AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
9.2 Directors’ Use of Defensive Measures
The Takeovers Panel has wide powers to make orders in relation to unacceptable frustrating actions, including preventing an action or trans - action from proceeding, requiring shareholder approval or unwinding an action or transaction. 9.3 Common Defensive Measures When confronted with an unsolicited takeover bid that the target directors consider is not in the best interests of their shareholders, it is com - mon for a target to adopt the following defensive measures: • deny the bidder access to non-public due diligence materials (in Australia, there is no obligation to provide a bidder with access to due diligence; target directors have the right to choose to whom, and on what terms, to provide information, in the best interests of the company and its shareholders); • publicly seek to discredit the merits of the takeover bid and recommend that sharehold - ers reject the bid (eg, due to the bid under - valuing the target’s shares, being opportun - istically timed, being highly conditional and uncertain about proceeding, or for other specific reasons); • engage with key target shareholders to elicit from them a public statement that they intend to reject the takeover bid; • seek to solicit alternative superior proposals; • apply to the Takeovers Panel challenging the acceptability of the terms or conditions of, or the bidder’s disclosure in relation to, the takeover bid to undermine the credibility of the bid and/or to buy time for a competing bid to emerge; and • commission an independent expert to pre - pare a report that independently validates the target board’s view that the offer materi - ally undervalues the target’s shares – this step should only be taken if the target board
Once a takeover bid has been announced, target company directors are heavily constrained in the types of defensive measures they may adopt. For example, under the ASX Listing Rules an entity must not: • issue or agree to issue new equity securi - ties without shareholder approval for three months after it is informed a person is or proposes to launch a takeover bid (subject to certain exceptions, eg, issues of shares following the exercise or conversion of exist - ing securities, pro rata issues available to all security holders, etc); or • provide any termination benefits to a direc - tor or officer of the entity triggered by any change in the shareholding or control of the entity. The Takeovers Panel’s policy on frustrating action seeks to ensure that target company directors do not take any action that may cause a takeover bid to be withdrawn or lapse or cause a potential bid to not proceed without first obtaining shareholder approval. The Takeovers Panel has set out a non-exhaus - tive list of factors that could constitute unaccep - table frustrating action, including: • share issues or repurchase arrangements; • acquisitions and disposals of major assets; • undertaking significant liabilities or changing the terms of its debt; • declaring a special or abnormally large divi - dend; • significant change to company share plans; and • entering into joint ventures.
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