AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
One live dispute presently playing out relates to the now abandoned scheme of arrangement transaction between Perpetual Limited and KKR. The independent expert issued its report, concluding that the scheme was not in the best interests of Perpetual’s shareholders, resulting in the Perpetual Board withdrawing its recom - mendation in favour of the scheme and terminat - ing the scheme implementation deed. KKR has asserted that a break fee is payable as a result of the termination and has reserved its rights to seek further damages. Perpetual rejects these contentions. Given the court’s jurisdiction in rela - tion to scheme of arrangement transactions, this dispute, should it remain unresolved, is likely to be heard by the court that presided over the scheme (rather than the Takeovers Panel). Lessons for Prospective Acquirers and Targets Prospective acquirers and targets can draw many lessons from these failed and disputed “friendly” take-private deals. One such lesson is discussed below. Be wary of material adverse change (MAC) conditions It has become standard in most public market deals for a prospective acquirer to have the ben - efit of “no MAC” condition to allow it to walk away from an agreed transaction without paying a break fee or other penalty if the target suffers a MAC event between the public announcement and closing. There have been multiple examples of prospec - tive acquirers successfully invoking MAC con - ditions to withdraw from a publicly announced deal or to renegotiate a lower price, especially following the onset of the COVID-19 pandemic. Even where the acquirer did not succeed, the purported reliance on the MAC condition cre -
ated material delays and market instability for the target. A target should seek to ensure that: • the triggers for what constitutes a MAC are drafted by reference to clear, objectively ascertainable financial metrics and seek to avoid more general, qualitative criteria that are capable of subjective interpretation and reliance by the acquirer; and • appropriate exclusions are incorporated into the MAC condition (that way, even if any of the financial and/or qualitative triggers are met, the exclusions will disqualify the pro - spective acquirer from relying on the condi - tion). Shareholder activism is a well-embedded fea - ture of the Australian corporate landscape, with activists regularly exerting their influence to impact transactions and corporate behaviour more generally. For example, shareholder activ - ists are: • leveraging their investment power to effect significant change in corporate governance, environmental, social and governance (ESG) issues, including the composition of boards and senior management teams (eg, address - ing gender and cultural representation) and challenging excessive executive remunera - tion; • exerting influence on companies to re-set their strategic direction, including by under - taking material transactions or not proceeding with an announced transaction or otherwise 11. Activism 11.1 Shareholder Activism
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