Role and Relevance of Takeover panel
What is a takeover?
Takeover occurs when the bidder seeks to gain control in another company mainly by acquiring shares of the other company. The level of control is usually determined by the level of control. Takeover same as acquisition and the only difference is that the target does not wish to be purchased.
The acquiring firm can use unfavorable tactics such as Dawn raid. The word “Dawn raid” is self-explanatory. The firm buys substantial stake in the company as soon as the market opens giving the target company to lose control over the company even before they know what is happening in the market. The target firm can use the tactic of Poison pill to resist takeover. The firm’s management tries to dilute the shares of the company by letting the original shareholders to purchase more shares of the company at a discounted rate to dilute the acquirer’s holding and make the takeover more expensive in the hope that the acquirer feels that the takeover is not worth the money they are spending.
An acquirer is interested in the takeover either because it wants to increase its market share and thus, the profit or because the target company has a unique niche in a particular product or service. Small companies with viable products and services but insufficient funds are vulnerable to takeovers.
The Takeover panel
The Takeovers Panel in Australia was established under s 171 of the Australian Securities and Investments Commission Act 1989 and continued in existence under the Australian Securities and Investments Commission Act.
It is a body whose main aim is to deal with the takeover disputes efficiently and effectively. The main aim is to stop the disrupters in the market thereby allowing transparency and genuine market forces to operate.
The previous section which dealt with the Panel, Section 659AA has now been annulled and now Sections 659B and 659C is responsible to make the takeover panel the main forum for resolving disputes in a takeover until the takeover bid has ended.
For me, it was interesting to note that the takeover panel was a forum to settle disputes in a takeover whose time of jurisdiction ends once the takeover bid has ended. Thus, with the takeover bid coming to an end, the panel has no power.
Section 657A of the Corporation Act, 2001 states the following,
“The Panel may declare circumstances in relation to the affairs of a company to be unacceptable circumstances. Without limiting this, the Panel may declare circumstances to be unacceptable circumstances whether or not the circumstances constitute a contravention of a provision of this Act.”
On further research, I found out that the panel may only make a declaration under this subsection if it feels that it has the public interest is at stake.
The role of reviewing the Panel’s decision in relating to market disruption is taken by the Review panel process. The grieving parties may apply for review of the panel’s decision relating to the market disruption to the Review panel. However, the Review panel cannot review any decisions made by ASIC as they themselves have a review process.
Glencore International AG vs Takeover panel (2006)
This is a very important case and it took place in Sydney on 14th September 2005.
The Judge of the case was Emmett J. The members of the Takeover panel filing the application were Ian Ramsay, Norman O’Bryan and David Gonski.
This case has two respondents – Australian Coal Limited and Centennial Coal Company. The former is a miner of coking coal in southern New South Wales and the latter is also a miner and marketer of coal.
On 23 February 2005, Centennial and Australian Coal Limited jointly announced a takeover bid by Centennial for Australian Coal Limited. The basis of takeover was that Centennial would give 10 shares for every 37 shares in Australian Coal Limited. At that time, there were 263,463,465 issued shares and 40 million convertible notes in Australian Coal Limited.
Thus, the takeover procedure was in full swing. On 24 April 2005, Centennial finally acquired 82.4 per cent shares in Australian Coal Limited.
The first and the second applicants were Glencore International AG (‘Glencore’) and Fornax Investments Limited (‘Fornax’) respectively.
Glencore is an investor and an international supplier of commodities and raw materials. Fornax is a wholly owned subsidiary of Glencore.
Glencore and Fornax together owned 4.88 per cent of the shares. Glencore further went on to acquire more share in order to hold 4.99 per cent of the shares in Australian Coal Limited.
The issue in the proceeding arise out cash settled equity swaps entered into by Glencore with Credit Suisse First Boston International (‘CSFB’) and ABN Amro Bank NV (‘ABN Amro’).
CSFB and ABN Amro acquired shares in the Company under the swaps. CSFB had a deal with Glencore with arranging swap exposure. The value of the swap exposure was never greater than the size of CSFB’s physical holding in the Company
The Panel found out that Glencore had breached section 671B of the act whereby a company with a relevant interest in 5% or more ownership of the shares of a listed company must be disclosed.
If Glencore would have disclosed its position, Centennial’s bid would not have been successful so early and there would be higher chances for a greater consideration. Thus, the Panel to pay $1,320,280. The estimate of the amount could be summarized as the fact that Glencore and the two banks an acquired 19,705,669 shares in the Company at a saving of $0.067 per share, which amounts to a total of $1,320,280.
However, the court found out that the reasons given by the panel to support its jurisdiction were not proper and the panel had misinterpreted the term “Substantial interest” as per section 657A. As per the section Substantial interest referred to an interest in the company’s shares that could impact the ownership and control of the company. Glencore did not have shares that amounted to it having a control over the company.
Thus, on 14 September 2005, the Court ordered that
▪ • the declaration made by the Takeovers Panel be revoked;
▪ • the orders made by the Takeovers Panel on 25 July 2005 be revoked
Conclusion
I consider that the Panel made a mistake in concluding that the relationship between Glencore and the two banks by way of swaps should be taken into account in determining whether Glencore had acquired substantial interest in the company. I also feel that the Panel should not have fined Glencore for not disclosing the portion of ownership during the Non-disclosure period. The very fact that the period is known as Non-disclosing period means that the company does not need to disclose during information during this time period. With regard to those conclusions, it seems that the Declaration nor the Orders were viable.