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Introduction
- Takeovers in Australia are regulated by a combination of legislation and regulatory policy.
- The takeovers rules apply to acquisitions of ASX-listed Australian companies, ASX-listed Australian managed investment schemes (being investment trusts), and unlisted Australian companies with more than 50 shareholders.
- The takeovers rules reflect policies that:
- the acquisition of control of an entity which is subject to the takeovers rules takes place in an efficient, competitive and informed market;
- target shareholders have a reasonable time to consider a proposed acquisition and are given enough information to enable them to assess the merits of the proposal; and
- target shareholders have an equal opportunity to participate in the benefits of a change of control of a company (referred to as a control transaction).
- The most common takeover structures in Australia are: an off-market takeover bid (for either a friendly or hostile deal) and a scheme of arrangement (for a friendly deal only).
1.1 What is a takeover?
In Australia, the term ‘takeover’ is often used to refer generically to the acquisition of control of a publicly listed company. Usually that control is obtained upon ownership of more than half of a company’s voting shares. However, in some cases, control can be obtained at a lower shareholding interest if, as a practical matter, a person can determine the composition of a company’s board of directors.
Sometimes, the term ‘merger’ is used in lieu of ‘takeover’. In Australia the term ‘merger’ is more a commercial concept than a legal one, often to describe an agreed acquisition of one company by another where the two companies are of similar sizes. Unlike other jurisdictions (such as the United States), there is no practice in Australia to effect control transactions via a true merger which results in the target company being subsumed into the bidder company and the target company ceasing to exist.
Control transactions in Australia most commonly involve a bidder acquiring all (or at least a majority) of the voting securities in the target, and the target becoming a subsidiary of the bidder.
1.2 Regulatory framework
Takeovers in Australia are regulated by a combination of:
- legislation: Part 5.1 and Chapter 6 of the Corporations Act 2001 (Cth);
- governmental policy: policy developed by the Australian Securities and Investments Commission (ASIC) (the national companies regulator) and the Takeovers Panel (a specialist tribunal which resolves takeover disputes); and
- stock exchange rules: to a lesser extent, the listing rules of the ASX.
In addition, Australia has:
- anti-trust rules set out in the Competition and Consumer Act 2010 (Cth) which are administered by the Australian Competition and Consumer Commission;
- foreign investment rules set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the accompanying regulations, where proposed acquisitions requiring approval are examined by the Australian Foreign Investment Review Board (FIRB); and
- other rules specific to an industry (such as banking, broadcasting, aviation and gaming) which may regulate control transactions.
The focus of this handbook, however, is on the takeovers rules in the Corporations Act.
1.3 What entities are governed by the takeovers rules?
The acquisition of interests in voting securities issued by the following types of entities need to comply with the Australian takeovers rules:
- all Australian-incorporated companies listed on the ASX or on another prescribed financial market operated in Australia;
- all unlisted Australian-incorporated companies with more than 50 shareholders; and
- all Australian-registered managed investment schemes listed on the ASX or on another prescribed financial market operated in Australia (these are normally listed unit trusts).
The other prescribed financial markets are Chi-X, SSX and NSX. The overwhelming majority of entities listed In Australia are listed on the ASX. For this reason, and for simplicity, the remainder of this handbook refers only to ASX-listed entities
The takeovers rules can also regulate the acquisition of voting securities in entities (whether incorporated in Australia or elsewhere) that hold or have interests in the voting securities of an entity of a type mentioned above.
All persons, whether or not resident in Australia, must comply with the takeovers rules.
1.4 Fundamental principles
The takeovers rules and policies are founded on the following fundamental principles (set out at the beginning of Chapter 6 of the Corporations Act):
- the acquisition of control of a relevant entity (being one of the types of entities described above) takes place in an efficient, competitive and informed market;
- the security holders and directors of a relevant entity:
- know the identity of any person who proposes to acquire a substantial interest in entity;
- have a reasonable time to consider the proposal; and
- are given enough information to assess the merits of the proposal;
- as far as practicable, the entity’s securityholders should all have a reasonable and equal opportunity to participate in any benefits accruing to the entity’s securityholders through the proposal; and
- an appropriate procedure is followed as a preliminary to compulsory acquisition of the entity’s securities under the Corporations Act.
1.5 Transaction structures
A control transaction for an ASX-listed Australian company or trust can be effected through one of various takeover structures, either on a friendly or hostile basis. A friendly deal is one that is supported by the target board of directors.
The most common takeover structures are the off-market takeover bid (for either a friendly or hostile deal) and the scheme of arrangement (for a friendly deal only). These structures are discussed in this handbook.
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