Observations on ASIC’s latest corporate finance update in Australia

ASIC’s latest Corporate Finance Update comments on recent public M&A activity, novel relief applications and areas of concern or focus for ASIC. In this article, we set out some observations relevant to M&A practice in Australia.

In brief

• While the volume of M&A deals in the period January to June 2023 was down compared to the previous 6-month period, the aggregate deal value was up 76% ($14.93 billion compared to $8.48 billion).
• ASIC’s crackdown on greenwashing continues, with ASIC having commenced its second and third court actions for alleged greenwashing conduct.
• ASIC issues several timely reminders to market participants, including a reminder that all relevant working papers and records in connection with the preparation of an independent expert report (including the independence of the expert) may be subject to review by ASIC.

M&A activity

ASIC has reported:

• In the period 1 January to June 2023, there were 23 control transactions, comprising 11 takeover bids and 12 schemes, with a total estimated deal value of $14.93 billion.
• This is fewer transactions compared to the 34 transactions in the previous period (July to December 2022).

The number of public M&A deals tapered while there was a fairly large upswing in the total deal value (a 76% increase) compared to the previous period. ASIC observes that this represents an average transaction value of $649 million (compared to $249 million in the previous period).

A few regulatory reminders

Combining the 3% creep exception with other exceptions

ASIC has reminded a securityholder that the 3% creep exception (contained in item 9 of section 611 of the Corporations Act 2001 (Cth) (Corporations Act)) is not to be used in conjunction with other exceptions in section 611.

The 3% creep exception exempts a person from the 20% prohibition in section 606 if:

• throughout the six months before the acquisition that person, or any other person, has had voting power in the company of at least 19%; and
• as a result of the acquisition, none of those persons would have voting power in the company more than 3% higher than they had six months before the acquisition.

Practically, this means that security holders who have increased their relevant interest by more than 3% in reliance on a different exception in section 611, must wait six months from the date of the acquisition before they can rely on the 3% creep exception.

Independent expert reports

ASIC recently observed a scheme where the scheme implementation deed included a clause requiring the target to provide the bidder with successive drafts of the independent expert’s report (IER) to enable the bidder to review the factual accuracy of the IER.

ASIC has reiterated that communications and interactions between the expert, the commissioning party and any other interested party can potentially compromise the independence of the expert, and that targets and bidders should be mindful when including and relying on these types of clauses – such clauses should be for ‘fact-checking’ purposes only.

ASIC has also reminded targets and bidders that all relevant working papers and records in connection with the preparation of an IER (including the independence of the expert) may be subject to review by ASIC.

Relief granted in connection with UBS Group AG’s acquisition of Credit Suisse AG

ASIC has reported the outcome of applications for relief from the requirements of Chapter 6 of the Corporations Act in the second half of FY23. Of the 49 applications received, 34 applications were approved, 0 were refused and 15 were withdrawn.

Notably, ASIC granted relief in connection with UBS Group AG’s (UBS) acquisition of Credit Suisse AG (Credit Suisse) through a merger agreement governed by the laws of Switzerland (Merger). ASIC reported that UBS and Credit Suisse had deemed relevant interests in securities of various ASX-listed entities through their controlled entities and related bodies corporate. Under the Merger, UBS acquired an anticipatory relevant interest in the securities, and the relevant interests, of Credit Suisse. Without relief, UBS or Credit Suisse may have contravened section 606 of the Corporations Act and would have been required to aggregate the relevant interests in substantial holding notices.

To facilitate the Merger, ASIC granted a temporary exemption from section 606 and temporary ancillary relief from section 671B. ASIC has reiterated that this is a ‘novel’ case and that relief of this nature will only be granted in ‘limited and select circumstances’.

Enforcement focus: greenwashing

After launching two civil penalty proceedings in the Federal Court for greenwashing conduct within a month, ASIC reports that this conduct is a clear focus for its enforcement division.

In the first action, ASIC alleges that investors in one of Vanguard Investments’ ESG-marketed index-funds were exposed to investments tied to fossil fuels due to inadequate research by the product issuer, and contrary to how the fund was marketed to investors.

Similarly, in the second action, ASIC alleges that Active Super exposed its members to investments that it claimed to restrict or eliminate (including gambling and tobacco).

ASIC has reminded issuers and advisers to carefully consider whether statements made when offering or promoting sustainability-related products are made on reasonable grounds (directing them to ASIC’s guidance set out in Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products).