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In brief
- Bidders and targets must only make balanced and non-slanted statements in contested and hostile takeover bids.
- Bidders and targets must take particular care in presenting comparative data and premia graphs.
- The Panel will force takeover participants to send target shareholders corrective statements if disclosures are misleading.
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North Queensland Metals Limited (NQM) is the subject of competing takeover bids from Conquest Mining Limited (a cash and shares offer) and Heemskirk Consolidated Limited (an all shares offer).
NQM has four directors: Messrs Thomas, Kay, Tilley and Walker. The Conquest bid is recommended by Mr Walker alone (who has accepted Conquest’s offer in respect of his 20.88% shareholding) and the Heemskirk bid is recommended by Messrs Thomas and Tilley. Mr Kay has not made a recommendation on either bid as he is also a director of Heemskirk.
Conquest successfully applied to the Takeovers Panel to have rectified what it considered to be significant deficiencies in the disclosures in NQM’s target’s statement in response to Conquest’s bid. Some of those deficiencies are summarised below.
The various deficiencies were regarded as sufficiently serious by the Panel to result in NQM issuing a lengthy supplementary target’s statement—in a form which had been reviewed and approved by the Panel—and posting that document to NQM’s shareholders (noting that the Corporations Act does not require a supplementary target’s statement to be posted to shareholders).
Presentation of offer premia
The Panel found that NQM’s use of a bar chart showing the premia of the Heemskirk bid was misleading as it did not compare the implied values of the two bids using the same dates and did not give the same prominence to the comparison of the two bids based on the most recent practicable date.
The Panel said that where offer premia is used to compare competing scrip bids, they should be calculated using the same dates to ensure a like-for-like comparison.
Use of the term ‘non-conflicted directors’
NQM referred to Messrs Thomas and Tilley as the ‘non-conflicted directors’, thereby implying that Mr Walker had a conflict of interest when, in fact, he had no such conflict.
The Panel regarded this description of Mr Walker as inappropriate and required NQM to make it clear that Mr Walker had no conflict of interest.
Prominence of Mr Walker’s recommendation
The target’s statement set out, on the front cover, Messrs Thomas and Tilley’s recommendation that the Conquest bid be rejected but did not set out Mr Walker’s recommendation that the Conquest bid be accepted until page 32.
Conquest argued, and the Panel accepted, that it was misleading for NQM not to afford Mr Walker’s recommendation equivalent prominence.
The Panel said that where conflicting recommendations are made, disclosure of those recommendations should be balanced.
Forecast financial information
The target’s statement included a statement that ‘NQM’s operations are performing strongly’. In making this statement, Messrs Thomas and Tilley said they relied on their financial forecast for NQM for FY11.
The Panel considered that it was misleading to claim that NQM was performing strongly on the basis of forecast financial information (which by its nature is forward looking and uncertain), particularly in circumstances where NQM’s production in the final quarter of FY10 was below expectations.
Furthermore, the target’s statement implied that the FY11 forecast financial information was approved by all NQM directors when in fact this was not the case (Messrs Walker and Kay did not vote on the resolution to approve the target’s statement). The Panel regarded this implication as inappropriate and required that it be made clear that Mr Walker (and Mr Kay) had not approved the inclusion of the forecast in the target’s statement.
Reserves and resources information
The Panel also required NQM to clarify that the majority of its reserves and resources were located at Twin Hills, which was and remains subject to final development approval and completion of feasibility studies.
Concluding observations
The Panel concluded by stating that the disclosures were inappropriately slanted and that the interests of NQM shareholders were not well served by NQM’s approach, particularly in relation to matters relating to Mr Walker.
The Panel’s decision in the NQM matter serves as a timely reminder of the need for bidders and targets alike to only make balanced and non-emotive disclosures in the context of contested and hostile takeover bids. This is something that the Panel has been stressing since the 2001 contest for control of Pinnacle VRB Limited. These principles are all the more important in circumstances, such as those that affected NQM, where the target’s board is divided.
This article was written by Andrew Rich, Partner, Sydney.
More information
For information regarding possible implications for your business, contact a member of the Mergers & Acquisitions team.