Shareholder intention statements
Corporate News - 30 June 2017
In light of recent commentary around a possible increase in M&A activity in the gold sector, clients should bear in mind that ASIC continues to discourage shareholder intention statements in control transactions, particularly where the statements represent more than 20% of a target company’s shares.
A shareholder intention statement typically involves a target company shareholder signing a statement that it intends to accept a proposed takeover offer, or vote in favour of a scheme of arrangement, in the absence of a superior offer being made within 21 days of the takeover offer opening or scheme being announced. Such statements provide comfort to a bidder that it has support for its control transaction. In friendly mergers, shareholder intention statements are often solicited by the target (or its broker).
The Takeovers Panel has shown it is prepared to declare unacceptable circumstances if a target shareholder acts contrary to its intention statement, based on its “Truth in Takeovers” policy, meaning intention statements can in effect be legally binding. For this reason, a bidder needs the consent of a target shareholder to disclose the existence of an intention statement given by the target shareholder.
ASIC policy on shareholder intention statements is set out in its submission to the Takeovers Panel consultation paper on Shareholder Intention Statements (which you can find here).
In essence, ASIC considers that the soliciting of shareholder intention statements, and obtaining consent to disclose those statements, can give rise to an association or relevant interest between the target shareholder and the party soliciting the statement. Where the statements represent more than 20% of the voting shares of a target company, this may result in a breach of the takeover prohibitions in the Corporations Act.
ASIC recently required a bidder to offer withdrawal rights for a takeover bid where shareholder intention statements were provided for more than 20% of the target’s shares. ASIC formed the view that the bidder indirectly solicited the intention statements despite the target and its broker being the point of contact with target shareholders and the bidder’s involvement being limited to providing an example shareholder intention statement to the target, being occasionally copied on the status of discussions with target shareholders and being asked to advise any concerns with the final wording of proposed intention statements.
We recommend that clients considering a control transaction, whether as bidder or target, seek our advice before taking any steps in relation to shareholder intention statements to avoid the potential for ASIC intervention.