Salient Features of Takeovers (Research Paper Sample)

Salient Features of Takeovers
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Salient Features of Takeovers
A takeover happens when a bidder company seeks to seize control over a target company by buying its shares. The extent of acquisition critically portends how much the bidder will control the target company (Quilter, 2012). Regulation of takeovers is a fundamental component of modern day corporate governance. The major aim of the Corporations Act’s provisions on takeovers is to establish a balancing act between having the market informed about the position and success of a bid on one hand; and on the other hand, safeguarding the plight of all shareholders that could be affected in the target companies.
In as much as there are general prohibitions in section 606 indicating that a person may not acquire more than 20 per cent of the shares in a company; there are a number of exceptions to this rule as set out in section 611 of the same Corporations Act. First, the rule does not suffice if the bidder makes off-market or market takeover bid or goes ahead to acquire more than 3 per cent of the company’s shares within a period of 6 months (Lipton et al; 2012).
An off-market bid is simply an offer for securities in the target company. In this type of arrangement, information stated in the bidder’s statement and the response of the target must all be disclosed and the procedure must conform to the provisions of sections 632 and 633 of the Act. Such a bid can only be actualized if the bid statement is prepared, lodged with ASIC and finally presented to the target, who in response, also discloses a target statement. An example of an off market bid is illustrated in the situation of Cape and Caliburn where they sought to resolve a standstill. Following the advice of Caliburn, Cape Company made a conditional bid to PCH for which the condition was that PCH should release Cape from the standstill before the bid comes into effect (Quilter, 2012). This is a perfect example of an off-market bid because of the condition. A market bid is provided for in sections 634 and 635 of the Act. While the procedure of making such a bid is almost similar to that of an off-market bid, there are a few distinctions that stand out. First, with a market bid, the target must be a listed Company. The bid cannot be conditional or partial and the consideration must only be in cash and not otherwise (Gillies, 1989).
If a bidder has already acquired over 90 per cent of the shares of a company, there is a compulsory acquisition procedure which authorizes him to acquire the outstanding shares. In fact, the law grants such a majority shareholder a number of privileges. He enjoys economic and administrative supremacy just as if he entirely owned the company. Also, there are other exemptions relating to taxation that he enjoys. From the case of Gambotto v WCP Ltd (1995) 182 CLR 432, a majority shareholder cannot compulsorily acquire the shares of minority shareholders without following the provisions of sections 414, 661A and 664. However, under s 661A(1)(b), the court may allow a shareholder who falls short of the 90 per cent share mark to compulsorily acquire as was held in the case of Re Sylvania Resources Ltd (2009) FCA 955. On the flipside, the minority shareholders in this type of arrangement may, out of their own motion require a bidder who holds more than 90 per cent of the shares to buy out their holdings. The law also protects minority shareholders from the oppression of major shareholders.
Offences relating to dishonesty in takeover documents are treated with utmost seriousness, just like in fundraising disclosure documents. A person who gives misleading statements is not only culpable for an offence but also susceptible to actions for recovery of loss or damage done to the adverse party (Quilter, 2009). If directors devise strategies and machinations aimed at preventing a hostile takeover, they may equally find themselves in breach of a fiduciary duty. Section 670A stipulates that in takeover situations, directors may not give misleading information meant to deceive the public in takeover documentation. The making of such unscrupulous statements may be actuated by a conflict of interest because in most cases, directors fear that in the event of a takeover, the new shareholders will vote them out (Ford, 1982). Out of this fear they are mostly inclined towards advising shareholders that they should reject the bid.
The ASIC Act makes sufficient arrangements for dispute resolution. There is established the Takeovers Panel which only solves disputes arising from takeover bids. It only comprises of members with extensive knowledge and experience in commercial practice. This panel has been conferred with a wide range of discretionary powers in the event that it is satisfied that an offence was committed (Lipton et al; 2012). Ideally, the panel majorly deals with issues regarding transparency and controlling market forces according to section 657A.
Even though the Takeovers Panel has been revered as the only arbiter in these types of disputes, its authority has been highly questioned in the previous disputes. In Glencore International AG V Takeovers Panel (2006) 151 FCR 77; (2006) 56 ACSR 753 the listed company failed to satisfy the provisions of section 671B by not disclosing a relevant interest in 5% or more of the company’s shares. This was adjudged by the panel to constitute unacceptable circumstances pursuant to section 657A. The biggest point of contention that was deliberated in this case was whether the panel could make discretionary orders to protect rights which were not even affected by the conduct in question.
Also, the effectiveness of the panel has been put to test in many occasions. In the case of Austr...