On 10 January 2014, the Takeovers Panel released a consultation paper regarding proposed changes to its Guidance Note 18: Takeover documents (GN 18), including a consultation draft of a revised GN 18.
The consultation draft contained new guidance that bidder's statements and target's statements (in this update, takeover documents) should contain a summary section at the front, 'normally' following the usual Chairman's letter. While the Panel's draft guidance did not purport to prescribe a mandatory structure for the summary, it set out 'best practice guidelines', including a minimum font size and preferred headings for the summary. Those headings covered the offer consideration, reasons to accept/reject the offer, target directors' recommendation (for target's statements), key dates, conditions of the offer, information about the bidder, a summary of any independent expert's report, the key risks of accepting or rejecting the offer, how to accept the offer and any other key issues particular to the bid. Further details were prescribed under each heading.
The Panel's intention was to encourage takeover documents that are accessible (i.e. 'clear, concise and effective'), especially for retail shareholders. A shareholders' comprehension may also be assisted by their becoming familiar with a semi-standardised form of summary, should a market practice emerge in this regard. Although the Panel indicated that summary sections should be short enough to be able to be comprehended quickly, it did not prescribe a page limit.
The Panel also noted that inclusion of a summary could remove, or reduce, the need for other summary features. This appears intended to refer primarily to the customary 'frequently asked questions' section (FAQ section), to which we return below.
The Panel received four submissions, all of which expressed the view that the consultation draft of the updated GN 18 was unnecessarily prescriptive, and that accessibility would best be promoted by drafters of takeovers documents being able to exercise discretion. Three of the four submissions objected to the Panel setting out a 'best practice' structure for a summary.
In response, the Panel revised the final GN 18 so that it:
However, the Panel added a reference to part of ASIC Regulatory Guide 228: Prospectuses: Effective disclosure for retail investors, noting that it set out additional matters that should be considered when preparing a summary section.
The Panel's guidance casts light on two related issues:
To assess how these issues were being dealt with in practice, we reviewed the takeover documents for all bids valued at more than $50 million which were lodged with the ASX between the release of the consultation paper on 10 January 2014 and 30 September 2014.1 (The update to GN 18 was published on 21 July 2014.) There were a total of 25 such takeover documents, on which 13 law firms advised on Australian law. Of the 25 takeover documents, 18 were published during the consultation period and a further 7 after the update to GN 18 was finalised.
We observed significant divergence in practice between the 25 documents and frequently a divergence in practice between different documents on which the same law firm advised. The divergence may reflect differing views between takeover participants as to the best way to resolve the tension discussed above, as well as the fact that the guidance in the consultation paper did not until recently represent concluded policy and the Panel's guidance is not expressed in mandatory terms.
There were five principal approaches:
Of the seven takeover documents published since the update to GN 18 was finalised, only one included a summary section broadly consistent with the Panel's guidance. Five takeover documents included an FAQ without a summary section, and one other included a hybrid section. This could suggest some resistance in the market to the Panel's guidance, but more data are required before firm conclusions can be drawn.
Takeover participants may be concerned to observe the Panel's guidance in order to mitigate the risk of an interested party seeking to impugn the takeover document before the Panel on the basis that the drafters have departed from that guidance.
However, this risk should be kept in perspective. The Panel does not have legislative power and cannot specify a particular structure to which all takeover documents should conform; nor did the Panel attempt to do so. The Panel's power to make orders only arises when it considers that circumstances are unacceptable having regard to specific matters set out in the Corporations Act (e.g. the effect of the circumstances on the control of a company). While all bidders and targets should be expected to ensure their takeover documents are as clear, concise and effective as possible, it is unlikely that the Panel would ever make a declaration of unacceptable circumstances merely for the absence of a summary section if the document was otherwise properly informative and not misleading.
The mixed market practice since the release of the consultation paper appears to bear this out. Different takeover participants are taking different views as to the most clear, concise and effective way of presenting information to the readers of takeover documents. We would expect a degree of consolidation in market practice in the future, but any market practice is unlikely to be entirely uniform, as drafters will remain focussed on the basic question about how information can presented in the most clear, concise and effective manner possible.
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