban announced that it had received, and rejected, both proposals from the consortium.
CP2 went to the Panel seeking a declaration of unacceptable circumstances on the basis that, amongst other factors, the rights issue constituted a frustrating action in relation to the consortium’s proposals.
The Panel decision
The Panel decided not to conduct proceedings on the bases that:
- the proposals were not ‘genuine potential offers’, largely because they were by way of scheme of arrangement, were subject to a number of conditions, including board support, and had been rejected by the Transurban board, and
- even if the proposals were genuine potential offers, the Lane Cove acquisition and the rights issue would not have constituted frustrating action as it would not have had a material effect on control of Transurban.
Rejected offers
The decision in Transurban can be contrasted with the Panel’s 2008 decision in MacarthurCook. In that matter, AMP approached MacarthurCook with an ‘incomplete, indicative and non-binding proposal’ for a recommended bid. Two days later, with AMP’s proposal still on the table, MacarthurCook announced a strategic alliance with IOOF.
The Panel decided that AMP’s approach was a ‘genuine potential bid’ and the strategic alliance with IOOF was a frustrating action. The Panel required a shareholder vote before the strategic alliance could proceed.
It seems to follow from the two Panel decisions that, if an approach is received from a serious bidder which is conditional on board support:
- if it has not yet been rejected, the policy will apply with its full rigour, even if the bidder is not fully committed (as occurred in MacarthurCook)
- if it has been rejected, the target is free to pursue their corporate action (as appears to be the position adopted in Transurban).
Therefore, a bidder who makes a proposal that is dependent on a board recommendation is open to the risk that the board rejects the proposal and undertakes some other corporate action which leaves the bidder out in the cold.
Schemes of arrangement
It is common these days for acquisition proposals to be by way of scheme of arrangement.
Can the frustrating actions policy ever be invoked by a scheme proposal?
Never say never, but it is strongly arguable that the frustrating actions policy is only suited to proposed takeover bids and perhaps only those on conditions outside the bidder’s control.
From a policy point of view, it is arguable that, if a bidder wishes to get the protection of the policy, it should also subject itself to the restrictions under the takeovers rules in Chapter 6, including the requirement in section 631 to proceed with the bid within two months after making a proposal. A bidder who deliberately chooses to avoid section 631 may be less deserving of the benefit of the Panel’s protection.
A Freehills team led by Philippa Stone acted for UBS, the underwriter of the Transurban rights issue.
This article was written by Rodd Levy, Partner and Stefania Gardner, Solicitor, Melbourne.
More information
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