AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
to the receipt of “positive” opinion from an independent expert); • target directors to accept/vote in favour of their own shares – an obligation on the target to make sure that each target director who owns or otherwise has a relevant interest in target shares acts consistently with their pub - lic recommendation by accepting the bidder’s offer (if it is structured as a takeover bid) or by voting in favour of the bidder’s proposal (if it is structured as a scheme), in the absence of a superior proposal (and generally also sub - ject to the receipt of “positive” opinion from an independent expert); • exclusivity – a suite of exclusivity undertak - ings by the target in favour of the prospective acquirer, typically comprising: (a) “no-shop” restriction; (b) “no-talk” restriction (this must be subject to a fiduciary carve-out – see 5.4 Stand- stills or Exclusivity ); (c) “no due-diligence” by third parties restric - tion (this must also be subject to a fiduci - ary carve-out); (d) a right to be notified of any unsolicited competing proposal (this can, by negotia - tion, be displaced by a fiduciary carve- out); and (e) an opportunity to match any superior proposal; or • a break fee – this is payable by the target to compensate the prospective acquirer if the contemplated transaction is not completed in specified circumstances. The Takeovers Panel’s position is that deal pro - tections for a prospective acquirer must be sub - ject to appropriate structural limits to ensure that they strike the correct balance between, on the hand, providing an inducement to the prospec - tive acquirer to make its offer and, on the other hand:
• not having an overly anti-competitive effect by discouraging other potential bidders from making a competing offer; and • not “coercing” target shareholders into accepting the bidder’s offer. These structural limitations include: • at the non-binding indicative proposal stage, if a target board determines that it is appro - priate to grant so-called “hard” exclusivity (ie, exclusivity without “fiduciary out” ), ensur- ing the exclusivity period is capped at four weeks; • at the definitive agreement stage, ensuring that there is a fiduciary carve-out to confirm the exclusivity arrangements (see above); and • at the definitive agreement stage, ensuring that any break fee payable by the target to the prospective acquirer does not exceed 1% of the equity value of the target, as implied by the offer value (this 1% cap is intended to not discourage competing bidders from emerging, as they will, if successful, effec - tively inherit any break fee paid by the target to the first bidder; in limited cases, it may be appropriate for the 1% guideline to apply to a company’s enterprise value, eg, because the target is highly geared). 6.8 Additional Governance Rights Private M&A Transaction In a private M&A transaction, any additional gov - ernance rights are captured in a shareholders’ agreement that regulates the rights of the bidder and all other shareholders (eg, drag-along rights, tag-along rights, right to set dividend policy, and material decisions over which the majority share - holder has veto rights).
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