This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less. 

In this Edition, we consider the TPG/Vodafone merger’s green light, scheme structuring, final orders in the Energy Resources takeovers decision, crypto-currency regulation and Lazard’s investor activism report.

YOUR KEY BOARDROOM BRIEF

Court overrules ACCC's decision to block TPG/vodafone merger. Last week, the Federal Court gave TPG and Vodafone the green light to merge. TPG's challenge was based on whether the ACCC, in refusing the $15 billion merger, was permitted to make assumptions about future market structures without considering potential competitors; giving rise to potentially significant consequences for the way legal tests are applied to transactions involving dynamic and fast-moving markets. The court considered there was no legal basis to block the deal. The ACCC has 28 days to lodge an appeal. While the decision has been portrayed as a blow to the regulator, Directors considering merger transactions should note that it is unlikely to diminish the ACCC’s willingness to test the boundaries of merger law in Australia. See also the ACCC’s media release.

Separate schemes avoid the need for inter-conditional resolutions. The Supreme Court of New South Wales approved a take-private scheme of arrangement between Webster Limited and its ordinary shareholders that avoided the need for the scheme to be approved by each separate class of shareholder. The scheme was proposed to the ordinary Webster shareholders, while a separate scheme was concurrently proposed to the only other class of shareholders, the preference shareholders. The ‘preference scheme’ was rejected when put to the preference shareholder vote, while the ‘ordinary scheme’ was approved by the requisite statutory majorities of ordinary shareholders. The implementation of the ordinary scheme was not conditional on the acceptance of the preference scheme – this meant following implementation of the ordinary scheme, the preference shareholders would be left vulnerable to compulsory acquisition. If the deal had been organised as a single scheme, the guidance in ASIC Regulatory Guide 60 would have required that the scheme be made conditional on the approval of each class of shareholders separately – which would effectively have allowed the preferential shareholders to veto the scheme, despite holding only 0.01% of issued capital. The court considered; (i) RG 60 was irrelevant because the deal was not structured as a single scheme with separate classes; and (ii) approval of the two schemes did not need to be inter-conditional.  The Court drew heavily on the fact that ASIC had provided a letter of no objection in relation to the ordinary scheme.

Energy Resources – final orders. The Review Panel has affirmed the initial decision of the Takeovers Panel in Energy Resources of Australia Limited [2019] ATP 25 to make a declaration of unacceptable circumstances. The case concerned an entitlement offer to be undertaken by ERA and underwritten by a wholly owned subsidiary of Rio Tinto. The Review Panel varied the orders to require Rio Tinto to form intentions regarding compulsory acquisition and ERA to disclose them to its shareholders, with 15 business days added to the entitlement offer timetable.

Crypto-currency regulation. IOSCO has published a report detailing the risks and issues associated with crypto-asset trading platforms as well as key considerations to assist regulators better manage these issues. Directors or companies dealing with crypto-currency assets or considering ICOs to raise funds should be aware of regulatory scrutiny in this area. In its Corporate Plan 2019-23, ASIC flagged crypto-assets and emerging digital threats as a continuing focus area for surveillance.

Activism. Lazard has released its 2019 global review of investor activism, with a number of themes likely to resonate with Directors of Australian companies. These include the increasing prevalence of M&A themes as the focus of activist campaigns and the growth of ESG as an investment criteria. A copy of the report can be obtained here.

THE WEEK AHEAD

Australian economy optimism. Better than expected company profit results, a recovery in consumer sentiment, resurgent property prices in capital cities and another record sharemarket high are backing the RBA's optimistic view on the economy. Growth expectations among market economists however remain subdued while coronavirus and bushfires continue to loom over the economy and rattle investors, with the RBA having already shaved its growth forecasts for Q4 2019 and Q1 2020 to account for the bushfire emergency.

Coronavirus. Directors of companies exposed to trade with China should be alert for potential issues under ASX Listing Rule 3.1 (continuous disclosure) given the extension of the Australian travel ban and continued strict quarantine requirements in mainland China. You can monitor daily developments here.  Several listed companies with direct exposure to China have already provided update earnings guidance to ASX. However in the coming weeks knock-on effects may become evident, including activation of force majeure provisions in key contracts.