In Australia’s highly regulated and prescriptive takeover regime, it is strange that there is one important element where no-one actually knows what the rule is, writes Herbert Smith Freehills’ Simon Haddy.
In particular, it is not clear just how long – if at all – a bidder must remain on the sidelines if it declares its bid “best and final” but is not successful in taking over the target. It’s time for the law to provide some clarity.
CIMIC has been one of the most active participants in the takeovers world of recent times, having made bids for each of Devine, Sedgman, UGL and – most recently – McMahon.
CIMIC (formerly Leighton Holdings) received extensive coverage on its strategy of launching aggressive bids with minimal conditions and short end dates. One key part of its strategy has been to declare its bids 'best and final', and to publicly state that it will not voluntarily extend the bid period.
Under Australia’s truth-in-takeovers policy, bidders like CIMIC will be held to these statements, and – if their plan succeeds – target shareholders will be dissuaded from holding out for a better offer.
The truth-in-takeovers policy enhances market efficiency, as participants can make better informed decisions by knowing that they can rely on the bidder’s statement. Similarly, bidders have assurance that their statements will be taken seriously.
However, while bidders like CIMIC are clearly prevented from improving or extending their bid, there is no clear legal position on whether they can come back shortly afterwards and launch a brand new bid, on either the same or better terms.
In form, this would be a new offer to which the 'best and final statement' arguably might not apply.
However, in substance, the rapid commencement of a new bid would be inconsistent with the bidder’s earlier statements and with the objectives of the truth-in-takeovers policy.
Judging by the media, market commentators seem pretty sure that there is some sort of period when the bidder cannot return with a fresh offer, but there is no clear guidance on this. And even if there is such a no-fly zone, no-one is exactly sure how long it might last.
Every time a bidder makes a 'best and final' statement but doesn’t receive the anticipated flood of acceptances, there is feverish speculation about how soon the bidder could return with a new offer.
In addition to CIMIC’s bid for McMahon, we’ve seen this recently in relation to Dar Group’s statement ruling out a bid for WorleyParsons, and previously on high profile deals such as AMP’s bid for AXA and Airline Partners’ bid for Qantas, where bids were declared “final”.
If you crowd-sourced the answer from commentators and practitioners, you’d probably conclude that the bidder’s mandatory time on the bench is between four and six months. But such an economically significant matter should have the benefit of a more formal legal framework.
In the UK, for example, there is a specific rule providing a 12 month no-fly zone before bidders can come back for another shot.
Whether 12 months is the right duration for the Australian market is not the point – rather, once any particular time period is clearly articulated as part of the law, the market (as well as the bidder and target) will digest this and factor it into decision-making.
In the Australian context, both the application of the truth-in-takeovers policy and market efficiency more broadly would be enhanced if the Takeovers Panel or ASIC was to provide clear guidance on just how long a 'best and final' bidder should be required to remain on the sidelines after their initial bid lapses.
Simon Haddy is a Melbourne partner at Herbert Smith Freehills.