AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
prohibition described in 4.3 Hurdles to Stake- building . However, provided an acquirer stays under 20%, they can lawfully remain at that level indefinitely without being required to make any follow-on offer. If and when a shareholder wishes to move beyond 20%, they can rely on an exception to the 20% prohibition. If the shareholder seeks control of the target, the most common exceptions are making a takeover offer or proposing a scheme of arrangement. If the shareholder is not necessarily seeking control, other commonly relied-on exceptions include the “3% in six months” creep rule as well as non- associated shareholder approval. 6.3 Consideration Consideration in the form of cash or shares (ie, scrip) or a combination of cash and scrip is rel - atively common. In a public M&A transaction, an all-cash consideration is generally preferred by target boards (due to the certainty of value it offers) and is more common than an all-scrip (or combined scrip-and-cash) consideration. Stub-Equity Offer Structures In public market M&A transactions where the tar - get’s key shareholders comprise founders and/ or executives, so-called “stub-equity offer struc - tures” are common. These comprise an offer of shares in an unlisted public company controlled by the acquirer. Stub-equity offers allow found - ers and key management of the target to roll over all or some of their shareholding in the target by accepting shares in the unlisted public company, which, on closing, will be the holding company of the target. This allows founders and key man - agement to retain their investment exposure to the target’s future upside rather than exiting in full for cash.
Earn-Out Mechanisms or Deferred Consideration
Earn-out mechanisms and deferred considera - tion are commonly used in private treaty M&A transactions but are generally not employed in public M&A transactions. However, when there is a significant disagreement on valuation between a prospective buyer and the target company’s board, public M&A offers can be structured with a base cash amount, along with a contingent right for target shareholders to receive an addi - tional cash payment if a specific future event occurs after the deal closes, which adds value to the target. In the past, these contingent top-up payments have been linked to favourable outcomes, such as successful results from a future mineral resource test for the target or the outcome of litigation related to a tax refund claim the target had been pursuing. Contingent uplift payments can provide a creative solution to valuation impasses and help facilitate a deal that might not otherwise proceed. For private M&A transactions, it is more com - mon for the consideration to be in the form of cash, with any valuation gaps being bridged by earn-out mechanisms, deferred consideration or a post-completion adjustment mechanism. 6.4 Common Conditions for a Takeover Offer For an off-market takeover offer, common condi - tions include the following: • receipt of regulatory approvals; • a minimum level of acceptance (see 6.5 Mini- mum Acceptance Conditions ); • no material adverse change in the target; • no material acquisitions, disposals or new financial commitments by the target; and
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