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As with many association cases, the Takeovers Panel's decision in the Affinity Education matter show the degree to which the Panel is able to draw a range of inferences from the conduct of parties in the period preceding and during the course of Panel proceedings.
In early July 2015, G8 Education (G8) announced an intention to make a scrip takeover bid (at an implied value of $0.703 per share) for Affinity Education (Affinity) following the acquisition of a pre bid stake of approximately 19.89%. Shortly following G8’s intention announcement, three different parties, West Bridge (4.88%), Taxonomy (4.45%) and JB Super (0.04%) also started to build stakes in Affinity. When the bid was made, the chair of G8 was Jenny Hutson.
The bidder’s statement for G8’s scrip bid was issued on 30 July 2015 and a supplementary bidder’s statement was lodged on 3 August 2015 which increased the scrip consideration offered under the takeover bid (to an implied value of $0.80 per share), freed the offer from all conditions and announced that the scrip bid was final and would not be increased unless required by law. In addition, G8 announced an on market cash offer for G8 shares at $0.80 per share.
The scrip off market bid was open for acceptance on 21 August 2015 and the offer period for the on market bid was from 26 August 2015.
On 3 August 2015, the Affinity board had announced that shareholders should take no action until they had received the target’s statement and that Affinity was in discussions with an interested third party.
Before market open on 24 August 2015, Affinity lodged its target’s statement with a reject recommendation for both G8 bids. Shortly following that, G8 released its substantial holder notice indicating that it had acquired relevant interests in a further 4.58% of Affinity shares through acceptance of the scrip bid (which included acceptances from Taxonomy and JB Super). This gave G8 a relevant interest in 24.48% of the Affinity shares.
Later that day, Affinity announced that it had entered into a conditional heads of agreement with Anchorage Capital Partners pursuant to which Anchorage would acquire the assets and business of Affinity and that there would be a resulting capital return to Affinity shareholders of $0.90 per share.
Affinity sought a declaration of unacceptable circumstances from the Takeovers Panel in connection with, amongst other things, the acceptance of the scrip bid by Taxonomy and JB Super and the non-disclosure of the association between G8 and Taxonomy, JB Super and West Bridge.
The Panel commenced proceedings and ultimately decided that G8 was associated with each of Taxonomy, JB Super and West Bridge and that this had resulted in unacceptable circumstances as there were contraventions of Chapters 6 and 6C of the Corporations Act, the acquisition of control over Affinity shares did not take place in an efficient competitive and informed market and because Affinity shareholders had not been given sufficient information to assess the merits of G8’s scrip bid.
The Panel found that there were structural, commercial and, in the case of JB Super, familial connections between each party and G8 and that Taxonomy and JB Super had acted in an uncommercial manner in preferring the commercial interest of G8 to their own. The Panel found that each of Taxonomy, West Bridge and JB Super (on the one hand) and G8 (on the other) had a relevant agreement (or alternatively were acting in concert) in connection with the acquisition of Affinity shares and acceptance of the scrip bid and were therefore associates.
Relevant circumstances that the Panel took into account in reaching this conclusion included:
Taxonomy declined to become a party to the proceedings until the Panel’s investigation of the facts was largely complete. In addition, a number of parties (or their advisers) either provided no responses to questions asked of them or provided inadequate answers to material questions. The Panel inferred that where a party (or adviser) did not provide an explanation or gave an inadequate explanation, although relevant information was readily available to them, the reason for doing so was that the answer would not have helped their position.
The orders made by the Panel included:
With Panel consent, West Bridge was allowed to dispose of its Affinity shares in controlled circumstances while the Panel proceedings were on foot.
This matter is a good example of the pragmatic approach that is open to the Panel when considering association matters. The Panel had no hesitation in drawing inferences from facts that were informed by practical experience and common sense. It was not prevented from doing so by parties who were concerned about adverse findings refraining from being involved in the proceedings or giving incomplete or inadequate submissions and responses to the Panel.
This article was written by Tony Damian, Partner, Sydney and Nicole Backhouse, Executive Counsel, Sydney.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
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