12.4 Options and other convertible securities
Many ASX-listed Australian companies have employee incentive plans which involve the granting of share options or rights to executives. A person seeking to acquire ownership of all of a company’s shares should make arrangements to acquire, or have cancelled, any options, rights and other securities convertible into shares. This is to avoid the highly undesirable situation where a bidder has acquired 100% of the company’s shares but there remain options or rights on issue which, if exercised, would result in the issue of shares to the options or rights holders and the bidder ceasing to own 100% of the company. This is an issue because in that situation the company’s directors would need to take into the account the interests of the minority shareholders, and the company would be subject to the related
party transactions restrictions in the Corporations Act. Furthermore, the exercise of the options or rights may, depending on the circumstances, cause the target to exit the bidder’s Australian tax consolidated group.
12. Other takeovers issues
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The common methods for acquiring or cancelling options and rights (and other convertible securities) are as follows:
- if the control transaction proceeds via a takeover bid:
- the bidder making a simultaneous takeover bid
for each class of convertible securities; or
- the bidder entering into contractual arrangements with each convertible securityholder and the target under which
the convertible securities are to be transferred
to the bidder or cancelled if the bidder obtains a relevant interest in more than 50% of the target’s shares and the bid is unconditional; and
- if the control transaction proceeds via a scheme of arrangement:
- the bidder proposing a simultaneous scheme of arrangement for each class of convertible securities; or
- the bidder entering into contractual arrangements with each convertible securityholder and the target under which the convertible securities are to be transferred to the bidder or cancelled if the scheme becomes effective.
To avoid any collateral benefit or unequal treatment issues,
the consideration provided for the acquisition or cancellation of convertible securities should be no greater than market value. For this purpose it is usual to undertake a Black-Scholes or other valuation of the convertible securities.
An alternative method of eliminating convertible securities is to compulsorily acquire them. In general terms, a person can compulsorily acquire a company’s convertible securities if the person’s voting power in the company is at least 90% and the person beneficially owns at least 90% by value of all the shares and convertible securities in the company. The consideration payable is normally the fair market value of the convertible securities.
whew!!!
so a warning sign would be anglo converting their options when they are out of the money and then takeover with options worthless to us and we are screwed again?
just thinking ahead?
