AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
is confident that an independent expert will arrive at a valuation range materially above the offer price. More aggressive defensive measures that may be acceptable during a takeover bid in other jurisdictions (such as raising capital; acquiring, disposing or granting rights over material assets; or entering into significant strategic or financing arrangements with third parties) are uncommon in Australia. This type of conduct would gener - ally either breach a takeover bid condition and/or breach the Takeovers Panel’s policy on frustrat - ing actions unless the target has obtained the fully informed consent of its shareholders. 9.4 Directors’ Duties In responding to a takeover proposal, the tar - get directors’ principal duty is to act in the best interests of the target as a whole – this duty is owed to all shareholders, not just the minority or any controlling shareholder (see 8.1 Principal Directors’ Duties ). Accordingly, target directors must ensure that any defensive measures protect or advance the interests of all target shareholders and are not motivated by improper purposes, eg, entrench - ing the position of incumbent directors, entrench - ing the position of a controlling shareholder or safeguarding employees’ jobs. In addition to their general statutory and fiduciary duties, target directors must comply with spe - cific statutory obligations concerning a target’s response to a takeover bid. For example, the target’s statement that is required to be issued by the target in response to a takeover bid must contain a statement from each director recom - mending that the bid be accepted or rejected, accompanied by the reasons for making that recommendation (or giving reasons why a rec -
ommendation has not been made, eg, where a director has a conflict of interests). As noted in 9.3 Common Defensive Measures , it is common for a target board to recommend that shareholders reject a hostile takeover bid because it undervalues the target – these state - ments are commonly known as “undervalue statements” . The Takeovers Panel has issued a guidance note on undervalue statements. These statements are susceptible to challenge if they are “loosely” or “nakedly” expressed. Instead, undervalue statements must be supported by any disclosed financial methodology or sufficient financial information to give target shareholders an adequate foundation to meaningfully assess the bid. 9.5 Directors’ Ability to “Just Say No” Although target directors may take steps to pre - vent a business combination, for example, by simply not engaging with a prospective acquirer or withholding access to due diligence informa - tion, the target cannot prevent a bidder from: • engaging directly with the target’s key share - holders and informing them that the target is being obstructive by not facilitating a potential control transaction – the institutional shareholder may, in turn, apply pressure on the target board to engage with the prospec - tive acquirer so that shareholders are not deprived of an opportunity to at least con - sider a proposal that embodies a premium for their shares, and that may attract competing offers; and • launching a hostile takeover bid despite the significant execution risks associated with this (see 9.1 Hostile Tender Offers ). While the bidder may seek to bypass the target board, history shows that the views and rec -
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