A non-binding memorandum of understanding (MOU) that:
- reflects an incomplete proposal or negotiation which remains confidential; or
- is not materially price sensitive,
will not be required to be announced in accordance with an entity’s continuous disclosure obligations under the ASX Listing Rules.
However, while there may be no legal obligation to disclose such MOUs, in practice, as a marketing and shareholder engagement exercise, many listed entities choose to disclose. In doing this, the entity hopes to demonstrate the existence of third party interest in the entity’s projects and the intention to negotiate and execute binding documentation.
When announcing the MOU, it can be commercially advantageous for the entity to refrain from naming the counterparty (for example, to preclude a competitor entity from seeking out a relationship with that counterparty) and they may also withhold the counterparty’s identity from disclosure on the basis that they are subject to confidentiality obligations, and/or the identity is not price sensitive information. Further, the base pricing parameters are sometimes withheld from disclosure, since they could provoke disruption by a competitor entity or prejudice ongoing or future negotiations.
Where ASX takes the view that the identity, and in turn the profile and creditworthiness of the counterparty, is potentially price sensitive, this has resulted in a halt or suspension by ASX if the company does not release a clarifying announcement revealing the identity of the counterparty, and sometimes other withheld details such as proposed pricing structures.
So while the MOU, in the first instance, may not require disclosure, ASX is likely to take the view that once the existence of the MOU is voluntarily disclosed by the company, all and any key details of the MOU should be disclosed. In this sense, by announcing the MOU, the entity waives the ability to partially rely on the exceptions to continuous disclosure for discrete information.
Companies are on notice – if you choose to disclose, be prepared to disclose every term…