The Takeovers Panel (Panel) has arguably extended its policy on frustrating action with its decision in the matter of MacarthurCook Limited [2008] ATP 20. In that matter, the Panel considered that aspects of a 'strategic alliance' (whereby MacarthurCook Limited (MacarthurCook) placed 3.45 million MacarthurCook shares with IOOF Holdings Limited (IOOF) at $1.15 per share) gave rise to unacceptable circumstances.

In particular, despite the fact that MacarthurCook and IOOF had been in discussions for some months before AMP Capital Investors Limited (AMP) made a conditional, indicative, non-binding proposal to make a takeover bid (AMP Proposal), the Panel considered the placement (which had not been approved by MacarthurCook's shareholders) constituted frustrating action with respect to the AMP Proposal.

Guidance Note 12 sets out the Panel's policy in this area. It provides that where corporate action is likely to frustrate or prevent a genuine potential offer, the Panel will generally require shareholder approval for that transaction to be taken.

A genuine potential offer is an offer, the terms of which are communicated to target directors publicly or privately by a genuine bidder but is not yet a formal offer under Chapter 6 of the Corporations Act.

Of particular concern to the Panel in the context of the strategic alliance was that:

  • The placement gave IOOF approximately 12.98% (fully diluted) of MacarthurCook, making a full takeover impossible without IOOF's support.

  • IOOF could not dispose of the shares under the placement for 24 months (except where a takeover or scheme of arrangement was recommended by the MacarthurCook board or a third party acquired more than 50% of the voting rights in MacarthurCook).

  • The placement expanded the capital base of MacarthurCook (at a substantial discount to AMP's proposed offer price of $1.35), making the total consideration required to succeed in a takeover greater than before the placement.

Collectively, these aspects of the strategic alliance constituted frustrating action. Accordingly, the Panel ordered that MacarthurCook seek shareholder approval and, in the absence of such approval, cancellation of the placement agreements and the issued shares.

Some commentators have suggested that the Panel's decision extends the operation of the frustrating action concept, and provides a bidder with the ability to constrain a possible target from undertaking material transactions where the bidder has no obligation to make a bid for the target.

While time will tell whether the use of non-binding, indicative proposals by a prospective bidder to 'tie up' a target and prevent it from pursuing material transactions become commonplace, the premise underlying the Panel's policy remains unchanged: decisions about control and ownership of a company should properly be the preserve of the shareholders. Accordingly, directors of a target should proceed with caution when considering action that has the potential to frustrate an offer.

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