November 10, 2009 Mandatory Rules in the Takeover Market, A Lesson from Down Under The UK-styled approach to takeover regulation relies heavily (although not exclusively) on brightline rules for delimiting what is permitted in the context of an offer and a response to an offer. The upside of this structure is that it leaves the decision whether to accept or reject an offer in the hands of the shareholders.
Contrast this approach with Delaware where the corporate code and the courts leave directors with a high degree of discretion whether to accept or reject offers. To the sometimes chagrin of academics (myself included) Delaware courts are loathe to set out brightline rules governing the takeover process. One of the selling points of the Delaware approach is that the fact-intensive approach allows for directors and courts reviewing directors actions to recognize that there may not be a one-size-fits-all solution and to take into account the specific issues in every case.
In Australia today we have an example why Delaware might be right to eschew many mandatory rules. Australia's Takeovers Panel is modeled on the UK Takeover Panel. EWC, a private Australian company in the process of going public, announced a bid for NewSat, publicly-traded Australian company. The details of the back-and-forth between the two companies can by found here care of The Brisbane Times newspaper. In any event, the talk of a take-over triggered a required Bidder's Statement to be filed by EWC. After some delay, EWC just filed its statement along with a surprising recommendation:
On behalf of the directors of EWC Payments Pty Ltd (EWC), I am pleased to enclose an offer by EWC to acquire all of your shares in NewSat Ltd (NewSat).
However, in light of unexpected action taken by the Commonwealth Bank AFTER the Takeover Offer was made, and which the Commonwealth Bank set aside prior to a Court Hearing, I very sadly recommend that your do NOT accept this offer from EWC ...
The details of the bidder's dispute with the Commonwealth Bank are laid out in Section 10.8 (or, reasons why you should not accept the offer I just made you). It's kind of odd. The offer itself is bookended with exhortations by the offerer for shareholders not to make the mistake of taking the offerer up on his own offer. For their part, management of NewSat called the offer a "sham" and dug the knife in a bit further:
While this is certainly a very good reason for NewSat shareholders to reject the EWC offer, there are many other equally good reasons...
This episode points out a shortcoming, though not disabling, of the mandatory rules approach to takeover regulation. When facts on the ground change such that it makes no sense for an offer to go forward, why should parties -- a reluctant seller and a now-incapable buyer --be forced to go forward with the offer once its clear to both sides that it's a bad idea. It seems an unnecessary expense at that point.
