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Takeovers Panel clarifies obligations of major shareholders in control transactions

Corporate and M&A, Private Equity
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Following a consultation period, the Takeovers Panel earlier this week published its final draft of revised Guidance Note 19: Insider Participation in Control Transactions, incorporating ABL’s submissions that major shareholders of an ASX-listed entity should not be subject to the disclosure requirements, and other positive duties that apply to 'insiders', in the context of a control transaction.

Under the initial consultation draft of revised Guidance Note 19, released by the Takeovers Panel in December last year, shareholders of ASX-listed targets with “material non-public information” in relation to the target obtained through that shareholder’s nominee on the target board (Affected Shareholders) were to be considered ‘insiders’ for the purposes of Guidance Note 19. This would have meant that those Affected Shareholders would have been expected to comply with a series of positive duties to the target, under paragraphs 11 to 14 of the consultation paper, including to:

  • notify the target board of “approaches that might lead to a control proposal”, with the expectation that this notification occurs prior to entry into any arrangement with the prospective bidder which “might curtail the board’s opportunity to consider the proposal or any competing proposal”;
  • take “reasonable steps to ensure that any conflict (real or perceived) is avoided” until appropriate disclosure has been made; and
  • obtain the target board’s consent prior to divulging any non-public information.

In their submission to the Takeovers Panel, M&A partner Jeremy Leibler and senior associate Ari Bendet argued that imputing these obligations on Affected Shareholders would be an anomaly at general law, under which shareholders to not occupy a fiduciary relationship with the target, and would interfere with Affected Shareholders’ fundamental proprietary rights to deal with their shares for their personal advantage.

The submission further contended that the proposed changes to Guidance Note 19 threatened “to inhibit the ability for control transactions to take place in a “competitive” market…by having the potential to compromise deal making with Affected Shareholders and, more broadly, targets with Affected Shareholders on their register”.

Jeremy and Ari specifically referred to the potential impact on pre-bid agreements between bidders and major shareholders, which has become a common feature of take privates in recent times. “In our experience, it is common for prospective bidders to offer these types of arrangements to target shareholders on condition of strict confidentiality. While it remains unclear what level of disclosure is required…assuming even basic details about the offer must be disclosed to the target board, then the deal impact is potentially severe and inequitable”.

In the final draft of revised Guidance Note 19 released on Tuesday, the Panel decided to revert the change to the definition of 'insider' in the consultation draft, so that Affected Shareholders are not subject to the positive duties described above.

Click here to read ABL's full submission to the Takeovers Panel, and here to read the Takeovers Panel’s response statement released on Tuesday, which includes the final draft of Guidance Note 19.

*This submission was prepared with the assistance of lawyer Vanessa Filipendin

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