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Schemes of arrangement, page-9

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scrabble1

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16/04/18

14:36

Post #: 32483413
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Originally posted by defabs ↑

Hi All,

I’ve had a look at regulatory guide 60 on
ASIC website, which gives their view on how a scheme should be drawn up.

http://download.asic.gov.au/media/1239045/rg60-published-22-september-2011.pdf

I’ve read through it and noted on pg14 “lock
Up devices”

Lock-up devices
In deciding whether a break fee or other lock-up device in a scheme is appropriate, we will need to be satisfied that the device is not anti-competitive or coercive.
To determine this we will take into account the matters considered in the Takeovers Panel Guidance Note 7: Lock-up devices.

http://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=guidance_notes/current/007.htm#P78_7536

I’ve gone to Takeover Panel Guidancd Note 7: Lock up devices and it makes extremely interesting reading:

Ive bolder areas which may warrant looking into further...

Devices generally

Lock-up devices are not unacceptable as such. They may help secure a proposal4 by protecting against costs (opportunity and expended) that would not be recoverable if the transaction did not complete. They may reduce the bidder's risk that the target will not complete the proposal. However, they may also deter rival bidders.

Whether any lock-up device gives rise to unacceptable circumstances will depend on its effect or likely effect, having regard to s602 and s657A.5 The Panel will look at the effect or likely effect of the device on:

competition involving current or potential bidders, and whether it is significant and

shareholders and whether they may be substantially coerced into accepting the bid (ie, the tendency to diminish the value of the company if shareholders do not accept).6

The Panel looks at the substance of the lock-up device over its form.

Agreements

Restriction agreements restrict the ability of the target (or shareholder) to act. The possible effect of one or more restrictions in a restriction agreement may be anti-competitive and give rise to unacceptable circumstances.

Restriction agreements may be coupled with notification obligations15 or matching rights. 16 These may increase the anti-competitive effect.

A notification obligation reduces the likelihood that a competing bidder will want to make an approach, and may even act as a restriction agreement in its own right. It must be limited and reasonable in the circumstances. It may be subject to a 'fiduciary' out so that details of the competing proposal need not be passed on. Limiting the disclosure reduces the anti-competitive effect. If it is simply the fact of an approach that is passed on, there may be little increase in effect.

Notification may also be coupled with a matching right. A matching right will be less anti-competitive if the competing bidder has a reasonable opportunity after the original bidder has matched its bid to increase its offer. A matching right will be more anti-competitive if the matching right includes an obligation to provide the original bidder with details of negotiations with the subsequent potential bidder.

Restriction agreements may have a less anti-competitive effect if coupled with a window-shop provision,17 go-shop provision18 or market-check provision.19 Such provisions should allow a reasonable period to 'shop' the target. They should not unreasonably constrain any 'fiduciary' out that might be coupled to a particular restriction.

In considering whether unacceptable circumstances arise, the Panel also considers the potential benefits to target shareholders of the agreement and the reasons why target directors are satisfied of the commercial and competitive benefits to shareholders of entering the agreement.

Types of restrictions
No-Shop restriction

A no-shop restriction prevents the soliciting of alternatives, usually during a defined period of exclusivity. The longer the period the more anti-competitive is the effect of the restriction. Normally the period would not extend into the bid period but it may do so if justifiable having regard to the advantages the agreement offers target shareholders.

While a simple no-shop restriction does not prevent the target (or shareholder) dealing with unsolicited approaches (and therefore if it is limited and reasonable may not require a 'fiduciary' out), it is sometimes coupled with a notification obligation. This increases the anti-competitive effect (which may be reduced by limiting the information required to be passed on).

Whereas a limited and reasonable no-shop restriction generally does not require a 'fiduciary' out, being less anti-competitive than a no-talk restriction, the Panel is likely to treat it like a no-talk restriction if, for example:

the wording does not clearly permit the target to respond to an alternative proposal or enquiry or

it is coupled with a notification obligation to inform the original bidder of subsequent approaches that is too extensive (eg, requires all the details of the negotiations and does not have a 'fiduciary' out).

No-due-diligence restriction

A no-due-diligence restriction prevents a target passing information to a potential competing bidder as part of due diligence without the consent of the original bidder. Its anti-competitive effect is similar to a no-talk restriction.

It might also incorporate a notification obligation, which may increase the anti-competitive effect.

Safeguards (including 'fiduciary' outs) applicable to no-talk restrictions apply similarly to no-due-diligence restrictions and like restrictions affecting dealings with potential rival bidders.

No-talk restriction

A no-talk restriction prevents a target negotiating with any potential competing bidder. It might be graduated from the least restrictive form (allowing negotiations if the approach was unsolicited) to the most restrictive form (no negotiations, even if the approach was unsolicited).

A no-talk restriction is more anti-competitive than a no-shop restriction. Therefore the safeguards need to be more stringent.

In the absence of an effective 'fiduciary' out, a no-talk restriction is likely to give rise to unacceptable circumstances. Even with a 'fiduciary' out, the period of restraint must be limited and reasonable.20However, generally a no-talk restriction subject to a 'fiduciary' out will have little practical effect following announcement of the bid, even if the restraint extends into that period.

A no-talk restriction (with a 'fiduciary' out) is less likely to give rise to unacceptable circumstances if the target has conducted an effective auction process before agreeing to it.

No-talk restrictions are sometimes coupled with a notification obligation in respect of potential competing proposals. This may increase the anti-competitive effect.

Expand

Hi all,

I've looked at the below case. I have highlighted relevant excerpts. My comments are at the bottom also.

Cheers
Ausdoc Group Ltd
[2002] ATP 9 at [43]

Exclusivity

18. The Panel also considered the exclusivity arrangements contained in the Deed and invited parties to make submissions on those arrangements. The exclusivity arrangements in the Deed prevented Ausdoc from encouraging, soliciting or inviting bids in relation to Ausdoc until 18 June 2002, or where ABN AMRO made a takeover bid for Ausdoc (as it has done), until the end of ABN AMRO's bid period. Further, Ausdoc is not permitted to respond to any unsolicited offer, statement of intention or expression of interest in relation to the sale of Ausdoc during the same period unless failing to respond would constitute a breach of the directors' fiduciary or statutory obligations or would otherwise be unlawful. If Ausdoc does respond to a rival offer, it is required immediately to disclose to ABN AMRO the details of that rival offer (Disclosure Obligation).
19. The exclusivity arrangements, including the Disclosure Obligation, are subject to a fiduciary carve out where complying with them would constitute a breach of the directors' fiduciary or statutory obligations or would otherwise be unlawful.
20. The Panel was particularly interested in receiving submissions in relation to the Disclosure Obligation, and the length of the exclusivity period (i.e. the fact that it extended into ABN AMRO's bid period).

ASIC

Exclusivity

26. ASIC submitted that the Disclosure Obligation may deter a potential rival bidder from proposing or prosecuting a bid for Ausdoc, thereby impeding competition in the market for shares in Ausdoc. ASIC noted in support of its submission that paragraph 30 of the Guidance Note on Lock-up Devices states that procedural requirements may increase the anti-competitive effects of a no-talk agreement if they oblige the target to provide details of any discussions regarding an alternative proposal to the original bidder.

DISCUSSION
Exclusivity

49. We were initially concerned about the length of the exclusivity period. However, we are satisfied that the exclusivity period is reasonable given the fiduciary carve-out, and in light of the advantages offered to Ausdoc shareholders by Ausdoc having entered into the Deed, and the tender process which had been undertaken by Ausdoc.

50. In relation to the Disclosure Obligation, we considered whether, by restricting competition, it would prevent the acquisition of control over the shares in Ausdoc taking place in an efficient, competitive and informed market.

51. Our conclusion is that, since ABN AMRO has announced a bid, the fiduciary carve-out from the Disclosure Obligation is sufficient to prevent it fettering competition and thereby giving rise to unacceptable circumstances.
52. The Disclosure Obligation requires Ausdoc to advise the identity of the rival bidder, the details of the proposal put to it by the rival and the fact of having responded. However it need not disclose additional details, such as the subsequent course of negotiations, or due diligence information subsequently provided by a prospective merger partner.

AGO and MIN Deed:

My questions - Was there a tender/auction process conducted prior to the signing of the deed?

Is the below clause heavy handed given it seems all details must be provided to MIN even if a bid is not formalised?

10.5.c of the AGO/MIN deed says:
During the Exclusivity Period, Atlas must promptly provide MinRes with:
(i) in the case of written materials, a copy of; or
(ii) in any other case, a written statement of,
any non-public information relating to Atlas, its Related Bodies Corporate, or any of their businesses and operations made available or received by any person in connection with such person formulating, developing or finalising, or assisting in the formulation, development or finalisation of, a Competing Proposal and which has not previously been provided to any of MinRes, its Subsidiaries, or any of their respective Authorised Persons.
AGO Price at posting: 2.8¢ Sentiment: Buy Disclosure: Held
5 Upvote

1 Great analysis

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