Departing from ‘best and final’ statements: Takeovers Panel proposes updated guidance

The Takeovers Panel has proposed much needed new guidance on how long a bidder must wait before launching a new bid if its ‘best and final’ bid has been unsuccessful.

IN BRIEF

• Currently, truth-in-takeovers policy strictly prevents a bidder from improving or extending its bid once it has declared its bid ‘best and final’.
• The Takeovers Panel has proposed that a bidder must not come back with a new and improved offer within four months of its earlier unsuccessful bid.
• The proposal would resolve a longstanding uncertainty in Australia's takeover laws.

THE TRUTH-IN-TAKEOVERS POLICY

Under Australia's truth-in-takeovers policy, bidders are held to a statement that their bid is ‘best and final’. If the bidder's plan succeeds, target shareholders will be dissuaded from holding out for a better offer.

The rationale for this regime is to enhance market efficiency and allow participants to make better-informed decisions, knowing they can rely on these statements. Bidders also know their statements will be taken seriously by shareholders.

SO, WHAT IS THE PROBLEM?

It is clear that the policy prevents bidders from improving their bid.

However, if a bidder's plan fails and their bid closes unsuccessfully, it is not clear whether they can come back shortly afterwards and launch a new and improved bid. And launching a new bid may well breach the spirit, if not the current letter, of the truth-in-takeovers policy.

There have been many deals recently where this issue has arisen. Downer's bid for Spotless and CIMIC's bid for McMahon are two prominent examples. In each, the bidders aggressively tried to convince target shareholders to sell to them by declaring their bids "best and final".

The market and the media generally assume there is some sort of "blackout period" when the bidder can't return with a fresh offer. However, there has been no formal guidance on the existence – or duration – of such a period.

WHAT IS BEING PROPOSED?

The Panel has proposed that it would generally be unacceptable if a bidder comes back with a new and improved offer within four months of the unsuccessful conclusion of a "best and final" bid.

The announcement is particularly welcome to Herbert Smith Freehills, who has previously advocated for reform in this space.

The Panel is seeking comments on its proposal by 20 April 2018, including whether there should be any qualifications or other limitations.

Some issues to be addressed include:

• Should the restriction apply if there is some sort of material change to the target during the relevant four-month period, such that the new and old bids cannot really be compared on an apples-with-apples basis?
• Should the policy also apply to a prospective bidder if, after its preliminary approach becomes public, it states it does not intend to proceed with a transaction?

WHERE DOES THIS LEAVE US?

If adopted, the change would clarify how long a bidder must remain on the sidelines if it declares its bid "best and final" but is unsuccessful in taking over the target.

Given how prescriptive the rest of Australia's takeover regime is, it is surprising this aspect has taken so long to be resolved. Still, better late than never.

While some of these precise boundaries can be debated, it remains the case that – if adopted – this reform would enhance both the application of the truth-in-takeovers policy and market efficiency more broadly. Let's hope it gets through.

This article was first published in the Australian Financial Review