ANZ failed to disclose material placement subscriptions allocated to underwriters in 2015
The Federal Court has ruled that Australia and New Zealand Banking Group Limited (ANZ) breached its continuous disclosure obligation during a $2.5bn institutional share placement in 2015.
In Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (No 2) [2023] FCA 1217, the court found that ANZ failed to disclose material placement subscriptions allocated to underwriters during an institutional share placement valued at $2.5bn.
Australian Securities & Investments Commission (ASIC) deputy chair Karen Chester said, "ANZ failed to tell the market that the underwriters of this share placement had bought nearly a third of the shares, some $790m."
The case began on 6 August 2015, when ANZ announced trading half its shares. It issued a media release announcing a fully underwritten institutional share placement to raise $2.5bn and an offer to ANZ's eligible shareholders to participate in a share purchase plan to raise around $500m.
The media release stated that the final issue price for the placement would be determined through an accelerated book-build to be completed that day in a price range up from $30.95, the underwritten floor price. The release also stated that the placement had been fully underwritten by Citigroup Global Markets Australia Pty Ltd, Deutsche Bank AG, and JP Morgan Australia Ltd. (JPM). According to an underwriting agreement entered into by the underwriters and ANZ on that day, their proportions were 40% for Citi, 30% for Deutsche, and 30% for JPM.
The underwriters emailed ANZ that the book was fully covered but $754m of shares "left to allocate." The Underwriters recommended that approximately $1.745bn of shares be allocated to investors, and approximately $754m of shares be taken up by the underwriters. ANZ approved the underwriters to proceed to allocate following that recommendation.
The following day, on August 7, ANZ issued a media release to the Australian Securities Exchange (ASX) stating that "ANZ today announced that it had raised $2.5bn in new equity capital through the placement of approximately 80.8 million ANZ ordinary shares at the price of $30.95 per share". The release did not mention that approximately $790m of the shares had not been allocated to institutional investors and, consequently, would be taken up by the underwriters. Further, ANZ did not disclose this information at any other time before the market opened on August 7.
Before the Federal Court, ASIC argued that ANZ contravened its continuous disclosure obligation by failing to notify ASX that approximately $754m and $790m were to be acquired by the underwriters or that a significant proportion of the shares were to be acquired by the underwriters.
The court noted that the continuous disclosure obligation has several elements. For the obligation to apply, it is necessary that the information is not generally available and is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the relevant securities.
ANZ admitted that the underwriting acquisition information was not generally available.
However, it contended that the significant proportion information was generally available because it consisted of deductions, conclusions or inferences made or drawn from readily observable matter or information made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information, and where since that information was made known a reasonable period for it to be disseminated had elapsed.
ANZ denied that the information, if disclosed, was information that a reasonable person would expect to have a material effect on the price of ANZ shares or was likely to influence investors in deciding whether to acquire and dispose of ANZ shares.
However, the court ultimately found that ANZ contravened continuous disclosure laws by not notifying ASX that a significant portion of the shares offered in the institutional placement were to be acquired by underwriters instead of investors. The judgment concluded that this information was material, and its disclosure could have influenced investors' expectations and ANZ's share price.
The court accepted ASIC's contention that "If the pleaded information had been disclosed, persons who commonly invest in securities would have held an expectation that the underwriters would promptly dispose of allocated or acquired placement shares, placing downward pressure on ANZ's share price."
Chester said, "'Proper disclosure is fundamental to fair and efficient markets and price formation. Investors need to be fully informed about information likely to have a material impact on the price or value of a security."
ASIC will submit recommendations on appropriate penalties, with the court expected to determine the penalties at a later date.
