Ann: Suspension from Official Quotation, page-143

About Legal Matters .......

Kmtw@, You are right.

The Act reffers only to a bidder doing pre-bid acquisition of shares. That is, before declaring a bid to ASIC.

There are no articles that say something about insider trading when a bidder have confidential informations but has already declared a takeover.


This is only common sens because Taking over a company is not trading.

When a company buy shares of another company on market or off market, this company is trading.
And this is prohibited if they have confidential informations.
(In fact they all do it and nobody object when a takeover is going to happen in the futur).

Insider trading rules are there to avoid any market participant to take advantage of secret informations to buy at low price (ie : to steal money from others).
This create an inequality between shareholders.

During a declared takeover, the situation is exactly the opposite.
All shareholders have the same information. They all know that a bidder want to buy at X price.

=> no inequality created between shareholders.

Try to find a single exemple of a takeover that was opposed by ASIC or the Takeover Pannel on the ground that the bidder had confidential informations.

There is none.
Not in Australia and not in any other jurisdiction.

But there are many examples where a partner of a joint venture (who has all confidential informations) did buy the other partner of this joint venture.

So yes, WD can buy 4DS without waiting for the technical datas to be released to the market.

(In fact, many of us believe that those technical datas will never ever be made public).


One caveat here.

A takeover can create a situation of inequality when a bidder has more informations than other potential bidders.

But there is an article of the Act that provide a solution for this.

The BoD of the target company can tip any other potential bidder (considered a "white knight") and share confidential informations with him, when they consider the first takeover bid to be hostile and unfair.
The Act provide an explicite exemption to insider trading prohibition in this case.



About the BoD power to block a takeover...

When I am at it, another poster said that there is an article of 4DS constitution that gives the BoD the power to refuse a takeover.

This is not true.

There is an item of the constitution that was introduced (and has to be renewed every 3 years) to prevent partial takeovers. Partial takeover bid are a form of takeover where the bidder offer to buy only a fraction of every shareholder holding. For example 26% or 51%.
This kind of takeover is dangerous because if a bidder buy only part of the shares, the remaining part will lost value
because, most probably, no other bidder will want to buy the company after that.

This item about partial takeover doesn't give power to the BoD to refuse this partial takeover.
It just says that the board can call for a vote of shareholders to decide if they agree or refuse this partial takeover.

In any circumstances, the shareholders vote will prevail.


This is important because it help to explain Patience position concerning the final takeover price.

This price will not be dictated by the potential of the technology, but by shareholders decision at the time of the takeover.

If 90% of them agree to sell at $ 0,45, The company will be sold for this amount of money.

Of course, the BoD could advise shareholders not to accept this takeover (avoid sending an acceptance letter)
But it will be for shareholders to decide. Always.



OK. This is what the law says.

But it's only the theory. The board has some other very powerfull tools to block a takeover.

My personnal opinion is that an hostile takeover will never occur.
The BoD will negociate with a choosen bidder.

Why ?

Because if someone buy 4DS, he will only own all granted and pending patents.

But the technology is not all in the patents.

80% of technological companies like WD use patents AND fabrication secrets (see WD SEC filings).

If you buy the company against the will of the board, you will own the patents, but the trade or fabrication secrets will remain in the head of the scientists at the board.
Trade or fabrication secrets can be licensed but you have to make a deal with those who control those secrets, and they are not the ouside shareholders.


For years I wondered how the board could control the company with less of 10% of the shares.
Theoricaly, anyone could buy 19,9% on market - with pocket money - and ask for a position at the board

This never happened. Why ?

Simple : Trade or fabrication secrets.
The most valuable part of the company is in the Directors and Executives head.


So, in a sens, YES, the board can block a takeover.
But not on a legal basis.



About the way to escape a WD Diktat..

This takes us to another question.

As WD can use for free all that as been discovered under the JDA (see the JDA information in the 2015 prospectus), WD knows and can use all trade secrets developped since 2013.

So, for WD, there are only two incentives to buy 4DS :

1 - Having access to patents and trade secrets no developped under the JDA (patents 1 to 8 granted before 2013). But we know that the JDA will allow WD to access thoses patents at low cost (see 2015 Prospectus), so not a very strong incentive.

2 - Avoiding any competitor to access the technology (securing exclusivity).
This is more serious. But if WD wanted to develop a new memory based on 4DS technology, they had all the time to test it and take it to production level in their own labs. That means that they are already two years ahead of any competitor discovering the same technology (again not sure that WD chose 4DS technology).

All in all, there are some incentive to buy 4DS, but not very strong, imo.
Not to spend billions ont it.
$ 0,45 seems a good price to secure exclusivity on a technology they already know everything about.

A competitor could pay more for a non exclusive technology, but they will have to spend months on due diligence to understand all the pro and con of the tech.
This is the direct consequences of the JDA with WD that prevented 4DS to keep every contenders informed of their progress.
So, If WD shoot first, other potential bidders will probably not move (imo).



But what if - and this is only a positively biaised speculation - what if WD doesn't know everything ?

We know that they have their eyes at Imec. So nothing developped there would be hidden to them.

But what if 4DS scientists managed to make some other experiments at some other research facility ?

Stanford University for example.

They can come back at Imec with a recipe for a major progress.
But strangely, it doesn't work.
And they - the 4DS scientists - know a way to make it work.

They can now use this missing technical link as a strong incentive to push WD to make a serious offer.

Of course it will be a breach of the JDA, but how to prove it ?
It is just a trade secret in the head of the six employees at 4DS Inc. Fremont Cal.

WD could end the JDA, but at this stage they will probably lose more than 4DS. Critical juncture if any...

So, maybe the power of secrecy can cut both ways after all.



No financial advice.

Good luck to all.