03/02/2020

Welcome to Boardroom Brief.

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 M&A, ECM and private equity activity in Q4 2019, the Takeovers Panel decision in the Energy Resources case, and the Government’s consultations on stamping fee exemptions and Hayne Royal Commission related legislative proposals.

YOUR KEY BOARDROOM BRIEF

Takeovers Panel spotlight on proper conflict management.  In Energy Resources of Australia Limited [2019] ATP 25, the Panel considered an entitlement offer to be undertaken by ERA and underwritten by a wholly owned subsidiary of Rio Tinto.  The offer terms (which included a dispersion strategy) technically complied with the Panel’s guidance and ASIC had granted relief from Chapter 6 of the Corporations Act to enable ERA shareholders to participate in the shortfall facility even if by doing so the number of shares issued to them would result in the takeovers threshold under section 606 being exceeded.  Nevertheless, the Panel considered a declaration of unacceptable circumstances was appropriate because: (i) it could be inferred that Rio Tinto, with voting power in ERA of 68.39%, sought to consolidate control and acquire ERA without undertaking a formal takeover bid; (ii) ERA failed to manage conflicts of interest when considering the offer and underwriting agreement (ERA’s senior executives were Rio Tinto employees), with this failure compounded by the highly dilutive effect of the offer and Rio Tinto’s intention to proceed to compulsory acquisition; (iii) the terms of the underwriting agreement fettered the ERA board by prohibiting it from changing its funding strategy; (iv) ERA’s need for funds was less clear than in other entitlement offers where the Panel has allowed a highly dilutive entitlement offer with a control effect to proceed; and (v) the level of disclosure should have more closely reflected that required for a control transaction regulated by Chapter 6 of the Corporations Act.  The Panel’s original decision was the subject of a review application, with the Review Panel affirming the conclusion of unacceptable circumstances, while varying the orders made (the Review Panel’s reasons are yet to be released).  The decision highlights the need for target company Directors and senior management to consider appropriate conflict management protocols where a participating insider is in a position of influence when negotiating a transaction with potential control implications.

Review of stamping fee exemption.  Views are being sought on whether the current stamping fee exemption in relation to listed investment entities should be retained, removed or modified.  Stamping fees are an upfront one-off commission paid to Australian financial services licensees for their role in capital raisings associated with the initial public offerings of securities.  The Government is keen to ensure the interests of investors are protected and capital markets remain efficient and globally competitive.  Submissions can be made until 20 February 2020. See the Treasurer of Australia’s media release.  

Hayne Royal Commission legislative proposals.  Following the Government’s release last August of its Roadmap for implementing each of the Hayne Royal Commission’s 76 recommendations, the Government is consulting on exposure draft legislation in relation to measures to be introduced into Parliament mid-2020.  By the end of 2020, the Government intends to have implemented all legislation required to give effect to all of its commitments in relation to the Royal Commission’s recommendations.  Submissions can be made until 28 February 2020.

THE WEEK AHEAD

New chapter for the UK – Australia-UK trade deal closer to reality?  Last Friday marks a day of huge historic, symbolic and political significance, with most generally relieved that the UK is no longer trapped in interminable Brexit paralysis.  The transition period until 31 December for the UK's exit is functionally identical to the status quo – but already we’re seeing the UK identify itself as an independent global player with its call to allow Chinese giant Huawei into its 5G telecommunications network.  The end of the three-year Brexit carousel of chaos is also good news for Australian exporters and investors, with Australia at the front of the queue for landing a free trade deal with the UK in the coming months.

No more Appendix 3Bs.  Listed entities must now use the four new smart forms (accessible via ASX Online).

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