AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
4. Stakebuilding 4.1 Principal Stakebuilding Strategies Hostile Takeover Bid For public M&A transactions, acquiring a pre- bid stake may be a helpful strategy for a bid - der. Particularly in a hostile takeover bid, a bid - der will typically confidentially approach one or more major target shareholders to purchase their shares up to the 19.9% limit. A pre-bid stake can be helpful for a hostile takeover bid as it not only gives the bidder immediate momentum but also creates a strong platform to achieve the control threshold of 50.1% and may discourage a third party from making a rival offer. Friendly Takeover Bid In a friendly takeover bid, or where the trans - action proceeds by way of a recommended scheme of arrangement, the need for a pre-bid stake is less pressing. This is because the bidder will benefit from the target board’s public recom - mendation that the target shareholders accept the bidder’s offer. Nevertheless, a pre-bid stake may help discourage a third party from making a rival offer. That said, the presence of a pre-bid stake (even up to the maximum of 19.9%) has consistently been shown not to act as a deter - rent to rival bidders. Scheme of Arrangement Also, in a scheme of arrangement, a large pre- bid stake may be counter-productive for the acquirer: any target shares held by the acquirer are excluded from voting on the scheme or must be voted in a separate class. This makes achiev - ing the voting approval thresholds for a scheme harder, not easier. Call Option As an alternative to an outright purchase of shares, an effective stake can be acquired by
the use of a call option granted by a target share - holder to the acquirer. The call option is typi - cally only exercised by the bidder if a competing proposal for the target emerges. Therefore, the call option can be advantageous to the acquirer in warding off the threat of a competing bidder and also has the advantage of not requiring any immediate financial outlay by the acquirer (beyond the typically nominal fee for the grant of the call option). 4.2 Material Shareholding Disclosure Threshold For an ASX-listed company, the key sharehold - ing disclosure threshold is 5%. A person must file “substantial holder notice” with ASX and the target if the person has a relevant interest in 5% or more of the voting shares in the entity. They must then disclose subsequent movements of 1% or more up or down in their voting power in the company. 4.3 Hurdles to Stakebuilding Australia’s corporations legislation imposes cer - tain restrictions on persons building a stake in ASX-listed entities or unlisted companies with more than 50 non-employee members. The most significant of these restrictions is the takeovers prohibition, which states that an indi - vidual, along with their associates or related parties, cannot acquire shares if doing so would result in them holding “voting power” in more than 20% of the entity. However, there are sever - al exceptions to this 20% prohibition. The most relevant exceptions for Australian M&A transac - tions allow for the acquisition of shares above the 20% threshold through either a takeover bid or a scheme of arrangement. 4.4 Dealings in Derivatives Dealings in derivatives are allowed in Australia.
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