YOUR KEY BOARDROOM BRIEF
Mergermarket reports on ESG impact on M&A decision-making. On 6 May 2019, Mergermarket, in association with IHS Markit, released a report – following a survey of private equity, asset management and corporate executives – underlining the rising importance of environmental, social and governance (ESG) concerns and the difficulty of assessing ESG factors at acquisition targets through a standard due diligence process. Key findings in the report include: (i) buyers tend to link ESG more with risk than opportunity; (ii) 90% conduct ESG due diligence on a promising target; (iii) climate change emerged as the top ESG priority followed by human rights and labour standards; and (iv) 53% anticipate ESG will become increasingly critical to M&A decision-making in the next 12 to 24 months. Directors should note the ESG investment landscape is evolving quickly and there is a notable trend towards companies with strong ESG profiles doing deals.
ACCC blocks TPG/Vodafone merger. The ACCC’s decision to block the $15 billion deal – seemingly driven by concerns about potential competition – may have significant consequences for the way legal tests are applied to transactions involving dynamic and fast-moving markets. The parties intend to challenge whether the ACCC’s approach forensically stands up to court scrutiny and Directors considering transactions involving the ACCC should monitor developments. Click here for G+T’s analysis.
RBA leaves cash rate at 1.5%. Contrary to speculation of a cut, last Tuesday’s meeting saw the RBA leave the cash rate unchanged. While low rates continue to support the Australian economy, downside risks are up, supporting financial market predictions of two rate cuts over the next 12 months. Household consumption – hampered by protracted low income growth and declining house prices – is the main domestic uncertainty. While the Australian labour market remains strong (the unemployment rate broadly steady at 5%), the March quarter inflation result came in noticeably flat. The RBA intends to monitor developments in the labour market closely, considering improvement in the labour market is key to inflation being consistent with the RBA's target. With increased infrastructure investment and a pick-up in resources sector activity, the RBA predicts the economy will grow by 2.75% in 2019/20. You can read the RBA’s Statement here.
Donaco – Takeovers Panel makes declaration of unacceptable circumstances. Last week, the Takeovers Panel made orders vesting the 9.71% shares in Donaco International Limited (Donaco) acquired by OCP. At the time of OCP’s on-market acquisition of this 9.71% shareholding, OCP had in place lending and security arrangements with Alpha pursuant to which bonds and options were secured over Donaco shares and in respect of which events of default were continuing and restructuring options were being explored. Subsequently, the security was enforced such that OCP obtained a relevant interest in the secured shares comprising 27.25% of Donaco. The Panel considered the circumstances of OCP’s on-market acquisition were unacceptable because the market was not aware OCP had a security interest in 27.25% of Donaco shares or that Alpha was in default and that OCP’s actions before it acquired a substantial interest in Donaco (namely, to transfer an option deed forming part of the lending arrangements and related options over Donaco shares) had the effect of avoiding disclosure of the situation. The Panel continues to flex its muscle when exercising its broad remedial powers under the Corporations Act, in line with the more interventionist approach of regulators across the corporate landscape.
ASX releases roadshow presentation on 4th Edition of ASX Recommendations. ASX’s roadshow – wrapping up this week – mapped out the key revisions to the ASX Recommendations (confirmed in February 2019).The 4th Edition only takes effect for an entity’s first full financial year commencing on or after 1 January 2020, but ASX has encouraged its earlier adoption. Directors should familiarise themselves with the 4th Edition and their companies should be workshopping what changes they will make to corporate governance practices. See ASX’s presentation slides here and its step-by-step guide for those wishing to transition now to the 4th Edition.
THE WEEK AHEAD
Election exhaustion. Business will be looking forward to the Federal election on Saturday not so much for the result but for clarity on a number of key macro-economic policy matters. That, of course, is subject to the Senate respecting the mandate of whatever Government is formed in the lower house. Speaking of which - at the time of writing the view of the betting markets is very clear, with Sportsbet offering $1.14 for an ALP victory versus $5.50 for the Coalition.
Government’s consultation on modern slavery law guidance closes on Sunday. The Government’s draft guidance is intended to assist entities (ie, those with over $100 million annual consolidated revenue including corporate Commonwealth entities and foreign entities carrying on business in Australia) to comply with the new modern slavery annual reporting requirement. The draft guidance: (i) clarifies some of the key terms and concepts in the law; (ii) provides practical tips on how to draft a Modern Slavery Statement (including how to address each of the mandatory reporting criteria and prepare joint statements); (iii) suggests ways for assessing the effectiveness of anti-slavery actions; and (iv) sets out indicators for identifying key modern slavery risks in supply chains. See G+T’s report “Eradicting Modern Slavery: How the new Modern Slavery Act affects your organisation” for more information.