Emailing documents in takeovers – law reform introduced to Australia

Proposed changes to Australia’s Corporations Act will facilitate bidders communicating with shareholders in takeovers by email and no longer having to rely on mail or couriers.

IN BRIEF

• Changes to the Corporations Act are proposed that will allow bidders to communicate with shareholders in takeovers by email.
• This is a big change to the current rules that requires bidders to rely on mail or couriers.
• If passed in its current form, the changes would require a target to provide the bidder with the email addresses of its shareholders (where they are available).

BACKGROUND

The COVID-19 pandemic (finally) put pressure on legislators to allow electronic execution and sending of documents, and the holding of virtual shareholder meetings. At first, these measures were temporary, but legislation was eventually passed in February to make many of these measures permanent.

One area that was not touched was takeovers practice. The general position remained that a bidder could not get hold of email addresses from the target and was still required to communicate by mail or by courier (for example, in the dispatch of a bidder’s statement). ASIC granted relief occasionally, but mainly for the target company (which held the email addresses).

This is about to change. The Treasury Laws Amendment (Modernising Business Communications) Bill 2022 was introduced on 23 November 2022. The Bill proposes the following:

1. the target will need to provide the bidder with both the postal and electronic addresses of shareholders (where known to the target);
2. the bidder can use the email addresses provided by the target for any purposes of the takeover or compulsory acquisition (and for no other purpose); and
3. a shareholder objecting to a compulsory acquisition can object to the procedure by sending an email.

While these changes might appear small, they will have interesting implications.

COMMENTS

It makes sense for shareholders to receive takeover documents in the same manner as they receive other shareholder communications. Shareholders typically elect how they wish to receive communications in relation to their shareholding. It seems strange to respect this election in some instances (such as for dispatch of notice of meetings) but not others, for example, in relation to takeover offers.

Electronic dispatch would also allow for bidder communications to keep up with the speed of takeovers. The speed and inexpensive nature of email is likely to result in increased bidder communication.

The implications of increased bidder communications are two-fold. It might help to produce better-informed shareholders. It may alternatively result in shareholders choosing to ‘switch off’ after having received too many emails.

Another benefit of email communications is saved resources. Takeover booklets can be long, often running to hundreds of pages. Saved time, cost and paper associated with printing is a clear advantage.

Not all shareholders have given email addresses to companies. We estimate that in many established companies no more than 60% of shareholders (by headcount) have given email addresses. This is increasing over time, but, until the law requires email addresses to be specified, there will always be some shareholders who can only be contacted by mail. Therefore, a lot of documents will still need to be sent by mail or courier. This might lead to bidders choosing to send some takeover communications (other than those strictly required by law such a bidder’s statement or notice of variation) only to the shareholders for whom they have email addresses and not to other shareholders.

Overall, the proposed reform will result in an increase in the amount of communications to shareholders – from the bidder and also from the target in response. That should lead to a better informed market.