M&A partners are calling for a reduction in red tape to drive takeover efficiency.
Reforms to Australia’s takeover laws to reduce red tape and simply rules, would drive greater efficiency for the benefit of the economy, argue Herbert Smith Freehills partners Rodd Levy and Baden Furphy, who are calling for reforms.
Levy, who is a member of the Australian Takeovers Panel, told Australasian Lawyer that the laws are outdated and that Australia is lagging behind other countries.
“Practice has moved on and so should the rules,” said Levy.
“Current elements of the regulatory framework are overly complex and in some cases unnecessary,” Furphy added.
“Our suggested reforms are intended to reflect the current principles in legislation of providing fairness for shareholders, and to promote greater takeover activity for the benefit of the Australian economy.”
Under the proposal, some regulation would be removed, such as restrictions on a controller acquiring more shares, along with other rules being relaxed in favour of bidders. A mandatory 50% minimum acceptance condition on all bids would be required to protect shareholders.
“The changes are intended to change some rules, but most of the existing rules would be retained,” Levy said.
“There would still be full disclosure to shareholders via bidder’s statements and target’s statements, equal treatment of shareholders and adequate time provided for directors and shareholders to consider a takeover proposal.”
The proposed changes would simplify takeover bids and encourage more takeover proposals, likely to not only benefit shareholders but to encourage better allocation of resources in the economy, Levy said.
“It has long been accepted that takeovers and the threat of takeovers, provides incentives for directors to use the company’s assets more efficiently or face replacement by others who will do that and who are prepared to pay for that position,” he said.
Click through for the four main proposals.
#pb#
The four main proposals are:
1) A person who controls more than 50% of the shares in a company should be free to acquire further shares without having to make a bid or satisfy another exemption. The law should focus only on transactions resulting in a change of control. Regulating acquisitions by a person already in control just introduces red tape and unnecessary cost. Shareholders would know this rule when considering whether to accept the bid and would act accordingly if they were concerned about being locked into a minority position.
2) All bids should be subject to a mandatory 50% minimum acceptance condition so control of the target company only passes at a price acceptable to the majority of shareholders. This would bring our laws into line with the rules in many other jurisdictions. It would ensure that effective control could not pass quickly unless the bid was strongly supported. This rule would mean that other rules would require amendment (such as the 3% creep rule) so that a shareholder could not end up with more than 20% and less than 50% to negate the operation of the rule.
3) Where a bid has been recommended by target directors, the bidder should be able to compulsorily acquire all the shares in the company if it achieves acceptances for 75% of outstanding shares. We consider that the dual test of target director support and 75% acceptance provides sufficient protection. Lowering the threshold from 90% to 75% would bring the rule more into line with the rule applying in scheme of arrangement, reductions of capital and alterations to company constitutions. Minority shareholders would still have the protection of being able to resist compulsory acquisition of their shares if fair value was not offered by the bidder.
4) A bidder should be free to obtain commitments to accept the bid from shareholders with more than 20% of the shares on issue, subject to the commitment lapsing if a higher bid is made. This is the ordinary effect of our rules now with bidders frequently securing public commitments under the ‘truth in takeover’ rule anyway. Introducing a specific rule would at least clarify the legal position.
Levy, who is a member of the Australian Takeovers Panel, told Australasian Lawyer that the laws are outdated and that Australia is lagging behind other countries.
“Practice has moved on and so should the rules,” said Levy.
“Current elements of the regulatory framework are overly complex and in some cases unnecessary,” Furphy added.
“Our suggested reforms are intended to reflect the current principles in legislation of providing fairness for shareholders, and to promote greater takeover activity for the benefit of the Australian economy.”
Under the proposal, some regulation would be removed, such as restrictions on a controller acquiring more shares, along with other rules being relaxed in favour of bidders. A mandatory 50% minimum acceptance condition on all bids would be required to protect shareholders.
“The changes are intended to change some rules, but most of the existing rules would be retained,” Levy said.
“There would still be full disclosure to shareholders via bidder’s statements and target’s statements, equal treatment of shareholders and adequate time provided for directors and shareholders to consider a takeover proposal.”
The proposed changes would simplify takeover bids and encourage more takeover proposals, likely to not only benefit shareholders but to encourage better allocation of resources in the economy, Levy said.
“It has long been accepted that takeovers and the threat of takeovers, provides incentives for directors to use the company’s assets more efficiently or face replacement by others who will do that and who are prepared to pay for that position,” he said.
Click through for the four main proposals.
#pb#
The four main proposals are:
1) A person who controls more than 50% of the shares in a company should be free to acquire further shares without having to make a bid or satisfy another exemption. The law should focus only on transactions resulting in a change of control. Regulating acquisitions by a person already in control just introduces red tape and unnecessary cost. Shareholders would know this rule when considering whether to accept the bid and would act accordingly if they were concerned about being locked into a minority position.
2) All bids should be subject to a mandatory 50% minimum acceptance condition so control of the target company only passes at a price acceptable to the majority of shareholders. This would bring our laws into line with the rules in many other jurisdictions. It would ensure that effective control could not pass quickly unless the bid was strongly supported. This rule would mean that other rules would require amendment (such as the 3% creep rule) so that a shareholder could not end up with more than 20% and less than 50% to negate the operation of the rule.
3) Where a bid has been recommended by target directors, the bidder should be able to compulsorily acquire all the shares in the company if it achieves acceptances for 75% of outstanding shares. We consider that the dual test of target director support and 75% acceptance provides sufficient protection. Lowering the threshold from 90% to 75% would bring the rule more into line with the rule applying in scheme of arrangement, reductions of capital and alterations to company constitutions. Minority shareholders would still have the protection of being able to resist compulsory acquisition of their shares if fair value was not offered by the bidder.
4) A bidder should be free to obtain commitments to accept the bid from shareholders with more than 20% of the shares on issue, subject to the commitment lapsing if a higher bid is made. This is the ordinary effect of our rules now with bidders frequently securing public commitments under the ‘truth in takeover’ rule anyway. Introducing a specific rule would at least clarify the legal position.
